Finding The Right Trust for You
INTRODUCTION
Choosing the right trust depends on its desired purpose, the level of control you’ll need, and your beneficiaries, tax treatment, and asset protection needs. Here, we’ll compare the main types of trusts so you can decide which is right for you.
DISCRETIONARY TRUST
The Purpose of a Discretionary Trust is to give trustees the flexibility to decide who benefits and by how much. Trustees have discretion over the income/capital distributions, and the typical beneficiaries are charities or classes of beneficiaries (e.g., “all my grandchildren” or “the employees of Company X”).
Tax Consequences:
• Entry Charges as Chargeable Lifetime Transfer
• Ten-Year Periodic Charges
• Exit Charges
• PET relief if the settlor survives 7+ years
This type of trust is best suited for those protecting assets, managing family wealth, and supporting vulnerable beneficiaries.
LIFE INTEREST TRUST
A Life Interest Trust is where a beneficiary, or ‘Life tenant’, receives income or use of an asset for life; the capital then passes to other beneficiaries upon the death of the life tenant. Typical beneficiaries include spouses, partners, or vulnerable adults who need periodic access to income, but not necessarily the asset itself. The trustees pay an income or allow the use of property, for example, to the life tenant; fixed right.
Tax Consequences:
• Potential Chargeable Lifetime Transfer charges
• Assets may be considered part of the life tenant’s estate for IHT
This is most suitable for those who have spouses or partners staying in their property, for blended families, or those responsible for vulnerable persons needing a regular income.
DISABLED PERSON’S TRUST
A Disabled Person’s Trust is for the protection of a disabled or vulnerable person. Trustees manage the assets and decide how income/capital is applied, holding the legal title. Its structure is Discretionary or Interest in Possession.
Typical Beneficiaries include disabled or qualifying vulnerable individuals. Statutory means-tested.
Tax Consequences:
• No entry charges
• No 10-year periodic charges
• No exit charges
• On death, trust assets form part of the beneficiary’s estate for IHT purposes
This trust is right for parents or trustees managing funds for a disabled child/adult seeking favourable tax treatment.
BEREAVED MINORS TRUST
Bereaved Minors Trusts are statutory trusts for a child under 18. A child gains full entitlement at 18. The trustees maintain legal control, and the child is beneficially entitled but cannot make investment decisions. Its typical beneficiaries are therefore children who have lost a parent.
Tax Consequences:
• Forms part of deceased’s estate (IHT applies)
• No entry charges, 10-year charges, or exit charges
This trust is suitable for parents who wish to leave property to their children via their Will.
BARE TRUST
A Bare Trust is one in which the beneficiary has immediate right to income and capital. Trustees hold legal title, but the beneficiary controls the assets. Typical beneficiaries for this type of Trust will include minors, adults needing administrative holding, or companies holding property on trust for individuals.
Tax Consequences:
• Treated as an absolute gift; PET 7-year rule applies for IHT
• Potentially favourable property tax treatment if held by a company for an individual
This trust is suitable for simple trusts with no discretionary powers, administrative holding for adults or minors.
Meet The Author
Annie Gibbons joined our Private Wealth & Philanthropy team as a paralegal before progressing into her role as a trainee. From the outset, she made a remarkable impression. Her intelligence, dedication, and natural aptitude for the work has been remarkable. The Private Wealth & Philanthropy team have expressed that it has been a pleasure to watch Annie grow throughout her first seat. Beyond her technical strengths, Annie has brought warmth, positivity and a collaborative spirit that have enriched our working environment.
Annie leaves our Private Wealth & Philanthropy team on a high note, having prepared this insightful infographic on Trusts. This is a topic she has approached with clarity and care. We hope our readers will find it both informative and thought provoking.
Our Private Wealth & Philanthropy colleagues wish Annie every success in her next seat in our Employment team as she will continue to excel and make a lasting impact.
Annie Gibbons
Trainee Solicitor
annie.gibbons@laytons.com
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