The advantages of being part of a trust and benefitting you commercially

The advantages of being part of a trust and benefitting you commercially

United Kingdom

Trusts are often used as a form to hold property throughout the family generation. However, in recent times, there has been an increase of trusts arrangements for commercial usage.


The definition of a trust

A trust can be defined as a legal agreement which involves an individual who is known as “the settlor” assigning their assets to another individual legally, and in turn, he or she becomes “the trustee” who holds the assets for other individuals (“the beneficiaries”) including the settlor. The trusts and its items are conveyed throughout a deed, a legal written document. The terms of the trust includes taxing duties on the trustee, where should they failure to perform those duties, it can cause them being held personally liable.

It is essential to understand that the trust does not have a legal personality, since it is the trustee legal responsibility to carry out the terms. Hence, trusts are different from contracts due to its distinctive characteristics.
How to apply trusts commercially
Using trusts commercially can be split into three kinds:
Investment purposes - The types of trusts that can be used are pension fund trusts and unit trusts.
Security device - This can be formed through a security trust where it can hold funds or another property in a separate fund depending on the purpose. Types of trust includes employee benefit trusts and debenture and bond trusts.
Business purposes - Depending on the type of arrangement, there are various trust to suit the settlor and trustee needs. This includes trading trusts and voting trusts.

For further information regarding the commercial use of a trust it can be found here.
How can you benefit from a trust commercially
From a commercial perspective, the benefits involved includes:

Limiting the beneficiary, so, in some cases, the beneficiary may find themselves unable to hold property legally in their own name. This can be due to fiscal and regulatory grounds.

Separate patrimony, which is the separation from the trust fund. So, it is not part of the inheritance of either the trustee or the beneficiary cause.

Tax treatment, so this directly affect the individuals involved and they are taxed accordingly because the trust does not have a legal personality, so they are seen as the direct owners of the trust property. Hence, this makes for tax transaction more transparent, and making it essential in commercial transactions.

Increased flexibility, so the terms of the trust can be what is agreed between the settlor and the trustee. However, this also depends on the types of trusts such as pension fund trusts.

Increased confidentiality, which means the ownership of the property amongst the trustee and group of beneficiaries remains private.

As there are benefits from creating a trust, it can be difficult to navigate through the terminology and what types of trust may benefit the settlor and possible trustee. Hence, it is recommended that professional advice from a corporate solicitors is sought. Therefore, the individual would be thoroughly informed regarding the process and making sound decisions in their decision making.