Certificate for Introduction to Securities & Investment (Cert.ISI) Unit 1 Lesson 48:  Trusts  The main reasons for creating trusts  Features of the main trusts 48cis

What is a Trust? A trust is the legal means by which one person gives property to another person to look after, on behalf of yet another individual or set of individuals Obi-Wan Kenobi… …entrusts Luke Skywalker… …to Yoda… …on behalf of the Jedi Knights

Trust terminology It is important to learn the terminology used in trusts  The person he gives the asset to, to look after on behalf of others, is called the “trustee”  The individuals for whom it is intended are known as the “beneficiaries”  The person who creates the trust is known as the “settlor”

Other uses of trusts Parents of severely disabled or incapacitated children will often create trusts to pay for their protection and the continuation of care after the parents have died  The Thalidomide Trust currently supports 470 individuals, mainly between 45 and 51 years of age who, for the most part, have two or four limbs missing. Trustees of The Thalidomide Children’s Trust The Hon. Mr Justice Wright, A retired judge of the High Court Mr M Napier CBE, LL.B, LL.D (Hon) Solicitor Former President of The Law Society. Professor O Eremin MB ChB MD FRACS FRCSEd FRCST(Hon) Special Professor - University of Nottingham. Professor C Glendinning AcSS Professor of Social Policy, University of York Ms M Winfield OBE A senior executive in the NHS. Mr C D Lever Past Chairman of the National Association of Pension Funds Mr R H Lawson FCA Former President of the Institute of Chartered Accountants. Mr J S Curtis Trustee since July 2009 A senior member of the Henderson Group. The Thalidomide Children's Trust was established in 1973, to provide support to people who had disabilities caused because their mothers had taken the drug thalidomide during pregnancy. In the UK, the drug had been manufactured by The Distillers Company (Biochemicals) Ltd Children helped by the Thalidomide Trust

Other uses of trusts Trusts are also used to reduce future inheritance tax liabilities. This is achieved by transferring assets into a trust Because the assets have been transferred into a trust, they are no longer in the settlor's ownership. The trustees have become the legal owner of the assets. The settlor says in the trust deed how the trust’s property and income should be used. However, the settlor must not use the assets or get any benefit from them once they have been transferred  Inheritance Tax is payable on assets over £325,000 or £650,000 for married couples and couples living within a civil partnership. (If you fail to plan for Inheritance Tax your family may have to sell the family home to fund the bill.) A trust can reduce IHT to a minimum. Property that can be transferred into a trust The property (or ‘capital’) that can be put into a trust by the settlor can be anything, including:  land or buildings  investments  money  antiques or other valuable property

Other uses of trusts Trusts are also used to separate out the rights to income and capital For example, the spouse of a second marriage might receive the income from an asset for the remainder of his/her life and the capital passes on that person’s death to the settlor’s children For instance, Prince Charles could create a trust which would allow Camilla to receive the income from the Duchy of Cornwall’s estate after he dies. After Camilla’s death, the income and the estates themselves would pass directly to Prince William and Prince Harry

Trusts for non-personal uses Trusts are not always used in family, or personal matters Trusts are often found as the underlying structure for many major investment vehicles, such as pension funds, charities and unit trusts  Pension funds  Charities  Unit trusts

Types of trusts There are four main types of trust  Bare or absolute trusts  Interest in possession trusts  Accumulation trusts  Discretionary trusts  Where a trust holds assets for one or more persons absolutely  Where a beneficiary has a right to income of the trust during his/her life and the capital passes to others on their death  Where the trustees have discretion whether trust income can be accumulated or paid out but only for a certain period, after which a beneficiary will become entitled to either the income or capital at a certain date in the future  Where the trustees have discretion to whom the capital and income is paid, within certain criteria