Different Types of Trust

Trusts have been used in England and Wales for centuries, mainly as a way of protecting assets from tax, greedy relatives and creditors as they pass down the generations.

A trust is the way a that a person (called the ‘settlor’) with assets such as cash, shares, property or other investments gives the assets to another person or people (the ‘trustees’), who may include the settlor, to look after and manage for the benefit of someone else (the ‘beneficiaries’). The beneficiaries can sometimes be or include the settlor.

As well as describing the trust assets and naming the trustees and the beneficiaries, a well-written trust document sets out the powers (ie what they can do) of the trustees and their duties (what they must do). Legislation and cases decided by the courts (‘precedents’) also set out further obligations and guidance.

Trusts can be created by lifetime gift (often called a ‘settlement’) or on death (a ‘will trust’) and are defined differently for the purpose of capital gains tax (CGT), inheritance tax (IHT) and income tax. In some cases trusts can also be implied by the way people have acted. 

1. Interest in Possession Trust (also known as a Life Interest Trust)
2. Discretionary Trust (including Protective and Disabled Trusts)
3. Bare Trust
4. Personal Injury Trust

Who should be a trustee?

You should usually have at least two trustees and not more than four. Almost anyone or any combination can be a trustee – sometimes the settlor may be one, and beneficiaries can be trustees as well. Family members, friends, professional advisers and trust corporations can all act. If you do appoint family or friends, take into account whether naming them while leaving others out may pressure on relationships. If you appoint professionals such as lawyers or accountants, they will usually charge for their time in dealing with trust matters. Charges will depend on the complexity of the trust itself and the trust assets. Whoever you appoint, though, it is essential that the trustees: