Information about Trusts – what is a Trust?
Information about Trusts – What is a Trust?
A Trust is an obligation binding an entity (which can be an individual or a company/corporation) called a Trustee to deal with property in a specified way; for the benefit of one or more Beneficiary/Beneficiaries.
What is a Trustee?
Trustees are the legal owners of the Trust property. However, Trustees are legally bound to look after and administer the property of the Trust in a certain way and for a particular purpose: as dictated by the wording of the Trust. Trustees administer the Trust and in certain circumstances make decisions about how the property in the Trust is used.
A Trust can continue even though the Trustees might change. Normally there must normally be at least one trustee. Most people appoint at least two or three.
What is Trust Property or Trust Assets?
The property of a Trust can include the following Trust assets:
- land or buildings;
- other assets, such as paintings, antiques, jewellery.
The cash and investments that are held in the trust are also called the ‘capital’ or ‘fund’ of the trust. This capital or fund may produce income, such as interest or dividends. The land and buildings may produce rental income. The way income is taxed depends on the type of trust and the type of income received.
What is a Trust Beneficiary?
A beneficiary is anyone who benefits from the property or assets held in a Trust. There can be one or more beneficiaries, such as a whole family or a class of people, and each may benefit from the Trust in a different way.
For example, a beneficiary may benefit from:
- the income only, or
- the capital only, or
- both the income and capital of the trust.
What is a Trust Settlor?
A Trust Settlor is a person who has put property or assets into the Trust. Property is normally put into Trust when it is created, but it can also be added at a later date.
How is a Trust created?
Normally a Trust is created by a Trust Deed. A Trust Settlor might ask a professional trust advisor such as Templar Estate Planning to draw up a Trust deed, which then sets out the terms of the Trust.
A Trust can be created under the terms of a Will, in which someone gives instruction that, when he or she die,s some or all of the estate is to be placed in Trust.
A Trust can also occur if a person dies without leaving a Will. Sometimes the Courts will create a Trust; typically when dealing with property for the benefit of a child or an incapacitated person who cannot manage his or her own financial affairs.
I am a Trust Settlor – what do I have to do when a Trust is created?
Trust law and the taxation of trusts can be complicated. If you want to create a Trust and know your responsibilities as a Trust settlor, you should seek professional Trust advice from Templar Estate Planning. An expert can then draw up the trust deed for you, and give advice on other legal matters relating to trusts.
What are my responsibilities as a Trustee?
Your responsibilities depend on the type of Trust and the terms of the Trust deed, under which the Trust is created. The Trust settlor may have given instructions that Trustees carry out different roles and functions. Trust Law may, however, impose further obligations. Speak with Templar Estate Planning if in doubt.
For taxation purposes you are responsible for:
- notifying the Inland Revenue that tax is due, within six months of the end of the tax year for which it is due, where you have not received a tax return for the year
- keeping records of the income and capital gains of the trust
- completing and sending back any tax return issued to you
- paying any tax due on the income or capital gains of the trust
- supplying certificates or vouchers to the beneficiaries to show how much income they have received from the trust in the tax year and how much tax the trustees have deducted. (Inland Revenue Trusts can supply forms for you to use.)
Depending on the terms of the trust deed, you can appoint a professional adviser, such as a solicitor or accountant, to carry out some or all of these tasks. However, if you do, you are still responsible for ensuring that all tax obligations are carried out satisfactorily.
What happens when a Trust ceases to exist or Trust ends?
If a Trust is wound up the Trustees must notify the Inland Revenue Trusts Office and complete a tax return for the period up to the date the Trust is wound up.
Remember, for each Trust, you need to:
- make provision for any tax liability that might arise;
- consider whether the ending of the trust gives rise to a capital gains tax liability.
If the property of the trust is distributed before any outstanding tax is paid then you might have to pay that tax out of your own pocket.