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.
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.
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.
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.
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.