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Guide to trusts

How trusts can help you manage your wealth

A trust is a legal way of arranging some of your assets for the benefit of others, without giving them full control.

Setting up a trust

There are three groups of people needed to set up a trust; the settlor (donor), the trustees, and the beneficiaries. These are commonly used terms within trust documents.

Settlor (or donor)

This is the person (or people) who set up the trust. They will be the current owners of the assets being put into the trust. The settlor chooses the trustees and decides who they’d like the beneficiaries to be.

Trustees

These are the people responsible for managing the trust assets and dealing with the administration and tax affairs of the trust. Trustees can be individuals or a trust corporation.

Beneficiaries

These are the people who will get the money from the trust. You can name them individually or as a class of people, for example, ‘all of your children’.

Why use a trust?

There are many reasons why you might want to use a trust:

  • You want to gift to children under the age of 18, but they can’t take legal ownership of the gifted assets
  • You want to make a gift where you maintain control by being a trustee
  • You have an inheritance tax liability which you want to reduce. Some trusts can help reduce or eliminate inheritance tax as the proceeds won’t normally be included in your estate when you die. You’ll need your assets to be in trust for seven years to not be included in your estate, for inheritance tax, when you die 
  • To provide future flexibility, to make sure that the proceeds are paid to the right people
  • You want to make sure that after your death, the proceeds are paid out quickly

Types of trust

There are different types of trusts and it might not be clear which one is the best choice for you or how to set it up. Here are some of the most common types of trust:

  • Bare trust
  • Discretionary trust
  • Probate trust
  • Gift and Loan trust
  • Discounted gift trust
  • Reversionary trust
  • Excluded property trust
  • Interest in Possession trust

All of our trusts are designed to work with our products. Learn more about these trusts in our guide.

Once you’ve placed the assets into a trust, you can’t usually change your mind and take them back, so it’s important to make sure that you’ve chosen the right trust for your needs. You should always speak to an adviser before setting up a trust.

Tax

Income tax, inheritance tax and capital gains tax are treated differently across the various trusts. Your adviser will be able to tell you how tax could apply to the trust and the investment you’re thinking of setting up.

What are the risks?

The value of your investment can go down as well as up and you may get back less than you invest. The way investments performed in the past is not a guide to how they’ll perform in the future. Tax rules depend on individual circumstances and may change. Speak to an adviser for more information on tax.

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