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The Benefits of Setting up a Trust to protect your Assets for your Beneficiaries
Setting up a trust in England and Wales provides a flexible framework for managing and protecting assets against creditors, legal cases and financial mismanagement, ensuring that your beneficiaries receive the inheritance you intended. There are a number of types of trusts largely governed by the Trustee Act 2000. A trust comprises of:
- settlor the person whose assets are put into the trust;
- a trustee or trustees, the person that manages the trust;
- the beneficiary or beneficiaries, the person who benefits from the assets in the trust.
There several types of trust and it is imperative that you seek the guidance of an expert lawyer to assist you to understand the various trusts, failing to take expert legal advice and direction with regard to best type trust for your purpose is one of the most serious mistakes that a settlor can make. The law surrounding trusts is complex and often outside the settlor’s knowledge and experience.
The choice of trustee or trustees must be made extremely carefully they are the guardians of the trust and its assets and should be not be made based on personal friendships alone, it is sensible to choose trustees that have knowledge and understanding of the legal complexities and the implications of any actions that they may take. Depending on the type of trust, the trustees are often the only people who have access to the assets and control over the trust property. This access enables them to carry out their duties, such as investing assets to create income, making distributions to beneficiaries, or covering trust expenses. Appoint trustees that have the beneficiaries’ interests at heart and are likely to live longer than you. The Charity Commission monitors charity trustees.
Our lawyers, an associate, commented, “A trust cannot be varied or amended unless there are exceptional circumstances, and the consent of all parties involved is required.” Our lawyers further stated, “A deed of variation can be drafted; however, if the new terms cause detriment to one or more of the beneficiaries, such as in a divorce, the family court can reject the changes. A trust is an excellent way to safeguard assets in the event of unexpected financial instability, such as divorce or bankruptcy. A trust can also shelter assets aimed at supporting a vulnerable family member with limited or no capacity to manage their own financial affairs.”
Giambrone & Partners commercial lawyers can evaluate your objectives and provide guidance as to the best option to meet your intentions in the disposal of your estate. The types of trust to consider are:
Bare Trusts
The beneficiary in a bare trust is entitled to the capital and the income generated from investment. If the beneficiary is under the age of majority the trustees look after the assets until the beneficiary reaches the age of 18.
Interest in Possession Trusts
The trustees pay the income arising from the assets to the beneficiaries as it is generated, minus any expenses incurred.
Discretionary Trusts
The trustees have greater flexibility to make decisions as to how the trust capital and income arising can be used. For example, they can choose which beneficiary receives payments, the frequency of the payments and they can impose conditions that they deem to be necessary. Discretionary trusts are often used for beneficiaries who are very young or are considered not to be capable or responsible enough to manage money themselves.
Accumulation Trusts
An accumulation trust allows the trustees to add the interest earned to the capital and pay out from the trust in the same way as discretionary trusts.
Mixed Trusts
As the name suggests the trust is made up of several different types of trust. Each part is subject to the applicable tax rule.
Non-resident Trusts
This type of trust is suitable for the following:
- When none or only some of the trustees and are resident in the UK
- When the settlor of the trust is either not resident or deemed to be domiciled in the UK when the trust was set up or funds were added to the trust.
Non-resident trusts are complex and must have legal guidance as well as the guidance of a tax expert.
In conclusion, trusts are an excellent way of sheltering assets and protecting an estate for the beneficiaries, however the decision to set up a trust must be taken after a great deal of thought and with the full understanding of all the implications.
The recent attempt by Rupert Murdock and his son Lachlan to amend the family trust, not to disinherit the other three children but to enable Lachlan to have sole control of his media empire, News Corp and Fox News, when Rupert Murdock passes away. Mr. Murdock believes that Lachlan is empathetic to his own thinking and will continue his policies. The court denied the attempt to change the trust saying that Mr. Murdock and his son acted in bad faith.