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A trust fund is a tool for future planning. It’s a legal third party entity. It’s usually set up to take care of a person’s assets on behalf of them (for example, if they are too young to handle their own affairs). You may even have heard the term trust fund on American TV – when an under-age character is demanding access to their trust, or when an adult is planning to steal someone’s trust. This is what they’re referring to!
A trust can also be set up for after your death.
In order to set up and maintain a trust, you need three different parties:
The settlor/grantor works with a solicitor to create the trust.
There are three different types of trusts that you can set up. The one you choose depends on why you need it:
For some trusts, you might need to pay tax for the income you receive from it via a Self Assessment tax return
For other trusts (called discretionary trusts), all income received by you is treated as though it has already been taxed at 45% – you might be entitled to a tax refund if you’re not an additional rate taxpayer (if you earn under £150,000)
You can read more about trusts and what to do on HMRC’s guide for trust beneficiaries