A trust separates legal ownership of assets from the beneficial interest in those assets, with the trustee managing them for the beneficiaries. Different structures include Discretionary Trusts for families holding capital growth or income-generating assets, Unit Trusts commonly used in commercial settings, and Testamentary Trusts established through a Will to safeguard assets after death. Trusts may also offer tax advantages and asset protection, but legal advice is recommended before choosing a structure.
What are the different types of trusts, and when might they be used?
Our Estate’s Team explains
A trust is a structure of ownership that separates legal ownership from beneficial interest. The trustee legally owns and controls the assets of a trust, but is bound to use their legal ownership for the beneficial interest or advancement of the beneficiaries.
Trusts offer certain tax advantages. Trusts may also be used to insulate and protect assets from Family Law proceedings, bankruptcy proceedings or spendthrift beneficiaries. Trusts are not perpetual, but have a lifespan of no more than 80 years. Trusts can be wound up earlier, and the decision to do so rests with the trustee. Trusts can be applied to business or family contexts. Different types of express trusts (those created intentionally by express declarations, transfers or directions) are available to suit different circumstances.
Discretionary Trust – A Discretionary Trust gives the trustee the power to decide the extent of the distribution, if any, to which a beneficiary will be entitled. Discretionary Trusts are appropriate where families hold capital growth or income-generating assets.
Unit Trust – A popular form of commercial trust is the Unit Trust. A company acts as the trustee and invests funds for the beneficiaries. The beneficiaries’ entitlements to the funds are fixed and in proportion to the number of “units” that they hold. The trustee does not have the power to decide the extent of the distribution, if any, to which a beneficiary will be entitled.
Testamentary Trust – A Testamentary Trust is built into a person’s Will, and is activated only after that person’s death. It is created to safeguard all or some of the assets that the Will-maker has accumulated over their lifetime, particularly where the beneficiaries are infants or minors and cannot manage their own affairs.
Trusts are complex documents and legal advice is always recommended before choosing a trust structure and executing a trust deed.