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What is a Trust? Key Benefits and Uses in Estate Planning

There are many misconceptions of what a trust is and when they should or could be used.

This article by Ola Szymaniec, a Solicitor in our Private Client team, is a starting place to find out whether a trust arrangement may be right for you.

What is a trust?

A trust represents the relationship between the legal title of an asset and the equitable interest. In other words, a trust is simply a legal mechanism which describes how and for whom an asset is held.

If we put the legal jargon to one side, this simply means:

  • The legal title gives the owner the right to manage, administer and transfer the asset.
  • The equitable interest describes the right to enjoy the asset. For example, if it is a property, then this is the right to reside in the property or take the rent that it earns. If it is shares, then it is the right to receive dividend payments.

Most people do not have a trust, and this means that they are owners of both the legal title and equitable interest.

A trust operates on the basis that the people who hold the legal title are often, but do not have to be, different to those who hold the equitable interest. A common example would be as follows:

Mrs Green owns both the legal title and equitable interest in a property.

She transfers the legal title to her friend, Mr Brown (the “trustee”) and the equitable interest to her children (the “beneficiaries”). The purpose of this is that the property is now no longer owned by Mrs Green, but her children also cannot just sell the property and do not have to be responsible for managing it.

Another key feature of a trust is that the trustees owe the beneficiaries a number of enforceable general and fiduciary duties. Being a trustee is an onerous task and one that ought not to be taken up lightly or without proper advice.


Why do people want trusts?

There are several reasons why people use trusts today and those reasons have changed over time.

Historically, trusts were used to remove assets from an estate with the hope of reducing a future inheritance tax bill. However, since 2006, the way in which trusts are taxed has hugely changed and it is imperative that you get advice about how your trust will be taxed.

Most trusts set up since 2006 will have 10-yearly anniversary charges and a charge on every time that money leaves the trust. It is important to remember that not all trusts are taxed in the same way.

When we give advice regarding estate planning, it is important to clarify what your main priority and then you can seek advice that tries to achieve that priority.
For some people, trusts are used to protect vulnerable beneficiaries. Perhaps you have a child or family member who you want to make sure is looked after but you’re worried about them managing money.

For others, trusts are used to avoid disputes in the future. If you have contributed different amounts of money towards a property, you could create a declaration of trust to protect your interest. Alternatively, if you want to retain a level of control over who inherits your estate, a trust could be used to achieve this.

Finally, a trust can also be set up for a particular purpose like a charitable intention or a pension. A charitable or a disabled person’s trust will also attract more favourable tax treatment.

How can Morr & Co help?

At Morr & Co LLP, we can assist you in your estate planning by identifying whether a trust is right for you and if so, which trust will help you achieve your objectives.

If you have any questions or would like any further information on the content of this article, please do not hesitate to contact our Private Client team by emailing [email protected] or calling us on 01737 854 500.


Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.

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