Frequently Asked Questions About Trusts
If you don’t know where to start when it comes to trusts and tax planning, you’re certainly not on your own. These are complex topics, with many important considerations.
We’ve put together these frequently asked questions to help get you started. Please don’t hesitate to get in touch if you have a question that isn’t answered here.
How many types of trust are there?
There are many different types of trust, including bare trusts, discretionary trusts, charitable trusts, life interest trusts and personal injury trusts. You can read more about some of these different types of trusts and how they differ from each other in our help guide Trusts: A Detailed Guide.
What do the terms ‘settlor’, ‘trustee’ and ‘beneficiary’ mean?
The person who sets up a trust and transfers their assets into that trust is called the ‘settlor’, as they are settling those assets on another person. The trustee is the person who takes on the legal ownership of the assets in the trust and looks after them on behalf of the beneficiary, who is the person who will ultimately benefit from the assets held in trust.
Who owns the assets in a trust?
In terms of a trust, the concept of ‘ownership’ is not straight-forward. When assets are placed into a trust, ownership has to be split into two separate strands: legal ownership and equitable ownership. When an asset is held in trust, the trustees will be the people who have legal ownership. For example, if money or property is being held in trust for a child, it will be the trustees whose names are on the bank accounts and the Land Registry documents for the property. However, those trustees will only hold the legal ownership of the assets. The beneficiary/ies of the trust (in this example, the child the assets are being held for) will hold the equitable ownership, which means they are the ones who are able to benefit from the assets.
How many trustees should a trust have?
A trust must have at least one trustee, but there are no rules as to how many more than that it can have. Having more than one ensures that if one trustee is unable to act for whatever reason, there will be other trustees who can take over. You should take a practical approach, though, as your trustees will need to work together. In most cases, we recommend no more than four.
In cases where there is property in the trust, or when assets are being held for a minor, you’ll need at least two trustees for legal reasons.
Do all trustees have to agree?
Yes, trustees must act unanimously in the exercise of their powers, although there are some exceptions to this.
Is there anything that can be done if a trustee isn’t doing their job properly?
Being a trustee is a big responsibility. Some trustees might not be fully aware of what these responsibilities are, while others might be purposefully avoiding aspects of the role. If you are a beneficiary of a trust and believe that the trust is not being managed as well as it should, we’d advise seeking legal advice about the situation as soon as possible.
Who is responsible for registering a trust and completing accounts and tax returns?
The trustee of a trust will be responsible for all aspects of managing that trust, including keeping detailed trust accounts, and, if applicable, registering the trust with HMRC and completing annual tax returns. If there are multiple trustees, it will be up to those trustees to decide how responsibility for these tasks is distributed between them, although they’ll all be liable if the job isn’t done properly.
What if you don’t know how much inheritance tax has to be paid before it becomes due?
The process of administering an estate isn’t always straightforward. Especially with more complex estates, it may take a long time to fully assess the extent of an estate in order to value it. In these situations, you may not be able to complete an inheritance tax form and receive notice of how much inheritance tax is payable before that inheritance tax becomes due. A solicitor will be able to advise you about paying money on account before you have received a final bill.
Can you access money in an estate to pay the inheritance tax before Probate has been granted?
If probate has not yet been granted, it is usually possible to access money in bank accounts to pay the tax and the bank will pay the money directly to HMRC. If there is no cash in the estate however, then this is less straight-forward. The personal representatives may need to pay some tax themselves in the first instance, or obtain a loan, then claim it back from the estate once probate has been granted and assets have been sold.
Is there any way to avoid a family home being sold if care home fees need to be paid?
In some situations, it may be unavoidable for a house to be sold in order to cover the cost of necessary care. However, this certainly isn’t always the case. If you are concerned about the possibility of this happening in the future, we’d advise seeking legal advice about estate planning and planning for care home fees long before you think you need to.
Who is responsible for keeping trust accounts and submitting annual tax returns?
The trustees of a trust are responsible for keeping financial records for the trust in order to provide beneficiaries with statements and submit annual self assessment tax returns.
If the trust has more than one trustee, usually a ‘principal acting trustee’ will be nominated to take charge of these tasks. However, the other trustees will still retain responsibility in these cases and can still be held accountable if the principal acting trustee fails to carry out their responsibilities.
For much of the work we undertake here at Roche Legal, we can offer a fixed fee. For non-fixed fee work, we charge based on our time spent on your matter in accordance with our hourly rates applicable at the time.