Savings Trusts

What is a Savings Trust?

A savings trust is a legal arrangement where assets (such as cash, investments, or property) are held and managed by a trustee for the benefit of specified beneficiaries. This setup can help protect your savings, offer tax advantages, and ensure your funds are managed according to your wishes.

Why Consider a Savings Trust?

• Tax Efficiency: Savings Trusts can provide significant tax benefits, such as reducing Inheritance Tax liabilities and offering tax-efficient growth on your investments.
• Asset Protection: Assets within a trust are protected from creditors, potential legal disputes, and financial mismanagement, ensuring they are preserved for your beneficiaries.
• Control Over Distribution: You can set specific terms for how and when your savings are distributed, giving you control over your assets and ensuring they are used in a way that aligns with your intentions.
• Flexibility in Investment: Savings trusts allow for a variety of investment options, enabling you to tailor your investment strategy to your financial goals and risk tolerance.

The 4 Types of Savings Trusts in the UK

1. Bare Trusts: In a Bare Trust, the beneficiaries have an absolute right to the assets and any income they generate. This type of trust is often used to pass on assets to minors, who will take control when they reach adulthood.
2. Discretionary Trusts: A Discretionary Trust gives trustees the flexibility to decide how and when to distribute the assets to the beneficiaries. This can be useful for managing family assets and providing for beneficiaries based on their needs.
3. Interest in Possession Trusts: Beneficiaries of an interest in Possession Trust have the right to receive income generated from the trust assets, but not the assets themselves. This type of trust can provide a steady income stream while preserving the capital for future beneficiaries.
4. Accumulation and Maintenance Trusts: These trusts are designed to provide for the maintenance and education of beneficiaries, typically children or grandchildren. The trustees can accumulate income within the trust or use it for the beneficiaries’ benefit.

How Do Savings Trusts Work?

1. Establishing the Trust: To set up a savings trust, you need to create a trust deed, which outlines the terms of the trust, including who the trustees and beneficiaries are and how the assets should be managed and distributed.
2. Transferring Assets: You transfer assets into the trust, which could include cash, investments, property, or other valuable items. Once transferred, these assets are legally owned by the trust.
3. Trustee Management: Trustees manage the trust assets according to the terms of the trust deed. They are responsible for investing the assets, maintaining records, and ensuring the assets are used for the benefit of the beneficiaries.
4. Distribution of Assets: Trustees distribute the trust assets or income to the beneficiaries according to the terms set out in the trust deed, which can include specific conditions or timelines for distribution.