How to set up your wishes properly when you make a trust

A trust can be a useful way to pass on wealth to your loved ones while retaining some control over how the assets are used. However, they can be complex and it’s crucial your wishes are set out correctly. Read on to find out what you need to know when setting up a trust.

There are many reasons why you may want to set up a trust. They are commonly used to set money aside for the next generation, including children. They can also be used to preserve assets or reduce a potential Inheritance Tax bill.

When creating a trust, you will need to name who will benefit from it, known as the “beneficiaries”, and trustees, who will be responsible for managing the trust. A trustee must act in the best interests of the beneficiaries.

A trust can provide you with more control than if you left assets to a loved one in a will. If you want the wealth to be used in a specific way or at a certain time, a trust could be right for you.

So, how do you ensure a trustee follows your wishes? Here are five things you should do.

1. Set up the right trust for your needs

There are several different types of trust. Choosing the right one for your goals can help ensure a trustee follows your wishes.

A bare trust is the simplest form of trust. It is commonly used by parents to pass on assets to children when they reach adulthood. The assets held in a bare trust go directly to the beneficiary when the terms are met.

Among the other types of trust you may want to consider are:

• Discretionary trust: This provides the trustee with more control over the assets and income. They may decide how and when to give income or assets to the beneficiary in line with the trust deed. You may use this option if you want to put money aside for grandchildren and name their parents as trustees to give them some flexibility.
• Interest in possession trust: This option can protect your assets. The beneficiary will receive an income from the trust but cannot access the assets. You may choose this option if you want your partner to receive an income when you pass away, and then pass the assets to your children when your partner dies. You could also use this type of trust to create a legacy.

Understanding which type of trust is right for you can be difficult. Please contact us if you have any questions about which type of trust would be suitable for your plans.

2. Choose your trustee carefully

As the person who manages the trust, who you choose as a trustee is an important decision.

You can choose someone you know personally, such as a family member or friend, to act as a trustee. This should be someone you trust to act in the interest of the beneficiaries and follow your wishes. You should also consider if they have the skills and knowledge to manage a trust.

Alternatively, you can choose a professional, such as a solicitor or bank employee, as your trustee. Keep in mind that a professional is likely to charge a fee.

You can appoint more than one trustee.

It’s worth scheduling some time to talk to your trustee. An opportunity to explain your wishes can help them understand your preferences when they’re making decisions about the trust.

It’s also a chance to discuss the responsibilities they will be taking on if they become a trustee. Are they clear about their duties, such as registering the trust with the Trust Registration Service or declaring a tax liability?

3. Ensure the wording of the trust deed is clear

Trustees must deal with the income and assets of a trust in the way set out in the deed, so it’s crucial the wording is correct.

The trust deed should clearly cover how and when income or assets are to be distributed to ensure it operates as you intend it to. You can also set out how the assets can be used – for example, could cash assets be invested?

While you can set up a trust yourself, instructing an experienced solicitor can help you avoid costly mistakes. If the wording of the trust deed is misleading or ambiguous it could mean your wishes aren’t followed.

4. Write a letter of wishes

A letter of wishes is not legally binding. However, it’s a way for you to declare wishes in your own words and provide guidance to the trustee.

Usually, a letter of wishes is informal, so it can be a valuable way to set out how you want the trustee to act without any jargon. If you choose, it can be confidential and used to pass on sensitive or personal information.

You can update the letter of wishes if your circumstances change.

You can choose what to include in a letter of wishes. You may want to include how you’d like investments to be managed, how beneficiaries should benefit from the trust, and how long you envisage the trust continuing.

5. Seek professional financial advice

When you’re setting up a trust, independent financial advice can be useful.

Trusts can hold a range of assets, such as cash, shares, and property, and advice can help you understand which of your assets you should place in a trust.

If you have specific aims when creating a trust, such as paying for the education of grandchildren, advice can help ensure the trust can meet these goals.

It could also be valuable for the trustee to seek ongoing advice.

Trustees may need to make complex financial decisions, like how to invest the assets or how to provide a sustainable income to the beneficiaries. A financial planner can help ensure the trust meets its goals, as well as improve tax efficiency and other areas that could help the assets go further.

Don’t forget to regularly review your trust

As with any financial arrangement, you should regularly review a trust.

Over time, your circumstances and wishes may change. Perhaps you’ve set up a trust for grandchildren and a new addition to the family means it needs updating? Or, maybe a divorce means you need to change the trust deed?

Scheduling reviews mean the trust can continue to support your goals.

Contact us to talk about setting up a trust that meets your needs

Trusts can be complex, but we can answer any questions you have. Whether you want to understand if a trust could be suitable for your plans or need to make changes to an existing trust, please contact us.

Email us at enquiries@blackswanfp.co.uk or contact your adviser on 020 3828 8100.

Please note

This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.

The Financial Conduct Authority does not regulate tax or estate planning.