Trusts have been around for many hundreds of years and are still used for many reasons, including family succession planning, asset protection and tax planning.
A trust is the formal transfer of assets to others to hold for the benefit of someone else. It is usual for the trust to be ‘made by deed ‘ – i.e. by the creation of a legal document. But some trusts can be made purely by the ‘conduct of the Settlor’, this is where the law on trusts becomes complicated as you can create a trust purely by your actions and this might even be unintentional.
Trusts made in your lifetime are called ‘Lifetime Trusts’ and trusts made in a Will are called ‘Will Trusts’. Lifetime Trusts nearly always take effect immediately. Will Trusts only come into effect on the death of the person who made the Will.
A typical example of a Lifetime Trust is where grandparents place money in trust to pay for the school fees of their grandchildren. If you make a provision in your Will that your children inherit your estate at a certain age, then you have created a Will Trust.
It is usually advisable to create a trust as early as possible. Having said that, you should not rush into any arrangement without fully understanding and considering all of the implications of the trust that you are creating.
Lifetime Trusts can be difficult and costly to change once they have been created. Will Trusts are easier to change as until the death, the Will Trust does not come into effect.
Trusts fall into one of two main categories depending upon how income from the trust is dealt with. The categories are ‘Interest in Possession Trusts’ and ‘Discretionary Trust’.