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There are a number of different types of trust, including:
A simple form of trust in which assets are held for a beneficiary who is immediately entitled to them, such as a beneficiary under a will. The trustees of a bare trust have no active duties except to hold the legal title to the assets. Where the beneficiary is a minor, the trustees have duties to invest the assets and consider how to use those assets to benefit the minor, until they reach the age of 18, at which point the assets are transferred to the beneficiary.
A beneficiary of an interest in possession trust has an immediate right to receive any income that arises on the trust (such as interest accruing), or have the use or enjoyment of any property (such as a house that they may live in). The beneficiary does not have an interest in the underlying capital, which is held for other beneficiaries who will receive the capital at the end of a defined period.
A flexible trust in which no beneficiary has an automatic right to the trust assets, only a hope of benefitting. A group of beneficiaries is created and the trustees have ultimate power to decide who will benefit from the trust. Discretionary trusts are useful tools in estate planning, can be used to protect assets against certain risks, and can be used to benefit vulnerable beneficiaries.
Settlor: the person who sets up the trust and transfers assets to the trustees for the benefit of the beneficiaries. The settlor can also be a trustee, but cannot be the sole trustee and sole beneficiary.
Trustees: the legal owners of the trust assets. The trustees have powers and duties, and must deal with the trust property in accordance with the trust instrument. A company can be a trustee.
Beneficiaries: a person, company or charity who benefits, or has a hope of benefitting, from the trust in the future.
If the settlor retains too much control in the trust, it may be considered a ‘sham’ trust.
HM Revenue & Customs requirements mean that most new and existing trusts need to be registered with their Trust Registration Service in order to comply with regulations.
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