Trusts can provide an effective way to hold family wealth. They can provide protection for the assets and enable a long term strategy for passing down the family wealth to be evolved and actioned. There are tax issues which need to be taken into account and whilst the post March 2006 IHT regime appears to have some drawbacks, with careful planning long term savings can be made. The tax and legal issues involved in using trusts can be complex and professional advice should be taken in every case.
Absolutely entitled - the beneficiary has the full right to both income and capital
Accumulation - the practice of keeping income within the trust rather than paying it out to beneficiaries
Beneficiary - someone who can benefit from the trust
Capital - the funds placed into the trust by the settlor
Disabled person’s interest - a trust in which funds are held for the benefit of a person who has a disability within the meaning of the IHT legislation
Discretionary - applied to a trust where the decisions about income and capital are left to the trustees alone
Gift with reservation - a gift of an asset where the donor retains some rights or benefits
Interest in possession - the automatic right to receive the income of the trust each year
Life interest - see ‘interest in possession’
Life tenant - the individual who holds the interest in possession
Nil rate band - the first part of an individual’s estate which is taxed at 0% for IHT (2007/08 £300,000)
Power of advancement - the legal power given to trustees to pay out capital to a beneficiary
Power of appointment - legal power for trustees of one trust to transfer capital into another trust
Settlor - usually the person who has established the trust. NB there is a wider definition for tax purposes
Trust deed - the legal document which sets out the terms of the trust and the powers and duties of the trustees
Trustees - people with ultimate responsibility for the running of the trust