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Trusts

A Trust is an arrangement for the holding and administration of property owned by one person (the Settlor) under which ownership is transferred to another person (the trustee) who is then to hold it or use it (a) for the benefit of a third person (the beneficiary) or (b) for some stated purpose.

Trust advice from EBS Trustees Lanark Scotland

Trusts create a separate legal entity for inheritance tax (IHT) purposes and shelter its assets from the creditors of the Settlor(s) and beneficiaries. Trusts can be particularly useful for child beneficiaries, thus allowing the Trustees to retain control of assets left to children until they attain a certain age, commonly 25. Similarly, Trusts are often used where an amount of money has been received in compensation for a Personal Injury or, possibly as a result of Medical Negligence. These are sometimes called Personal Injury Trusts.

There are different types of Trust and each may have differing consequences for IHT and/or Capital Gains Tax. The main types of Trust are:

Discretionary Trusts – A great number of trusts are set up as Discretionary Trusts, which give the Trustees, suggested by the name, the discretion to deal with the Trust assets as they deem appropriate. They are also called flexible trusts

Interest in Possession Trusts – in Scotland these are usually called Liferent Trusts. Under these trusts the beneficiary has a present right to the present enjoyment of the trust property. This means the income generated from trust assets or the property belonging to the trust, for example a home. They are often used in a Will whereby a person dies leaving a surviving spouse. The surviving spouse can enjoy the income from the assets placed in the trust (this can be cash, shares or use of the family home) but cannot dispose of the trust capital. This ensures the children would receive their inheritance, after the Interest in Possession comes to an end.

Bare Trusts – A bare trust is one where the beneficiary has an immediate and absolute right to both the capital and income held in the trust. Someone who sets up a bare trust can be certain that the assets (such as money, land or buildings) they set aside will go directly to the beneficiaries they intend. Once the trust has been set up, the beneficiaries cannot be changed.

Bare trusts exist when a person transfers assets to children. Trustees hold the assets on trust until the child is 16 in Scotland or 18 in England & Wales. At this point, the child can demand that the trustees transfer the trust fund to them. Many people take the view that age 16 or even 18 is too young for a person to take absolute control of assets/funds. Commonly, bare trusts are not used in order to avoid this problem

EBS Trustees has, over many years, created hundreds of Trusts for clients and continues to do so. Once the Trusts are set up we manage them efficiently and review them annually. Some of the Trusts Management services include:

  • Annual Review of the Trust
  • Preparation of Annual Trust Accounts
  • Preparation of Tax returns, when required.
  • IHT tax charges on trusts
  • Annual review of investments (if any) in conjunction with an Independent Financial Adviser.
  • Recommendation to Trustees of any changes in the law that may affect a Trust.

If you think this something that may be of use to you or you would just like to have an informal chat then please do not hesitate to contact us.

Nothing on this website constitutes legal advice and EBS Trustees accepts no liability for any actions taken by any individual in reliance of what is written here.

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