UK Trust

All Trust structures broadly follow the same principles, assets are transferred by the Settlor to a trustee who has a duty to manage them for the benefit of defined beneficiaries. The trust has remained very much the same since its early inception back in the 13th Century. However, there is now a series of regulations, which manage the relationships between the various parties of the trust. Whilst all trusts share similar core principles, there are particular distinctions between the key types of trust – Discretionary, Fixed Interest, Accumulation and Maintenance and Bare Trusts.

There have been a number of changes to the taxation of UK Trusts over recent years and they are now less likely to be used as a tax efficient vehicle. However there are still many uses for a trust, in particularly for family planning, charitable purposes or for client privacy.

Types of Trusts

All trust structures broadly follow the same principles. There are, however, certain subtle distinctions between the three key trust types:

Discretionary
This is the most commonly used type of trust. Named beneficiaries of a class of beneficiaries do not necessarily have a fixed interest or equal interest in trust assets but enjoy benefit levels at the discretion of the trustees. The trustee has discretion on payments being made from trust income (and sometimes capital), how they are made and to whom. This discretion is of particular benefit when there is a beneficiary unable to take care of his/her own interests, perhaps due to their age or medical circumstances – the trustee therefore being able to make distributions according to individual circumstances.

Accumulation and Maintenance
Trust income is used to look after young people while they are minors. Any residue income will accumulate and is added to the trust assets, which will be distributed to the beneficiaries on or before a certain date, such as their 25th birthday.

Fixed Interest Trusts
This is a trust where the beneficiary has an automatic and immediate right to income arising from trust assets. Normally this beneficiary will have no rights to the trust capital that will often pass to a second beneficiary in the future.  These trusts are often used to give a widowed spouse a life-long income with capital assets passing to offspring on his/her death.

UK Charitable Trusts
These are widely used in the UK with the distinction that they will have a charitable purpose that is for public benefit, who in effect become the beneficiaries.

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Benefits of Trusts

There are many advantages to using an offshore trust structure:

Estate planning
A trust structure can often avoid forced heirship issues which dictate in certain jurisdictions how assets are to be distributed on death. This can be particularly beneficial should there be a vulnerable family member who will require financial security into the future.

Family Wealth Preservation
This is the most commonly used type of trust. Named beneficiaries of a class of beneficiaries do not necessarily have a fixed interest or equal interest in trust assets but enjoy benefit levels at the discretion of the trustees. The trustee has discretion on payments being made from trust income (and sometimes capital), how they are made and to whom. This discretion is of particular benefit when there is a beneficiary unable to take care of his/her own interests – the trustee being able to make distributions according to individual circumstances.

Tax structuring
In certain situations, trusts can be used to shelter assets from capital gains, income and inheritance tax. We work with a number of specialist tax advisers who assist us in creating bespoke structures for clients to attain their specific objectives.

Asset Protection
Trust assets can at times be ring fenced to protect them from creditors.

Charitable Purpose
Trusts can be established for charitable funding purpose. These trusts will not have named beneficiaries but offer a good deal of flexibility for making charitable donations either on a fixed annual basis or at the discretion of the trustees.