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This set up is therefore better in some ways than for example transferring property to children or relatives as
individuals. There are always dangers in passing property to individuals who may become vulnerable. Perhaps
a child may suffer from a mental impairment and be unable to manage even in adulthood. In such a situation
parents might be well advised to set up a trust. Even a trusted child may become enmeshed in debt and may
even lose the property to creditors. There is always the potential problem of “sideways disinheritance” where
a property transferred to a child may move out of a family by reason of divorce or separation. That potential
problem is also solved if the property stays in the trust.

The typical family protection trust would stay in place till the second death of the settlors. At that point the
trust would normally be wound up and the assets passed on to the surviving beneficiaries. Remember, on
the death of each of the settlor couple, the assets in the trust are not part of their estate. What assets each
possesses would be transferred in accordance with their wills. However the winding up of these estates
should, all other things being equal are cheaper and quicker than if the main assets they held had not been
transferred to a trust. In certain circumstances it might be desirable for the trust to continue – for example if
the individual beneficiaries were very young children or parties for some reason unable to look after
themselves. Each family situation will be different.

Because the trustees have discretion, the settlors may write a “letter of wishes”. This is a letter by the settlor
stating to the trustees the wishes of the settlor on how the trustees should exercise their various discretionary
powers. Letters of Wishes are not binding on trustees, but should be very persuasive, particularly on
the actions of any “professional” trustee. Many settlors do not proceed with these Letters of Wishes but some
do, and they can be very helpful.

Before setting up a trust there are a lot of issues to consider. Each family situation will be different and
different families will take different approaches. Not all will be comfortable with the trust route – others will
be very keen on it. Nobody should opt for a trust without a full review of all relevant circumstances with a
professional advisor. One of the possible “side effects” of placing assets in a trust is that if done some time
before the care issue arises, the assets almost certainly cannot be taken into consideration in assessing whether
the former owner has to pay his or her care costs.

Care costs are becoming a major worry for many families, principally because these costs are now extremely
high. Figures show that in the UK 1 in 3 women and 1 in 4 men will spend a period of time in full time care
and this can devastate family finances. Sadly many houses are sold in the UK each year to pay for
accommodation and care costs. Currently an effect of a properly written discretionary family trust is to offer
some protection against the necessity to sell a house to pay for care, although a discretionary family trust
should never be set up just for this purpose. Also there are real potential difficulties if someone disposes of
assets to avoid paying care costs, and any such route should not be taken except with clear legal and financial
advice.

WARNING – THIS GUIDE IS A SIMPLE EXPLANATION OF A PARTICULAR TYPE OF TRUST ONLY. IT IS
OFFERED TO THE READER WITHOUT LIABILITY. LEGISLATION IS CONSTANTLY CHANGING AND THIS BASIC
GUIDE DOES NOT CONSTITUTE LEGAL ADVICE.

PROFESSIONAL ADVICE MUST BE OBTAINED BY ANY PARTY OR PARTIES SEEKING TO SET UP A TRUST.

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