BY ANDREW MITCHELL OF ARMSTRONG WATSON

WHAT is a trust and why do I need one?

In its simplest terms, a trust is where one person (the settlor) gives another person (the trustee) some assets which they are to hold for the benefit of a third party (the beneficiary).

A trust is a way of passing assets to those you wish to, whilst still being able to potentially retain control, or specify certain conditions over the assets. For example, you could name yourself as trustee, giving you the ability to decide how and when beneficiaries receive income or capital. Alternatively, you could specify that any minors are not to receive assets absolutely until they reach a certain age.

A trust can also enable you to pass on assets to a class of beneficiaries – for example, children and grandchildren, with the flexibility of not needing to know at the outset exactly how they are to be split. Some beneficiaries may not even be born yet when the trust is set up!

There are different types of trusts – including bare, discretionary and interest in possession trusts – depending upon your own requirements, and the taxation implications of each differ.

Why do I need one?

Trusts are used for many reasons, including:

• Protection of assets

• Passing assets to the intended beneficiaries whilst still retaining an element of control

• Passing assets on for the benefit of minors who you may not wish / are not able to hold the assets themselves

• Provision for family members

• To assist with succession planning in a family business

• Tax planning – whether inheritance tax, capital gains tax or income tax.

Aren’t they expensive to set up and run?

There are various set-up costs involved when transferring assets into a trust – advice needs to be received, legal documents drafted and the adviser needs to be satisfied that the trust is set up in the best way for the client, however, done correctly, the savings available when using a trust can far outweigh the costs - often in the first year of operation.

People are often unsure about the use of trusts as they feel it sounds like it might be a lot of hassle. In practice, however, often there can be very little ongoing administration and they can be simpler than initially feared.

* If you’d like to discuss whether a trust might be a good option for you, please get in touch with Andrew Mitchell, Armstrong Watson Tax Partner, on 01756 620021.