Family Trusts & Divorce

Trusts are legal arrangements where assets — money, investments, land and buildings — are managed for the benefit of specific people, often family members and loved ones.

Trusts involve a ‘settlor’ (the person who puts assets into the trust), ‘trustees’ (those who oversee and manage the trust) and ‘beneficiaries’ (the people who benefit from the trust).

A trust is a legal arrangement. Ownership of assets are placed and held in the trust, which is managed by one or more trustees.

The trustees are the legal owners of the assets in the trust and their duty is to deal with the assets according to the wishes of the settlor (the person who placed the assets into the trust), as set out in the trust deed.

It’s the responsibility of trustees to pay any taxes and decide how to invest or use the trust’s assets.

Beneficiaries of a trust might benefit from a trust’s income (such as rent from a property in a trust), capital from the trust (such as when a beneficiary reaches a certain age) or both.

Trusts may be set up for a variety of reasons, such as to:

• safely pass on assets to your next generation
• fund education for children or grandchildren
• provide for vulnerable loved ones, children or partners from different relationships
• manage personal injury compensation
• reduce inheritance tax payments
• protect assets from creditors or divorcing partners.

Many types of asset can be added to a trust, including:

• financial assets, such as money
• investments, such as stocks, shares, bonds
• real estate, such as land and buildings
• personal contents and possessions, such as jewellery
• business assets, such as ownership shares
• life insurance policies and their proceeds.

A trustee is someone who has been appointed by the person who set up the trust (either during their lifetime or in their Will) to manage the trust and its assets for the benefit of its beneficiaries.

Trustees deal with the trust assets in accordance with the provisions of the trust and manage the trust on a day-to-day basis. They must act in the best interests of the trust’s beneficiaries.

To administer the trust effectively, trustees are given a number of powers by law and in the trust deed. 

A trust deed is a legal document that clearly outlines beneficiaries and trustees, terms of the trust, assets involved and how the trust should be managed.

A trust is created with a trust deed, a document outlining the trust’s beneficiaries, trustees, terms and assets. A trust can also be written into a Will.

It’s possible to create a trust deed yourself, but given the legal and tax complexities involved, we’d recommend enlisting the help of a professional trust solicitor, especially if there are high-value assets involved.

Trusts can differ by their purpose, tax implications and level of control given to beneficiaries — these are some of the most common types.

• Bare trust — The beneficiary has the absolute right to the assets and income from the trust. This is the simplest type of trust and is often used to hold assets for children until they reach a certain age.
• Interest in possession trust — A beneficiary has an immediate right to the income from the trust as it may arise, after expenses. An example of this type of trust may be to provide for a spouse while preserving assets for children. A life interest trust is a specific type of interest in possession trust.
• Discretionary trusts — This gives the trustees control over how and when income and capital are distributed between beneficiaries. This structure offers flexibility and asset protection but can have complex tax implications.
• Settlor-interested trusts — Set up to benefit the person who set up the trust (the settlor) and possibly their spouse. They’re often used for situations involving incapacity or future planning.
• Charitable trusts — Set up exclusively for charitable purposes and must benefit the public. These trusts enjoy favourable tax advantages, including exemptions from income, capital gains and inheritance tax.
• Vulnerable beneficiary trusts — Designed for beneficiaries who may be disabled or vulnerable. These trusts offer special tax advantages to ease financial burden.
• Non-resident trusts — Trusts where the trustees are based outside of the UK. These can have different rules in relation to income, capital gains and inheritance tax.
• Personal injury trusts — These hold compensation received from a personal injury claim. They protect the compensation from being used in means-tested benefits assessments and ensure that funds are managed appropriately.

Yes — it’s very common for property to be formally transferred into a trust. This may be done for reasons of estate planning, inheritance tax and asset protection. Some people consider placing properties in a trust in order to prevent it from being used as part of care home fee payments.

It’s important to be fully aware of the tax implications of placing your house into a trust. We can help you to explore all your options.