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The concept of a Trust was first used in Anglo Saxon times and is an arrangement whereby property is transferred from one person (The Settlor) to another person or corporate body (The Trustee) to hold the property for the benefit of a specified list or class of persons (The Beneficiaries).

How is a Trust established?
Although a Trust can be created solely by verbal agreement it is normal for a written document to be prepared which evidences the creation of the Trust (the Trust Deed), setting out the terms and conditions upon which the Trust assets are held by the Trustees and outlines the rights of the Beneficiaries.

What can I put in my Trust?
Just about anything can go in Trust within reason but the more complex the asset the more expensive it becomes. Typically you can place your Pension, Protection and Education planning in Trust for very little cost and in some cases for free.

Who owns my policy after it has been assigned to a Trustee?
The practical advantages of a Trust are derived from the fact that a distinction is drawn between the formal or "legal" owner of property and the person who in reality has the use or benefit of the property - the "beneficial" owner. Thus for formal legal purposes the Trustee is recognised as the owner whereas the person who has the use or benefit of the property (the Beneficiaries) are protected by a body of legal rules which impose very strict duties on Trustees and the way in which they administer the Trust property.

But I am not comfortable with giving away the ownership of my assets.
It is possible for the Settlor to retain an interest in the Trust and, for example, to be an actual or potential beneficiary. However, in many jurisdictions this can have estate duty and tax disadvantages. Where the Settlor retains an interest directly or indirectly in Trust property it is important that the Trustees remain independent and exercise proper control over the Trust property. If the person who sets up the Trust continues to exercise control over the Trust assets this may render the Trust void. (Midland Bank v Wyatt 1995)

How can I trust the Trustee?
The law imposes strict obligations and rules on Trustees including a duty to account for any benefits the Trustee may have gained directly or indirectly from a Trust. This goes beyond fraudulent abuse of position by a Trustee. There is a basic rule that a Trustee may not derive any advantage directly or indirectly from a Trust unless expressly permitted by the Trust, for example, where he is a professional Trustee and the Trust provides specifically for a right to make reasonable charges for services. However, full disclosure of the basis and amount of charges is required. Accordingly, a professional Trustee who derives some other indirect commercial advantage that is not fully disclosed and approved will be acting in breach of Trust.

What is a Letter of Wishes?
When setting up a Discretionary Trust it is common for the Settlor to indicate their wishes in the form of a letter. The Letter of Wishes should preferably be sent to the Trustee one month after the Trust has been established. A Letter of Wishes can be used to at anytime by the Settlor to alter the manner in which the Trust property is to be administered.

Can a Protector be appointed for Trusts?
It is possible for a Protector to be appointed who exercises some degree of control over the Trust property. It may be unwise for the Protector to be given anything other than negative powers as this may mean that the Protector is considered to be a quasi-Trustee and negative consequences may result especially when the Protector is resident in a high tax country. Thus, for example, the Protector's powers should be limited to vetoing the decisions or actions of the Trustees rather than having power to force the Trustees to act in any particular way.

Is a trust very expensive?
Many believe that the costs of running a Trust are prohibitive. Most Life Companies have a range of Trusts which accept the transfer of policies. The establishment cost is in the region £250 with an annual running fee of £100 for a simple Trust. The more complex a Trust becomes naturally the more fees levied by the Trustee

Can the Trustee disobey a Trust document?
The most important rule relating to the duties of a Trustee is that requiring them to obey the directions in the Trust deed both with regard to the interests of the beneficiaries (i.e. who is entitled to what) and with regard to the administration of the Trust (managing the Trust property). Trustees are also subject to very strict standards as to the way in which their powers and discretions may be exercised.

What is the fiduciary relationship of Trustee?
Thus the law regards the special "fiduciary" relationship of a Trust as imposing stringent duties and liabilities on the person in whom confidence is placed - the Trustees - in order to prevent possible abuse of that confidence. A Trustee is therefore subject to the following rules:

Asset Protection - some examples
Trusts can also be an ideal vehicle for protecting private assets from:

Divorce
Rachel and Mark have recently sold their business and have £600,000 of Investment Capital. Although Inheritance Tax is an issue, Rachel has other concerns. Their concern is that, if their son, who is due to inherit their estate, is subsequently divorced from his wife then half of the wealth that Rachel and Mark have accumulated during their lifetimes shall be given to their then ex daughter-in-law.

