13. Types of trusts

Question 1

What are revocable and irrevocable trusts?

Answer 1

Revocable trusts - the settlor may ‘revoke’ the trust and reclaim the assets if they change their mind

Irrevocable trusts - the courts may have power to vary the terms of the trust if its in the best interest of the beneficiaries

Question 2

Discretionary trusts

Answer 2

• Settlor specifies who may benefit from the trust by naming the beneficiaries (or class of beneficiaries). Trustees would then have wider powers to distribute income or capital and exercise their powers at their absolute discretion, deciding who will benefit.
• Beneficiaries do not have automatic right to benefit
• There is a often a letter of wishes
• Flexible

Question 3

Settlor reserved powers trusts

Answer 3

Provides that settlor retains some control by reserving special powers:

• Revoke terms of a trust;
• Advance or pay income or capital, or give directions to do so
• Act as or give binding directions as to the appointment or removal of a director
• Give binding directions to the trustee in connection with the purchase of the trust property.
• To appoint or remove trustees, protector or enforcer
• To change the proper law

Question 4

Fixed interest trusts

Answer 4

• Beneficiary is entitled to a fixed interest - eg life interest trust
• The life tenant has an absolute right to enjoy the trust property during their lifetime

Question 5

Bare trusts

Answer 5

• Trustee has no discretionary powers
• Trustee holds the trust property absolutely for the beneficiary
• Nominee shareholders may hold the shares upon trust absolutely for the owner (for confidentiality)

Question 6

Protective trusts

Answer 6

• Trustee Act 1925 provides for protective trusts
• The interest of the beneficiary is liable to termination upon a specific event, e.g. being declared bankrupt (which would offer protection from creditors)

Question 7

Accumulation and maintenance trusts

Answer 7

• beneficiaries only become entitle to benefit from the capital of the trust property upon, for example, reaching a certain age.
• typically created by parents or grandparents

Question 8

Charitable purpose trusts

Answer 8

• Established for charitable purposes

- Exception to the rule that a trust must have identifiable beneficiaries in order to be valid

Question 9

Non-charitable purpose trusts

Answer 9

• Trustee holds the property in order to carry out a specific purpose which is not charitable.
• There must be an enforcer appointed
• Exception to the rule that a trust must have identifiable beneficiaries in order to be valid

Question 10

STAR trusts

Answer 10

non-charitable purpose trust formed under the Special Trusts (Alternative Regime) Law 1997.
-Allows a mix of both purposes and beneficiaries within the same trust.

Question 11

VISTA trusts

Answer 11

Trusts formed under the Virgin Islands Special Trusts Act 2004
Designated shares are held ‘on trust to retain’ - the trustee’s duty is to retain the trust rather than to preserve or enhance their value.
- The trustee cannot generally interfere with the management of the company.
- The trustee may require the consent of the settlor to dispose of the shares.

Question 12

Unit trusts

Answer 12

• Used as an investment vehicle for a number of investors
• Funds pooled to achieve exposure to wider range of investments
• Unit holders entitled to receive profit or gains
• Open or close ended

Question 13

Employee trusts

Answer 13

-Usually discretionary trusts which provide for employees and families