A trust is a legal arrangement where one or more people (the trustees) are made legally responsible for assets.

The assets are placed in trust for the benefit of one or more individuals called ‘beneficiaries’.

The trustees are responsible for managing the trust and carrying out the wishes of the person who has put the assets into the trust (the settlor).

The settlor’s wishes for the trust are usually written in their will or given in a legal document called the ‘trust deed’.

With some types of trust the trustees also make decisions about how the assets in the trust should be used.

Trusts may be set up for a number of reasons, for example:

  • for estate planning purposes.
  • the beneficiary is too young to inherit.
  • the beneficiary is infirm and unable to manage the assets themselves.

The 2 primary types of Trust are Interest in Possession (IIP) and Discretionary Trusts.

An Interest in Possession trust where the beneficiary has an immediate and automatic right to the income from the trust as it arises. The trustee (the person running the trust) must pass all of the income received, less any trustees’ expenses, to the beneficiary. A beneficiary who is entitled to the income of the trust for life is known as a ‘life tenant’ or as ‘having a life interest’.

In a Discretionary Trust, the ‘trustees’ are the legal owners of any assets – known as ‘property’ – held in the trust. They are responsible for running the trust for the benefit of the beneficiaries. The trustees have ‘discretion’ about how to use the income received by the trust. They may also have discretion about how to distribute the trust’s capital.