Transferring assets out of a trust

If assets are taken out of a trust The trustees usually have to pay the tax if they sell or transfer assets on behalf of the beneficiary. There’s no tax to pay in bare trusts if the assets are. How to fund your trust? To transfer property out of the trust , you need the trustee to sign a written document transferring the property to the new owner. Only the trustee can transfer title out of the trust.

Review the trust document to see how the property must be handled and disbursed. Free Practical Law trial To access this resource, for a free trial of Practical Law. You retain control of the property you place into it.

Typically, you act as the trustee if you form a revocable trust. You can sell it or move it back out of the trust as you see fit. In addition, for the purposes of any later CGT liability, the acquisition cost by the trust is deemed to be the value at the date of death, thereby creating a ‘tax-free uplift’ in the base cost of the asset.

During your lifetime, assuming you do not become incapacitate that will normally be you. Winding Up The Old Trust The second way to transfer the assets of a Trust to a new one is to wind up the old Trust and transfer the assets to a new Trust. If the assets are held as shares in underlying companies, this may simply be a matter of transfering the shareholding to a new Trust. A trust can be created either by will, or by a lifetime disposition (either a self-declaration of trust by the current owner of the assets or a transfer of those assets to trustees to hold on trust ). When you transfer assets to a living trust you are changing legal ownership of your assets from your name to that of the trust.

Most people create a living trust with themselves as trustee, so you will still be able to use and control your assets , but they will technically be owned by the trust. If the grantor acts as the sole trustee, he risks making the trust defective as an irrevocable trust for tax purposes. To be effective as an irrevocable trust , an independent trustee should possess the title to all trust assets in property. Transfer title to the trustee.

Property can be retitled through a deed. A settlor transfers assets to either a bare trust or a disabled person’s trust. As these transfers are PETs for IHT purposes, no gift relief is available under Section 260. Have the trustee transfer the trust property to the individual in accordance with the terms of the trust.

If the trust agreement compels the trustee to distribute the assets to you whenever you request, there should be no problem. If the trust has a spendthrift clause, getting the trust ’s assets may be more difficult. Under a bare trust , once the beneficiary reaches the age of legal capacity, the trust may still technically carry on with the trustees holding the legal title to the trust assets , but they will merely hold the assets as nominees for the beneficiary who can demand that the assets are transferred to him or her at any time. The timing of a transfer out of a trust to a beneficiary may be critical to the availability of holdover relief under s 2in respect of that transfer.

For example, suppose that the trustees of a discretionary trust transfer a chargeable asset to a beneficiary. Unlike a last will and testament, estate planning through a living trust involves the transfer of title to assets during your lifetime. For example, if you want your house to be part of a revocable living trust, you must execute and file a new deed transferring ownership from yourself to the trustee—which in most cases is also you.

The initial value is the value of the assets within the trust, valued on a “stand alone” or “isolated” basis. The value transferred by the donor for IHT purposes, may therefore be different to the initial value of the trust for exit charge purposes. Finally, we must decide who will pay the tax on the exit charge.