Establishing a trust fund for your children is a good way to protect them financially if something should happen to you before they reach legal age. Along with setting aside money for them until they reach a certain age, usually 18, you can set up the trust to provide income to their caretakers to help provide for your children. There are several types of trusts that can be established to make sure your children are taken care of financially.
Types of Trusts
The most common types of trusts used for caring for another person, usually a spouse or your children, include:
- Fixed
- Discretionary
- Interest in Possession
- Accumulation and Maintenance
- Protective
Fixed Trusts
When you set up a fixed trust, you will name the beneficiaries of the trust in the event that something happens to you and you cannot make any financials decisions or you pass away. The trust will also include how much each beneficiary is to receive. You can name anyone as a beneficiary, including your spouse, children, or anyone else you choose.
Discretionary Trusts
With this type of trust, you will name the beneficiaries that are to receive the money that is put into it, but the trustees control it. The amount awarded to each beneficiary is up to the trustees, according to the circumstances of the trust.
Interest in Possession Trusts
This type of trust allows a beneficiary, usually a spouse, to use the money in the trust until he or she dies; then, it must be passed on to another beneficiary, such as a child. This type of trust is often used to ensure that a spouse is taken care of while the estate is kept intact for the benefit of their children.
Accumulation and Maintenance Trusts
With this trust, you can ensure that your children are well taken care of because it allows you to provide an income to pay for school fees, cover their living costs, buy their clothing, and provide for their other needs. These trusts have complex rules and regulations, so it is best to seek the advice of an accountant and/or an attorney when setting one up.
Protective Trusts
This trust is set up to provide the beneficiary with income while the trust’s capital is protected. It is often set up for beneficiaries who do not handle money well and are likely to become bankrupt.
Trusts as Tax Shields
Oftentimes, people of means will set up a trust to help lower the value of their estate because the money in a trust is separate from that of their estate. This helps to lower the amount of inheritance tax that is payable when your estate is turned over to those named in your will. Another way to lower the tax burden on your relatives is to set up a trust with one of the many Gibraltar companies.
Trusts set up by a non-resident settlor for non-resident beneficiaries are tax exempt in Gibraltar. In addition, they do not have to be registered, so they remain private and you can financially protect your family.
