How to set up a trust for children or grandchildren –
- Decide which assets you’ll put into the trust fund. You should know the value of each asset (such as property or shares).
- Appoint your trustee(s). This can be a person or a management company like a bank. As the name suggests, it should be someone you trust — as soon as the trust is set up, they’ll have control over the assets within it. Most advisors suggest appointing at least 2 trustees so no single person has control over the fund.
- Appoint your beneficiaries. Make a list of the people who will benefit from your trust. If there’s more than one beneficiary, you’ll need to decide how much each person will receive.
- Ask a solicitor to draw up a trust deed. This is where you can set the terms for the trust, including the type of trust you want to use. The deed should also include:
- What the fund must be used for
- How beneficiaries will be paid
- How the trust can be settled
- What age the beneficiaries will be entitled to the trust value (usually no older than 25)
- Any other instructions for how your money should be used.
- 1 How much money do you need to set up a trust fund UK?
- 2 How much do you get in a trust fund UK?
- 3 What are the disadvantages of a trust UK?
- 4 Are trust funds tax free UK?
- 5 How do trust funds work UK?
- 6 How long can a UK trust last?
- 7 What is the typical amount in a trust fund?
How much money do you need to set up a trust fund UK?
How Much Money Do You Need to Set up a Trust in the UK? How Much Money Do You Need to Set up a Trust in the UK? The cost of creating a simple trust is usually in the region of £1000 – £1,500. The exact amount depends on how much legal advice you need and how long it takes your solicitor to draft the precise wording.
- Trusts come in many shapes and sizes and they are a flexible way to structure your financial affairs.
- The law behind them can be complicated, so you must use a solicitor to make sure it is set up correctly based on your personal circumstances.
- If you come to them prepared with an understanding of the key information you need to set up your trust, this can significantly reduce the cost of the initial legal advice.
This information includes:
What the purpose of the trust is?A list of assets to go into the trustWho controls the trust (the ‘trustee’)Who benefits from the trust (the ‘beneficiary’)And any other specific rules you would like to include (like an age requirement before funds are released).
If you have a complex collection of assets and business interests and any foreign assets requiring tax planning, the cost can be as high as £5,000 – £10,000. What Are Trusts Typically Used For? The property inside a trust is treated separately from property owned by individuals for tax purposes, and that can be very useful especially when it comes to Inheritance Tax.They are commonly used to protect and control family assets, to ensure finances are secure when someone is too young to handle their own affairs, to set up long-term care for someone less able to take care of themselves, for their own future care home fees, and for the more obvious purpose of passing on assets either during someone’s lifetime or upon their death.
Originally introduced during the reign of Henry VIII in the 16th century, trusts were invented to solve a gap in the justice system around Wills and how property should be transferred. Trusts are a useful mechanism for passing on property in a Will whilst still retaining some control over what happens to it.
- Today, trusts are not just used in Wills and people are realising they are not reserved for the very wealthy either.
- There are only about 200,000 trusts in the UK at the moment but 1/5th of those were set up in the financial year between March 2021-2022.
- What Are the Different Types of Trust? There are a variety of trusts out there to choose from.
Some trusts are set up in a Will to take effect after someone dies, and others are set up during their lifetime. Your solicitor will help you pick the right type for you based on your needs. Here are the most common types of trust you might use: Bare/Simple Trust:
The trustee looks after the assets.The beneficiary can access them at any time they choose (if they are 18 and competent to do so).
Interest in Possession Trusts:
The beneficiary enjoys any income the trust assets produce immediately.The trustee does not allow access to the asset that generated the income (like a rental property).
The trustee has 100% control over what the beneficiaries are allowed to access and when.
The trustee does not allow access to trust assets that generate income.The trustee has 100% control over whether the income goes to the beneficiaries or gets reinvested within the trust.
Trusts for a vulnerable beneficiary:
If the beneficiary counts as vulnerable, this class of trust has its own favourable tax requirements.
If all beneficiaries live outside the UK, they may not need to pay as much tax on the income from the trust.
A special blend of other types of trust, based on your needs (for example, 50% Bare Trust, 50% Interest in Possession).
How Can GloverPriest Help? At GloverPriest, we provide friendly and transparent advice on how to best organise your assets. We are able to set up a trust for you and draft the wording correctly so that it reflects your situation accurately. If you would like help with trusts, speak to one of our expert lawyers today.
At GloverPriest, we understand navigating the law can be a difficult task to take on alone. That’s why we created this comprehensive guide to help promote information for everyone to use. If you’re looking to speak to a solicitor, please call us from the number below. Alternatively, you can fill out our online form and we’ll be right with you.
Are trust funds a good idea UK?
