There are many types of Trust but the one you should use will depend on your specific circumstances. As part of our service, we will talk you through the different types of Trusts, their tax implications, and which might suit your personal needs so you can make an informed decision about how to proceed.
The types of Trust we can help with include:
Bare Trusts – this is a simple type of Trust used to set aside money for a Beneficiary. They are often set up while the Beneficiary is a child to protect their inheritance by placing it in the care of an adult Trustee. Once the Beneficiary turns 18 years old, they automatically become entitled to all of the Trust property and income. A common example is a grandparent setting aside Trust fund money for their grandchild.
Discretionary Trusts – with this type of Trust, the Trustees have more power to make decisions about how use the trust property and income. For example, the Trustees may be allowed to choose which Beneficiaries to pay out to, how often the payments should be made, and how much is paid out.
Interest in Possession Trusts – this type of Trust is usually set up to provide an income to the Beneficiary. For example, you set can up an Interest in Possession Trust for your shares in a company. It involves writing into the Trust that when you die, your chosen Beneficiary will become entitled to all the income (or dividends) from your shares. The Beneficiary would be the ‘Income Beneficiary’ with an ‘Interest in Possession’. However, they do not have the right to own the shares themselves.
Lifetime Trusts – this is a category of Trust that protects assets during your lifetime – it covers a range of different types in Trust, including Bare Trusts and Interest in Possession Trusts. Some types of Lifetime Trust are used for reducing Inheritance Tax after you die. For example, a Bare Trust will be a ‘potentially exempt transfer’ which means that you will only have to pay Inheritance Tax if you die within seven years of setting up the Trust (however, it may have other tax implications such as Capital Gains Tax and Income Tax).
Will Trusts – this type of Trust is set up during your lifetime but only comes into effect after you die. It sits within your Will to protect assets to pass onto your loved ones. Will Trusts can be used to minimise liability for Inheritance Tax. If you own your home with a partner, Will Trusts can also be used to ringfence your share of the property to prevent it being used to pay for later life care.
Charitable Trusts – when you die, you can transfer assets into a Trust to be held and managed by a charity. Charitable Trusts get significant tax benefits, such as being exempt from Income Tax. There are a broad range of charitable purposes that you can leave your money to, including poverty relief, education, health, human rights, religion, arts, science and animal welfare.
Disabled Trusts – also known as Vulnerable Beneficiary Trusts, this type of Trust is used for setting aside money and property for Beneficiaries who have mental or physical disabilities or who are under 18 years old and have lost a parent. Disabled Trusts are eligible for ‘special tax treatment’ allowing you to maximise the amount you can set aside for vulnerable loved ones.
Personal Injury Trusts – this type of Trust is used to protect and ringfence compensation received as a result of a successful personal injury claim. Putting compensation into Trust prevents it from being taken into account during the assessment of means-tested benefits or care contributions. They can also protect the best interests of young, old and vulnerable people, as well as people unfamiliar with handling large sums of money.
