Trusts are a very useful, if sometimes confusing, legal way of giving your money, property or shares to others, whilst ensuring that you or others that you trust (hence the name), retain some control over what happens to those assets. They are also frequently used to avoid paying unnecessary inheritance tax or for helping to solve long-term family or domestic situations, such as giving money to children or grandchildren, but at an age when they can be considered to be responsible.You can create a trust while you are alive, usually by a formal trust deed. This is usually referred to as a ‘settlement’, or you can create a trust on your death in your will (a ‘will trust’). If the will creates any trusts, for example if there are minor beneficiaries, it is usual to appoint two trustees (they can be the same as the executors).
A trust can be a ‘will substitute’ in arranging for the disposition of your property. There are no set words required to create a trust.
A trust places the legal ownership of property in the hands of and under the control of trustees. The trustees are totally responsible for the administration of the property and must act on behalf of the beneficiaries of the trust in accordance with the terms set out in the will or deed creating the trust.
There are various types of trusts:
Fixed trusts. These set out in fixed proportions who gets what. The trustees can be given wide powers and they have the main advantage of being easy to understand and relatively easy to administer.
Discretionary trusts. These set out who the beneficiaries may be, for example wife, children or grand children, and give the trustees a discretion to decide what proportion of income and capital each beneficiary should receive. The trustees are not legally bound by any instructions given by the person creating the trust as to how they should exercise their discretion.
Accumulation and maintenance trusts. These trusts are usually established to benefit children and grandchildren. They have tax advantages, but care must be taken not to extend the period of the accumulation beyond the 25th birthday of the beneficiary.
Protective trusts. These trusts are used to provide for beneficiaries who are prone to be made bankrupt.
Enduring and lasting powers of attorney
The basic concept of a power of attorney is that it is a written document which gives another person the right to act on their behalf, either generally, or in specific matters.
A lasting power of attorney (LPA) is a specific type of power of attorney, which gives a person the right to act for the donor of the power in their financial affairs, and to continue to do so if the donor has become mentally incapable. The LPA can be worded so that it only comes into effect if this should happen. An ordinary power of attorney would automatically come to an end when this occurs.