Trust Funds - Estate Planning: Fixed,Discretionary, Interest in Possession, Accumulation and Maintenance, Protective, Disabled Beneficiaries: Merdon Financial

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Trusts

Trusts have been instrumental in mitigating tax since Medieval times. Trusts were initially created for the Nobility and wealthy landowners to avoid paying taxes to the Crown. The introduction of Trusts led to a distinct loss of tax revenue and it did not take long for the first anti-avoidance statute to be introduced; by Henry VIII in 1535.

Trusts are a way of looking after assets (money, investments, land or buildings) for people.
A trust is a legal arrangement where one or more 'trustees' are made legally responsible for holding assets. The assets - such as land, money, buildings, shares or even antiques - are placed in trust for the benefit of one or more 'beneficiaries'.

The trustees are responsible for managing the trust and carrying out the wishes of the person who has put the assets into trust (the 'settlor'). The settlor's wishes for the trust are usually written in their will or set out in a legal document called 'the trust deed'

The Purpose of trusts

Trusts may be set up for a number of reasons, for example:

To control and protect family assets
When someone is too young to handle their affairs
When someone can’t handle their affairs because they are incapacitated
To pass on money or property while they are still alive
To pass on money or assets when you die under the terms of your will – known as a ‘will trust’
Under the rules of inheritance that apply when someone dies without leaving a valid will (England & Wales only)

Types of trust

There are different types of trust designed to meet different kinds of needs. The type of trust you use will depend on who the beneficiaries are, what the assets are, and how and when you want the assets to be distributed. The main types of trust are:

Fixed Trusts, in which the beneficiaries are named and the proportions for how much to pay to each one are clearly stated.
Discretionary Trusts, in which the beneficiaries are named but the Trustees have the power to decide how much to give to each, according to circumstances.
Interest in Possession Trusts, in which the beneficiary, such as a spouse, can use the asset when they are alive but must pass it to another named beneficiary, such as a child, when they die. This type of trust is sometimes used to ensure that one's spouse is provided for, while keeping the estate intact to pass to one's children. Interest in Possession Trusts have less beneficial tax rates than discretionary trusts.
Accumulation and Maintenance Trusts, which are usually used to provide an ongoing income for children, to cover living costs, school fees and so on. These trusts attract enhanced tax rates, but they also have some complex rules and restrictions, and it is wise to seek the advice of a solicitor and/or accountant when establishing or managing such a trust.
Protective Trusts, in which the beneficiary can receive income from the Trust while the capital remains protected. This type of trust is usually used for beneficiaries who are bankrupt or likely to become so.
Trusts for Disabled Beneficiaries, which are discretionary trusts with special tax exemptions for beneficiaries who are disabled. This type of trust is often used to hold the compensation payments of people who are disabled due to personal injury.

Will Writing and estate planning is not regulated by the Financial Conduct Authority.