There are many reasons why you might set up a trust including reducing inheritance tax, protecting assets for beneficiaries or to even give you an income in your later years.
Putting a Trustee in place
You will need to pick one or more trustees to take care of your assets when you set up a trust arrangement. As the trustee will be the one looking after the property, they will have legal title to the trust assets. Despite this, there will be no benefits given to the trustee from the property as the equitable title is owned by the beneficiary or beneficiaries. The person who creates the trust is the one who decides the terms. They also have the ability to choose the powers that the trustee has to manage the trust property as well as the rights of the beneficiaries.
When the time comes to establish a trust it is important that you obtain the right advice as the law of trusts can be complicated. It is also important to choose your trustee carefully because you will need to be able to trust them and to believe that they will act responsibly.
They will also need to be organised and understand their responsibilities. In fact, this is an important part of the process as someone who is not keen on being a trustee is unlikely to be as effective when carrying out the job. It is worth considering appointing a professional trustee as they will have a higher duty of care and are well equipped to manage your trust fund.
What are the responsibilities of a Trustee?
The responsibilities of a trustee can vary and this is determined by the type of trust and the terms that have been put in place. There could be certain instructions that they have to follow on a regular basis as well as obligations that could arise from trust law. The legal responsibility lays with the trustee, they will need to register the trust and ensure all decisions relating to the trust are documented correctly.
The Trustee and Tax Responsibilities
The trustees are also responsible for reporting to HMRC. They must record all forms of income, expenditure and gains as well as take responsibility of completing tax returns. They must pay any tax that is owed and also expected to inform beneficiaries of income they have received from the trust during that tax year as well as how much tax has been paid. Formal accounts should be kept.
If a Trust is Wound Up, What Happens?
HMRC has to be informed by the trustees if a trust is wound up. They will also be expected to complete a tax return for the period right through to the date that the trust is wound up while it is also important to think about any tax that might be owed. They must also ensure the correct documentation is produced to record the distribution of any final funds from the trust and the decision to terminate it.