TRUST TERMS GLOSSARY

Absolute (bare) trust - a trust where the named Beneficiaries are entitled both to trust income and capital and where their entitlement cannot be changed.

Accumulation and maintenance trust - a Discretionary Trust where the property is held for the maintenance, education or benefit of children or grandchildren, until the Beneficiaries reach age 25 at the latest. At that time, they become entitled to trust capital or income. Prior to 22 March 2006 these trusts were treated favourably for inheritance tax purposes.

Accumulation period - the period during which the Trustees may choose to add all or part of any income from the trust fund to the trust capital rather than distributing it to Beneficiaries. The accumulation period is either specified in the Trust Deed or subject to legislation.

Beneficial Owner - an individual who has ultimate ownership or control over an asset or has the right to receive income or benefit from it.

Beneficiary/ies - an individual or group of individuals that benefit financially or have the possibility of benefit in some form from the trust assets. There can be different types of Beneficiaries, such as Discretionary, Fixed Interest, Default.

Bereaved minor’s trust - a trust set up on a parent’s death under which a minor child of the deceased will become absolutely entitled to the trust fund by age 18.

Capacity - the ability of an individual to use and understand information to make a decision and communicate a decision made.

Chargeable lifetime transfer (CLT) – a transfer made by a Settlor to a trust during lifetime that can be chargeable to inheritance tax at the time of the transfer if the value exceeds the settlor's available Nil Rate Band.

Class of beneficiaries - a group of people who are not named individually in a trust deed, but who could potentially benefit from the trust. An example of a class would be ‘children and remoter issue of settlor’.

CRBOT - Central Register of Beneficial Ownership of Trusts – the Irish Tax Authorities trust register.

Deed of Variation - a deed which makes changes to a deceased individual’s Will. Made by the Beneficiaries of the estate to change the who will receive the estate assets.

Default beneficiaries - the people who will benefit from such part of the trust fund (if any) as remains undistributed at the end of the trust period.

Disabled person’s trust - a trust that is established for a disabled person that offers inheritance tax and capital gains tax advantages. In order to qualify for these tax advantages, the trust has to meet certain conditions.

Discounted gift trust - a discounted gift trust is an inheritance tax planning tool that allows the Settlor to make a transfer to a trust but retain access to regular payments from the trust without creating a Settlor Interested Trust. This trust arrangement typically uses an investment bond.

Discretionary beneficiaries - Beneficiaries that have no automatic right to receiving a benefit from the trust, rather they are potential beneficiaries, who may benefit subject to the trustee’s discretion.

Discretionary Trust - a trust in which the income/capital/assets of the trust are held by the Trustees for typically classes of Beneficiaries who may benefit subject to the Trustees discretion.

Eighteen to Twenty-Five (18–25) Trust - a trust set up on a parent’s death under which the minor child of the deceased must become entitled to the trust fund at some time between age 18 and 25.

Exit charge - the exit charge (also known as the ‘proportionate charge’) is an inheritance tax charge levied on Trustees of Relevant Property Regime trusts. It is applied when assets leave the trust and is calculated using a formula that is based on the value of the assets at the commencement of the trust or at the last 10-year charge and the value of the assets leaving the trust and the time elapsed since the last 10-year charge. The trustees are responsible for reporting Exit charges to HMRC on form IHT100.

Express trust - an express trust is one which is deliberately created by a settlor, usually by document such as a Trust Deed created in lifetime by the settlor or by Will on death.

Fixed interest / Interest in Possession Trust / Life Interest / IPDI Immediate Post Death Interest - the income or benefit is given to a specific Beneficiary – it is theirs by right. There may be more than one Beneficiary but they will all have a fixed entitlement. The inheritance tax rules for these trusts changed significantly on 22 March 2006.

Flexible trust/Flexible Power of Appointment trust - a trust under which a Beneficiary is entitled to an Interest in Possession but Trustees have power to appoint capital and future income to a Discretionary Beneficiary. Commonly used with life assurance policies prior to 22 March 2006.

