26th October 2020

Many people are concerned about whether their assets will pass on to their loved ones after they die.

By planning ahead and taking steps sooner rather than later, you can enable the transfer of assets to run smoothly from one generation to the next and preserve family wealth.

In this blog, I will cover the basic terms and definitions associated with Trusts.

What is a Trust?

The Oxford Dictionary definition of a trust is:

‘an arrangement whereby a person (a trustee) holds property as its nominal owner for the good of one or more beneficiaries.’

But what does this mean?

A trust is a legal agreement in which a person (the ‘trustee’) has agreed to ‘look after’ the assets (‘property’) of a second person (the ‘settlor’) for the benefit of a third person (the ‘beneficiary’).

Example: John has given Karen £50 to look after for her son Peter. By doing this, a trust has been set up with John as the settlor, Karen as a trustee and Peter as a beneficiary.

What is property?

The property is deemed to be the assets owned that are placed into the trust. This can include money, investments, land, buildings and artwork.

The money and investments held within the trust are often referred to as ‘capital’ or ‘fund’ of the trust.

What is a settlor?

The settlor is the person who has established the trust and put property into it. This can be when the trust is created, or at a later date.

What is a trustee?

The trustees are the legal owners of the property held in the trust. They are legally responsible for looking after the trust property for a particular purpose.

The trustees administer the trust and make decisions regarding how the property held is to be used e.g. loans to beneficiaries, absolute gifts, income to beneficiaries.

What is a beneficiary?

The beneficiary is anyone identified within the trust who can potentially benefit from the property held in the trust. There can be one or more beneficiaries, such as a family or a class of people, for example, the settlor’s children.

Each beneficiary can benefit from the trust as required and this does not need to be equally.

Trust frameworks frequently use discretionary pilot trusts that are established during lifetime with a £10 trust fund. This allows trusts to be used by clients during their lifetime and provides a greater level of flexibility.

These trusts hand a lot of power to the trustees. The trustees ‘discretion’ is used to decide how the trust is run, how to use the trust’s income and even to decide how the assets in the trust are distributed.

We recommend a Letter of Wishes is put in place alongside the trust. This provides guidance to the trustees regarding how the settlor would like the trust assets to be handled.

In my next blog, I will cover some common client scenarios and trust based solutions.


Barra Gorman FPFS

Chartered Financial Planner