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UK Trusts, Structure - Coggle Diagram
UK Trusts
Types of Trusts
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Bare Trust
How it works
The assets are held by trustees, but the beneficiary has an absolute right to them.
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Tax Implications
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If the beneficiary is a minor child and the settlor is a parent, income > £100/year is taxed as the parent’s income.
No special IHT protection — assets are considered a potentially exempt transfer (PET). If you survive 7 years after creating the trust, it’s outside your estate.
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Terms
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Trustee
People who manage the trust on behalf of the 'Benefitiaries'. They Are appointed by the person who creates the Trust
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Taxation
Pay 20% IHT when setting the trust up if it's in excess of the nil-rate band. There are some exceptions, such as if you continue to benefit from the assets.
Pay up to 6% IHT each 10 year anniversary
Any assets in the trust need to be re-valued each decade. After that, a 6% charge is levied on the value of the total assets, less the £325,000 IHT allowance.
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What
Assets in trust don't form part of your estate, meaning they won't be included when working out how much inheritance tax is due, provided you live for seven years after placing the assets into trust.
Trusts are legal entities that allow someone to benefit from an asset without being the legal owner. A will trust is created within your will to allow you to protect property you hope to pass on to your family.
Structure
Discretionary
the trustees have a pool of potential beneficiaries and have a discretion how to benefit any of the potential beneficiaries
Usually a discretionary trust also has a letter of wishes for the trustees to consider, which may give one beneficiary the trustees' permission to live in the house or receive the income from investments
Fixed Interest
first beneficiary has an absolute right to stay in the house and receive the income from any trust investments