Why Use A Trust Set-Up In Your Lifetime? – There are many perks to using a trust over a will, but some of the most common reasons to choose a trust are:
- To support someone who can’t manage their money
- To provide for people under 18, who is not legally allowed to inherit
- To help provide managed funds to the mentally ill or people who aren’t good with money management
- To protect wealth
- To protect against potential divorce or bankruptcy
- To bypass inheritance tax – ensuring that your loved ones receive the maximum amount possible
- To split the benefits
- Unlike with a will you can specify and tailor who benefits from your assets to a very in-depth level. For example one beneficiary may be able to live in a property but if sold the money can go to a different beneficiary
How much tax do you pay on a trust fund UK?
Accumulation or discretionary trusts You may be able to claim tax back on trust income you’ve received if any of the following apply: you’re a non-taxpayer. you pay tax at the basic rate of 20% you pay tax at the higher rate of 40%
How much do you get in a trust fund UK?
Paying into a Child Trust Fund – You can continue to add up to £9,000 a year to an existing Child Trust Fund account. The money belongs to the child and they can only take it out when they’re 18. They can take control of the account when they’re 16. There’s no tax to pay on the Child Trust Fund income or any profit it makes. It will not affect any benefits or tax credits you receive.
What are the disadvantages of a trust UK?
If you’re looking to pass on wealth to a family member, say a child or grandchild, setting up a trust fund could be an attractive option. – A trust is a legal arrangement that involves a settlor, who puts assets into a trust fund, which is then managed by trustees for the benefit of a beneficiary or beneficiaries.
- Different kinds of assets can be put in a trust, including cash, property, shares, unit trusts and land.
- A recent internal event, during which Courtiers colleagues shared knowledge across various departments, highlighted a couple of the more common trusts that Courtiers clients use.
- The first of these is what are called discretionary trusts.
So, what is a discretionary trust, when might it be useful? And are there any drawbacks? Flexibility Of all the various types of trust, discretionary trusts are probably the most flexible. As the name suggests, trustees have complete discretion over who the beneficiaries are and the assets they receive and when.
This contrasts with bare trusts, where as soon as they reach the age of 18, a named beneficiary has the absolute right to the trust’s assets and when they receive them. The flexibility of discretionary trusts means they can be adapted to changing circumstances, even when the settlor has passed, such as a beneficiary falling on hard times.
Discretionary trusts can last up to 125 years. A discretionary trust can be created when the settlor is alive, or in their will. Many uses Like all types of trust, discretionary trusts are a good way to provide for loved ones. But they are particularly suited for when you don’t want people to receive the assets right away.
- Especially where a large sum of money is involved, you might prefer that the trustees of the trust fund manage the assets instead.
- Examples could include where those you wish to provide for are children, people with learning difficulties, or people who might squander the money in an irresponsible way.
A discretionary trust can also be a very useful way to protect assets from third parties, such as future divorced spouses and in the case of bankruptcy from creditors. Beneficiaries don’t have any legal entitlement to assets in a discretionary trust and consequently they don’t form part of their estate on divorce, bankruptcy or death.
These details are set out in a document called a trust deed. Trustees have the final say A discretionary trust is most useful when the person who puts the assets into trust (the settlor) doesn’t require certainty over who the beneficiaries are. Instead, they can name potential beneficiaries, but leave the ultimate decision up to trustees.
Although a potential beneficiary can be a named person, it can also include classes of potential beneficiaries, including children, grandchildren, and other family members. Even people not yet born, such as future grandchildren can be beneficiaries. Expression of wishes Discretionary trusts are often used in conjunction with an expression of wishes.
- Although not legally binding, this gives trustees guidance on how the settlor would like the trust to be administered.
- We covered this subject last year.
- The expression of wishes could stipulate, for example, that the beneficiaries should receive only income and not capital, or that assets should be distributed on a beneficiary’s 21 st birthday.
Taxes During the life cycle of a discretionary trust the trustees, the settlor’s estate, settlor and sometimes the beneficiary may be liable for various tax charges. The information below relates to UK-resident trusts. These are defined as trusts, where either all the trustees are resident in the UK, or where at the time the trust was created or assets added, there was a mixture of resident and non-resident trustees and the settlor was resident or domiciled in the UK.
The tax rules on non-resident trusts are very complicated and beyond the scope of this article. For further information, please contact your Financial Adviser. Entry charges For lump-sum investments, the initial gift into a trust is a chargeable lifetime transfer for Inheritance Tax (IHT) purposes. This means there could be tax to pay if the gift is over the Nil Rate Band (NRB).
The current NRB is £325,000. Anything over this is liable to an immediate 20% charge on the trustees. This applies even when the settlor is living. The gift is calculated by adding up the value of any transfers and any chargeable gifts made in the previous seven years by the settlor.
