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Trust Creation

Trust creation

When a trust is created the settlor (the individual placing assets into the trust) has to intend to create a trust and has sufficient mental capacity to do this at the time of creation. There also needs to be a certainty of the items placed into the trust. This means the trust property is recognised as forming part of the trust and becomes separate from the settlors own property. Lastly there needs to be identifiable beneficiaries, these are individuals who may ask the trust to give them assets which the trust is holding or may benefit when the trust is wound up. 

There are certain formal requirements when creating trusts. The majority of trusts are made in writing, signed by the settlor and witnessed. A trust for land (property or houses) must be evidenced in writing and appoint two trustees. Many trusts are created this way whilst the settlor is alive, placing assets or property into them. Trusts may also be created as part of a will, only taking effect upon the death of the settlor.

Motives for creating a trust

A trust may be created during the settlors lifetime passing assets or property on to their children or holding assets or property for other individuals. For some as their assets exceed the inheritance tax limits (currently set at £325,000 per person) they wish to use the trust for tax advantages. A trust may be created to protect beneficiaries, such as someone who lacks sufficient mental capacity to manage finances themselves. Alternatively to retain control and best manage assets on behalf of beneficiaries, setting conditions as to when the beneficiaries may have access to the trust assets. A trust may be set up to protect the property itself, such as when considering long-term care planning. Trusts may be used to avoid the necessity for probate or set up to benefit charities or for charitable purposes.

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