Setting Up a Living Trust in the UK

Trust documents must be properly drafted.

Living trusts are a vital but often misunderstood legal tool. Thousands of U.K. residents stand to benefit from living trusts, but many simply do not know how to go about setting one up. Living trusts--better known as 'inter vivos' trusts, or trusts 'between the living'--have a range of important applications, including probate avoidance or tax mitigation. You might also choose to set up a living trust to ensure you have made provisions for old age or incapacitation. Trust law is complex, but with the help of a solicitor, you can enjoy the benefits of a living trust.

Instructions

1. Consult a lawyer when setting up a living trust. Trust law is very complex and, while it is possible to complete the process unaided, it is not recommended.

2. Choose one of the two main types of living trust: revocable and irrevocable. Revocable living trusts allow you to retain control over assets placed in trust. You can make changes to the terms of the trust or revoke it altogether. Irrevocable trusts cannot be amended or revoked; you give up control over the assets.

3. Choose a trustee. Trustees are among the most important elements of any living trust arrangement. Your trustee may have a very high degree of control over the affairs of the trust, so it is vital that you choose a responsible, trustworthy party.

4. Write the trust instrument. This document sets out the terms of the trust and must be completed in a specific way to be deemed legally valid. Include details of the assets to be settled, the chosen beneficiaries and the degree of control to be given to the trustee. Include details of 'successor trustee', who will take over if the primary trustee dies.

5. Sign and date the trust document. Have a witness sign the document at the same time.

6. Keep your trust document up-to-date. Circumstances change, and the trust instrument should reflect this. For example, it should be changed in the event that a trustee or beneficiary dies. Again, seek legal advice if you are in any doubt.

Tips & Warnings

• Consider mentioning your living trust in your will. This can help make the probate process easier.

• Although irrevocable trusts are less flexible, they can offer tax benefits to the settlor.

• Remember that trustees are not obliged to accept the position. Consult with your chosen trustee well in advance, and make sure she understands her responsibilities.

• If you anticipate that your circumstances might change dramatically, consider establishing a revocable, rather than irrevocable, living trust.

• Living trusts are vulnerable to legal challenge, so it is important that the trust instrument--the document that establishes the trust--is properly drafted.

• If you are setting up a trust for tax avoidance purposes, revocable living trusts are very rarely effective.

• Remember that living trusts, unlike testamentary trusts, cannot be established in a will.

References

• HMRC: Decision Makers' Guide
• Estates or Trusts: What is a living trust?