Trusts Guide: Trusts Investments Explained.


Trusts are often seen as something that only the wealthiest people will be involved with: however, the reality is that many people will come in contact with trusts during their life, perhaps without even realising it.

In this trusts guide, we offer a trusts definition and explain some of the technical details about trusts including how they can be set up and how they are taxed.

Trusts Explained: What is a trust?

In short, a trust is basically a legal arrangement in which someone’s assets (which could include shares, cash or property) are transferred to someone else (normally a group of people or a company). The idea is that these assets are used to benefit a third party.

The person who gives the assets to the trust is referred to as a grantor or a settler whereas the people who look after the trust are the trustees and the person who benefits is the beneficiary.

Details are outlined in what is called a “trust deed” while assets will be placed into a “trust fund.” The trust cannot own assets: the trustees instead are the legal owners. Even though they are the legal owners however, it is necessary for them to place the needs of the beneficiaries ahead of their own.

Trusts Explained: Why consider a trust?

Trusts are actually much more common than you may think. As an example, the majority of pension schemes are structured just like trusts – this is because employers give cash to a fund manager who then invests with the aim of benefiting the employees.

In a similar fashion, life insurance is often “written in trust.” The idea is that when an insured person dies a policy will pay into a trust that is run by the insurer: the insurer then pays out the cash based on the deceased person’s wishes. This helps to reduce inheritance taxes and also ensures that the wishes are followed carefully.

In addition, trusts are regularly used as charity foundations. The Wellcome Trust for example, donates around £300million towards medical research every year; and there are also a host of smaller trusts that focus on individual good causes.

Many people will also encounter trusts to arrange financial affairs for their family. Here trusts give a settler confidence about how their assets will be used – it manages money and property for people who may not be in a position to do it for themselves. It is even possible to set up trusts for people who are not born, for example, future grandchildren.

Generally, family trusts like this are used to provide for wives or husbands in the event of a death while still protecting the interests of a child, to protect the inheritance for young children, to support vulnerable relatives and to help family business succession planning.

All of these examples highlight how useful trusts can be when planning how assets and money can pass across generations.

Trusts Explained: Are trusts confidential?

In many cases, people like trusts to be kept confidential. They are usually personal arrangements that show how a family’s savings should be distributed and this can mean that even the beneficiaries should not know about the trust.

As such, most trusts, similar to bank accounts, are kept confidential. There is generally no requirement to issue details about the trustees, settler or the beneficiaries. However, many major economies will insist on trustees informing the tax authorities when a trust is established.

Trusts Explained: What about taxes?

You may see some promotional materials suggesting that trusts are a way of avoiding tax. However, this should not be the reason why you set up a trust: remember that when establishing a trust, the settler will give up ownership of the assets.

Most tax advantages are given to trusts that are deemed to be doing “social good.”  Charitable trusts clearly fit that mould while trusts that are meant to look after vulnerable relatives also earn some advantages. Just bear in mind that there are strict rules as to how these tax advantages are gained and they are policed closely.

Trusts Explained: Is a trust right for you?

If you’re considering a trust, then you should first speak to a financial adviser. Remember that everyone’s situation is different and what’s right for one person may not be right for another. Make sure you get tailored advice based on your individual circumstances.

Also bear in mind that there are fees and charges based on the trust that you choose. Typical fees to look out for include buying and selling charges, stamp duty, set-up fees, transfer fees and annual account fees.

Should you wish to find out more based on your individual investment strategy then you can contact Unite now who can put you in touch with a qualified financial advisor.

PLEASE NOTE: This article is meant to be a general guide to Trusts. It is not to be constituted as financial advice. If you are considering investing in Trusts seek independent financial advice first.