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Setting up a trust in the UK: what you should know

October 9, 2023

Trusts in the UK began when medieval monks wished to enjoy the benefit of land without infringing their vow of poverty by actually being owners of the land and when medieval landowners went abroad on religious crusades and pilgrimages, leaving behind their families and their lands. Since then trusts were always about holding the property for the benefit of another person.

Nowadays trusts are a unique legal construction that is very useful when you want to save money for the future of your family or children, to increase the value of your estate, to ensure future generations of your family benefit from your estate or to ensure that you’re cared for if you’re no longer able to manage your own money due to illness.

The most common reasons to choose a trust are to support someone who can’t manage their money, to provide for people under 18, to protect against potential divorce or bankruptcy or to potentially bypass inheritance tax, to split the benefits or to protect the wealth or to secure protection for vulnerable individuals who may have disability, learning difficulties or financial issues that they cannot control.

The trust is a way of owning the property under which assets are held by another person (a trustee) for the benefit of another person (beneficiary/-ies), or for certain purpose, in accordance with special equitable obligations.

A trust may have several trustees and several beneficiaries. You can appoint one of your family members, close friend, professional adviser or trust company to be the trustee. The usual number of trustees is two to four because it falls within the statutory rules about certain types of trusts.

To create the trust you can choose one of three usual methods:

1. Declaring yourself to be a trustee, when you as the absolute owner of an asset declare that you hold the asset for the benefit of someone else;

2. Transferring property to trustee on trust – when an absolute owner does not retain legal title to the asset, but instead transfers it to a trustee to hold on trust for beneficiary;

3. Declaring the trust by Will to deal with the protection of assets after your death.

A valid trust can exist only if the owner of the property (a settlor) intends to create a trust and defines the relevant property and beneficiaries clearly. So, it should be three certainties in place:

  • the intention of the settlor or testator (by Will) to create the trust;
  • clear description of the trust property (trust fund) and the respective interests of beneficiaries;
  • clear identification of the beneficiaries.

It depends on your intention and the purpose of trust you want to create which type of trust you should choose. Also while choosing the type of trust aspects should be considered such as the beneficial interest and taxation of trust. The main taxes to consider when advising on the type of trust are: inheritance tax (IHT), capital gains tax (CGT) and income tax.

Creating a trust is a very accurate process that needs to be very precise in wording. That is why it is important to discuss it prior to creation and prepare all deeds and other documents with the professional help of a solicitor. Wallace Robinson & Morgan have years of legal experience, so if you have any questions regarding creating a Trust, drafting a Will or other asset management, we would be happy to help. Please do not hesitate to contact either our Solihull office on  0121 705 7571 or our Dorridge office on 01564 779393, or email us at enquiries@wallacerobinson.co.uk.

Kateryna Knyazyeva
Paralegal – Commercial Department

This article is for general information purposes only. It does not constitute technical, financial, legal advice or any other type of professional advice and is no substitute for specific advice based on your individual circumstances. We do not accept responsibility or liability for any actions taken based on the information in this article. For more information, please click here.