A trust is a legal relationship created in lifetime, or on death by a settlor when assets are placed under the control of a trustee for the benefit of a beneficiary , or for a specified purpose.
The trust assets constitute a separate fund and are not a part of the trustee's own estate. Legal title to the trust assets stands in the name of the trustee, or in the name of another person on behalf of the trustee. The trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed on him by law.
The reservation by the settlor of certain rights and powers, and the fact that the trustee may himself be a beneficiary, are not necessarily inconsistent with the existence of a trust.
With an irrevocable trust, the trustor passes legal ownership of the trust assets to a trustee. However, this means those assets leave a person's property effectively lowering the taxable portion of an individual's estate. The trustor also relinquishes certain rights to mend the trust agreement.
For example, a trustor usually can't change beneficiaries of an irrevocable trust after they have been established. This is not the case with a revocable trust.
Trusts can be created during an individual's lifetime, or they can be established following the grantor's death. This situation applies to Payable on Death POD trusts, which transfer assets to a beneficiary following the death of the trustor. Generally speaking, this type of trust and similar ones are called testamentary trusts because property is actually transferred following the trustor's death. Assets in these trusts flow directly to the intended beneficiaries following the trustor's death, which means they avoid the often long and expensive process of probate.
Probate is the legal process of validating and distributing assets outlined in a will. These trusts can also be outlined in a person's will. Assets within living trusts can be transferred during the trustor's lifetime. For example, several individuals open accounts in trust with banks for the benefit of their children or to help fund their college expenses. A trustee carefully manages the assets held in the account to achieve this goal, but the children don't have complete access to the funds or the freedom to spend income from the fund as they please.
An example of this type of arrangement is a unified gift to minors act UGMA account. In some cases, beneficiaries such as children would have access to the trust's assets and the income they generate only after reaching a certain age. Actively scan device characteristics for identification.
Use precise geolocation data. Select personalised content. Create a personalised content profile. Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Assets in a bare trust are held in the name of a trustee.
This means the assets set aside by the settlor will always go directly to the beneficiary. Bare trusts are often used to pass assets on to young people — the trustees look after them until the beneficiary is old enough.
The beneficiary can get income from the trust straight away but cannot control the assets that provide the income. The beneficiary has to pay income tax on the money they receive.
The trustees have complete control over the assets and the income they generate, deciding how and when to give them to the beneficiaries. This combines elements from different trusts. For example, it might give the beneficiary a right to the income called an interest in possession of half of a trust fund. If the only beneficiary is vulnerable, for example someone who is disabled or an orphan, they will pay less tax on the income from the trust. Read about trusts for vulnerable people.
Understand the basic rules of non-resident trusts. Find out about income and benefits from the transfers of assets abroad or from non-resident trusts.
Read more about types of trusts on GOV. Different types of income from trusts have different rates of income tax. Each type of trust is taxed differently. Read more about trusts and income tax. If you put assets into a trust, inheritance tax will need to be paid on it at various points in the lifecycle of the trust.
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