How to Leave Money in a Trust Fund

It may not be a topic you want to think about too much, but making sure the people in your life are cared for after you die is important. Setting up a trust fund for younger or vulnerable family members is a great way to see that they are taken care of when you can’t anymore.

First of all, what is a trust?

A trust fund is a legally binding agreement to leave a certain amount of money, property or investments to someone, except they must meet certain stipulations as outlined in your will before they can have it. Mostly this is related to age, so a parent can leave money to their children in a trust fund, to be accessed when the children are 18 or 21 for example.

What is a trustee?

The trustee is the person or authority to whom the responsibility of looking after the inheritance is given. This may be a relative, bank or another trusted person/organisation.

What is a beneficiary?

The beneficiary is the person who will eventually inherit the assets when they come of age or complete the contingency given in the deceased’s will.

Why opt for a trust fund?

A trust fund can help your beneficiaries to cut back on the inheritance tax paid as any money placed in a trust fund account won’t be counted in your estate after you die, but you’ll need a knowledgeable solicitor to help you with this to ensure you get everything right, otherwise the difference could be thousands.

What kind of trusts are there?

  • Bare trust – this is straightforward and is mainly used to hold money upon trust until the beneficiary reaches a certain age.  In the UK a beneficiary is entitled to the capital and interest upon reaching the age of 18.
  • Interest in possession trust – the trustees hold an asset upon trust, for example, a capital amount for a beneficiary.  Interest earned on the asset is paid to the person who has been given the interest in possession –  meaning they are entitled to receive the income earned for their lifetime but on their death the capital is paid to the beneficiary.  This works well for example on a second marriage where the deceased might want their new partner to have the benefit of money earned on an investment, whilst preserving the capital for the children of a former marriage.
  • Discretionary trust – the Trustees manage a trust fund for a number of beneficiaries and it is at the Trustees discretionary as to who will benefit from the trust dependent on their needs.
  • Mixed trust – a combination of several types of trust fund. If you wanted to allow a portion of the inheritance to the trustee to care for the beneficiary, for example, but still leave a sum for the beneficiary to inherit when they turn 18, this would be the one to go for.
  • Non-resident trust – if your beneficiary or trustee lives abroad, they will be liable to pay less tax on the trust fund, and the tax position on non-resident trusts is complicated.

The HM Revenue & Customs website gives even more information about the different types of trust fund.

Want to set up a trust fund?

You can choose to set up a trust fund right now, or you can put the details in your will. Either way, we can help. You just need to know who, what and when:

  • Who is the trustee / beneficiary?
  • What is being inherited from the trust fund?
  • And when would you like the trust to be accessed? For example, when the beneficiary turns 18? When they finish their degree? When they get married?

setting up a trust needs to be considered careful as there may be tax implications and there are on-going costs as the Trustees are under a duty to manage the trust fund, deal with any payments of tax, legal or investment costs and payments out.

Once you have decided these things, give us a call on 0207 406 5875 and we’ll talk you through the whole process of setting up a trust fund and ensure that your family is taken care of, and that too much tax is the least of their worries.

About the Author Ellie Pierpoint

Ellie is a resident writer for Best Value Probate, covering topics such as Probate, wills and other legal proceedings.