Managing and protecting assets when you’re estate planning can be complicated and confusing at times. Trusts are a really useful tool to allow you to pass on your wealth to your beneficiaries, and sometimes they can have some real benefits. Here are the four main types of trusts:
Bare Trusts
These are the simplest form of trust to understand. You’ll name your beneficiary from the beginning, and this can’t be changed. The trustees will hold the assets until your beneficiary is entitled to receive them, which is typically at the age of 18 in England and Wales. Here your beneficiary will have an absolute right to the assets, making it a really straightforward method overall.
Interest in Possession Trusts
This type of trust gives your named individual the right to receive income from your assets, either for their life or for a defined time frame. They don’t usually have the right to the actual capital – the assets themselves – however, which might be kept aside for someone else in the event of the beneficiary’s death. So, for example, a surviving husband or wife could receive income from a rental property held in trust, but the property itself will later go to the children. You’ll need to be aware of any tax implications, particularly if you’re a trustee.
Discretionary Trusts
These are a more flexible kind of trust and give the trustees total discretion over how and when they’ll distribute the income and capital among your chosen list of beneficiaries. Nobody will have the automatic right to the assets, which leaves things flexible and open for your beneficiaries’ needs. There can be tax implications to watch out for, which an experienced London law firm such as Forsters can help you to navigate.
Charitable Trusts
A charitable trust is established for charitable reasons, and these have some clear tax advantages – they’re exempt from capital gains and inheritance tax but must be registered with the Charity Commission and used only for specific public benefit and charitable causes. These could include relieving poverty, for example.