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The Main Types of Trusts

A trust is a legal relationship created between a person known as a settlor who transfers assets e.g. cash, property or shares to other people known as trustee's with instructions to hold the transferred assets for the benefit of an individual or group of individual known as the benefiicaries. The trustee's are the legal owners while the beneficiaries have the right of enjoyment.

 

Trusts can be made during the lifetime of the settlor or can be created by a will (will trusts). There are two main types of trust, one where the the beneficiary has an enfoceable interest and one where they have a prospective interest.

 

Bare or Absolute Trust - where the beneficiary has an immediate and absolute right to capital and income. Generally taking the form of an investment made by a parent or grandparent for the benefit of a minor child. This type of trust could also be created when someone receives compensation payments in respect of an injury.

 

Interest in Possession Trust - this is where a beneficiary has the right to income from the trust or a right to enjoy the assets of the trust. There are two main types:

  • Flexible Trust or Power of Appointment Trust - where the trustees have the power to appoint or vary beneficiaries, and
  • Life Interest Trust - where one person known as the life tenant has the right to income for life or a fixed period, then others known

as the remaindermen are entitled to the capital.

 

Discretionary Trust - is a power of appointment trust with no interest in possession which means there are no actual beneficiaries just potential ones. This means that the trustee's retain the flexibility when and who should benefit from either income or capital.

 

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Levels and bases of, and reliefs from, taxation are subject to change