When we hear the words ‘trust fund’ our immediate thought is that it only applies to the super wealthy. While it is a good way of managing money and assets when you do have a lot to your name, it need not only apply to those with stacks of cash or lots of properties. We explore the types of trusts available and who they may be most suitable for in this month’s article.
What is a trust fund?
At its simplest, a trust fund is a way of managing assets for others. This could be in the form of cash, land, property, or other investments. They are typically set up to control assets or to manage the financial affairs of underage beneficiaries. They are also used to manage the finances of someone who may be unable to do so themselves – for example, they may be incapacitated through illness – or to pass on assets while still alive and be able to retain some control. Finally, they are a way of passing on assets when you die.
How do trust funds work?
There are two main types of trust: absolute and discretionary. Within those categories there are a number of specific types of trust that address different requirements, but overall these two types work as follows:
- Absolute trusts: the full benefit of the trust passes to the beneficiary. An example of this is a child reaching the age of 18 at which point they will have full access to the trust fund, owning outright any assets that it may include
- Discretionary trusts: the decision of whether or not to award full access to a beneficiary will be taken by the trustees, offering greater control over the trust. One key element to consider when opting for a discretionary trust is the level of tax that may need to be paid. While it is possible to reduce tax charges, it is a consideration and the right calculations will need to be made to ensure you make the right decision
There are a number of key considerations you will need to keep in mind when deciding how to set up a trust. The most important is arguably appointing the trustees to manage it. There must always be at least one trustee appointed, although there can be a number of them for any given fund. Trustees can change during the life of the trust fund as well. A trustee’s role is to act as the legal owner of whatever assets are being held in trust. They act in accordance with the settlor’s wishes (i.e. the person putting the assets into trust), managing the day-to-day workings of the trust, being responsible for tax payments, and making decisions on how to use or invest funds held in the trust. The trustee you choose must understand your wishes and you need to be sure that they will uphold them.
If you are considering setting up a trust fund, talk to our expert team at Hammonds Accountants and we can help you take the next steps towards setting things up for your loved ones. Call us on 020 8249 6328 or email us at for advice and assistance.