Imagine you asked a friend to look after some of your money, so they could use it to pay for your care if you got ill. If you just gave them the money straight out you couldn’t be sure that they’d use it properly. They could spend it on whatever they liked. So, instead, you can set up a trust. With a trust, the money has to be used according to rules you set out.
In the example above, your friend would be the trustee, your money would be the trust property, and you’d be the beneficiary – the person who benefits from the trust.
You can put money, investments or other assets into the trust. Depending on the type of trust you use, it may have to pay tax and the trustees may need to complete tax returns.
When you might use a trust
Trusts have been used by families for almost 1,000 years and give control, protection and flexibility.
You might set up a trust:
- to support someone who can’t manage their money, so that their needs are looked after, even when you aren’t able to help them
- to make sure that your own money is used to look after you if you can’t look after yourself
- to make a gift to your heirs but with certain conditions attached to it
For example, a trust can be useful if you have a child with a mental health condition or learning disability and you’re worried about how they’ll manage financially after you die.
Trusts can also help someone who has received compensation following a personal injury claim. If the compensation is held in a trust, it can be used to pay for therapy or other things the injured person needs without affecting their entitlement to means tested benefits.
Trusts are also often set up to help children, grandchildren or other close relatives. For example, you might want to set money aside to help a niece with her future university expenses but not with funding a holiday in Ibiza. A trust is the ideal way to specify this.