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Trust Funds: What They Are and Why You Should Have One

Trust Funds: What They Are and Why You Should Have One

A crucial part of estate planning is creating any Last Wills & Testaments and Trusts that you may need to clearly designate what you would like to occur to your assets after your passing. While most people understand Will’s purpose and format, Trusts have a more sophisticated legal structure and come in several forms.

Trust funds may assist people of all income levels to manage their assets and save their families time and money. While beneficiaries legally hold trust assets, grantors selected by the trust donor establish and manage trust funds.

A simple will usually suffice to establish a Trust fund, but there are exceptions. It’s best to consult a lawyer to verify your trust fund is legally binding.

The Most Common Types of Trusts

Trust comes in numerous forms, with varying motives and quantities. Here are the most common types of Trusts you can choose from:

1. Discretionary Trusts

A discretionary trust allows the trustees to spend the Trust’s income and capital for the beneficiaries at their discretion.

Parents who wish to save more money for their children’s future create discretionary trusts then disburse trust assets when they need them. If there are grandchildren, the trust money may be used to pay for their education or future property. 

2. Bare Trusts 

Unlike discretionary trusts, bare trust beneficiaries own the trust assets and must be obeyed by the trustee. A trustee holds property for a beneficiary in a nominee trust. Beneficiaries over 18 have absolute rights to the Trust’s assets and income.

3. Interest in Possession or Life Interest Trusts 

A will may allow a spouse to collect an estate’s income, with the children inheriting the estate following the surviving spouse’s death. As a result, the spouse is entitled to any income made by the estate for the remainder of their life.

4. Testamentary Trust

You can include different kinds of trusts in your will. However, they will only take effect after your death and will be dependent on your specific circumstances.

5. Non-Resident or Offshore Trusts

Offshore trusts have at least one trustee based outside the UK. A majority of offshore trusts are excluded property trusts set up by non-residents. All overseas assets are exempt from UK inheritance tax but are sometimes subject to UK income and capital gains tax.

Reasons to Set Up a Trust

Here are three compelling reasons to establish a Trust fund:

1. Trusts Avoid the Probate Process

A will’s assets must go through probate to be validated and distributed, while trust assets do not. A trust agreement is private while a will is public. Your lifetime trust requires only two parties to interact with: your lawyer and trustee. 

In this situation, trusts bypass probate, which keeps your assets in secrecy. Doing so also makes it more convenient for your beneficiaries after your death. You can state in your Trust that any assets not included within it will be transferred upon your death for a seamless and private asset transfer.

2. Trusts are Resistant to Contesting

A trust protects you better than a will from a lawsuit filed by a disgruntled beneficiary. A trust’s legitimacy can be questioned if a donor’s accusation was mentally ill or under undue influence or pressure. But unlike a will, Trust is harder to challenge. With the help of legal aid, the Trust will be difficult to contest, ensuring your assets go to your intended beneficiaries.

3. Trusts May Provide Tax Benefits

Trusts can be revocable or irrevocable. A revocable trust permits you to amend it after signing but may or may not result in future tax benefits. Meanwhile, an irrevocable trust is not possible to amend once signed. 

Because it removes assets from your estate, an irrevocable trust may save you money on transfer tax. Gift taxes apply to lifetime donations to the Trust. If certain requirements are satisfied, assets deposited in this form of Trust are tax-free after death.

Conclusion

Consider setting up a Trust while you still can in order to safeguard your estate and ensure everything goes to your intended beneficiaries. As with any legal document, the process of setting up a trust must be followed to the letter. It is essential to use the services of a lawyer to set up a trust.

At Wills and Probate, we can assist you in creating a Trust in the UK and all other aspects of financial and future planning. From wills to probate to inheritance tax guidance, we have you covered. Let us help you in securing the greatest possible future.