A quick guide to accounting for trusts and estates

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Navigating trusts and estates can be a tricky process, but with the right support, they’re a great way to manage your assets. Below we will take you through some of the key areas if consideration for trusts and estates:

A person may choose to open a Trust for any number of reasons, not solely relating to make a Will:

  • To reduce Inheritance Tax liability
  • To hold assets for a child before they reach 18
  • To provide for your spouse whilst maintaining the estate
  • To ensure the family home cannot be sold in order to pay for residential care 

People involved in a trust

Terms used when referring to people involved in trust of any kind are:

‘Settlor’ – the person who puts assets into the trust

‘Trustee’ – the person that manages the trust

‘Beneficiary’ – the person that benefits from the trust

Types of trust

There are many different types of trusts, all of which are taxed different, these include:

  • Interest in possession trusts – a trust that requires a trustee to pass on all income to the beneficiary as it arises (minus any expenses)
  • Discretionary trusts – this allows a trustee to make certain decisions on how the trust income (and sometime capital) can be used
  • Accumulation trusts – here trustees are able to accumulate income within the trust and subsequently add this to its capital
  • Bare trusts – these allow a trustee to hold the trust in their name, but provides the beneficiary with the right to all capital and income within the trust once they reach 18 years old
  • Mixed trusts – a combination of more than one type of trust
  • Settlor-interested trusts – this allows the settlor, their spouse or civil partner benefits from the trust
  • Non-resident trusts – these trusts are for trustees are not a resident I the UK for tax purposes

Find out more about the different types of trust you can establish here.

Considerations for trusts and estates

If you are looking to set up a trust, we would highly recommend seeking the right support to ensure it is established accurately. An experienced accountant, such as Ellis & co., will look at your personal circumstances, your reasons for establishing a trust and provide detailed guidance on the administrative, accountancy and tax implications associated with setting up a trust. Furthermore, your chosen accountant will also support you with:

  • Preparing your accounts for all trust types
  • Distributing to beneficiaries
  • Income and Capital Gains calculations

If you are looking to establish a trust and would like support from an experienced accountant, speak to the team at Ellis & Co. today on 01244 343 504.