Trusts
A donor can choose between the following types of trust:
- Precatory trusts; This is where the donor gives money or property to an individual expressing the wish that the individual should use the property in a certain manner, but without imposing any binding obligation.
- Fixed trusts; These are trusts where the interests of the beneficiaries are clearly defined. They can be inflexible, but there are ways of avoiding this inflexibility.
- Discretionary trusts; These are trusts where the trustees have a discretion as to which member of class of beneficiaries is to benefit. They have the merit of flexibility, but the settlor or testator loses control over the ultimate destination of the property. This loss of control can be alleviated to a certain extent by appointing the settlor a trustee in the case of an inter vivos settlement. the settlor can also indicate to the trustees how he would like the trust and discretions exercised, and although the trustees are in no way bound by these suggestions, they will often give effect to them.
- Secret trusts; These are useful if the testator does not want to disclose the identity of a beneficiary. If it is a fully secret trust, it must be communicated during the testator's lifetime either before of after the will.
- Trusts for bereaved minors; Prior to the Finance Act 2006 settlors or testators could create trust for the benefit of young persons and provided various conditions were satisfied, these enjoyed privileged status as far as IHT is concerned, but not as far as CGT or income tax was concerned. They were known as accumulation and maintenance settlements. It is not now possible to create accumulation and maintenance settlements, but instead parents can create trusts for bereaved minors in their wills.
- Powers of appointment; When there is no restriction on who can be the beneficiaries, the power is a general power. It is a special power where the class of beneficiaries is limited. If it is a special power, care should be taken in drafting the power. The class of beneficiaries should not be too restricted, but on the other hand it should not include persons whom you would not have wanted to benefit.
