What are the different types of Trust?
Example Trusts that can be set up
There are a number of different kinds of Trusts. Choosing the right one is crucial. Here are some some examples:-
A Bare Trust is the same thing as a "simple Trust." It is one where the beneficiary gains immediate, absolute right to the assets in the Trust and the income generated. A settler (the person placing funds into trust) creating a Bare Trust is certain that the assets in the Trust go directly to the beneficiary or beneficiaries they choose. Once this Trust has been set up, the beneficiaries can't be changed.
Discretionary or Accumulation Trust
A Discretionary, or Accumulation Trust lets Trustees have discretion about how the Trust's income is used. In a Discretionary Trust, the Trustees are legal owners of the assets in the Trust. They must run the Trust to benefit the beneficiaries. In accumulation Trusts, Trustees can accumulate the Trust's income until the beneficiary is legally entitled to the property or the income generated by the Trust.
Heritage or Charitable Trust
A Heritage or Charitable Trust is a business-related Trust to benefit a charitable or historic cause. Heritage Maintenance Funds are created to maintain historic buildings. Charitable Trusts are set up for a cause that will benefit either a class of people or society at large rather than specific beneficiaries. Charitable Trusts get tax relief that private Trusts do not.
Interest in Possession Trust
An Interest in Possession Trust entitles the beneficiary to the Trust income as it is generated. The Trustee must pass all income received (minus Trustee expenses) to the beneficiary. If the beneficiary is entitled to the income for the duration of his or her life, he or she is known as a "Life tenant."
Mixed Trusts are a mixture of multiple types of Trusts. Some of the assets in the mixed Trust may be set aside as an interest in possession Trust, while other assets may be treated in the manner of a Discretionary Trust. These Trusts may be used for the benefit of sibling beneficiaries who attain the age of majority at different times.
Non-Resident Trusts are run by Trustees who are not UK residents for tax purposes. The tax rules for non-resident Trusts are quite complex. In some non-resident Trusts, only some of the Trustees are UK residents, and the settlor of the Trust was not a UK resident when the Trust was set up or when assets were added to it.
Parental Trusts for Minors
Parental Trusts for Minors are Trusts for the settlor's minor unmarried children in which the child's Trust income is treated as if it were the settlor's income for tax purposes.
Settlor-Interested Trusts are Trusts in which the settlor, or the settlor's spouse or civil partner may also benefit from the Trust. An example of this would be a Trust in which the settlor knows he or she will be incapacitated (e.g. by illness) and sets aside assets in a Trust for his or her own future income or for income for his spouse, civil partner, or child.
Vulnerable Beneficiaries Trusts
Trusts for Vulnerable Beneficiaries are set up for someone who is physically or mentally disabled, or someone under the age of 18 whose parent has died. With these Trusts, Trustees can claim special treatment for capital gains taxes and income taxes if it is a "Qualifying Trust." A Qualifying Trust is one where the person who creates it does not receive any benefit from it.
Inheritance Solutions UK Trust advice
If you would like any advice on the above types of Trusts, and the options that may be available to you, please give Inheritance Solutions UK a call on 0800 028 5119