Trusts

The use of trusts, either set up during a person's lifetime as a means of estate planning, or upon death through a person's Will, is a complex area that requires careful consideration of trust law and the way that trusts are taxed. Trusts vary so much depending on the purpose for which they are created. It is important to establish from the outset what type of trust is most suitable.

The nature of a trust in essence is a straightforward concept. In simple terms assets are placed into a trust and are managed by trustees for the benefit of named beneficiaries. The choice of trustees and beneficiaries is made by the person creating the trust. Whilst the concept of a trust is generally straightforward, often the circumstances surrounding the creation of the trust are more complicated, and it is these circumstances that influence what type of trust is most appropriate.

Discretionary Trust
The nature of a Discretionary Trust is that there is more than one beneficiary and the trustees are given an absolute discretion as to who should benefit from the trust assets and any income arising from those assets. Discretionary Trusts are useful in the context of asset protection. For example, when drafting your Will it may be sensible to create a discretionary trust so that your trustees can distribute your estate when the time and circumstances are right - this may not be upon your death e.g. if one of your children was bankrupt, was lacking financial maturity or in the process of getting divorced.

Discretionary Trusts can also be set up during your lifetime as a means of providing for beneficiaries and also estate planning by reducing the size of your estate for inheritance tax purposes. This type of trust can also be an effective way of reducing or even avoiding paying care fees (please see our Elderly Client Services Section).

Life Interest Trust
The nature of a Life Interest Trust is that there is only one beneficiary, unlike Discretionary Trusts where there is a class of beneficiaries. The sole beneficiary is entitled as of right to any income produced by the trust and where the trust comprises a property, or a share in it, the use of that property for life. Quite often these arrangements will be created by a deceased spouse's Will. On the death of the beneficiary the life interest ends and the trust property either passes into a further trust or, more typically, to named beneficiaries outright.

The use of life interest trusts is particularly common where a couple remarry and both have children from their respective previous marriages. Structuring things in this way ensures that the competing interests of the security of the surviving spouse and the children of the first to die are balanced. Like Discretionary Trusts, Life Interest Trusts can also be used as a means of care fees avoidance.

Personal Injury Trust
A Personal Injury Trust is a specialist trust designed to ring fence and protect damages paid to the victim of a personal injury. By sheltering the damages in this way certain state benefits are protected and the long term financial affairs of the victim can be managed responsibly by the trustees.

At Pinney Talfourd Solicitors we are able to advise on the merits or otherwise of creating a trust including taxation advice, preparation of the relevant trust documentation, and advise on the ongoing trust administration as and when the need arises.

Our advice extends both to lifetime trusts and those created by your Will. To find out more please contact our friendly Private Client Department.

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