The sensible use of trusts is central to the estate planning process.

There have been many changes to the taxation of trusts in the last few years but trusts continue to provide essential protective and tax saving benefits.

What is a trust?

A trust is a legal arrangement whereby one person (called the settlor) appoints one or more people or a company (called the trustees) to look after money or assets (called the trust fund) which they must use for the benefit of one or more people (called the beneficiaries).

So for example, suppose you asked a friend to look after some of your money intending that they use it to pay for your care if you got ill. If you just gave them the money then you could not be sure that they would use it for your benefit. They could spend it on whatever they liked. As an alternative you could use a trust arrangement under which the money has to be used according to rules you set out in the trust document. Your friend would be the trustee, your money would be the trust fund, and you would be the beneficiary.

You can place property, cash, shares or other assets into a trust and there are many different types of trust to choose from. Depending upon the type of trust you use there are different tax costs and benefits.