Trusts are created by will or by deed. Where money or other assets are held by trustees on behalf of a person or a group of people, this is a trust, providing the following conditions apply:
A trust might be used, for example, to care for infant children of deceased parents who appointed guardians in their will and set up a trust (in their wills) of their assets for the children’s benefit. The trustees of the trust, appointed by the will, would be the legal owners of the property and investments of the trust and under the terms of the will, would be obliged to look after this property and investments on behalf of the children until they reached 18 (21 or 25) at which time the investments would be transferred to the adult children.
Fixed Trusts are set out in fixed proportions as to who gets what specifically. Some flexibility can be introduced by giving the trustees wider powers.
Discretionary Trusts set out who the potential benficiary may be in a set class of people, but give the trustees the discretion to decide what proportion of income and capital each beneficiary should receive, if any. The person making the trust can tell the trustees how he or she would like them to exercise their discretion but the trustees are not legally bound by those wishes. The benefit of this type of trust is flexibility.
Protective Trusts are used to provide for beneficiaries who may be profligate or are liable to be made bankrupt. In practice, the beneficiary receives the income from the trust but the payment of capital is subject to the trustees discretion and the assets of the trust remain ‘safe’.
Trusts for the Disabled are used under the provisions of section 89 of the Inheritance Act 1984, to give favourable tax treatment to what are basically discretionary trusts set up for the benefit of someone incapable of managing their own affairs or in receipt of attendance allowance or disability living allowance.