Trust Funds Part One - Types of Trust Funds

There are various types of trusts and a lot of information out there to understand which type best suits your needs, here are the types of trusts with a brief explanation:

1. Accumulation Trusts: Also known as an accumulation and maintenance trust (A&M trust), this type of trust aims to accumulate income generated by the trust assets rather than distributing it to beneficiaries. Usually used for minors, the income is reinvested or added to the trust's capital until the beneficiary reaches a specified age or event, such as turning 18. After this trigger event, the beneficiary gains the right to the trust's accumulated income and capital.

2. Non-Resident Trusts: A trust established by a settlor who is not a resident in the UK for tax purposes. Non-resident trusts can provide certain tax advantages, but they are subject to specific tax rules in the UK. These trusts must meet specific criteria to be considered non-resident for tax purposes, and trustees may need to report income and gains to the UK tax authorities under certain conditions. Seek professional advice to ensure compliance with applicable tax regulations.

3. Bare Trusts: A simple type of trust where the beneficiary has an absolute right to the trust's assets, and the trustee holds them in their name but without any control or decision-making powers. The beneficiary can demand the assets at any time once they reach the age of majority (18 in the UK).

4. Interest-in-Possession Trusts: Also known as life interest trusts, they provide a beneficiary with the right to receive income generated by the trust assets, while the capital is preserved for other beneficiaries. The life tenant has a legal right to the income, and their entitlement ends upon their death.

5. Discretionary Trusts (or Accumulation Trusts): Trustees have the discretion to distribute the trust's income and capital among a class of beneficiaries. No beneficiary has an automatic right to any part of the trust assets, allowing flexibility in responding to beneficiaries' changing needs.

6. Mixed Trusts: Combining elements of both interest-in-possession and discretionary trusts, they accommodate both life tenants and discretionary beneficiaries, offering a blend of income entitlement and flexibility in asset distribution.

7. Settlor-Interested Trusts: When the settlor retains certain benefits from the trust, such as income rights, these trusts are considered settlor-interested. Special tax rules apply to these trusts to prevent tax avoidance.

8. Vulnerable Beneficiary Trusts/Disabled Trusts: Designed for individuals who receive means-tested state benefits or have a disability, these trusts allow the beneficiary to benefit from the assets while maintaining their eligibility for government support.

9. The Charitable Trust: Established for charitable purposes, this trust's main goal is to benefit specific charities or serve public causes. Assets are dedicated to charitable work, and tax advantages may apply.

Matching a Trust to Your Needs:

To select the most suitable trust, consider your goals, the beneficiaries' requirements, asset protection needs, and potential tax implications. Seek professional advice to tailor the trust to your specific circumstances and ensure legal compliance.