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Explaining the different types of trust

There are different types of trust that can be set up for inheritance purposes. Selecting the right one for your needs is important. Here are some examples to help you understand the different types.

Simple

Also known as a ‘Bare Trust’, this allows the beneficiary to gain absolute control over the assets in the Trusts immediately. They will therefore have control over the income generated.

When a settlor (the person entrusting money to the trust) selects the beneficiary (or beneficiaries) they know for certain who will benefit. When it has been set up, the beneficiaries can’t be altered.

Accumulation or Discretionary

Assigned trustees are given the discretion of how the income of the Trust is used. Trustees for a Discretionary Trust are the legal owners of the assets and must run it in favour of the beneficiaries. An Accumulation Trust’s board of trustees are given powers to accumulate the income until the beneficiary is legally allowed the income or property.

Charitable or Heritage

This is a business-related Trust set up to benefit a historic or charitable cause. For example, Heritage Maintenance Funds are set up to pay for the maintenance of historic buildings. In a similar way, Charitable Trusts are established to benefit a group of people or society in general rather than individual beneficiaries. Charitable Trusts are entitled to various forms of tax relief that private trusts don’t get.

Interest in Possession

This allows the beneficiary to use its income as it is generated. The selected Trustee must pass all income received from the trust (except the expenses generated by the Trustee) directly to the beneficiary. The beneficiary is known as a ‘life tenant’ if they are entitled to this income for their lifespan.

Mixed Trust

These are simply a mixture of different types of trusts. Some of the Mixed Trusts’ assets can be treated in the same way as those of a Discretionary Trust. They are generally used for the benefit of siblings who reach the majority age at separate times.

Parental Trusts for Minors

These are set up for the settlor’s underage, unmarried children. The child’s income from the Trust is treated as if it is the income for the settlor for tax purposes.

Vulnerable Beneficiaries

These are set up for beneficiaries who are mentally or physically disabled. They are also set up for beneficiaries under the age of 18 whose parent has died. Trustees can claim special treatment in terms of income and capital gains taxes if it’s designated a ‘Qualifying Trust’. This is a trust where the settlor does not receive any benefit.

Settlor-Interested

These are Trusts which can also benefit the settlor or the settlor’s civil partner or spouse. For example, a Trust set up by a settlor who knows they will be incapacitated by illness in the future. It will then form income either for themselves, or for their family.

Turner Little

Turner Little offer the creation of both Trusts and Foundations alone or in conjunction with the incorporation of UK or Offshore Companies. For further assistance please contact us on 01904 783101.

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.