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What is a Trust and when should it be included in my Will?

A Trust is a legal arrangement where the ownership of someone’s assets is transferred to someone else to look after and use to benefit a person (or group of people).  In very simply terms, a Trust offers a mechanism of managing money or property for a person (or a group of people) who may not be able to manage or in a position to manage the money or property for themselves. The assets are placed in a Trust which is also know as a Trust Fund.  The people who look after the Trust are known as Trustees and the person who benefits from the trust is known as a Beneficiary.

A Trust is created by a Will and takes effect on a persons death or by a legal document known as a “Deed of Trust”.

Types of Trusts

Trusts are usually put in place for the following circumstances:

  • For children under 18 years of age in the event of the death of both mother and father a trust can provide a mechanism to manage the assets until the children are adults or they reach the age as set out in the trust document.
  • For someone with a disability (whether under or over 18) a discretionary trust can be a useful mechanism here. This type of trust is discussed in further detail below.
  • For a relative who is not able to look after themselves or requires long-term care.

What is the role of a Trustee?

A Trustee has a legal relationship with the beneficiaries of a Trust. A Trustee must do whatever is in the best interests of the beneficiaries of the Trust.  The powers of the Trustees will depend upon what powers they were granted under the Will or deed of trust. Any actions carried out by the Trustee must be authorised by the terms of the Trust itself, and the law.

The duties of a Trustee include:

  • Faithfully carrying out the terms of the Trust
  • Gather, manage and control the Trust assets and to invest and manage the assets in accordance with the terms of the Trust and the law.
  • Keeping detailed records of all assets that are in the Trust, all income received from the assets, and all expenses of the Trust .
  • Ensuring that all tax returns required for the Trust are filed and all taxes are paid. A Trustee where necessary should consult a professional such as an accountant.
  • Treating all beneficiaries equally or as per the terms of the Trust.

Who should you appoint as your Trustee?

A Trustee can be a family member, friend or a professional person such as a solicitor or an accountant. A professional trustee is allowed to charge for their work and their charges will be deducted from the Trust Fund.

Trustees should be appointed with care. Your Trustee does not need to have any special qualifications, but you should choose someone who is reliable and willing to act and are in a position to carry out the duties of a trustee. It is advisable to appoint a Trustee who is resident in the state, as a Trustee residing outside the state could cause practical difficulties in administering the estate.

The age of the Trustee is a factor that should be given some consideration. While there is no age requirement there are obvious reasons against appointing someone who is too elderly or too young.  It would be important to appoint someone who would be alive and able to manage the Trust for its term.

The Trustee’s job involves a fair amount of  responsibility. A person cannot be forced to take the role of a Trustee. It is not a requirement that you obtain a person’s consent before appointing them as Trustee in your Will, but from a practical point of view it would be advisable to ask the person or persons whether or not they are willing to act.

Who you appoint as Trustee in your Will in entirely up to you.  Appointing a Trustee in a Will can be done by simply naming him/her in your Will.

How many Trustees should there be in my Will?

Two or three are preferred. Four is usually the maximum.

What is a Discretionary Trust?

A Discretionary Trust is one where the Trustees have a wide discretion to apply income or capital for the benefit of certain beneficiaries. The beneficiary of a Discretionary Trust does not have the right to receive any benefit from the trust unless and until the trustees make an appointment to that beneficiary. They can also be used where a testator’s wish is for there to be flexibility as to how his or her income or capital is used or where a beneficiary is not capable or responsible enough to look after their own financial affairs.

In particular, a Discretionary Trust provides a flexible structure for parents with a child or adult child with special needs who may not have the capacity to hold assets directly or to manage the assets.

Discretionary Trust Tax

Discretionary Trust Tax consists of an initial levy and an annual levy. There is an exemption for Trusts created exclusively for incapacitated persons. There is no relief for business assets, agricultural assets or government stocks or securities held in such a Trust.

Discretionary Trust Tax, if it applies, will apply to the entire value of the fund. The initial levy is taxed at a rate of 6%.  The annual rate thereafter is 1%.

If you would like further information on creating a Trust or wish to discuss options relative your individual circumstances, please Contact Us to arrange a convenient appointment.

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