What sort of trust do I need?
Trusts come in various forms.
A “bare trust” arrangement is where a trustee holds the legal title of an asset or assets on trust for a person or persons, where the trustee has no discretion and must follow the instructions of the beneficial owner. A bare trust can be a useful tool to preserve the anonymity of the beneficial owner.
A “life interest trust” or “interest in possession trust” is where a trustee holds the legal title of an asset or assets on trust for the benefit of a person or persons where beneficiaries’ interests are defined. For example a trustee of a life interest trust may be obliged to pay all or part of the income of the trust to the beneficiary holding the life interest, known as the “life tenant”, for the rest of the life tenant’s life.
A “discretionary trust” is where a trustee holds the legal title of an asset or assets on trust for the benefit of named beneficiaries where their interests are not defined. Therefore, the trustee has discretion whether to pay income or capital to the beneficiaries in accordance with the terms of the trust deed and with regard to the needs of the beneficiaries and the wishes of the settlor. A settlor’s wishes are often set out in a document or series of documents know as “letters of wishes”.
There are other sorts of trust, such as “purpose trusts” where the trust deed does not name beneficiaries but sets out an objective or purpose for the trustees to follow. The most common use of purpose is to hold shares of a limited company, in many cases the shares of the Private Trust Company.