A Trust is simply Person A (known as a Settlor) transferring assets to Person B (known as a Trustee) for the benefit of Person C (known as the Beneficiary).

The Trust could be created during a person’s lifetime or on their death.

A person could potentially have one or more of these roles.

Any person or company can be appointed as a Trustee.

The main types of Trusts are:

A Bare Trust – The Trustee is holding funds for a Beneficiary which the Beneficiary can demand to be handed over to the Beneficiary at any time.

A Life Interest Trust – A beneficiary (known as a Life Tenant) is entitled to the income generated by a Trust Fund for a set period, usually for life. When the period comes to an end, the Trust assets then belong to another specified beneficiary (known as a Remainderman).

A Discretionary Trust – The Trustees hold assets for a number of specified beneficiaries. The beneficiaries are not entitled to anything from the Trust. The Trustees usually have discretion as to which beneficiaries should receive anything from the trust, how much and when.

A Contingent Interest Trust – A beneficiary is entitled to the Trust Fund but only when a set contingency has been achieved for example the beneficiary has reached an age where the beneficiary is now entitled to receive the assets in the Trust.

In most situations this is not an advisable thing to do as you are losing control of the ownership of your own home.

There is no guarantee that it will be effective in protecting your home from care home funding as the “deliberate deprivation” rules could apply.

If you are continuing to live in, or have a benefit from the property, then it is likely to be included as part of your estate for inheritance tax purposes under the “gift with a reservation of benefit” rules.

You will also be placing your home into a special tax system known as the “relevant property regime” which could potentially result in charges on the trust being created (known as “entry charges”), ten year anniversary charges (known as the “periodic charge”) and charges when funds leave the trust (known as “exit charges”) which then also has special reporting requirements to H M Revenue & Customs.

H M Revenue & Customs have created a Trust Registration Service. It is now a requirement of all express trusts (with a few exceptions) to be registered with them. Further details about whether the Trust should be registered with H M Revenue & Customs can be found here.

Trusts that should register, and were created before the 6th October 2020, even though they do not have a tax liability, must register by the 1st September 2022.

Trusts that should register and were created after the 6th October 2020, even though they do not have a tax liability, must register within 90 days of being created (or the date of when the Trust became registerable) or by 1st September 2022 (whichever is the later)

If the Trust is taxable then you should take advice from a suitably qualified tax adviser to ensure that your necessary reporting obligations are being complied with by the necessary specified deadlines to avoid penalties and interest being incurred. If you are not sure whether a Trust is taxable then you should still take advice from a suitably qualifies tax adviser to confirm the position.

There are various rules that a Trustee must comply with which include (but this is not an exhaustive list):

  • Records should be kept for tax purposes. More information can be found here.
  • The trust assets must be kept separate from the Trustee’s own money.
  • A Trustee must always be prepared to produce accounts to show how the funds are being looked after.
  • A Trustee should look after the trust assets with a greater degree of skill and care then they would otherwise look after their own assets.
  • A Trustee is required by the Trustee Act 2000 to take investment advice when looking after Trust Assets.
  • A Trustee should not benefit themselves by virtue of their position as a Trustee.

You should always take advice from a specialist lawyer before creating a trust.

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Would you like to know more?

For help and advice, talk to a member of our team. They can advise on the best options in your matter.

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