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Trust fund

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.

How to set up a trust fund

In order to set up and maintain a trust, you need three different parties:

  • Settlor/Grantor (the person putting their assets into the trust)
  • Trustee (the person managing the trust)
  • Beneficiary (the person benefiting from the trust – can be the same as the settlor)

The settlor/grantor works with a solicitor to create the trust. 

Different types of trusts

There are three different types of trusts that you can set up. The one you choose depends on why you need it:

  1. Irrevocable trust – this can’t be changed: once its purpose is set, the terms can’t be tweaked
  2. Revocable trust – as you might guess, these can be changed at any time and the assets added or removed
  3. Charitable remainder trust – this allows you to pass on the contents of the trust to a charity instead of your family

Do you pay tax if you’re the beneficiary of a trust?

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

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