What is a Trust Fund & How Do they Work

A trust fund is created by a settlor to protect an asset (property, land or money) by placing the asset under the management of a trustee, someone who manages the trust, for the benefit of a beneficiary.   

There are many reasons why someone may create a trust: 

To manage an asset on behalf of a minor or a vulnerable person who may need help managing their funds    

• To pass on assets to beneficiaries either while you are alive or after you die  
• To pass on the control and management of assets to a trustee who may be better equipped to deal with the assets 
• Protect assets from the dissipation of assets, for example, as a result of a marriage breakdown or insolvency.  

Settlor 

A settlor decides how the assets they have placed into the trust should be managed, and they may benefit for the trust during their lifetime.  

Trustees 

The trustees become the legal owners of the asset held in trust and they need to administer the trust in the various ways: 

Manage the assets in the trust as per the settlor’s wishes  

• Manage the trust on a day to day basis  
• Settle any tax liabilities due on the trust  
• Invest any trust assets  

Under the terms of a trust, the settlor and/or trustee may be able to appoint new trustees to help them administer the trust.  

It is recommended to have between 2-4 trustees.  

Beneficiaries  

Beneficiaries of the trust can either benefit from the income from the trust, or the capital or both.  

The settlor can describe a class of beneficiaries, for example ‘grandchildren’, rather than naming particular people, which means unborn individuals can be appointed as beneficiaries.  

Popular types of Trust  

Discretionary Trust – A Discretionary Trust allows the trustees to use their discretion to pay income from the trust to the beneficiaries.  

Life Interest Trust – A Life Interest Trust allows someone to use the trust assets for the remainder of their life, known as the life tenant. The life tenant is not entitled to the trust capital which is held by the trust for the beneficiaries.  

Both Discretionary Trusts and Life Interest Trusts can be incorporated into your Will to be created upon your death or they can be created during your lifetime.  

In summary, a trust is a valuable legal structure used to protect assets and manage their distribution for the benefit of specific individuals or groups. Whether you’re considering setting up a trust to safeguard assets, plan for succession, or navigate complex financial situations, trusts offer versatile solutions. If you’re interested in establishing a trust or have questions about this area, please don’t hesitate to reach out to us via email at wtp@mlplaw.co.uk or by phone at 0161 926 9969. Our team is here to assist you in exploring the benefits and possibilities of trusts tailored to your unique circumstances.