What is a Trust?
A trust is a legal arrangement where one or more ‘trustees’ are made legally responsible for holding assets.
The assets – such as land, money, buildings, shares or even antiques – are placed in trust for the benefit of one or more ‘beneficiaries’
The trustees are responsible for managing the trust and carrying out the wishes of the person who has put the assets into trust (the ‘settlor’). The settlor’s wishes for the trust are usually written in their will or set out in a legal document called ‘the trust deed.’
The purpose of a trust
Trusts may be set up for a number of reasons, for example:
- to control and protect family assets
- when someone is too young to handle their affairs
- when someone can’t handle their affairs because they are incapacitated
- to pass on money or property while you are still alive
- to pass on money or assets when you die under the terms of your will – known as a ‘will trust’
- under the rules of inheritance that apply when someone dies without leaving a valid will (England and Wales only)
There are several types of UK family trusts and each type of trust may be taxed differently. Find out more by following the link to types of UK family trusts and their tax implications.
There are other types of ‘non-family’ trusts. These are set up for many reasons. For example, to operate as a charity, or to provide a means for employers to create a pension scheme for their staff. Find out more by following the link below to heritage, charitable or business-related trusts.
What is ‘trust property’?
‘Trust property’ is a phrase often used for the assets held in a trust. It can include:
- land or buildings
- other assets, such as paintings, furniture or jewellery – sometimes referred to as ‘chattels’
The cash and investments held in a trust are also called the trust ‘capital’ or ‘fund’. This capital or fund may produce income, such as interest on savings or dividends on shares. The land and buildings may produce rental income. Assets may also be sold producing gains for the trust. The way income is taxed depends on the type of income and the type of trust. Find out more by following the link below.
What is a settlor?
A settlor is a person who has put assets into the trust. This is known as ‘settling’ property. Assets are normally put into the trust when it’s created, but they can also be added at a later date. The settlor decides how the assets in the trust and any income received from it should be used. This is usually set out in the trust deed.
In some trusts, the settlor can also benefit from the assets they’ve put in. These types of trust are known as ‘settlor-interested’ trusts and they have their own tax rules.