A trust is an arrangement by which a settler transfers part of his assets to the trustee for the benefit of a third party called a beneficiary.
There are many types of trusts and a variety of reasons for creating one, from protecting your family’s assets to effective tax planning.
Assets in a bare trust are held in the name of a trustee. In England and Wales the beneficiary has the right to all of the capital and income of the trust at any time if they’re 18 or over. This means the assets set aside by the settlor will always go directly to the intended beneficiary.
Bare trusts are often used to pass assets to young people - the trustees look after them until the beneficiary is old enough.
Interest in possession trusts
Trustees must pass on all trust income to the beneficiary as it arises (less any expenses. If you leaves shares to a trust under the terms of that trust when you die, the income from those shares go to your beneficiary e.g. wife for the rest of her life. When she dies, the shares will pass to your children.
Although your wife is the income beneficiary, she has no rights to the shares themselves.
Trustees can make certain decisions about how to use the trust income, and sometimes the capital. This depends on the trust deed which states:
What gets paid out (income or capital), which beneficiary to make payments to, how often payments are made and any conditions to impose on the beneficiaries.
A discretionary trust is set up to accommodate the future needs of a beneficiary and to look after the needs of beneficiaries who are incapable or not responsible enough to deal with the financial responsibility themselves.
There are many trusts and the above is just a small example of the most common.
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