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.