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TRUST – what is it?

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Many myths have grown up around trusts, but a large part of them miss the truth. Although this type of agreement is often used for business purposes (e.g. asset management, building corporate structures) and tax purposes, it is worth mentioning the insurance and succession function of trusts. What do you need to know about an agency agreement and when is it worth entering into one? Feel free to read on, everything will become simpler in a moment 🙂

trust what is it
In today’s post, we answer questions about the so-called Trust

What is a trust?

A trust is a written contract that, as a rule, 2 people enter into with each other. The person setting up the trust is called the Settlor and appoints his trusted person – Trustee. The Settlor obligates the Trustee to manage the assets and to transfer them to the beneficiary. The contract can be shaped in many different ways (there are several types of trusts), but they have several universal characteristics.

Functions of the people in the trust

  • Settlor: most likely, you will be that person. Settlor decides where his estate should go and who should manage it until then;
  • Trustee: This is the person to whom you entrust your estate. The trustee will represent your will once you are gone. This is the person who will be responsible for fulfilling all the provisions of the contract and for managing distributions on your behalf;
  • Beneficiaries: These are simply the beneficiaries of the trust agreement. These are the people you have appointed to receive the funds/property/property rights after your death. In the context of a life assurance policy, it is the trustee who receives the funds but passes them on to the beneficiaries immediately, provided they are of the appropriate age (16 in Scotland, 18 in England and Wales).

What is a trust contract for?

The trust agreement has 3 main purposes:

  • Reduction in taxation (inheritance tax in the UK is up to 40%);
  • Speeding up inheritance/insurance procedures;
  • Simplifying the succession process.

It may seem strange, but inheritance processes as well as life cover payouts in the UK can take a very long time. Regardless of the insurer you choose, the whole process of dealing with your family’s claim can stretch out over many months. This is a big risk as the bank won’t wait too long for their money – unpaid mortgage repayments can be a real threat to your family if you die.

How does a trust work in insurance?

The advantage of a trust is that the funds paid out under it are not taxed, as is the case with conventional inheritances. However, this does not apply to insurance policies because, as a rule, the benefits derived from them are never subject to compulsory tributes.

As we have already mentioned, a trust agreement is often used for life insurance policies. The mechanism is very simple – when setting it up, you designate the people who are to receive the benefit in the future after your death. This can range from your children to your partner, friends, parents or charities. The trustee can be your partner, a friend as well as a solicitor. The criteria are not too high – this person must be of legal age, of sound mind and not in consumer bankruptcy. It is important that your appointee is trustworthy, as he or she has a huge responsibility.

This type of contract is set up so that your loved ones do not have to wait as long for a benefit payment – instead of several months, your family will wait a few weeks.
However, you need to bear in mind that there are costs involved in setting up and executing a Trust agreement, for example legal services, official fees, etc.

Can I set up a Trust on my own?

In theory, it is possible to write up and set up a trust yourself, but it is not always worth going for it. Hiring a solicitor is good in that the risk of errors is drastically reduced and there is much more certainty about the enforceability of the contract itself. If the contract is only to cover the insurance policy, but no longer the house, it is possible to use an insurance adviser from Extend Finance. We have experience with this type of procedure and many insurers offer ready-made and free fomulas that you just need to fill in. The whole procedure is, of course, free of charge.

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Think carefully about securing other debts against your home. Your home or property may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services and some forms of Buy to Let mortgages are not regulated by the Financial Conduct Authority.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts
secured on it.

Your Home (or property) may be repossessed if you do not keep up repayments on your mortgage or any other debts secured on it. Conveyancing services are not regulated by the Financial Conduct Authority.

Extend Finance nor The Right Mortgage Limited can’t provide advice regarding Personal Pensions, Pension planning or investment planning advice. You must seek independent financial advice from a suitably qualified professional financial adviser who may charge you for advice.

Wills, Will writing, Trusts and Trust planning are not regulated by the Financial Conduct Authority.

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