Types of Trusts

  • Discretionary Trust:

A trust where the trustees decide how income and capital of the trust assets is applied for the benefit of the beneficiaries. The trustees have wide discretion, but are subject to obligations as to how they exercise it and must do so for the benefit of the beneficiaries. The settlor can give guidance as to how he would like the trustees to exercise its discretion, but ultimately cannot control them. If so desired, such trusts can be framed so as to qualify as accumulation and maintenance trusts (in the U.K.) or grantor trusts (in the U.S.A.).

  • Life Interest or Interest in Possession Trust:

A trust where the income of the trust assets automatically belongs to one or more named persons in specified shares. While the trustees can deduct their administrative expenses and liabilities from the income, the balance belongs to the beneficiaries as specified. The trustees may be given discretionary powers to apply capital for the benefit of beneficiaries.

  • Purpose Trust:

A trust expressed to be to fund a purpose. A trust to fund a lawful purpose may be established under the Purpose Trusts Act 1996. The purpose must be certain, reasonably possible and not contrary to law, morals or public policy. An independent "enforcer" must be appointed to ensure that the trustees fulfil their duties. These trusts are subject to rules concerning perpetuities.

  • Charitable Trust:

A trust for charitable purposes. It is an exception to the general rule against trusts for purposes, and is not subject to rules concerning perpetuities.

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