What is a Trust?*

Note: The following article is part of our Complimentary Articles Series, designed to provide additional insights and detailed information on specific topics within estate planning.

Alongside this article, we suggest exploring our pillar articles for a comprehensive understanding of general estate planning issues.

• Why Gift Assets Into a Trust?
• What's Included in an Estate Plan?
• Why is it Important to Write a Will?
• What Are the Benefits of an Estate Plan?
• How Often Should I Update My Estate Plan?

INTRODUCTION

A Trust is an essential legal tool in estate planning for the management and protection of assets. Although a Will is regarded as the foundation of any estate plan, there are several situations where a Trust may also be beneficial.

This article explains a Trust, highlights the main differences between a Will and a Trust, and explains how it can act in concert with a Will. It also covers the benefits of incorporating a Trust, giving you even more control and security in your estate plan while ensuring your legacy is managed in a way that suits you.

TRUST FUNDAMENTALS

Key Terms Used in a Trust

• Settlor/Grantor: The person who establishes the Trust and places assets into it.

• Trustee: The individual or entity in charge of overseeing the Trust's assets in accordance with the conditions established by the Settlor.

• Beneficiaries: These are the individuals or parties assigned to receive assets or income from the Trust.

Definition

A Trust is a formal legal agreement in which a Grantor (or Settlor) assigns assets to the care of a Trustee. The Trustee then manages and distributes them to the Beneficiaries for their benefit.

For simplicity, imagine a Trust as a "box" into which you can place assets for safekeeping. Trustees will act as the box's custodians, managing and allocating its contents for the benefit of the Beneficiaries. You can set up this box, or Trust, during your lifetime or after death.

What Assets Can You Include?

A Trust is a versatile tool for asset management and estate planning due to the range of assets you can place in it, such as cash, investments, real estate, and personal belongings.

Trust Administration

The Trustee is in charge of managing the Trust's assets, choosing investments and allocating funds to Beneficiaries in accordance with the terms of the Trust agreement. The Trustee's fiduciary duty is to act in the Beneficiaries' best interests at all times.

Types of Trust:

There are two types of trusts: revocable and irrevocable.

• Revocable Trust: This type of Trust allows the Settlor to change or revoke the Trust at any time while they are living.

• Irrevocable Trust: This is more permanent and usually requires court approval or Beneficiary consent before any changes can be made.

Key Benefits

This vehicle is suitable for several purposes, ranging from protection of assets, charitable giving, estate planning, providing for individuals who lose the capacity to manage their own affairs, or providing for individuals with specific purposes in mind (e.g. education, medical care).

See below for a more detailed explanation of the reasons for considering a Trust.

WHAT'S THE DIFFERENCE BETWEEN A WILL AND A TRUST?

Although Wills and Trusts form the foundation of a solid estate plan and can often complement each other, they function in different ways since they have different purposes:

• Will: A Will is a legal document that specifies how you would like your possessions to be distributed in the event of your passing. It only takes effect after you die and is governed by a legal procedure known as Probate, which dictates how the Court manages the distribution of your Estate. In addition, you can designate guardians for minor children under a Will.

• Trust: A Trust allows for the administration and distribution of assets without the need for Probate to be established either during your lifetime or after your death (through your Will). Trusts allow for more immediate and possibly private distribution of assets to Beneficiaries.

WHY CONSIDER A TRUST?

Choosing a Trust instead of or in addition to a Will has the following benefits:

• Avoiding Probate: A Trust allows assets to be directly transferred to Beneficiaries without having to go through the time-consuming and expensive process of Probate.

• Privacy: A Trust can protect the confidentiality of your Estate and how you distribute it distribution. On the other hand, the distribution of assets through a Will becomes part of the public record during the Probate process.

• Control Over Distribution of Assets: Trusts give you more say over when and how your assets are distributed. For instance, you can mandate that specific assets be held in Trust until a specific Beneficiary reaches a certain age.

• Protection Against Legal Challenges: Wills are easier to contest than Trusts, which offer a better defence against potential disputes among prospective Beneficiaries.

• Management of Assets in Case of Incapacity: Should you ever become incapacitated, a Living Trust enables the administration of your assets without needing a court-appointed conservator or guardian.

• Time and Money Savings: Trusts allow you to bypass the Probate process, thereby saving the Estate a lot of time and money on legal fees and administration costs.

Need to know more?

Interested in exploring how a Trust aligns with your estate planning objectives? Squiggle can provide some clarity and direction, helping you to tailor a plan that suits the unique circumstances of your loved ones.

Book a callback, and we'd be happy to arrange a no-cost, no-obligation discussion with you to lay out the options available.

Alternatively, call us on 01233 659 796.

Or reach out to us here.