Trusts in the UK

A trust is a private legal agreement in which the ownership of assets (shares, cash, real estate or even works of art) is transferred to a private fund, held or managed by a natural person (or a group of individuals) in the interests of the members of the trust.

A person providing the assets is usually called a founder. A person appointed to manage assets is known as a trustee, and those who receive payments from this trust are beneficiaries. Assets after transfer to trust management are no longer considered as personal possessions of the founder, therefore they are protected from creditors (even in case of bankruptcy), financial failures, family disagreements and judicial proceedings. Thus, trusts are a widely used “safe haven” mechanism for family and business assets. The UK recognizes numerous trust agreements (each with its own specific procedures and provisions), which usually refer to the one of the following categories:

Bare Trusts: also known as “Simple” or “passive”. Property or assets are stored on behalf of a trustee who does not have the right to dispose of income and has no active responsibilities. The beneficiary has the absolute right to all capital and income of the trust at any time at the age of 18 (in England and Wales), or 16 years (in Scotland). Simple trusts are often used as a means of transferring assets to young people. Trustees simply manage assets until the beneficiary becomes old enough to cope with this responsibility, which means that the assets allocated by the founder will always be directed directly to the prospective beneficiary.

Interest in Possession Trusts: These are trusts in which the trustee must transfer the entire income of the trust to the beneficiary as it occurs (after deducting any expenses). This type of trust can give the beneficiary the right to income from property for a certain period, for an indefinite period, or, most often, until the end of the beneficiary’s life.

Discretionary Trusts: As the name implies, this tool gives the trustee the right to dispose of the property in favor of another person at its discretion. The right of discretion must be exercised in accordance with the terms of the trust management agreement, but it is wholly owned by the trustee who makes decisions on the timing, size and nature of the distributions. Discretionary trust is a very flexible form, usually used to preserve family assets. The beneficiaries are usually the children and grandchildren of the founder of the trust.

Accumulation and Maintenance Trusts: This form allows trustees to increase the capital and revenue of the trust. Trustees are given the right to “accumulate” the assets of the trust (through savings and investments) until a certain date, when a beneficiary has the right to the property of the trust or to a part of the income received from the property. When the beneficiary reaches the age of 18 (at least but not older than 25 years), he will be entitled to the full income accumulated by the trust.

Mixed trusts. As the name implies, this form contains different types of trusts within the same structure. Some assets can be allocated to trusts with the right to income from property, while others can be considered as a discretionary trust. Mixed trusts are often created in the interests of beneficiaries-brothers, who reach the age of succession at different times.

Great Britain's Corporate Law