Hey everyone, welcome back to my channel. In this episode we're going to be talking about trusts. Now, trusts can be a powerful tooling, organizing a person's assets to ensure that they are passed on to the correct people and potentially reduce the exposure to inheritance tax, which is a nasty bill of 40%. So let's understand what a trust is, the different types and reasons why you might get one. I'm Kazan from Financial Man, helping you be better with your money. So there are many types of trusts and depending on your situation, it will determine which type of trust is ideal for you. But fundamentally, a trust is a legal arrangement for managing an individual's assets. A trust has three key parties in charge. You have the settler. This is the individual contributing the assets to the trust and they create a document called a trust indeed, which details how the trust should be used. The next party is that the trustee who takes ownership of these assets from the settler and they ensure that the management of these assets are of the benefit to the person I'm about to mention next, who is the beneficiary. And these are individuals who will benefit from the assets in that the trust. Now, the three roles don't necessarily refer to one person. You can have several individuals defined as a trustee and a beneficiary. And on top of that, they don't necessarily have to be different people either. These settler can also be the trustee, but usually you want a trustee to be someone who you will assume will outlive the settler. Now, there are different kinds of assets a settler can put into a trust. These can include cash, property, shares, land and many more. Now, there are a number of reasons why an individual may want to settle for trust. The first reason could be inheritance tax planning and protecting family assets. Now, for those careful planners, a trust might be a great way to reduce an individual's estate, which is essentially the total of the individual's assets. So everything that they own minus their liabilities, everything that they owe. Why this can be useful is because when an individual passes away, the value of the estate will determine how much inheritance tax the inheritors will be liable to pay. Check out my inheritance tax video to learn more. Now it is a common misconception that putting assets in a trust does exclude you from inheritance tax. This is actually not the case, but with careful planning can help in reducing your inheritance tax exposure. I am working on a video where I go through this in more detail and I'll be sure to put a link here once it is available. Other reasons to get a trust is to look after assets for a beneficiary who is currently too young, but you would like these assets to be passed on to them once they become of age. Another reason is to support or look after someone's affairs because they are unable to manage their own assets. Some examples include the settler being incapacitated or a deteriorating mental or general health. Now I have to say the most common reason for trusts to be set up is just to manage assets for it to be passed on to children or airs in the most controlled and tax effective way. So there are actually many different types of trusts available with each having their own rules, which means that some trusts are better suited for certain scenarios than others. I will mention the most common ones in this video, otherwise if I did mention more we'll be here forever, but I'll be sure to leave a link in the description box down below so you can read up on a more comprehensive list. So first up are bear trusts, and it is probably the most simplest type of trust there is. How a bear trust works is that all the assets in a trust are owned by the trustee, but the beneficiary has the right to claim on all of the capital and income in that trust once they become 18 or over. This is the age for England and Wales, it's 16 if you are in Scotland. Usually once a bear trust is established the beneficiary cannot be changed. That means the trustee has little control over what the beneficiary receives and when. This is quite useful if you're looking to pass on assets to young individuals and have the trustee look after them once they become of age. This is quite useful if you're looking to pass on your assets to young individuals, but in the meantime have a trustee look after these assets until they become of age. The second type is the interest in possession trust and this comprises of two types of beneficiaries. Now the purpose of this trust is that whenever the assets or capitals within the trust have generated any sort of income, this income minus the expenses and taxes must be transferred to the income beneficiary, which is just one of the two types of beneficiaries in this setup. Now how long this goes on for can be defined when the trust is created, but timelines range from a fixed period of time or for the rest of the income beneficiaries life. So the income beneficiary is just one of the types of beneficiaries defined in this trust and they are entitled to the income generated from the assets in the trust, but they are not entitled to the actual assets themselves. This is what is meant in having an interest in possession. Now the actual ownership of these assets is normally passed on to the second type of beneficiary known as the capital beneficiaries. Now in the most common scenarios, the capital beneficiaries will inherit the assets once the income beneficiary passes away. This can be quite useful if you want to provide an income for your spouse with the actual assets being passed on to your ears once neither of you are no longer around. And finally the last one I will talk about in detail is the discretionary trust. This is where the trustees can make certain decisions on the trust's income and capital and this will be defined in the trust deeds once created. So depending on what is agreed a trustee can decide what income or capital is paid out, which beneficiary to make payments to, how often these payments are made and conditions to impose on the beneficiaries. Now this can be really useful in situations where you have identified who the beneficiaries are but you are unsure of how much financial help they will need in the future and in what proportion. Perhaps one beneficiary needs more help than another and therefore the trustee can decide that they receive more income or capital from the trust than the other beneficiary. Now those are the main types of trust and there are several more. Some trusts are hybrid of what I've already mentioned and you will find that some trusts do have overlapping qualities. So be sure to check out a comprehensive list in the description box now. If you are in a position to create a trust and need some guidance on deciding which type of trust is the most appropriate for your situation. So how do you get a trust and how much does it cost? Now because the trust deeds aren't essentially legal documents, the wording of these documents need to be precise without any room for ambiguity. So to get one set up you will need to ask a solicitor to do so. If you do need help finding this solicitor that the Law Society website is a great place to find one. You can find one who handles trusts and any other businesses that you need within your area. I've provided links in the description box down below. Now when it comes to cost it does depend on how complex your trust deed is going to be and the solicitor that you choose but it does seem that solicitors do typically charge around 1,000 to 1,500 mark which does sound like a lot but it is a one time fee and if you think about it this fee is really spread across your entire lifetime and if applicable you may be able to regain some of the cost through tax benefits or removing assets from your estate and placing them within a trust. Of course that is it for this week's episode. Let me know in the comments section down below if you do have any more questions and obviously if you did find this video incredibly useful I appreciate if you smash that like button that does wonders up for the growth of this YouTube channel and remember I release a video every single week so if you want to keep up to date with those hit the subscribe button too. See you later. Bye.