A Trust could be an ideal solution in this instance, although their son can potentially benefit from the Trust, if he is divorced, whatever capital is invested in the Trust cannot be attacked in the divorce settlement.

Bankruptcy
Paul runs his own business and during the last 10 years has assets valued at £500,000 outside of the business. On his death his estate shall pass on to his son. Paul is concerned how the business will fare after his death. A Trust could be an ideal solution for Paul's assets in that, following his death, if his son subsequently becomes bankrupt then the assets would be protected from creditors whilst the son could remain as a beneficiary of the Trust. The Trust, if correctly drafted, could ensure Paul's son has use of the capital and income in accordance with Paul's wishes after his death.

Un-foreseeable Creditors and Long Term Care
Doug is retired and lives with his wife Gill. He has £450,000 of assets and although Inheritance Tax is an issue he has other worries. Doug is concerned that if following his death, Gill requires long-term care then his assets could dwindle away providing the care costs, thus reducing the amount his children shall eventually inherit.

A Trust could be a solution in that if Doug establishes a Trust during his lifetime in which he invests his liquid assets then if, following his death, Gill requires long term care the Trust assets cannot be regarded as hers for assessment purposes although she would remain a potential beneficiary.

Succession Planning - an example
Trusts, unlike 'wills', cannot usually be contested; therefore, clients can be sure that the beneficiaries of the Trust (which may include the client) will benefit in the proportion of the Trust assets that are intended.

Life Time Certainty
Nathan has decided that on his death he wishes to pass his entire estate to his best friend and partner. His assets include his house and cash totalling £200,000. On death, the transfer to the best friend would be within the nil rate band for Inheritance Tax and therefore it is pointless to create a Trust for tax purposes, as Inheritance Tax would not be due.

However, a Trust would be beneficial from the point of view of certainty of succession of funds in accordance with Nathan's wishes, if the family members' contest Nathan's will on his death. Although assets owned by Nathan personally outside of the Trust may be contested, if Nathan invested his cash or his property into a Trust then these could not be contested and therefore the asset would pass onto the best friend on death (subject to Nathan's children being financially independent).

This benefit also applies for clients who wish to change their wills in favour of other family members, but who fear that this may be contested on their death, or have estates in excess of the nil rate band and want some IHT planning.

Anonymity
There are a variety of legitimate reasons why someone would wish to preserve anonymity. Commercial anonymity may be desirable where negotiations for patents, trademarks, royalties or distribution rights are concerned. Financial anonymity may sometimes be considered desirable where knowledge of provisions made for beneficiaries could complicate new relationships.

Delaying the Receipt of Capital to Children and Issue
Ben is retired and wishes to leave his assets to his son and niece on death. As his total assets are less than the nil rate band for Inheritance Tax purposes there is no Inheritance Tax liability and therefore it is likely that a Trust would normally not be considered.

Ben, however, is concerned that after receiving his estate upon death, his son and niece may embark on a spending spree and waste the Inheritance.

A Trust could be ideal in these circumstances as Ben could instruct the Trustees that, following his death; payments are paid to his son and niece each year at their discretion. Alternatively, Ben could instruct the Trustees to defer payment to his son and niece until either an event takes place, for example marriage, or a certain age is attained.

Continuity of Ownership
Ricky owns shares in a new business. He may wish to diversify the ownership of the shares to his children and heirs. Under the new Capital Gains Tax regime any transfer of shares will result in Ricky loosing the period of Taper Relief he is entitled to for holding shares in a qualifying trading company and the Taper period will start again.

A Trust will allow beneficiaries interests to be varied without a transfer of shares and therefore no loss of Taper Relief.

Should I have a Trust?
In most cases it is financially prudent to structure your affairs utilising Trusts. If you have considered the benefits of Trusts in your financial planning but have still yet to take the next step - contact us. You may be entitled to a free Trust for the policy(s) you already hold.