Protect your wealth

By Michael Fogg

As a professional Private Client Solicitor, I’m often asked about Trusts. For my fi rst article in the Cardiff Times, I’ve tried to answer some of the more common questions. Please get in touch if you have any other questions you want answered in future months.

What is a Trust?

A Trust gives an individual (called the Settlor) the ability to appoint one or more people to look after assets for others. It is a legal entity, much like a person, a business or a society. A Trust is created by a document called a Trust Instrument which: • appoints one or more Trustees, (who are responsible for managing the assets and dealing with legal responsibilities like tax returns), • defi nes the Benefi ciaries of the Trust, and • states how the Trust assets can be managed.

A Trust can legally own assets – either as real estate property or more liquid assets like life policies, shares, or cash, for the benefi t of the Trust’s benefi ciaries.

There are several types of Trust which can be used by a Settlor, with diff ering aims. These include:

Bare Trusts

Where the Benefi ciary has a right to all Trust capital and income at any time from their 18th birthday. Discretionary Trusts

Where Trustees have discretion to decide what gets paid out to which Benefi ciary, as set out by the Trust Instrument. This could be any Trust income or capital.

Accumulation Trusts

Like Discretionary Trusts, the Trustees may be able to pay income out. These Trusts also give the Trustees the ability to accumulate trust income and add it to trust capital.

There is also the potential to mix elements of the four Trusts detailed above. It is also possible for the Settlor to be a Benefi ciary and/or a Trustee of a Trust that they decide to set up. There are diff erent rules which govern Trusts when some or all of the Trustees are not UK residents for Tax purposes.

What are the Costs?

The legal wording of a Trust Instrument needs to be precise, so you should ask a solicitor to set it up for you. The cost charged by a solicitor will vary, but is likely to start from between £1,000 – £2,000. There are also often additional costs, chargeable to tax, depending on the amount that is initially put into the Trust.

Are Trusts just for the ultra-wealthy?

It is a common misconception that Trusts are just for those who have signifi cant wealth. In fact renowned American polymath Oliver Wendell Holmes, Sr once advised that a man should “put not your trust in money, but put your money in trust”. Now more than ever it is sensible for anyone who wants to leave assets to members of their family to consider one.

It is possible to set up a Trust for several reasons, including: • Making sure that your own money is used for you if you can’t look after yourself; • To look after the needs of someone who isn’t able to manage their money (for example, someone with mental health condition or learning diffi culty, especially if they are in receipt of means tested benefi ts); • To ensure that your assets get to your chosen Benefi ciaries before your death.