Types of Trust
- The most flexible trust and most commonly used in offshore
- Trustees have wide discretion in the trust deed to administer
the assets and to either accumulate or distribute them to any
one or more of the Beneficiaries, even to the exclusion of others,
as the Trustees, in their absolute discretion, think fit.
- The assets are not held for specific beneficiaries in specific
- Trustees can be guided by a letter or memo of wishes setting
out the settlor‘s intentions.
- A Strict Trust affords the Trustee little discretion in the
exercise of his duties.
- The Deed will stipulate how the assets are to be managed and
when and in what proportion the capital and income is to be distributed
to the Beneficiaries.
Accumulation and Maintenance
- The tax treatment for this type of trust is particularly favorable.
- The following conditions must all be satisfied if the trust is to qualify as an accumulation and maintenance trust (Section 71 Inheritance Tax Act 1984):-
(a) That one or more persons will on before attaining 25, become beneficially
entitled to the settled property or an interest in possession therein.
(b) That no interest in possession subsists in the settled property and the
income is to be accumulated if not applied for the maintenance, education
or benefit of a beneficiary.
(c) That either (i) not more than 25 years have elapsed since the commencement
of the settlement; or (ii) all the beneficiaries were grandchildren of a
common grandparent or children or widows or widowers of such grandchildren
who died before becoming entitled.
- These trusts are commonly used for the benefit of children
or grandchildren of the settlor aged under 25. The income may
be used for their maintenance during the childhood if required
but must become their income as of right not later than age 25.
Capital can be advanced at any time but any entitlement to capital
to be postponed to a later age or indefinitely.
- It is possible to retain a reasonable flexibility within the
framework of the statutory provisions.
Interest In Possession
- There are settlements where, in contrast to the discretionary
settlement and accumulation and maintenance settlement, one or
more individuals are absolutely entitled to receive the income
from the settled property immediately upon the creation of the
- There is no immediate right to capital, although advances or
appointments of capital may be made.
- This type of trust is created in the UK by a UK settlor with
the interest in favour of himself, will have minimal tax benefits
if the trust remains resident in the UK.
- If the trust is exported appointing non-UK resident trustees
then considerable capital gains tax benefits will arise both
where the settlor retains the interest in possession and where
he vests this in someone other then his wife
- These are interest in possession settlements designed to protect
a beneficiary from his own actions.
- The main beneficiary‘s right to income in the settled
property is forfeited if, amongst other things, he attempts to
assign his interest or becomes bankrupt. In that case, the trust
property is automatically held upon discretionary trusts.
- The trust is taxed in a similar manner to an interest in possession
trust. Unlike the other trusts mentioned, it is virtually impossible
to break these trusts before the original date envisaged for
the end of the trust and there are statutory provisions as to
the discretionary stage of the trust if the deed does not so
- An individual may form a charitable trust but, until approved
by the Charity Commissioners, it will not be afforded the favorable
tax status and benefits given to charities.
- The settlor may not retain any benefit whatsoever in any of
the property settled.
- If charitable, the trust will not suffer income tax or capital
gains tax on its assets and gifts to a charity are exempt from
- The Settlor may amend the terms of a Revocable Trust in whole
or part and may add or remove Beneficiaries. In effect he will
maintain control of the Trust assets during his lifetime.
- If a Trust is wholly revoked, the Settlor may recover the assets
to himself or direct their transfer or elsewhere,
- The Settlor may grant the power of revocation to a third party,
e.g. a Protector.
- The terms of an Irrevocable Trust may not be amended following
the execution of the Deed.
- This form of Trust is more widely used than Revocable Trusts
as it may offer tax advantages in tax planning.
Settlor Controlled Trust
- The Settlor may retain certain powers, such as the appointment
of investment advisor or the appointment of bankers.
- Not recommended for UK residents & very popular for Far
Eastern Clients who can retain the right to control investments
Retirement Annuity Trust
- Not generally used in the UK now unless established before
1999 but can be established under Guernsey law with a lot more
flexibility i.e. no requirement to have an annuity can receive
loans etc as
Short Form Trust
- Very simple inexpensive way to form an offshore Trust often
in conjunction with nominated investment advisor or insurance
- Permits settlor to add small sums on an ongoing basis
- This type of Trust can only be created under a Will.
- Unlike the Trusts mentioned above, the establishment of this
type of Trust will be of public record once the Will is submitted
- It obviously cannot be for the settlor‘s benefit, as
it comes into being only upon his death.