A trust is a legal arrangement that allows assets such as property or money to be looked after for the benefit of the beneficiaries named in the Will.
Trusts are often used to hold assets for children until they are old enough to receive them.
This section provides an introduction to the basic principles of Trusts, which will help you to prepare for a more detailed discussion with your adviser.
There are various situations in which a Trust may be set up, and not all of them are related to making a Will. For the purposes of making a Will, Trusts are usually set up for one of the following reasons:
When setting up a Trust there are three main people who will be involved: a Settlor, a Trustee and a Beneficiary. The Settlor puts money, property and other assets into a Trust, under which they are managed by the Trustee, until they are handed down to the beneficiary, after the Settlor has passed away.
When writing a Will, a Testator will need to include details of the Trust and exactly what is to be paid into it. It is also necessary to designate a Trustee and Beneficiary. In some cases, it may be best to state when the Trust is to pass to the Beneficiary, perhaps when they reach eighteen years of age. Once the Settlor of the Trust has passed away and the requirements laid down in the Will have been fulfilled, then the Trust can pass to the Beneficiary.
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:
Trustees are the people who are responsible for administering the Trust.
This means that they will become the legal owners of the assets covered by the Trust, and must manage those assets in the best interest the named Beneficiaries, for example, your children. The duties and powers of Trustees are defined by law, and include the following:
If you choose to establish a Trust, you must appoint the Trustees in your Will. In most cases, you may appoint your Executors as Trustees. If you are also appointing Guardians for your children, there can be some benefit in appointing one of the Guardians as a Trustee.
You can appoint between one and four Trustees, and it is usually best to appoint at least two. In selecting Trustees, ideally you will be looking for someone you know, who has the following characteristics:
You may choose to appoint alternative Trustees in your Will, who would take on the responsibility if your original intended Trustees pass away.
The Trust can be set up to reimburse the Trustees for reasonable expenses. It is also possible to appoint professional Trustees who are paid fees out of the fund. However, this option is not popular as it means that funds that would have passed to the Beneficiaries are used up in professional fees.
When the primary Beneficiary of the Trust dies, any remaining Trust assets can be distributed to other named Beneficiaries, or to charity if preferred, according to the instructions given in your Will.