Chapter 9: Trusts (5) Flashcards
What is a Trust?
By which one person gives property to another person to look after on behalf of yet another individual or a set of individuals.
Who is the Settlor?
The person who creates the trust.
Who is the Trustee?
The person the settlor gives the property to to look after on behalf of others.
Who are the Beneficiaries?
The beneficial owners of a trust property.
What are the main uses of Trusts?
- Provide funds for a specific purpose.
- Set aside funds for disabled or incapacitated children to protect and provide for their financial maintenance.
- Reduce future inheritance tax liabilities by transferring assets into a trust out of settlors ownership.
- Separate out rights to income and capital so the spouse and second marriage receives the income from an asset during their life and the capital passes on that person’s death to the settlor’s children.
- Underlying structure for many investment vehicles.
What are the 3 types of trusts?
- Bare or Absolute trusts
- Interest in possession trusts
- Discretionary trusts
What is a ‘Bare or absolute trust’?
In which a trustee holds assets for one or more persons absolutely.
What is an ‘Interest in possession trust’?
Beneficiary has the right to the income of the trust during their life and the capital passes to others on their death, e.g. life interest trusts.
What is a ‘Discretionary trust’?
Where trustees have discretion over to whom the capital and income is paid, within certain criteria.
