TRUSTS
WHAT IS A TRUST?
The best way to fully understand what a trust is and does, is by appreciating its meaning in the ordinary sense or in the understanding of the layman.
A ‘trust’ in its ordinary meaning is a firm belief in the reliability, truth, or ability of someone or something. “Relations have to be built on trust.”
In law therefore, trust is an arrangement whereby a person (a trustee) holds property as its nominal owner for the good of one or more beneficiaries.
REQUIREMENTS OF A TRUST
A trust requires a grantor, who sets it up, one or more beneficiaries, who receive the assets when the grantor dies, and the trustee, who manages it and distributes the assets at a later date.
WHY IS IT CALLED A TRUST FUND?
A trust fund refers to the assets held inside of a trust. A trust is simply a legal tool used to hold property for another party’s benefit. The fund, in this context, consists of the assets held inside of the trust according to the trust’s terms.
Trust funds are designed to carry out the wishes of the grantor. This means that the trustee is in charge of managing the assets while they are still alive. After their passing, the trustee can pass on the assets to the beneficiary(s) as per the grantor’s instructions, whether that’s through a regular income stream or a lump sum payment.
In order to set up a trust fund, you’ll need to figure out which one is best suited for you, so make sure you figure out the exact purpose of the fund. Then, decide how you’ll fund it. Figure out who you want to appoint as your trustee. This person may be able to help you draft up all the documents and go through the legal process. The final step is to fund the trust fund.
As with any other financial venture, make sure a trust fund is the best choice for you, your beneficiary, and your financial situation.
WHY SET UP A TRUST?
A trust allows you to be very specific about how, when and to whom your assets are distributed. On top of that, there are dozens of special-use trusts that could be established to meet various estate planning goals, such as charitable giving, tax reduction, and more.
TYPES OF TRUSTS
- Revocable trusts,
- irrevocable trusts,
- asset protection trusts
WHY A TRUST AND NOT A WILL?
A trust can be used to avoid probate and reduce estate taxes, whereas a will cannot. On the other hand, a will can help you to provide financial security for your loved ones and enable you to pay less Inheritance Tax.
A trust not only plans for after you die – it’s a document intended to have an impact while you’re still living. A trust can set provisions for things like what you want to have happen if you become mentally or physically unable to make your own decisions.
HOW DO I SET UP A TRUST?
A trust is set up via a legal document known as a trust deed, which outlines rules like what the purpose of the trust is, how benefits will be paid to beneficiaries, who the trustees are, who the current beneficiaries are and who can become a beneficiary in future.
WHO CONTROLS A TRUST?
A trust typically involves three parties – a settlor, also known as the author or grantor of the trust, a trustee and a beneficiary. A trust gets created when the settlor hands over any property to the trustee to be used and employed for the benefit of the beneficiary. This legal arrangement is codified vide a trust deed.
WHAT HAPPENS TO A TRUST WHEN YOU DIE?
If you put things into a trust, provided certain conditions are met, they no longer belong to you. This means that when you die their value normally won’t be counted when your Inheritance Tax bill is worked out. Instead, the cash, investments or property belong to the trust.
HOW DO TRUST FUNDS PAY OUT?
If you put things into a trust, provided certain conditions are met, they no longer belong to you. This means that when you die their value normally won’t be counted when your Inheritance Tax bill is worked out. Instead, the cash, investments or property belong to the trust.
HOW DO TRUSTS AVOID TAXES?
For all practical purposes, the trust is invisible to the HM Revenue and Customs or the Federal Inland Revenue Service (FIRS). As long as the assets are sold at fair market value, there will be no reportable gain, loss or gift tax assessed on the sale. There will also be no income tax on any payments paid to the grantor from a sale.
WRITTEN BY MR JIDE OGUNDIMU – JIDE OGUNDIMU & CO SOLICITORS
Solicitor and Advocate of the Supreme Court of Nigeria; Solicitor of England & Wales.
