Types of Trusts

There are various types of trusts depending upon a person's individual circumstances, and these include:

Fixed Trust

A Fixed Trust sets out exactly who is to benefit from the Trust and the terms and conditions applying to what they can receive. The Trustee is therefore given specific instructions as to how the income and capital of the Trust are to be applied.

Discretionary Trusts

The Trustee may determine the beneficiaries or classes of beneficiaries and also whether a beneficiary will receive payments from the Trust. A Discretionary Trust can therefore be more flexible than a Fixed Trust.

Testamentary Trust

These are the same as fixed or discretionary trusts except that they are created by will. The main consequence of this is that because the trust is not created until the person's death, it gives no asset protection during his or her lifetime.

Charitable Trust

A charitable trust is set up for charitable purposes.

Statutory Trusts

These types of trusts are created by operation of law, often for people unable to look after their own affairs.


Revocable Trust versus Irrevocable Trust

A Revocable Trust can be terminated by the person having power under the Trust Deed to revoke the trust, whereas an Irrevocable Trust cannot be terminated in this way.

A Revocable Trust is preferable if a Settlor wishes to retain a degree of control over the arrangements although this level of control could negate any potential tax advantages.


Who Does What - the Parties to a Trust

The Settlor

The Settlor is the individual or legal entity who sets up the trust and settles the initial assets into the trust.

The Trustees

The Trustees of a trust are the people or legal entity who make the decisions about the running and administering of the trust. They are bound by the Trust Deed which sets out the rules by which the Trustees administer the Trust. They also exercise various discretions such as how and when the beneficiaries are to receive income or capital.

The Beneficiaries

The Beneficiaries are the people or legal entities entitled to the assets of the trust.

The Protector

Although it is not essential some Settlors like to appoint a Protector. The Protector is nominated in the Trust Deed and the Trustee requires his approval before exercising a number of important powers. The Protector is usually a close friend, relative or professional adviser of the Settlor and his knowledge of the Settlor's family, financial affairs and general circumstances can be of considerable assistance to the Trustee. He becomes effectively the adviser of the Trustee.


Trust Documentation

A trust is set up with a legal document called a deed, except for a testamentary trust which is created by a will.

There are two forms of Trust Deed:

• A Deed of Settlement is a Deed which is signed by the Settlor and the Trustee.
• A Declaration of Trust is signed only by the Trustee and not the Settlor and is favoured by some individuals for confidentiality reasons.