Creating a lifetime trust

By Tolley
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The following Trusts and Inheritance Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Creating a lifetime trust
  • Formal requirements to create a trust
  • Formal requirement for transfer of property
  • Capital gains tax consequences of creation of new lifetime trust
  • Inheritance tax
  • Factors to consider in establishing a new lifetime settlement

The essential nature of a trust is that trustees do not hold the trust property for their own use and benefit, but they manage and administer it for beneficiaries. Trusts can be created in a person’s lifetime or set up by their will. Trusts may also be imposed by law, for example, statutory trusts imposed if someone dies intestate and implied or constructive trusts often found in property ownership situations.

Formal requirements to create a trust

Certain formalities must be met in order to establish a trust. The parties to the trust must be competent, ie of full age and mental competence. The trust must also be created according to certain formalities prescribed by law.

The parties

Generally, there are three parties: the settlor, ie the person who provides the property to be settled, the trustees and beneficiaries.

The settlor

The person who makes the settlement must be an individual of full age with capacity. It is possible for a company to make a settlement (subject to its memorandum and articles of association).

Care needs to be taken if a settlement is to be made by a person whose mental health is in doubt. Medical advice should be obtained from an appropriately qualified doctor who should be briefed on the legal principles involved in determining capacity. If there is cause to believe that the settlor may lack capacity, then consideration should be given to an application to the Court of Protection for the appointment of a deputy and for authority to create a trust under the Mental Capacity Act 2005, s 16 (subscription sensitive).

Trustees

Anyone may act as a trustee (including the settlor or a beneficiary; although a minor may not act).

See the The office of trustee guidance note.

The

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