Would anyone be so kind as to explain trusts to me and the benefits and downsides of having one please?

[BirthdayRainbow]

I have about £4-7k to protect.

TIA

It wouldn’t cost effective, £1000-£1500 minimum to set up even a simple trust.

@BirthdayRainbow what is the event/risk you want to protect against?

At its most basic a trust is a relatively simple concept and at that level the paperwork need not be onerous.

If you're trying to do something complex, for example to pass significant wealth to relatives while ensuring it stays outwith the taxman's fingers, then as PP says the cost would be thousands.

Protect the money from what?

https://www.howellslegal.co.uk/news/post/Why-Should-I-Set-Up-a-Trust

I’ve no allegiance to this website, but thought it explained reasonably well.

You don’t need to answer us directly, but points to think of - why are you thinking a trust might be the answer? Is it because of “something” in your life, or the beneficiaries’ (the person / people who will ultimately get your cash). Why do you think the cash needs “protected”? How would you like it be used / made available versus what would happen if usual / normal protocol without a trust was used?

Very rough benefit is that you might have some (more) legal control over how this money is used or not used. Downside can be the opposite, in that you’ve limited how it’s used.

When someone puts something into trust they are the Settlor and give up all legal ownership of the assets they put into trust. Legal ownership passes to one or more trustees who are now the legal owners. Usually there is one or more beneficaries of the trust, these are the people that can benefit from the assets held in trust.

Of course trust deed documents detail the rules of the trust, how and when the trust assets can be used or disposed of, how and when the trustees can be changed and how the beneficaries can be changed.

For example a discretionary trust may be set up such that the trustees get paid x amount of pounds a year for managing the trust, and that the beneficaries can be removed as beneficaries if they get a legal conviction and that the beneficaries only get benefit if the trustee decides to do so.

Let’s say a trustee likes his annual fees and doesn’t want to give the beneficaries anything as he will thereby maximise his fees from the trust funds. Further that the trust holds properties that if disposed of by the trust (e.g. gifted to a beneficiary) would incur a massive capital gains tax bill for the trust which the trustee might not want, so they instead decide to sell the properties thereby generating more cash-flow for their fees. This is based on a real-life example I know of.

Discretionary trusts can be very dangerous and are usually used where there is no real-life trust of the beneficaries.

However, not all trusts are equal, for example all non-government DB pensions are held in trusts of one form or another.

Without knowing more details as to why you want a trust, a small amount like £7k would be better off in an ISA with rcpremium bond account. If the issue is that the money shouldn't be accessible then you lock it away in a long term deposit account or premium bonds.

We've just paid £3k to set a trust up, it's a pretty complicated specific thing.

Are you trying to insure your savings go directly to someone in particular?
You maybe need to gift it to them and survive 7 years or leave it to them in your will.

*ensure

It really depends what you are trying to achieve. Do you still need access to the money? Are you trying to prevent a particular person having access if anything happens to you?
Have you written a will? It may be the easiest way to achieve what you are looking to do.
Depending on what you are trying to achieve, there are off-the-shelf options but all have their drawbacks.