Trusts are created when the settlor transfers assets to trustees, who in turn hold the assets in trust for the beneficiaries. One of the main reasons an individual would place assets in to a trust, rather than making an outright gift, is that trusts often carry more flexibility. For example, a parent who wishes to gift £50,000 to each of their two children, rather than simply giving each of them a cheque, may prefer to place the money in trust. The terms of this trust may then state that the trustees pay each child interest on the funds until that child reaches a certain age, say 21. The trust could further provide that, when each child turns 21, they will receive a pro rata share of the capital rather than all of the capital outright. This will enable the parent to hold more control on the child’s spending than they may have had were they to have just given each of them a cheque for the funds.
There are countless variations on the trust theme. A grandfather whose children may produce more grandchildren could set up a trust for the benefit of both his living and potential grandchildren. The owner of a little-used holiday home might wish to use a trust to give a friend a ‘life interest’ in the home, but then have the home revert to the homeowner’s child after the friend’s death.
A person can create a trust whilst alive, upon death or a combination of both. For most people, a trust created on death will be most relevant. If a person wishes to create a testamentary trust upon death, they would generally provide for it in their Will and this trust would specify the assets that are to be settled on the trust, detail the trustees, set out the terms of the trust and name the beneficiaries of each asset within the trust.
When a person creates a living trust they generally do so by signing a deed of trust, in which they specify the assets that they are transferring to the trust, appoint the trustees, set out the terms of the trust and name the beneficiaries, similar to the trust above.
Trusts may not exceed 125 years however some trusts, most notably charitable trusts, may last indefinitely if this was the intent of the settlor of the trust.