Trusts: Making sense of the jargon
Learning just a few legal terms will help you understand how trusts work and how they might benefit you.
Trusts are legal arrangements that can help you pass on your wealth to children, grandchildren or others. They are often described using legal jargon, which can make it difficult to understand how they work or how they could benefit you. However, by learning some of the most common terms involved, you should be able to read about trusts with confidence and start working out whether they could help you with your succession planning.
Although trusts can take many forms, they all follow the same basic principles. They enable you, the “settlor”, to transfer ownership of assets to the “trustees”, who hold the assets for the benefit of specific people, known as “beneficiaries” (see below for further details about these terms).
Transferring ownership of assets in this way can have many advantages. For example, it can help you to:
- Avoid probate on assets transferred to the trust – probate is the legal process of settling your estate after your death and can be a lengthy and expensive process. Assets transferred to a trust by an individual prior to their death are not subject to probate.
- Provide an effective means for how those assets are used to benefit beneficiaries both during your lifetime and after your death.
- Provide an effective means for planning for changes in family circumstances.
Every trust is different, and the exact arrangements and potential benefits will depend on your individual circumstances.
Depending on your residence, domicile and nationality and the location of your assets the tax consequence of a trust for you as the settlor and for the beneficiaries will vary.
Barclays International Banking does not provide tax advice so you should seek independent legal and tax advice in relation to your personal circumstances.
The key people involved in a trust
- The settlor – the person transferring assets into a trust for the benefit of others. Once the assets are placed in trust, they are no longer owned or controlled by the settlor.
- The beneficiaries – the people who can benefit from the trust.
- The trustees – the people who take control of the assets, manage them and, in some cases, decide on the benefits provided to beneficiaries. Trustees are obliged by law to act in the best interests of the beneficiaries in terms of how the trust is administered and managed.
- The protector – some trusts have a protector. The protector can be a friend of the settlor who is known to the family. The protector acts in a supervisory role; he may be given certain powers in relation to the trust, e.g. the ability to hire trustees, the power to fire trustees, the ability to veto certain trustee decisions.
Frequently used trust terms
- The trust deed – a legal document which sets out the terms of the trust.
- The trust property (or the trust fund) – the assets added to the trust. The trust property / trust fund includes all assets transferred to the trust, e.g. real estate, cash, shares, bonds and other investments.
- Letter of wishes – a non-legally binding document in which the settlor can provide the trustees with general guidance about how they want the trust to be run.
- Fiduciary – a term used in a variety of ways to describe the responsibility undertaken by one party to another in a particular matter in circumstances which give rise to a relationship of trust and confidence. A person or organisation may be referred to as “a fiduciary”. You may also hear terms such as “fiduciary duty” which is often used to describe the duties of the trustee to the beneficiaries.
Other things to consider
The cost of setting up and running a trust can vary widely, depending on its complexity. However, you will typically be expected to pay an initial set-up fee followed by regular ongoing administration fees, which must be factored in at the outset.
Nevertheless, it is important you choose your trustees based on more than costs alone. Although they will be obliged by law to act exclusively in the interests of your beneficiaries, the serious nature of their responsibilities means you should choose them with care. Barclays International Banking works only with high-quality trust providers run by highly experienced professionals.
If you have a Relationship Manager**, they can put you in touch with one of our Trust Specialists, who can help you decide whether a trust could be right for you, and help you set up the necessary arrangements if you decide to go ahead. Alternatively, please give one of our Service Executives a call on +44 (0)20 7574 3212* to discuss whether our trust services might be appropriate for you.
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