Trust and Trustees

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A Trust exists where property is held by a trustee or trustees for the benefit of others. Trusts may arise expressly (where for example they are created intentionally by a will or deed of trust) or where their existence is implied for example A uses B’s money to purchase an asset.

The concept of trusts is an extremely fluid legal device and will provide a legal solution to a vast army of problems, for example;

  • Defining the respective interest of joint owners of assets – such as land.
  • Enabling individuals to create flexible solutions in their wills – for example providing a life interest to surviving spouses/ partners (enabling someone to enjoy the use of an asset in their lifetime) but with the certainty that the asset can be passed on intact to children (perhaps of an earlier relationship) upon the death of the life tenant.
  • Enabling benefit to be made available to disadvantaged dependants – for example the disabled – without affecting their state benefit entitlement. A discretionary trust is usually used here- giving the trustees total discretion as to what if any amounts are paid to the beneficiary. Trusts can sometimes be a useful device in planning to mitigate liability for nursing home fees.
  • Mitigation of liability to tax – especially inheritance tax – see separate briefing note.

Pursuant to the Trustee Act 2000, trustees have onerous duties. A trustee is personally liable for any breach of duty. A trustee must:

  • Act in good faith and in the interests of the beneficiaries.
  • Invest the assets of the trust prudently - and in accordance with the obligations of the trust deed. Careful drafting of the deed to provide appropriate investment powers is important. Trustees should take (and regularly review) proper investment advice – which should be properly acted upon.
  • Maintain proper accounts and be in a position to fully justify their dealings to beneficiaries.
  • Not act where there is as conflict of interest – for example using information gained as a trustee for personal advantage.
  • Trustees have a general duty to act prudently – for example, making sure that assets are safeguarded appropriate insurances are in place and so on.

Trusts are subject to special rules for taxation. So for example:

  • A trust does not have an annual “personal allowance” for income tax.
  • Income on discretionary trusts is presently taxed at 50% (from 06/04/2010) – there are exemptions for trusts set up for orphans or the disabled (known as vulnerable beneficiary trusts).
  • There are tax avoidance mechanisms – so for example if a trust is created – but the donor (or the spouse/civil partner) retains an interest in the asset – then the tax becomes subject to “pre owned asset” tax. This is extremely complicated but in simple terms the creation of a trust in these circumstances is not effectible to avoid tax.
  • Inheritance tax- see separate briefing note.

Trusts are a wonderfully flexible legal mechanism. It is very important to ensure that they are carefully set up (we would always recommend a formal deed), and administered and that care is taken in the choice of Trustees. Lawson Lewis Blakers will accept appointment as Trustees in appropriate cases.

Lawson Lewis Blakers are able to offer specialist advice in relation to all issues concerning UK based trusts including:

  • The drafting of Trust Deeds.
  • Appointment and retirement of trustees.
  • Declarations of Trust for jointly owned land.
  • Preparation of will trusts to help in succession planning – increasingly important with modern complex family structures.
  • Dealing with all issues concerning the taxations and administration of trusts.
  • Creation of vulnerable beneficiary trusts.
  • Resolution of disputes concerning trusts and trustees.

 

WE ARE ABLE TO OFFER SPECIALIST ADVICE

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Robin Comber
Chartered Legal Executive

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Holly Maxwell Gumbleton
Solicitor

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