The process of setting up a trust in lifetime need not be complicated. A solicitor can draft a deed although it is important that each deed should be specifically tailored for the particular family. It needs to reflect all the things that the settlor would want to do with the trust. The initial capital going into the trust can be small - £10 will be sufficient - although the real benefits will come from moving other assets into the trust. The key issues to consider are:
A trust can also be created through a Will as a means of devolving some or all of the estate of the deceased. The same issues as outlined above will need to be considered and the trust will be incorporated directly into the wording of the Will.
It is true to say that HMRC have always had a somewhat wary view of trusts. They recognise the existence of trusts as separate legal entities for tax purposes but they seem to be inherently suspicious that trusts are usually employed as vehicles for tax avoidance, a view that seemed to drive the FA 2006 changes.
The possibility of using trusts to mitigate income tax and capital gains tax (CGT) liabilities is recognised by a raft of anti-avoidance provisions for these taxes. The effect of these provisions is to look to see if the settlor, their spouse and in some cases their dependants, can benefit from the trust and, if that is the case, the tax charge on income and gains received by the trust will fall on the settlor directly. These rules are complex but must always be considered as part of the process of creating the trust. Clearly professional advice should be sought.