A trust is a legal arrangement which enables a person (‘the settlor’) to transfer the legal ownership of property, shares or cash to another person (‘the trustee’) to hold on behalf of a third person or persons (‘the beneficiary”).
The main reason for setting up trusts is the protection of family interests. For example:
- To protect wife and children
If a settlor wished to ensure that their spouse and children were adequately provided for in the event of their death, they might create a trust in their Will giving the spouse the right to live in the family home for the remainder of their life, while at the same time ensuring that the house would go to the children of the marriage on the death of the surviving spouse. By doing this, the settlor would be able to prevent the spouse cutting the children out of their Will in the event of the spouse’s subsequent re-marriage.
- To provide for individual children
A parent or grandparent might wish to set up a trust to provide for the financial needs of one or more of their children, such as their education or the maintenance of a child with disabilities.
- To protect vulnerable children
A settlor might alternatively wish on their death to put inheritance money into the hands of trustees to prevent an immature or irresponsible child from extravagantly dissipating a gift. Similarly the interests of a son or daughter could be protected against the risk of assets being lost as a result of bankruptcy or divorce.
- To provide for long term care
A trust could be created to hold sufficient funds to provide for the long term care of an aged dependant, such as a widowed mother, with provision that on the death of the beneficiary the trust capital would revert to the family or settlor.
- Generation skipping
If a wealthy settlor was confident that their spouse had ample funds for their own needs, and wished to avoid adding to those funds and thereby creating an unnecessary tax liability, he or she could set up a trust for the primary benefit of the children, while permitting access for the surviving spouse if needed.
- Personal injury trusts
People who have received Court awards as compensation for personal injury can benefit from having the award held in a personal injury trust, because money held in the trust and any payments made from the trust are generally disregarded for the purposes of the means testing of Social Security benefits.