What is a Trust?
A trust is an obligation binding a person (which can be an individual or a company) called a ‘trustee’ to deal with ‘property’ in a particular way, for the benefit of one or more ‘beneficiaries’.
What is a ‘trustee’?
Trustees are the legal owners of the trust property. They are legally bound to look after the property of the trust in a particular way and for a particular purpose. Trustees administer the trust and in certain circumstances make decisions about how the property in the trust is to be used.
The trust can continue even though the trustees might change, but there must normally be at least one trustee.
What is ‘property’?
The property of a trust can include:
- land or buildings
- other assets, such as antiques
The cash and investments held in the trust are also called the ‘capital’ or ‘fund’ of the trust. This capital (or fund) may produce income, such as interest or dividends.
What is a ‘beneficiary’?
A beneficiary is anyone who benefits from the property held in the trust. There can be one or more beneficiaries, such as a whole family or a class of people such as grandchildren, and each may benefit from the trust in a different way.
For example, a beneficiary may benefit from:
- the income only, or
- the capital only, or
- both the income and capital of the trust
What is a ‘Settlor’?
A Settlor is a person who sets up the trust and is putting property into the trust. The trust can be opened immediately and then sat waiting for the assets to be diverted to it on death or the assets can be placed into the trust whilst the Settlor is still alive.
How is a trust created?
Normally a trust is created by a deed. A Settlor might ask a professional adviser to draw up a trust deed, which then sets out the terms of the trust.
A trust can be created under the terms of a will, when someone leaves instructions that when he or she dies some or all of the estate is to be placed in trust.
If there is no Will the Courts will sometimes create a trust, for example; when deciding how to deal with property for the benefit of a child or an incapacitated person who cannot manage his or her own affairs.
What are my responsibilities as a trustee?
Your responsibilities depend on the type of trust and the terms under which the trust is created. The Settlor may have given instructions that trustees carry out various functions, and trust law may impose further obligations.
For taxation purposes you are responsible for:
- notifying the Inland Revenue that tax is due, within six months of the end of the tax year for which it is due, where you have not received a tax return for the year
- keeping records of the income and capital gains of the trust
- completing and sending back any tax return issued to you
- paying any tax due on the income or capital gains of the trust
- supplying certificates or vouchers to the beneficiaries to show how much income they have received from the trust in the tax year and how much tax the trustees have deducted. (Inland Revenue Trusts can supply forms for you to use.)
Depending on the terms of the trust deed, you can appoint a professional adviser, such as a solicitor or accountant, to carry out some or all of these tasks. However, if you do, you are still responsible for ensuring that all tax obligations are carried out satisfactorily.
What happens when a trust ceases to exist?
If a trust is wound up the Trustees should notify the Inland Revenue Trusts office and complete a tax return for the period up to the date the trust is wound up.
Remember, you will need to
- make provision for any tax that may be due
- consider whether the ending of the trust gives rise to a capital gains tax liability.
If the property of the trust is distributed before any outstanding tax is paid then you might have to pay that tax out of your own pocket.
If you would like to discuss how Trusts may benefit you and your family, or any similar topics please feel free to contact your local Farsight Wills consultant. We have offices based in Swindon town centre, alternatively we are always happy to arrange a free home visit or have a chat on the phone.