There are various kinds of Trust. You can write a Trust into your Will, while others you can set up as a separate entity.
Some trusts will have to pay Inheritance Tax in their own right rather than as part of your tax bill; others might have to pay Income Tax or Capital Gains Tax.
The kind of trust you choose depends on what you want it to do. Here are some of the most common options:
- Bare trust – the simplest kind of trust, a bare trust just gives everything to the beneficiary straight away (as long as they’re over 18).
- Interest in possession trust – the beneficiary can get income from the trust straight away, but doesn’t have a right to the cash, property or investments that generate that income. The beneficiary will need to pay income tax on the income received. You could set up this kind of trust for your partner, with the understanding that when they die the investments in the trust will pass to your children.
- Discretionary trust – the trustees have absolute power to decide how the assets in the trust are distributed. You could set up this kind of trust for your grandchildren and leave it to the trustees (who could be the grandchildren’s parents) to decide how to divide the income and capital between the grandchildren. The trustees will have the power to make investment decisions on behalf of the trust.
- Mixed trust – combines elements from different kinds of trusts. For example, a beneficiary might have an interest in possession in (ie a right to the income of) half of the trust fund and the remaining half of the trust fund could be held on discretionary trust.
- Trust for a vulnerable person – if the only one who benefits from the trust is a vulnerable person (for example, someone with a disability or an orphaned child) then there’s usually less tax to pay on income and profits from the trust.
- Non-resident trust – a trust where all the trustees are resident outside the UK. This can sometimes mean the trustees pay no tax or a reduced amount of tax on income from the trust.
Please contact me on [email protected] or 0800 061 4494 to find out how I can best help you protect your family and your assets.