Trusts have a mysterious reputation as a tool used by the rich and famous to avoid paying taxes. While they can be used by the wealthy, there are other types of trusts available that benefit different people and don’t involve tax. Trusts are now better known for helping to control how assets are managed and used.
What is a trust?
In legal terminology, a trust or trust fund is called a settlement. They usually involve three people – the settlor, who transfers ownership to the trustee, who then manages the trust for the benefactor.
What are the main types of trust?
There are many different trusts that can apply in different situations. Some of them overlap and can apply in the same circumstance, which can cause confusion.
Express trust
This is trust that is explicitly created by the settlor – the person creating the trust – through a written document, such as a trust deed or will. The settlor identifies the trust property, the trustee(s), and the beneficiary or beneficiaries.
Implied trust
This is not explicitly created but is inferred from the circumstances and the conduct of the parties involved. There are two main types of implied trusts:
– A resulting trust is where the legal title to property is in one person’s name, but this person is not intended to have a beneficial interest in the property.
– A constructive trust is imposed by the law to prevent unjust enrichment where it would be wrong for the legal owner of the property to retain the beneficial interest.
Charitable trust
This is a trust created for charitable purposes, such as the relief of poverty or the advancement of education. Charitable trusts are subject to special rules and regulations.
Testamentary trust
This is a trust created upon the death of the settlor, as specified in their will.
Deed of trust
A deed of trust is put in place to specify how a property is to be held or divided by two or more people and can help with the allocation of deposits after a property is sold. Companies such as https://www.parachutelaw.co.uk/deed-of-trust can offer help and advice in setting up a deed of trust.
Revocable and irrevocable trusts
Revocable trusts can be modified by the settlor or revoked during their lifetime. An irrevocable trust cannot be modified or revoked once it has been created.