Where a testator (an individual preparing a Will) wishes to leave their assets to individuals on their death, they may consider setting up a trust, particularly where the beneficiary/beneficiaries are under the age of 16. In Scotland, this is the age of legal capacity and therefore the age in which an individual can inherit assets outright in their own name. As this is still a very young age, some people worry that if their children/grandchildren or other young individuals inherited sizeable sums of money directly, the funds may be frittered away or spent/invested in a risky or unsuitable fashion and not managed correctly. Additionally, a child’s ability to deal with property may be restrained by practical circumstances until they attain the age of 18. Where property of any significant value is passed to children/grandchildren/young individuals (either by way of a gift or under a Will), it is common practice to interpose a trust so that, until the children reach some later age that the testator determines, the property is held by trustees for their benefit.
Why choose a Trust?
A trust is used as a vehicle to hold assets on behalf of people who should not and/or cannot own assets outright themselves and enables the testator (known as a ‘truster’ where they set up a trust under their Will) to transfer that property to a trustworthy person(s) (‘trustee(s)’) to manage and hold the assets in trust, in line with the conditions set out by the truster, for the beneficiaries who are to benefit from the bequeathed assets. A ‘Deed of Trust’ usually sets out the trust terms, and other important specifics such as the trustees powers, duties etc. A trust may be held principally for one particular beneficiary, or for a number of beneficiaries, with the trustees having discretion over payments to them.
Trustee powers and responsibilities
It is important for the truster to appoint trustees whom they trust. Each appointed trustee is granted powers to administer the trust assets and must act in accordance with the trust provisions and do so prudently, in good faith, and in the best interests of the trust. The trustees’ role is to invest and administer the funds and make all decisions regarding any funds exiting the trust. The trustees may have the power to choose which one of more of the discretionary beneficiaries may benefit from the trust fund and when they may receive such benefit.
With regards to responsibilities of trustees, there is a duty to consider the interests of all the potential beneficiaries of the trust asset, and they must put the interest of the trust and beneficiaries first; trustees must not let their own interests’ conflict with the trust’s interests.
In relation to trusts for the benefit of young beneficiaries, there are various types of trust, including ‘Trusts for Bereaved Minors’, ‘18-25 Trusts’, ‘Bare Trusts’ and’ Discretionary Trusts’, each of which hold their own merits in terms of flexibility and accountability, depending on the truster’s wishes and individual circumstances of the young beneficiaries.
Ordinarily, a child’s guardian can deal with a child’s property on his or her behalf while he or she is under the age of 16, although at this point their legal authority to deal with the property ends as the child’s legal capacity commences.
Registration of Trust
It is also important to note that the new ‘Trust Registration Service’ recently implemented from H M Revenue & Customs means that more trusts (both new and existing) are brought within the scope of compulsory registration than was previously the case.
If you have any queries regarding trusts set up under a Will or trustees’ duties under a lifetime trust Deed, please do not hesitate to get in touch with a member of our Private Client or Executries team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.
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