If the settlor pays the IHT, the amount of tax due increases. If a couple is creating a trust, they can double the NRB to £650,000. If the value of the assets transferred to the trust has risen since the settlor acquired it, the settlor may be liable for Capital Gains Tax (CGT). On the death of the settlor If the settlor dies within seven years of making a transfer into a trust, their estate will have to pay IHT on the full value at 40%.
In such a scenario, the person managing the estate will have to pay a further 20%. This is based on the value of the original transfer. Taxation of trustees The trustees of a discretionary trust fund may also be liable for tax. Periodic charges The trust will be subject to periodic IHT charges applied on every 10 th anniversary of the trust’s creation.
- The charge will be payable on the value of the trust’s assets above the Nil Rate Band.
- This won’t apply if the assets have passed to the beneficiary before the 10-year anniversary.
- This charge will apply even while the settlor is still alive.
- Exit charges An IHT exit charge up to a maximum of 6% is payable when ‘relevant property’ – assets such as money, shares, houses or land are transferred out of a trust and distributed to a beneficiary.
There is no exit charge if the trust fund is distributed within two years of death. Inheritance Tax may also be due when the trust ends. Income Tax Trustees are also responsible for paying tax on income received by discretionary trusts. For trust income up to £1,000, the tax rate is 8.75%, for dividend income and 20% for all other income.
Above £1,000 the rates are 39.35% and 45% respectively. Trustees do not qualify for the dividend allowance so pay tax on all dividends the trust receives. If trustees distribute income to a beneficiary, depending on the type of discretionary trust and the beneficiary’s tax rate, the beneficiary may be able to claim tax back on trust income they’ve received.
However, in cases where a settlor is also a beneficiary, the beneficiary may be taxed on any income arising to the trustees. Capital Gains Tax Trustees may be liable for CGT, currently 20% (28% on residential property) in respect of any gains above the trust’s annual exemption amount, currently £6,150 in most cases.
The latter figure is due to fall to £3,000 from the start of the 2023/24 tax year in April. One point to note is that if gains are eligible for tax relief, trustees may be able to reduce or delay the amount of tax due. Different rules Different rules apply where a trust is a discretionary loan trust or a discounted gift plan, or where a life insurance policy is held in a discretionary trust.
These rules are complex, so it is always best to speak to a Financial Adviser. Some drawbacks
Beneficiaries left out may feel aggrieved. Loss of control. The trustees can ignore the settlor’s wishes. Trusts can be costly to set up and run. As with all trusts a discretionary trust needs to be properly administered. This includes registering it with HMRC’s online Trust Registration Service, filing annual tax returns and issuing tax certificates to beneficiaries who have received income.
Conclusion Discretionary trusts are particularly suitable for people who are happy to leave decisions about the management and distribution of the fund’s assets to trustees. They can also be very useful for estate planning. Although a discretionary trust can be used to mitigate IHT, the potential for the settlor’s estate and trustees to be taxed in various ways should not be overlooked.
Are trust funds tax free UK?
Accumulation or discretionary trusts – Trustees are responsible for paying tax on income received by accumulation or discretionary trusts. The first £1,000 is taxed at the standard rate. If the settlor has more than one trust, this £1,000 is divided by the number of trusts they have.
Does your money grow in a trust?
Yes, all money deposited in a trust account is invested and earns interest or yield returns, or both.
How do trust funds work UK?
A trust is a legal arrangement where one or more people or a company (called the trustees) controls money or assets (called the trust property), which they must use for the benefit of one or more people (the beneficiaries). In the example above, your friend would be the trustee, your money would be the trust property, and you’d be the beneficiary – the person who benefits from the trust.
to support someone who can’t manage their money – so their needs are looked after, even when you aren’t able to help them, or to make sure that your own money is used to look after you if you can’t look after yourself.
A trust can be especially useful if you have a child with a mental health condition or learning disability, and you’re worried about how they’ll manage financially after you die. They can also help someone with a mental health condition or learning disability who’s claiming State benefits, such as Disability Living Allowance (or Personal Independence Payment), or getting cash help from their local social services department.
- The benefit payments can be made to the trustees, who’ll use them according to the rules of the trust.
- People often set up trusts for children.
- The legal wording of a trust needs to be precise, so it’s definitely worth asking a solicitor to set it up.
- The Law Societies keep searchable databases to help you find a qualified solicitor near you.
Find a solicitor in:
England and Wales – The Law Society Scotland – The Law Society of Scotland Northern Ireland – Law Society of Northern Ireland
You have to choose people to be your trustees, usually family members or close friends who you know you can rely on. Think carefully about who to ask, and make sure they’re happy to take on the responsibility. You should have at least two trustees, but probably no more than three or four.
