Trusts

The trust market according to Solicitors for Independent Financial Advice (SIFA) is conservatively estimated at £30 billion. In addition over £7 billion of new trust assets are created each year. To a large extent the business is controlled by solicitor trustees who traditionally have used the service of stockbrokers to manage investment portfolios on behalf of their clients.

What is a trust?

A trust is a legal relationship where an individual, the settlor, transfers assets to a person or persons, the trustees, who hold and manage these assets for the benefit of others, the beneficiaries, named by the settlor.

Benefits of trusts include:

Reducing Inheritance Tax

By gifting assets into a trust, an individual can reduce the size of their estate liable to inheritance tax on death. Transfers will normally fall outside the estate after seven years. It should be borne in mind that the settlor has effectively gifted his/her property away and it cannot be used for their own benefit otherwise it may be a gift with reservation.

This said, there are various highly specialised Schemes available that use clever Trust planning to obtain the IHT advantages whilst at the same time allowing the settlor a degree of access to income or capital held within the arrangement.  Such arrangements are diverse in how they work and their effectiveness and finding a suitable scheme to fit a client’s specific needs is not that easy.

Control over property

Trusts are an excellent way to gift assets whilst retaining an element of control over who will benefit and when the benefits are paid. This is particularly useful where the beneficiaries are children.

Speed of payment

If a life policy is placed under trust, the benefits on death can be paid out immediately on production of a death certificate.  There is no need to wait for grant of probate as the trustees hold legal ownership.

What is required to establish a valid trust?

In order for an individual to create a valid trust they must be of sound mind and there are also three conditions which must be satisfied. These conditions are known as the three certainties:

• Certainty of intention - it is clear that the settlor intended to create a trust.
• Certainty of subject - the property that is to be transferred into the trust is clearly identified.
• Certainty of objects - the beneficiaries of the trust can be clearly identified.

Where the trust is to be created by an individual’s Will, it must also meet the requirements of Section 9 of the Wills Act 1837. The Will needs to be:

• Made in writing
• Signed by the testator
• Signed and witnessed by two individuals

As well as express trusts where the settlor expresses his intention to create a trust, it is also possible for a trust to be created by the operation of law, for example, where money is left under the law of intestacy to a minor child.

For more advice and assistance on this topic please call us on (01225) 785520 or send us an email.

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