Different Types of Trusts for Estate Planning
Trusts are effective tools for estate planning. If used properly, they can protect your wealth for your loved ones. There are lots of different trusts available. The right approach for you depends on your individual circumstances.
What is a trust?
A trust allows you to set aside some or all of your assets for chosen beneficiaries. This includes money, property, stocks and shares. These assets are held by a friend, family member or professional on behalf of your beneficiaries. This person is known as a trustee.
The trustee controls the assets according to the terms of the trust. These vary depending on the type of trust you have set up. Some of the most common types of trust used in estate planning are:
With a bare trust, the named beneficiaries receive the income and capital of the trust at the age of 18. This is useful if you want to set aside money or assets for your children, but want to ringfence them until they reach adulthood.
Interest in possession trusts
Interest in possession trusts are also known as flexible life interest trusts. They allow you to have two different types of beneficiary – an income beneficiary and a capital beneficiary. The income beneficiary gets the income from the trust for a set period, or for the rest of their life. After this, the capital passes to another beneficiary. This is popular with people who have remarried but have children from a previous relationship. It enables you to provide for a spouse after your death, but preserves the actual assets for your children.
A discretionary trust gives total power to the trustees. They decide which beneficiaries should get assets from the trust, when this should happen, and how much the beneficiaries should receive. You can set some guidelines for the trustees to follow in a Letter of Wishes.
Discretionary trusts are primarily used when a beneficiary is not capable of handling their own affairs, perhaps because of their age, an addiction or a health condition. That way, you can still set aside assets for a particular loved one, but the trustees can use their discretion and decide whether the assets should be released.
Trust for a vulnerable person
A trust for a vulnerable person is similar to a discretionary trust. It holds money or assets for a person with physical and/or mental health conditions.
Estate planning trusts
Estate planning trusts are also known as lifetime trusts or property protection trusts. They work by placing your property into a trust. You name trustees – such as your children – who then have control over it. The property is held in this trust until both owners have passed away, after which it is inherited by your chosen beneficiaries.
A mixed trust is when you combine different types of trust. Trusts are very flexible legal devices, so you can pick and choose the elements that suit your needs.
If your desired trustees reside outside the UK, you need a non-resident trust.
Mark Cook Solicitors Sunderland
Trusts are not just for the rich and famous. People from all walks of life use trusts to protect their assets and ensure their wishes are fulfilled.
If you would like to find out more about trusts and how to use them effectively, please call us on 0191 567 7244 and we’ll be happy to help you. We can advise what types of trusts would best suit your needs.