- Or you can appoint a company as your trustee, such as a bank or firm of solicitors, but bear in mind they will charge.
- Instructing a solicitor to set up a trust for you can be expensive – typically around £1,000 or more.
- But using a solicitor helps you avoid costly mistakes, for example if the wording of your trust is ambiguous or misleading.
Some charities have schemes where they contribute towards the parents’ costs of setting up a trust for a disabled child. If you need long-term care and are a beneficiary of a trust, your local council will take into account the income and capital you’re entitled to when they assess you financially for their support.
How the money in trust is treated will depend on the terms of the trust. If you have access to the capital held in the trust, this will be treated by the local council as capital you own. If you don’t have access to the capital in the trust but are entitled to receive income from it, the capital is disregarded and the income is taken into account.
If you have access to both the capital and the income in a trust, the value of that income – together with the capital – are treated as capital you own. If you only have the right to receive payments from a trust at the discretion of the trustees, the local council can only take into account the actual payments you receive.
Some specific trusts are exempt from a local council financial assessment for care fees. For example, the value of funds held in trust – or administered by a court – which derive from a payment for personal injury to the person. If you need care and transfer your money into a trust to avoid the means-test for local authority support, it will almost certainly be treated as deliberate deprivation of assets.
You can get more information about trusts – including the types of trust and how they’re treated for tax – on the GOV.UK website
Should I put my house in a trust UK?
Purpose of Putting a House Into a Trust – Putting a house into a trust is a great way to ensure that the house will remain in the family after the owner has passed away. It allows for the house to be managed and distributed according to the wishes of the owner, and it helps protect the house from probate and taxes.
Does everyone get a trust fund UK?
What is a Child Trust Fund and who has one? – A Child Trust Fund (CTF) isa long-term tax-free saving account for children. They were designed to encourage children to become savers for their future adult life. You cannot apply for a new CTF because this government scheme is now closed but you can keep an existing CTF.
CTF’s were available to all children born in the UK whose parents were awarded Child Benefit between 1 September 2002 and 2 January 2011. All money earned on the CTF is tax-free, including capital gains, interest payments and any other money earned on the account. This means all the money in the fund belongs to the account holder and none of it will be lost in tax deductions.
The first CTFs matured in September 2020, when the oldest account holders turned 18. The last CTFs will mature in 2029.On maturity, CTFs can either be cashed in or transferred into an adult ISA. If you’re 18 or over and have money in a Child Trust Fund, find out more about your options
Who gets a trust fund UK?
Settlor-interested trusts – These are usually set up for spouses or civil partners, which can then be used in times of need, such as payment for medical bills. In these circumstances, the settlor can get the benefits of the trusts as well as the beneficiary.
How long can a UK trust last?
How long does a trust last for? In England a trust may continue for 125 years, although the trustees normally have power to end the trust during this period, if appropriate.
Why use a trust UK?
What trusts are for – Trusts are set up for a number of reasons, including:
to control and protect family assets when someone’s too young to handle their affairs when someone cannot handle their affairs because they’re incapacitated to pass on assets while you’re still alive to pass on assets when you die (a ‘will trust’) under the rules of inheritance if someone dies without a will (in England and Wales)
What is a trust fund for dummies?
What is a Trust Fund and How Does it Work? – A Trust Fund is a legal entity that contains assets or property on behalf of a person or organization. Trust Funds are managed by a Trustee, who is named when the Trust is created. Trust Funds can contain money, bank accounts, property, stocks, businesses, heirlooms, and any other investment types. These assets remain in the Trust until certain circumstances are met, at which point they will be distributed to the beneficiaries. The creator of a Trust, who is referred to as the Grantor, will determine how and when assets will be distributed. Typically these requirements are related to age, or place in life. For example, a Trust Fund could be granted to a beneficiary when they turn 21 or graduate college. If you want to learn more about how Trusts work, “> how Trusts work, or when you should create one be sure to read our guide.
What is required for a valid trust UK?
What are the requirements for a valid trust? In order for an express trust to be valid under English law the settlor must have capacity, the appropriate formalities need to be complied with, the trust property must be transferred and sufficient certainty is required.
How long does it take to set up a trust fund UK?
It usually takes between 5-8 weeks for a Trust Deed proposal to be drafted by the Insolvency Practitioner; this may vary according to the complexity of the case. The proposal is then passed to the creditors for approval, who may then take up to two weeks to approve.
What is the typical amount in a trust fund?
Average Trust Fund By Age – This table shows the average trust fund amount by age group.
|Average Trust Fund Amount
|75 or older