Trusts

Question 1

What is a trust

Answer 1

• A trust is an arrangement of where a person (the settlor) transfer a property over to another person (the trustee) who then manages this property on behalf of the beneficary
• A trust can be created by writing a trust deed or included in their will

Question 2

What rules do trustees need to follow when managing investments

Answer 2

• Need to follow the Trustee Act 2000, unless trust deed overrides it

Question 3

What are the 4 main types of trusts

Answer 3

• Bear (Aboslute) trust
• An interest in possession trust
• Charitable trust
• Discretionary trust

Question 4

What is a bare trust

Answer 4

• Where assets e.g property, are legally owned by the trustee for the benefit of the beneficiary. - **Income and capital gains tax are the beneficaries for tax purposes **
• Used when a proposed beneficary e.g. child or incapble of dealing with money

Question 5

What is an intrest in posession trust

Answer 5

• Beneficary has an interest in the benefits of the assets held in a trust until death.
• Where the assets of a trust are invested, one party will have the right to income or share in property. Usually after the death of that party, the assets of the trust/ reversionary interest will be held for the benefit of the second class beneficiary (remainderman)

Question 6

When is an interest in possession trust used

Answer 6

• Used in wills to provide for spouse or partner, while protecting the assets for the ultimate beneficaries from claims on the survivor estate

Question 7

What is a charitable trust

Answer 7

• Set up for the purpose of charitable deeds e.g. relief of poverty, advancement of religion, or anything that benefits community

Question 8

What is a discretionary trust

Answer 8

• The trust property is held for the benefit of the beneficaries and the trustee have discretion about how much to give which beneficaries and when

Question 9

When is a discretionary trust used

Answer 9

• For when children and grandchildren, with discretion over payment of income until each child becomes entitled to their share in the estate at a given age.
• Naming various beneficiaries who are able to beenfit at the trustees discretion according to need

Question 10

What benefit does the trustee have in a discretionary trust

Answer 10

• Have more freedom e.g, the assets placed in a trust becomes property of the trust itself and trustee claims responsbility. (in other trusts how trustees can act with regard to assets is strictly defined
• Trustees ca decide on amount each beneficary recieves

Question 11

Why may beneficaries trusts may be used

Answer 11

• As they are useful fo mitigating inheritance tax (IHT) liabilities
• Beneficary tax rates are 45% but can reclaim

Question 12

What should a settlor include in their will

Answer 12

• A ‘letter of wishes’ which contains guidance for the trustees regarding how the trusts assets should be distrubuted

Question 13

What are the main duties and powers of a trustee

Answer 13

• Invest in a trust fund (unless trust is an insurance plan)
• To act impartially - The trustee must not act different to any beneficary
• To take appropriate advice - one or more trustee are qualifed to give advice, hwoeevr overall resposnbility lies with trustee
• To distibute trust properly
• To keep the trusts propery secure - e.g. If funds includes something tangible like a house, they are resposnible for making sure it is insured
• To keep trusts records