Trusts
What is a trust?
A trust is a means of arranging property
for the benefit of an individual whilst placing control
of it with another person or persons (known as the Trustee(s)).
Who are the Parties to a Trust?
Settlor - the person who creates the trust
by transferring property (e.g. a life policy, shares) into
it.
Beneficiary - the person entitled to the
benefit of the trust property. A trust is invalid if there
is no certainty as to who the potential beneficiary is (there
can be more than one).
Trustee - the person who has a duty to
look after the trust property. The trustee is the 'legal'
owner of the trust property, but cannot use it as his/her
own personal property. The trustee(s) must look after the
trust property in accordance with the conditions set out
in the trust and general law.
Who Should be a Trustee?
In general, there is no restriction on
who can be a trustee, except that they must be 18 or over
and of sound mind. The settlor can be a trustee and so can
a beneficiary although, depending on the particular trust,
there may be reasons why either of these options would not
be a good choice.
Additional Trustees
Consideration should always be given to
appointing at least one additional trustee. For example,
if a life policy is the trust property and the settlor is
a trustee, then on the settlor's death and with no additional
trustee, the role of trustee will pass to the settlor's
executors and payment on the policy by the insurer would
be delayed significantly.
In addition, under general trust law some
trustee functions can only be carried out by a minimum of
two trustees.
What are the Benefits?
Inheritance Tax (IHT) - e.g. by placing
a life policy in trust, it takes the life policy out of
the settlor's inheritance tax estate so that there should
not be any IHT to pay on it.
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 a grant of probate, which takes time.
The above comments are based on our current
understanding and interpretation of legislation, which may
change in the future.
