Trusts have been around for thousands of years and are a useful mechanism for managing wealth, safeguarding the needs of family members, and even saving tax.
A trust is an arrangement by which someone (the ‘settlor’) gives assets to individuals (the ‘trustees’) to hold for the benefit of others (the ‘beneficiaries’). Although the beneficiaries can receive the benefit of the trust assets (which could be capital or income), it is the trustees who have control, and they make the decisions.
Trusts can be created orally but are usually written down, recording all the trustees’ powers and duties, as well as the ways in which the beneficiaries can benefit. This benefit could be a right to the income or capital, or a discretionary benefit – a mere potential to benefit (rather than an entitlement).
Trusts are set up for a variety of reasons. Some typical scenarios where trusts can be useful are:
• Passing assets down to later generations
• Paying school or university fees
• Protecting vulnerable beneficiaries who struggle to manage their money
• Safeguarding assets from creditors, bankruptcy or divorce claims
• Saving inheritance tax
Trusts can be created in Wills or through lifetime giving. You may be a settlor of a trust, a trustee or a beneficiary. Modern trusts can operate for a maximum of 125 years, so can be relevant to a family for many generations.
The law and the taxation of trusts change over time. It is important that anyone who has involvement with a trust, whether as a beneficiary or a trustee, is kept up to date on issues of compliance and taxation.
The most recent development is the introduction of the Trust Registration Service (TRS). This is a central register of trusts which is administered by HMRC and contains information such as who the trustees are, who can benefit from the trust and what assets are in the trust.
There is now a requirement that nearly all trusts are registered with the TRS. It is ultimately the responsibility of the trustees to ensure that this has happened, and there are financial penalties if this doesn’t happen. There is a new deadline of 1st September 2022 which will apply to many trusts.
The process for registration is not straightforward and therefore action needs to be taken at an early stage.
If you need help with an existing trust, or would like to set up a new trust, please get in touch with Catherine at Legacy Law. We are experts on all aspects of trusts and their taxation and we will work hard to ensure that you understand the terms of all documents you put in place, and comply with the relevant legislation.
