Trusts Flashcards
Is a Trust a legal person?
No
What is a trust?
1) Legal title vests in trustees
2) Equitable/beneficial ownership lies with beneficiaries
What is a will trust?
A trust created on death by a will
What is a settlor?
The testator
What are trustees?
Usually same persons as executors
What is a trust fund?
Assets forming part of the trust
What express clauses are needed to create a trust?
1) Identify the trust
2) Appoint trustees
3) Define beneficiaries
4) Specify scope of trustee powers
What are the types of trusts?
1) Discretionary trust
2) Two-year discretionary will trusts
3) Life interest trust
What is a discretionary trust?
Where beneficiaries have no fixed entitlement and trustees have full discretion over income/capital
What is the IHT impact on spouse of a discretionary trust?
No spouse exemption, even if spouse is beneficiary. Same immediate IHT position as direct gift to children.
What is the IHT benefit of discretionary trust?
1) Not part of testators estate
2) Protects wealth from beneficiaries estate
What types of discretionary trusts are there?
1) Legacy trust (fixed amount)
2) Residue trust
Can RNRB be claimed if residential property passes to discretionary trust?
No
What are non-tax benefits of discretionary trust?
1) Flexibility
2) Protection (from creditors, divorce)
3) Often guided by letter of wishes (non-binding)
What are two-year discretionary will trusts?
Where the trust is to last no more than 2 years
What is the benefit of two-year discretionary will trust?
Can retrospectively apply exemptions and potentially claim RNRB if distributed to children
What is a life interest trust?
Fixed rights for income and capital
What is a life tenant?
Life interest trust for income
What is a remainderman?
Life interest trust for capital
Does spouse exemption apply to life interest trust?
Only if life tenant, not remainderman
Why use a life interest trust?
Testator can preserve capital for children or others – concerned spouse may remarry or change will
If I want to give gift to my wife, but I want it to then go to my children and not hers, what do I do?
Create a life interest in trust naming spouse as life tenant and children as remainder beneficiaries
