Do you need someone to manage money for you – for example, to use it to help someone after your death, or to pay for your care later on? One way to do this is to put the money into a trust.
- What is a trust?
- When you might use a trust
- How to set up a trust
- How much does it cost to set up a trust?
- How does your local council treat income and capital from a trust?
- Get more information about trusts
What is a trust?
Setting up a trust is complicated – use a solicitor to avoid costly mistakes.
Imagine you asked a friend to look after some of your money, so they could use it to pay for your care if you got ill. If you just gave them the money straight out you couldn’t be sure that they’d use it properly. They could spend it on whatever they like. So, instead, you can set up a trust. With a trust, the money has to be used according to rules you set out.
In the official jargon, a trust is a legal arrangement where one or more people or a company (called the trustees) controls money or assets (called the trust property) which they must use for the benefit of one or more people (the beneficiaries).
In the example above, your friend would be the trustee, your money would be the trust property, and you’d be the beneficiary – the person who benefits from the trust.
You can put money, investments or other assets into the trust. Depending on the type of trust you use, it may have to pay tax and the trustees may need to complete tax returns.
When you might use a trust
You might set up a trust:
- to support someone who can’t manage their money, so that their needs are looked after, even when you aren’t able to help them
- to make sure that your own money is used to look after you if you can’t look after yourself
A trust can be especially useful if you have a child with a mental health condition or learning disability and you’re worried about how they’ll manage financially after you pass away.
They can also help someone with a mental health condition or learning disability who’s claiming state benefits, such as Disability Living Allowance (or Personal Independence Payment), or getting cash help from their local social services department.
The benefit payments can be made to the trustees, who’ll use them according to the rules of the trust.
And as you probably know, people often set up trusts for children.
How to set up a trust
The legal wording of a trust needs to be precise, so you should ask a solicitor to set it up. Find a solicitor to draw up a trust
The Law Societies keep searchable databases to help you find a qualified solicitor near you.
Find a solicitor in:
- England and Wales: The Law Society
- Scotland: The Law Society of Scotland
- Northern Ireland: Law Society of Northern Ireland
Choose your trustees
You have to choose people to be your trustees, usually family members or close friends who you know you can rely on. Think carefully about who to ask, and make sure they’re happy to take on the responsibility. You should have at least two trustees, but probably no more than three or four.
Alternatively, you can appoint a company as your trustee, such as a bank or firm of solicitors – but bear in mind they will charge.
How much does it cost to set up a trust?
Instructing a solicitor to set up a trust for you can be expensive – typically around £1,000 or more. But using a solicitor helps you avoid costly mistakes further down the line – for example if the wording of your trust is ambiguous or misleading.
Some charities have schemes where they contribute towards the parents’ costs of setting up a trust for a disabled child.
How does your local council
If you need long-term care and are a beneficiary of a trust,
Absolute entitlement to the capital
If you have access to the capital held in the trust then this will be treated by the local authority as capital you own.
Absolute entitlement to income
If you do not have access to the capital in the trust but are entitled to receive income from it the capital is disregarded and the income is taken into account.
Absolute entitlement to capital and income
If you have access to both the capital and the income in a trust the value of that income together with the capital are treated as capital you own.
If you only have the right to receive payments from a trust at the discretion of the trustees the local authority can only take into account the actual payments you receive.
If you need care and transfer your money into a trust to avoid the means test for local authority support it will almost certainly be treated as deliberate deprivation of assets.
Get more information about trusts
You can get much more information about trusts – including the types of trust and how they’re treated for tax – from HM Revenue & Customs.
This article is provided by the Money Advice Service.
Some important information about Rest Less Money
We want you to understand the positives, but also the limitations of using our site. We operate in a journalistic manner and therefore all information, guidance or suggestions provided are intended to be general in nature, and you should not rely on any of the information on the site in connection with the making of any financial decision.
When we set out to build Rest Less Money, we wanted to be a trusted place where you could find helpful information about financial matters affecting the over 50s. As a free to use resource, we try hard to provide the best information we can, but we cannot guarantee that we won’t occasionally make mistakes. So please note that you use the information on our site at your own risk, and we can’t accept liability if things go wrong.
Key things to remember when using Rest Less Money:
We do not offer financial advice – As a journalistic site, it’s important to know that we do not provide financial advice. You should always do your own research before choosing any financial product so that you can be certain it is right for you and your specific circumstances. If you are in any doubt, please seek professional financial advice from a regulated financial advisor.
No Liability – please note that you use the information on Rest Less Money at your own risk and we can’t accept liability for how you choose to use the information given on our site. We will often provide links to content or products and services available on other third-party websites. These are provided purely for your convenience and we cannot be held responsible for any content, or any of the products and services offered on any website that we link to.
Accuracy of Information – We try to make sure that all the information provided on Rest Less Money is correct at the time of publishing as we want it to be the most helpful resource possible. Sadly, we are not perfect however, and so we can make no guarantees as to the completeness, accuracy, adequacy or suitability of the information available on the site.
Whilst we work hard to try and provide accurate information, deals and prices can change, so whilst they may be correct at the time of writing, providers may subsequently decide to alter them later – so always double check first.
A final note on the Rest Less Community Forums – always remember that anyone can post their opinion on the Rest Less Community Forums, so it can be very different from our own opinion and may not be factual or well researched. Always be wary of any content posted on the forums and be sure to do your own research and due diligence on anything suggested.