A Trust is a legal arrangement for managing assets. There are different types of Trusts, and they are taxed differently.
In a Trust, assets are held and managed by one person or people (the trustee) to benefit another person or people (the beneficiary). The person providing the assets is called the settlor.
Different kinds of assets can be put in Trust, including:
- Cash
- Property
- Shares
- Land
Trusts are set up for several reasons, including:
- To control and protect family assets
- When a beneficiary is too young to handle their affairs
- When someone cannot handle their affairs because they’re incapacitated
- To pass on assets while a settlor is still alive
- To pass on assets when a settlor dies (a ‘will trust’)
- Under the rules of inheritance if someone dies without a will (in England and Wales)
Settlors
The settlor determines how the assets in a Trust should be used – this is usually referred to in a document called the ‘trust deed’.
The settlor can also benefit from the assets in a Trust – this is known as a ‘settlor-interested’ Trust and has special tax rules.
Trustees
The trustees are the legal owners of the assets held in a Trust. Their role is to:
- Deal with the assets according to the settlor’s wishes, as set out in the Trust deed or their will
- Manage the Trust on a day-to-day basis and pay any tax due
- Decide how to invest or use the Trust’s assets
If the trustees change, the Trust can continue, but there must always be at least one trustee.
Beneficiaries
There might be more than one beneficiary, like a whole family or defined group of people. They may benefit from:
- The income of a Trust only, for example from renting out a house held in a Trust
- The capital only, for example getting shares held in a Trust when they reach a certain age
- Both the income and capital of the Trust