Trusts can be created in the following ways
1. During the lifetime of any individual
2. Upon death in a Will
3. Upon Intestacy
Lifetime trusts are normally used for tax reasons, in particular, inheritance tax. They are specialised instruments into which can be placed property, sums of money or investments/policies which will be held in trust for a particular person or group of beneficiaries.
These types of trusts are separate and different from trusts which are created in Wills as life time trusts are exactly that – they are set up by a person during their lifetime to give away assets into a trust for the benefit of spouse, child, grandchild, etc. . The trust assets are looked after and managed by the trustees who are appointed and chosen by the person who sets up the trust.
As these types of trusts are specialised instruments, people who are interested in making lifetime trusts of this kind should first speak to their accountant and possibly even their financial advisor who would be able to calculate the best type of trust instrument to use i.e. a discretionary trust or an interest in possession (life interest) trust, etc. . The type of trust used would be dependent upon the individuals needs, what they wish to achieve and what assets they are placing into the trust.
Trusts created upon death
The following trusts are the most trusts created in a Will
- Bereaved minors trusts (where the Testator leaves property on trust for a minor child/children till the age of 18);
- 18-25 trusts;- Where property is left on trust for children between 18-25. The assets in the trust are not subject to tax up until the child/children attain 18. Thereafter, the trust falls within the relevant property regime and it will attract an exit charge at 25 when the trust finally pays out.
- Disabled persons trusts – Special tax rules apply;
- Discretionary Trusts – attract IHT at 10 yearly intervals and once the trust finally pays out
Trusts created upon intestacy
- Bereaved minors trusts –statute provides that where the deceased did not leave a Will and left bereaved minors over whom he had parental responsibility, a trust would be created;
- Life interest trusts – Where the deceased died intestate and left children, a life interest is created in favour of the spouse over part of the estate. Similarly, where the children are minors therefore not able to take their share, a trust is created.