A trust fund is a legal contract that allows an individual to hold onto an asset for the benefit of another individual, group, or organization. Trust funds in the UK come in many different types that all work a little bit differently. There are also a few reasons why you should seek out trust funds over something like wills and estate planning.
Why Choose a Trust Over a Will?
Although they function similarly, a trust fund offers many advantages over a will. Allowing your heirs to avoid probate is only one such advantage as wills are required to do so. The probate process is when your assets are transferred via court over to the recipients designated in your will. A trust will avoid the costs and delays associated with probate.
With a trust, you also receive more control over how your assets are distributed. A will requires that if a minor is set to inherit a donor’s assets, the probate court must name a conservator to manage those assets until the donee reaches the age of 18. A trust will allow you to appoint a trustee to make all spending decisions for the child until they become of age.
Lastly, a will is not a private affair. All probate proceedings and court documents are visible to the public allowing anyone to read the terms set in the will. A trust is a contract and thus the terms are kept confidential.
Types of Trust Funds in the UK
As previously stated, there are many varying types of trust funds. However, they will all fall into two primary categories.
Revocable
Also known as a “living trust,” revocable trust funds in the UK tend to be flexible. This means that they are both alterable as well as dissolvable should the trust no longer be required. A revocable trust can help to avoid probate; however, estate taxes remain unavoidable. These trusts will automatically convert to an irrevocable trust upon the passing of the grantor.
Irrevocable
As the name implies, irrevocable trusts cannot be changed once established. This means that once a transfer of assets from the grantor to the benefactor has occurred, the trust cannot be altered. Irrevocable trust funds receive more tax benefits and creditor protections than that of the revocable type.
How To Set Up a Trust Fund?
Setting up a trust fund in the UK is no easy task so you’ll want to know and understand all steps involved in the process. Before looking into acquiring trust funds in the UK, it’s best to ensure you have enough assets to make it worth your time.
A trust fund will set the rules on how your assets are passed on to the recipient(s). This process involves the donor or grantor, who establishes the trust fund, grants the assets, and sets the management terms. A recipient, or beneficiary, who will receive the benefits granted by the trust, will also need to be selected. Once established, a trustee will be chosen to ensure the beneficiary receives those benefits in accordance with the established terms set by the grantor and in accordance with applicable law.
To save time in the process, it may help to list out all of your assets, the planned beneficiaries, and what they are set to receive.
Should You Start a Trust Fund?
When it comes to deciding if a trust fund is more suitable for your needs than a will, it falls under personal choice. We’ve provided plenty of information within this article for you to make a properly informed decision based on the benefits of a trust fund. For a free quote on setting up a trust fund that is right for you, click here.