Trusts & Family Offices Flashcards
(47 cards)
What is a trust?
A trust is a legal arrangement where one party (the settlor) transfers assets to another party (the trustee) to manage for the benefit of a third party (the beneficiaries).
Who is the settlor?
The person who creates the trust / trust deed
What two things does the trust deed set out?
1) Who the trustees are & their duties
2) Who the beneficaries are
What is a trustee?
1) has legal ownership over trust property
2) acts in best interests of beneficaries
Who are the beneficaries
The individuals who will benefit from the trust property
Who is the trust protector?
Appointed to ensure trustees act in line with settlors wishes
Who are the 4 main parties in a trust?
1) Settlor
2) Trustees
3) Beneficaries
4) Trust Protector
What are the three certainties which must be in place for a trust to be legal?
1) Certainty of intention
2) Certainty of Subject Matter
3) Certainty of Objects
What is certainty of intention?
It must be clear that the settlor intended / intends to set up a trust
What is certainty of subject matter?
It must be clear what property is to be included in the trust
What is certainty of objects?
It must be clear who the beneficaries are
What is the cy pres doctrine and what does it apply to?
Charitable trusts
a court can alter the terms of a trust to ensure the original purpose can be achieved when the originla objective is no longer possible
e.g. was set up to support a hospital that no longer exists
What are the 5 main types of trust
1) Bare
2) Discretionary
3) Interest in Possession
4) Charitable
5) 18 to 25 trusts
What is a bare trust?
Beneficaries have immediate access to income and capital (sometimes known as simple trusts)
What are the pros of bare trusts?
1) Simple
2) Cheap
3) Tax Transparent
How is tax treated on bare trusts?
IHT on settlor (PET - no IHT if 7+ years)
Beneficiary liable for income and CGT
What is a common use of a bare trust?
Gifting to minors so they can access on their 18th birthdays
What is an interest in possesion trust
A trust in which income and capital are seperated
life tenant gets income (and may have access to things like property)
on death, remaindermen receive the capital
How are IIP trusts taxed?
Income tax on life tenant @ marginal rate
Trustees pay CGT
Trust property is part of life tenants estate for IHT
Periodic charges every 10 years
What is a use of an IIP trust?
1) Provide for surviving spouse whilst preserving assets for children.
2) Managing Wealth across generations
3) Ensuring someone has benefits without giving them control of the assets
What are the disadvantages of an IIP?
1) Cost / complicated administration (trustees, accountanct etc)
2) Lack of flexibility (life tenant cannot access capital)
3) Heavily taxed (income, cgt & iht) & 10 year charge.
Give examples of what might be put in an IIP trust and why
1) Investments - spouse can take income whilst the capital is left to children
2) Property - spouse can continue to use but children receive on death (ensures wishes of settlor are followed)
What are trustees duties and how have they developed?
Developed through case law, now under common law expected to:
1) Due diligence when investing
2) Professional Expertise
3) Act impartially
4) Administer assets in best interests
5) Make trust productive
6) Obtain advice if lacking competency
trustee powers are granted by the trust deed
What is the difference between a fixed trust and discretionary trust?
Fixed trust names beneficiaries and when they get benefit
Discretionary trust names beneficaries but trustees have discretion as to when they get benefit
fixed trust can fix a payout date as well as the level of benefits
