Many of us might think that trusts are tools exclusively used by the super-rich or for dodging tax. However, that’s not the case: trusts are a practical way to take care of assets for someone else’s benefit. This can be during your lifetime or after you’ve passed away. There are lots of myths and misunderstandings about trusts, so here we’ll debunk a few:

Trusts are only for wealthy people

Trusts can actually be really useful, no matter how large your estate or assets might be. Trusts aren’t solely about money; they’re helpful tools that lay out how money should be managed and who it’s being managed for. If you have a child, for example, or perhaps a relative with a disability, a trust can support this individual without handing over full control.

Trusts are for tax avoidance

This simply isn’t true. Trusts aren’t a magical haven for tax dodgers at all, and sometimes face higher tax rates than individuals might. Income tax, capital gains tax and inheritance tax can apply to trusts, so they’re not a way of escaping tax obligations. A London law firm, such as Forsters, can help you to understand the benefits of a trust.

You can only set up a trust while you’re alive

This isn’t true either. Trusts can be created during your lifetime, but can also be activated only after a person’s death. These are called ‘will trusts’ and are written into your will.

Trusts can be informal

Sometimes, people appoint family members as trustees and assume everything can be handled casually. But this is where problems lie and issues can creep in. Being a trustee is a serious legal responsibility, and trustees must follow strict guidelines and rules.

Beneficiaries should be trustees

Although they can be, and it’s not illegal, it isn’t always ideal. That’s because it can be tough to remain impartial when making decisions, and therefore, having an independent trustee can be a real benefit. After all, trustees need to agree unanimously, and this can cause difficulties.

Related: A beginner’s guide to probate

The main types of trust in plain terms

Part of the confusion around trusts comes from the number of different types. Every trust involves a settlor, who puts assets into it, trustees, who manage them, and beneficiaries, who benefit. An express trust is set up deliberately in writing, usually in a trust deed or a will, naming the property, the trustees and the beneficiaries. A trust created by a will that takes effect on death is often called a testamentary trust.

Some trusts arise without anyone writing them down. These implied trusts include resulting trusts, where someone holds the legal title but was never meant to benefit, and constructive trusts, which courts impose to stop a legal owner unfairly keeping something. Charitable trusts serve purposes such as relieving poverty or advancing education and follow their own rules. A declaration of trust is commonly used by people buying a home together to record who owns what share. Finally, some trusts can be changed or cancelled by the settlor, while others are fixed once made.