There are many advantages to setting up a trust. They offer a level of protection and control of assets that other wealth management and estate planning options often cannot match.
While the use of trusts has become common place, it is critical not to forget the basics of how trusts work.
Trusts are a complex structure. As such, the below details are general in nature and should not be construed as tax and/or legal advice.
What is a trust?
Put simply, a trust is an equitable relationship between a legal owner (the trustee) of property (the assets of the trust) and one or more other parties (the beneficiaries) under which the trustee holds the assets of the trust for the benefit of the beneficiaries.
Unlike a company, a trust is not a legal entity. All the actions of the ‘trust’ are undertaken by the trustee.
Trusts are used in the modern environment for many purposes:
- Asset protection
- Estate planning
- Enhanced confidentiality
- Preservation of family assets
- Tax planning
- Protection for those unable to look after their own affairs
Types of trust
There are many different types of trusts. Discretionary trusts where the interests of beneficiaries are at the discretion of the trustee to purpose trusts that are intended to fulfil a purpose, rather than to benefit a beneficiary.
Once you’ve placed the assets into a trust, you can’t usually change your mind and take them back, so it’s important to make sure that you’ve chosen the right trust for your needs.
The importance of the trust deed
The details of the trust relationship are set out in the trust deed. This is the legal document that the trust must operate by.
Who are the parties involved in a trust?
The settlor is the owner of the property and assets who creates the trust and transfers the assets to the trust. They also establish the rules of the trust and states how the trust should be managed.
The trustee has the responsibility to administer the trust on a day-to-day basis. The trustee/s is/are the one/s that makes decisions on what the trust will invest in, what income distributions will be made, etc. They can be an individual, a group of individuals, or a company.
The beneficiaries are the parties that can benefit under the trust, most commonly through the distribution of income or capital from the trust.
In summary
Those who are unfamiliar with the operation of trusts are often concerned at the concept of transferring legal ownership of their assets to a third party trustee.
In this respect, Baker Tilly Isle of Man are able to demonstrate many years of operation as a responsible and professional trust service provider and are always happy to discuss the concept of trusts with their clients.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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