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What is a Trust?
Introduction to Trusts
In some cases, because of their age or mental incapacity, beneficiaries may not be able to properly look after assets themselves. A trust would therefore be created under such circumstances in order to protect their interests.
Trusts can also be created for tax-planning reasons. The most usual types of trusts which can be created are:
Bare Trust
This type of trust is not, strictly speaking, a trust at all.
An asset is held in the names of trustees, but the trustees only nominally own the assets within the trust. The real owners are the beneficiaries. Such trusts arise commonly when children are entitled to assets but they are not old enough to have legal authority to deal with those assets.
Discretionary Trusts
The trustees of a discretionary trust have discretion as to how they treat the assets within the trust, and this applies to both capital and income in the trust.
The trustees will not normally have absolute discretion, as the creator of the trust ("the settlor") will stipulate the people or charities in respect of which discretion can be exercised. If a settlor is concerned about the way in which trustees can exercise their discretion then, in the case of a lifetime settlement the settlor can be a trustee himself. In all settlements the settlor can also sign a letter of wishes, which gives non-binding instructions to trustees as to how the settlor would wish their discretion to be exercised in the future.
Interest in Possession Trust
This is a trust whereby a person (normally known as a tenant for life) is entitled to income from the trust but is not entitled to the capital.
As an example, such a trust would be established when, say, one spouse dies and wishes to leave sufficient funds to the surviving spouse for the rest of his or her life, but at the same time wishes to ensure that he or she cannot dispose of the capital assets.
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