The Process of Distributing Trust Assets to Beneficiaries
There are a lot of complicated legal steps after the death of a loved one. Planning a funeral is just the beginning, and if they have adequately prepared for the eventuality of their death, there will probably be a will reading. Suppose your loved one sets up a trust. In that case, you are probably also wondering about the process for distribution of Trust assets to beneficiaries in the UK, among other things, or you may be thinking of setting up a Trust fund in the UK.
What is a Trust?
Before getting into the information about the distribution of Trust assets to beneficiaries in the UK, it’s important to understand what a Trust is. A Trust is an essential part of estate planning and an arrangement where a Trustee holds assets (money, property, etc.) for a beneficiary on behalf of a trustee. Trusts, unlike wills, are not dependent upon death.
Basic Trust Types
Here are some of the more common types of Trusts used in the UK.
A revocable trust can be changed, altered, or revoked whenever the Trustor decides. This allows the Trustor to remain in control of the trust while they are alive, and probate can be avoided upon their death. There are some drawbacks of a Revocable Trust as there are no tax benefits immediately and little to no asset protection because the Trustor still maintains control over the function and terms of the trust. After the death of the originator, a revocable trust can become an irrevocable trust.
After creating an Irrevocable Trust, the terms cannot be changed unless the beneficiary gives permission. This is because the Trustor relinquishes ownership of the assets to the trust. Because the assets no longer belong to the Trustor, they benefit from protection from creditors.
Each type of trust has benefits and drawbacks, and these are the main types of trusts. However, other types of trusts fall into these subcategories. An example of this is Asset Protection Trust in the UK, which is also known as an Asset Prevention Trust, which is an Irrevocable Trust. An Asset Prevention Trust also breaks down into other types like:
- Domestic Asset Protection Trust
- Foreign Asset Protection Trust
- Medicaid Asset Protection Trust
As you can see, there is a lot to Asset Prevention Trust and Asset Protection Trust in the UK, which is just one example of the complexities of Trusts.
Benefits of a Trust
The benefits of setting up a trust fund in the UK are as varied as the types of trusts there are. For the most part, the benefits of a trust are that they help provide financial security for someone in the future or protect your assets now.
Parts of a Trust
Setting up a trust fund in the UK, regardless of the type, has basic components: Trustor, Trustee, and Beneficiary.
When a will is created, the Trustor, or Settlor, decides what assets go into the trust. They are the originator of the trust, and they will then decide on the rules of the trust. This includes any objectives, how it will be paid, the termination, and the trust rules.
The Trustee is the person or institute that holds the trust for the Trustor. They work as the manager of the trust and as a middleman between the Trustor and the Beneficiaries.
Beneficiary or Beneficiaries
The Beneficiary, or Beneficiaries, is the person or people benefitting from the trust. This is where the distribution of trust assets to beneficiaries in the UK comes into play. Sometimes, the Trustor, Trustee, and Beneficiary can all be the same person.
Distribution of Trust Assets to Beneficiaries in the UK
How and when the distribution of trust assets to beneficiaries in the UK depends on the type of trust and the rules that govern the trust.
The Trustor decides how the assets should be disbursed and is added to the trust agreement. If the trust is meant to distribute during the Trustor’s life, then the Trustee will be responsible for the distribution. There are different ways that distributions can be made.
- Discretionary Distributions – This one is up to the Trustee’s discretion and offers the most protection against poor inheritance management on the part of the beneficiary.
- Staggered Distributions – Staggered distribution distributes over time based on the rules created by the Trustor. It can be done at regular intervals or triggered by an event such as coming of age or getting married.
- Outright Distributions – This distribution is when the beneficiary receives the trust without any restrictions. This is the most straightforward distribution, but it does not safeguard against reckless people with their inheritance.
Regarding the time frame of distribution, the Trustee has to distribute the assets within an amount of time probate law deems “reasonable”, but there aren’t guidelines that are set in stone. Essentially, like most things involved in a trust, it depends on the type of trust and the rules associated with the trust.
Because of the complexities of a trust, it is best to work with a law firm specialising in estate planning. At Trustmark Law, we specialise in Wills, including updating wills, LPAs, Trusts, and other aspects of estate planning. Give us a call to see if we can help you plan for your future and the future of your loved ones.