Gift with reservation of benefit (GROB/GWROB) - arises where the donor of a gift can still enjoy a benefit from the gifted asset without paying a commercial value for the benefit. The property that is subject to a gift with reservation of benefit is treated as continuing to be included in the Settlor’s taxable estate for inheritance tax purposes, even though they no longer legally own the asset. This will most frequently arise in a case where the Settlor can still benefit under the trust.

Letter of Wishes - an informal and non-binding document that can be drawn up to accompany a Will or Trust Deed and can be used to assist or guide an executor or trustee.

Lifetime Trust - a trust created during the lifetime of the Settlor.

Loan Trust - loan trusts are inheritance tax mitigation tools. Settlors make a loan rather than a gift to a trust. The Settlor can call for the repayment of the loan. The growth on the investment acquired by the Trustees with the loaned funds is outside of the Settlor’s estate.

Nil rate band - the amount that someone can give away (apart from exemptions) as a chargeable transfer before inheritance tax is payable. This has been £325,000 from the 2009/10 tax year and will remain at this level until 5 April 2030.

Periodic charge / 10-year charge - a charge on a Relevant Property Regime trust, which will include Discretionary Trusts and lifetime Interest in Possession/Fixed Interest trusts set up on or after 22 March 2006. The charge arises on every 10th anniversary of the trust. The calculation of Periodic Charges is complicated but, broadly, it is calculated as 6% of the value of the trust assets immediately before the 10-year anniversary that exceed the Nil Rate Band available to the Trustees. The Trustees are responsible for accounting for periodic charges to HMRC using form IHT100.

Perpetuity period - the maximum legally permitted period that a trust can exist before someone has to become absolutely entitled. This will be determined by the trust deed or if not included in the deed by legislation.

Pilot trust - a trust which is established with a nominal amount (often £10) which can then accept further assets in the future.

Probate trust - a probate trust (also known as an asset or estate protection trust) is used to act as a wrapper to hold assets that on the death of the settlor do not require probate to be able to access them, providing a quicker process to transfer the assets to the beneficiaries. The trust Settlor is typically a Beneficiary and therefore the trust is Settlor Interested. In such cases a probate trust is likely to be ineffective for inheritance tax purposes.

Protector - someone appointed by the Settlor to direct or guide the Trustee(s) in relation to the administration of the Trust.

Qualifying Interest in Possession - a qualifying IIP trust includes interest in possession trusts created on death and lifetime interests in possession created before 22nd March 2006. These trusts are not in the relevant property regime. The trust assets are added to the estate assets of the income beneficiary’s estate on their death.

Relevant property regime trusts - relevant property regime trusts include Discretionary Trusts, Accumulation and Maintenance trusts and most Interest in Possession/Fixed Interest trusts set up in lifetime on or after 22 March 2006. The assets held in a relevant property trust do not generally form part of a Beneficiary’s estate on his or her death. These trusts are subject to the Periodic/10-year charge regime.

Remainderman - the Beneficiary entitled to the trust assets when the Fixed Interests have ceased. Another name for remainderman is reversioner.

Settlement - another term for a trust.

Settlor - an individual who sets up a Trust, where legal ownership of assets is transferred to the Trustee(s) for administration and distribution according to the settlors wishes which are set out in the Trust Deed.

Settlor-interested trusts - a trust where the Settlor, their spouse or civil partner or minor child can benefit from the trust. The trust could be Fixed Interest or Discretionary.

Statutory trust - the rules of intestacy provide for assets to be held in a statutory trust for each minor entitled to a share of the assets under the rules.

TRS - the Trust Registration Service – the online platform operated by HMRC on which the key details of all taxable and many non-taxable trusts must be disclosed for anti-money laundering purposes.

Trust Deed/Declaration of Trust - a legally binding document through which legal title of an asset is transferred from the Settlor to a Trustee to be held on trust for the benefit of one or more Beneficiaries.

Trustee - the legal owner of the assets held in a trust. An individual or organisation appointed by the Settlor to administer the trust asset(s) according to the Settlor’s wishes as set out in the Trust Deed. The trustees must look after the trust fund for the benefit of the Beneficiaries.

UK trust - if all of a trust’s Trustees are UK tax resident, the trust will be a UK trust for TRS purposes.

Will Trust - a trust created in a Will on death. The trust provisions are set out in the person’s Will.