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Bare Trust

Whats the best trust to set for children, discretionary trust or bare trust?

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    Thanks for the question.

    A bare trust or simple trust is one where the beneficiary has an immediate and absolute right to both the capital and income held in the trust. The assets are held in the name of a trustee – the person managing and making decisions about the trust. However, the trustee has no discretion over what income or capital to pass on to the beneficiary or beneficiaries. Bare trusts are commonly used to transfer assets to minors. Trustees hold the assets on trust until the beneficiary is 18 in England and Wales, or 16 in Scotland. The beneficiary is liable for Income Tax on income received by the trust.

    Another alternative is an interest in possession trust is a trust where a beneficiary is legally entitled to the income generated by the trust, as it arises. The trustees must hand over the income (after any expenses and tax) to that beneficiary.Interest in possession trusts are commonly used to provide a lifetime income for one beneficiary, with the assets then benefiting another beneficiary (or group of beneficiaries) when the income beneficiary dies. For example, your will might set up a trust that provides a lifetime income for your spouse, with the assets then passing to your children when your spouse dies.

    A discretionary trust or relevant property trust is one where the trustees have some discretion over how they use the trust’s income. For example, they can usually decide how much (if any) income or capital to pay out, to which beneficiaries, and how much income to accumulate and add to the trust’s capital rather than pay it out. A discretionary trust can be a flexible way of providing for several children, grandchildren or other family members. For example, you might set up a trust to help pay for the education of your grandchildren. The trust deed could give the trustees discretion to decide what payments to make, depending on which children go to university, what financial resources their families have and so on.

    The tax implications of each of these options are different and i can send you further details to your email.

    Its also worthy chatting what you want to achieve and where you are, the details of the beneficiaries, donor etc. All this is detailed in my email to you.

    Hope this helps.



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