What Is A Trust?

A trust is a legal relationship between a settlor, trustees, and beneficiaries. It holds and manages assets such as money, investments, land, and buildings. Different types of trusts are taxed differently. A trust can be established by a trust deed or a will.

The settlor is the person or entity that puts assets into a trust for the beneficiaries and directs how the assets should be used. A settlor can also be a beneficiary.

The trustee or trustees manage the trust. They are the legal owners of the assets held in the trust. Their role is to:

• deal with the assets according to the settlor’s wishes, as set out in the trust deed or will;
• manage the trust on a day-to-day basis and pay any tax due;
• decide how to invest or use the trust’s assets.

The beneficiary or beneficiaries benefit from:

• the income of a trust, for example, the proceeds from renting out a house held in a trust;
• the capital of a trust, for example, receiving shares held in a trust when they reach a certain age; or
• both the income and capital of a trust.

Trusts are set up for various reasons, including:

• to hold business assets in a tax-efficient manner;
• to control and protect family assets;
• when someone is too young to handle their affairs;
• when someone cannot handle their affairs because they are incapacitated;
• to pass on assets while someone is still alive;
• to pass on assets when a person dies, known as a will trust;
• to pass on assets under inheritance rules if someone dies without a will.

More information is available in the By Lawyers Trusts guide.