In this blog, George Square outlines how a trust fund works and some of the reasons it may be worth considering.
Understanding the purpose of a trust fund
When it comes to managing wealth with foresight and flexibility, trust funds can offer a valuable tool for individuals and families.
A trust fund, often referred to simply as a trust, is a legal arrangement where one party, known as the settlor, transfers assets to a trustee, who manages them on behalf of one or more beneficiaries. This structure allows assets to be administered with clarity and according to the settlor’s intentions, whether during their lifetime or after.
Trusts are used for a variety of purposes, including supporting family members across generations, facilitating charitable giving, helping with business continuity, or guiding the management of complex estates. They may also be considered where particular attention is needed – for instance, where beneficiaries are young, or where long-term stewardship of wealth is important.
The key roles within a trust
Every trust involves three core roles:
- The Settlor – the individual who establishes the trust and transfers assets into it.
- The Trustee – the person or institution responsible for managing the assets in line with the trust’s terms.
- The Beneficiary – the individual(s) who will benefit from the trust as specified in the trust deed.
Trustees may be family members, trusted friends, professionals, or specialist firms. In many cases, professional trustees are appointed to bring impartiality and expertise, particularly when the trust’s affairs are complex or long-term.
How a trust fund operates
Once a trust is established, the trustee assumes legal ownership of the assets and manages them in accordance with the trust deed. This is a legal document that outlines the purpose of the trust fund, how and when beneficiaries may benefit, and any specific terms or conditions.
Trusts can take several forms depending on the settlor’s objectives. For example:
- Discretionary trusts give trustees the flexibility to decide how income or capital is distributed among a group of beneficiaries.
- Life interest trusts (also known as interest-in-possession trusts) provide income to one beneficiary for life, with the capital passing to another person or group thereafter.
These structures allow for tailored approaches to different family or financial circumstances.
The advantages of a trust
One of the main benefits of a trust is the ability to manage how and when assets are distributed. This can be particularly useful when planning for future needs, such as education costs, housing, or supporting family members at different stages of life.
Trusts also have a role in estate planning. While not a means of avoiding tax, they can be used as part of a broader strategy to preserve wealth and align asset distribution with your personal wishes. Depending on the structure and timing, certain trusts may offer inheritance tax advantages, though this is subject to specific rules and ongoing changes in legislation.
Importantly, a trust offers continuity. It can help ensure that wealth is managed and passed on in a way that reflects the settlor’s values and long-term goals.
A considered approach
Using a trust fund is one way to approach wealth management with care and intention. It provides a structured way to support loved ones, charitable causes, or business interests while setting clear parameters for how assets are handled.
If you’re exploring how a trust might fit into your broader financial plans, we would be happy to provide confidential, personalised guidance.
For trusts advice and guidance, call 0115 947 5545 or contact the team online here. We may also suggest you seek legal and accountancy advice in relation to trust planning due to its complexity.