A matter of trust: Putting money in trust for children (2024 Update)

If you’re planning to set aside money for the long-term future benefit of your children, you may want to consider a trust fund.

In this blog, Acumen talks you through two of the main options available, as well as their strengths and weaknesses. Keep reading to find out everything you need to know about bare trusts and discretionary trusts.

What is a trust fund?

A trust fund is basically a way for a group of trustees (who could include you) to hold investments or other assets for the benefit of some other people, known as beneficiaries.

A trust fund can also assist inheritance tax planning by allowing you to transfer the assets outside your taxable estate. A trust can also control when the children have access to the funds.

Popular types of trust funds

There are several types of trust funds, with different tax and legal characteristics.

We’re going to explain the different advantages and drawbacks of the two main kinds of trust funds: bare trusts and discretionary trusts.

Bare Trusts

Bare trusts, also known as “simple” or “absolute” trusts, are the most commonly used trusts for gifts to children.

The beneficiary – in this case, the child – is absolutely and immediately entitled to the income and capital held in the trust fund.

The assets are held in the name of the trustees, who manage and make decisions about the trust until the beneficiary reaches the age of 18 in England and Wales or 16 in Scotland.

At this point, beneficiaries can demand that trustees transfer the trust fund to them.

Discretionary Trusts

Discretionary trusts enable trustees to decide how much income and/or capital each beneficiary should receive and when.

Discretionary trusts are sometimes used to provide for future needs that might not yet have developed or for beneficiaries who are not capable or responsible enough to deal with money themselves.

The difference between a Bare Trust and a Discretionary Trust

Bare trusts are generally more tax-efficient than discretionary trusts but are rather rigid and inflexible.

By contrast, discretionary trusts often involve additional tax costs, but provide greater flexibility.

In particular, an important advantage of discretionary trusts is that you do not have to pass over assets to children when they reach the relatively young age of 18 (16 in Scotland).

Trust funds can help to ensure your money is used in the ways you intend for the benefit of your children or grandchildren.

However, they do not necessarily reduce overall tax liabilities and in some cases, a trust might increase the amount that has to be paid.

For these reasons, it is always worthwhile to discuss your options with an Independent Financial Adviser.

Trust fund advice from Acumen

Planning for your child’s future is one of the most important things you will ever do.

Acumen can advise you about the best way to achieve your aims and to help ensure that your investments produce the outcomes you want for your children.

We can help in a range of ways and are willing and prepared to work with your other advisers.

The scope of our work can include:

• Comprehensive personal financial planning for your family’s finances and estate planning.
• Investment planning for yourself, your family and any trusts, from asset allocation to investment selection.
• Inheritance tax mitigation.
• Advice on the choice of appropriate trust funds.
• School fees and other educational costs planning.

To discuss trust fund options in further detail, please contact us today on 0151 520 4353 or email [email protected] to arrange a consultation.

NB: This blog was first published in April 2015 and has since been updated to provide the most accurate and up-to-date information available.