Trusts
A Trust, also known as a Settlement, is an arrangement whereby a person known as a Trustee holds property or assets of any kind for the benefit of another person called a beneficiary. A Trust is created when a person known as the Settlor transfers property to the Trustees.
Trustee
A Trust, unlike a company, is not a legal person and the Trustee therefore is the legal owner of the Trust assets which he manages in accordance with the terms of the Trust Deed for the benefit of the beneficiaries.
Beneficiaries
The beneficiaries are the person or persons on whose behalf the Trust assets are held and managed by the Trustees. They may be specified in general or need not be specified in full upon the initial settlement of a Trust.
Types of Trust
Though Trusts can take many different forms they normally fall within one of three broad categories, namely:
1. The Discretionary Settlement
The Trustee has discretionary powers as to the administration and application of the Trust Fund for the benefit of the beneficiaries. Very often the Settlor will give the Trustees a "Letter of Wishes" setting out the Settlor's wishes concerning the way in which the Trust should be administered, and as to how the income and/or capital of the Trust Fund should be dealt with.
2. Life Interest Settlement
A beneficiary or beneficiaries have absolute entitlement to the trust income as it arises. The Trustee is bound to administer the Trust assets in accordance with precepts laid down in the Trust Deed and has no discretion.
3. Accumulation and Maintenance Settlement
The Trustees are able to utilise income for the maintenance and education of children with capital passing to children or grandchildren at a predetermined age.
Uses of Trusts
Asset Protection
A Trust can be used to provide a person with a means to protect assets from future creditors.
Tax Planning
Trusts are frequently used for effective tax planning purposes. The benefits and tax savings are, however, dependant upon such factors as the residence, domicile and citizenship of both the Settlor and Beneficiary. We therefore recommend that appropriate tax planning advice be taken at an early stage.
Protection against Political or Economic uncertainty
By placing assets in a Trust established in a secure and financially sophisticated offshore location such as Jersey, international investments can be protected from existing or potential restrictions faced in another territory.
Providing for Family
The formation of a Trust is an important way of ensuring that third parties, typically family or friends, may benefit from certain assets in accordance with the wishes of the Settlor
Confidentiality
A Trust is an extremely private arrangement which involves no public disclosure or indeed registration and can be used to preserve anonymity.
Other uses:
1. To avoid restrictions imposed by local inheritance laws;
2. To protect assets from spendthrifts;
3. To provide assets for the benefit of a minor.
Trusts and Wills
Trusts offer the opportunity to reduce the potential liability to Inheritance Tax. They can be created during your lifetime or on death using your Will.
There are a number of advantages in using Trusts. A Trust could do some or all of the following for you:
1. Any increase in capital within the Trust would be outside your Estate for Inheritance Tax purposes provided that you (the Settlor) are specifically excluded from benefiting from the Trust.
2. Some Trusts allow the Settlor to enjoy an income from the Trust.
3. After seven years all the original investments into the Trust could be outside your Estate for Inheritance Tax purposes.
4. Some Trusts have the effect of removing some capital immediately from the Settlor’s Estate.
5. Trust assets can be paid out to the Trustees before Probate is granted.
6. Foreigners owning offshore assets can set up Trusts to protect them from being liable to Inheritance Tax.
7. Through a Trust you can control who receives the capital and income and when it is received.
8. Trusts are often regarded as being more certain than Wills if the Trustees are chosen carefully, as Wills are more likely to be challenged or could be changed by using a Deed of Variation.