A trust fund can be a valuable tool for providing financial security and protection for your family members. By establishing a trust, you can manage your assets and ensure that they are used according to your wishes, even after you’re no longer here.
In this guide, we’ll explore the basics of trust funds, including what they are, how they work, and the different types available. We’ll also discuss how to set up a trust fund for a family member, the benefits of doing so, the costs involved, and how Peter Ross can assist you in creating a tailored trust plan.
What is a trust fund?
A trust fund is a legal arrangement in which one or more individuals or entities, known as trustees, hold and manage assets for the benefit of others, called beneficiaries. While the trustees have legal title to the assets, they are responsible for using them solely for the benefit of the beneficiaries.
The terms of the trust are outlined in a legal document known as a trust deed or trust agreement. This document specifies the purpose of the trust, the nature of the assets held, the rights and responsibilities of the trustees, and the distribution of benefits to the beneficiaries.
A typical trust involves a settlor, who creates the trust and transfers assets to it, trustees, who manage the trust assets, beneficiaries, who benefit from the trust, and trust property, which consists of the assets held by the trust.
Establishing and managing a trust generally involves the settlor transferring assets to the trust, the trustees taking control of the assets and managing them according to the trust deed’s instructions, and the beneficiaries receiving the benefits of the trust, which can be distributed in various ways.
There are several types of trusts, each with its own characteristics and purposes:
- Bare trusts: In a bare trust, the beneficiary has the right to all of the capital and income of the trust at any time if they are 18 or over (in England and Wales) or 16 or over (in Scotland). This means the assets set aside by the settlor will always go directly to the intended beneficiary. Bare trusts are often used to pass assets to young people.
- Interest-in-possession trusts: These trusts require the trustee to pass on all trust income to the beneficiary as it arises, less any expenses. The beneficiary has an interest in possession but does not have a right to the capital itself.
- Discretionary trusts: In discretionary trusts, the trustees have the power to make decisions about how to use the trust income and sometimes the capital. They can decide what gets paid out, which beneficiary to make payments to, how often payments are made, and any conditions to impose on the beneficiaries.
- Accumulation trusts: These trusts allow the trustees to accumulate income within the trust and add it to the trust’s capital. They may also be able to pay income out, as with discretionary trusts.
- Mixed trusts: Mixed trusts are a combination of more than one type of trust. Each part of the trust is treated according to the applicable tax rules.
- Settlor-interested trusts: In these trusts, the settlor or their spouse or civil partner benefits from the trust. The trust could be an interest in possession trust, an accumulation trust, or a discretionary trust.
- Non-resident trusts: These trusts have trustees who are not residents in the UK for tax purposes. The tax rules for non-resident trusts are complex.
Understanding the different types of trusts is essential for determining the most suitable structure for your specific needs and goals. Consulting with a legal advisor can help you navigate the complexities of trust law and ensure that your trust is set up correctly.
What are the advantages of setting up a trust?
Setting up a trust for a family member offers numerous benefits that can significantly impact their financial well-being and future security.
One of the key advantages is the ability to protect their assets from creditors and lawsuits, ensuring their financial stability remains intact. By placing assets in a trust, you can also safeguard their inheritance from being depleted due to unforeseen circumstances.
For family members with special needs or disabilities, a trust can provide the financial resources necessary to maintain their quality of life and receive essential support. This ensures they have the financial security and independence they need to thrive.
Trusts can also be valuable tools for estate planning. By transferring assets to your family member through a trust, you can potentially reduce inheritance tax liabilities and avoid the time-consuming and costly probate process. This ensures a smoother transition of assets and minimises financial burdens on your loved ones.
Furthermore, trusts offer flexibility and control. You can customise the trust to meet your specific needs and goals, ensuring that assets are managed and distributed according to your wishes. As the settlor, you can retain control over the trust assets during your lifetime, providing you with peace of mind knowing that your family member’s financial future is secure.
By carefully considering these advantages, you can determine if a trust is the right choice for your family member and how it can benefit their financial well-being and future security.
How much does it cost to set up a trust?
The cost of setting up a trust for a family member can vary depending on several factors, including the complexity of the trust, the assets being transferred, and the specific needs of the beneficiary.
At Peter Ross, we understand that cost is an important consideration when setting up a trust. Our team will work with you to assess your specific requirements and provide a transparent estimate of the associated costs.
While the cost of setting up a basic trust may be relatively minimal, more complex trusts involving specialised advice or tax planning could incur higher fees. It is essential to weigh the potential benefits of a trust against the associated costs to determine if it is the right choice for your family member.
In addition to the initial setup costs, you should also consider the ongoing expenses associated with managing a trust. These typically include:
- Trustee fees: The trustees may charge a fee for their services, which can vary depending on the complexity of the trust and the amount of time and effort required to manage it.
- Administrative costs: There may be administrative costs associated with managing the trust, such as preparing annual accounts and filing tax returns.
Our team is committed to providing cost-effective solutions for your family member’s trust needs. We will work with you to explore options that minimise costs while still achieving your desired outcomes. We may also be able to recommend charitable organisations that can assist with funding the setup costs for trusts benefitting disabled children.
By choosing Peter Ross, you can be confident that you are working with a team of experienced legal advisors who will provide transparent pricing and tailored solutions to meet your specific needs.
How can Peter Ross help?
Setting up a trust fund for a family member is a thoughtful and proactive step to ensure their financial well-being and future security. By understanding the advantages of trusts, such as asset protection, financial independence, and estate planning, you can make an informed decision about whether a trust is the right choice for your loved one.
At Peter Ross, our specialist Trusts and Taxes team knows how to set up a trust fund for a family member that meets their unique needs and goals. We offer expert guidance and personalised advice to ensure your trust is structured effectively and provides the desired benefits.
By choosing Peter Ross, you can rest assured that your family member’s financial future is in capable hands. Contact us today to schedule a consultation and learn more about how we can assist you in setting up a trust fund.