De-mystifying Trusts & Trust Planning
25 Global Trusts & Uses Simply Explained!
The use and evolution of trusts and foundations is a special interest in our firm. Our Principal has over 30 years of Australian and international expertise in trusts and their uses.
The Court of Chancery in the early 19th century, sitting in Lincoln’s Inn Old Hall
Historical Evolution Of Trusts
There are a wide variety of trusts with many common names but the essence of the trust lies in the principles of equity which were developed in the courts of Chancery. This was a court set up separately from the existing court system by the King.
The court would listen to claims based on fairness or what was equitable. These maxims gradually became to be known as the principles of equity and the concept of a trust was established in England.
We note that trust as a concept, have been used prior to that in Arabia and in the Middle East and were known as a Waqf.
Modern day trusts have evolved in a myriad of ways to offer maximum flexibility an enormous asset protection or succession benefits.
The most underrated use of trusts is in our view are will trusts or testamentary trusts. Doing a simple will does not make sense with the amount of intergenerational wealth transfer and the size of most states in Australia. It is easy to establish a testamentary trust as part of your will.
Trusts Listed & De-Mystified Below
We list below 25 types of trust in their common usage and welcome any enquiry from you on any aspect of trusts, their establishment, their operation amendment or use for asset protection and succession purposes.
Our Trust Planning Senior Lawyers
Jaswinder strives to simplify and demystify complex legal
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25 Different Types Of Trusts & Typical Uses
|No.||Name||WHAT IS IT||TYPICAL USES|
|1||Asset protection trust||Ring fences your assets from creditors and insolvency risk||Prevents clawback of assets transferred to the trust using say the Cook Islands law or effluxion of time after transfer.|
|2||Bare trust||The most simple type of trust With one beneficiary and one trustee||Where the trustee is usually just a nominee of the beneficiaries. For example, X holds the this asset in trust for Y and there is no deed or owners obligation earns or splitting of income or capital.|
|3||Charitable trust||A trust where the capital or income is to be used for a charitable purpose||Charities are usually the residual beneficiaries of many trusts, but maybe use to obtain a charitable registration|
|4||Constructive or Implied trust||Imposed by law – typically a court order||A court may find that it would be unconscionable to deny one party a beneficial interest in an asset held by another. Origins in dishonest trustees.|
|5||Discretionary trust||A trust where the trustee has discretion to distribute capital or income and the beneficiaries have no right to receive anything but to be considered for a distribution.||Use for tax and asset protection purposes, whereby a beneficiary is considered not to have any entitlement. However, the trustee can decide to distribute all or nothing to one beneficiary or a class of beneficiaries and can also segregate in separate types of income streams.|
|6||Family Trust||The trust with the beneficiaries are family members||Used to protect assets within the family or bloodline where the class of members may include even unborn children. Sometimes refers to a discretionary trust set up for tax planning purposes or asset protection purposes in Australia and New Zealand.|
|7||Fixed trust||A trust where the entitlements are the beneficiaries a fixed||This may be via units in a unit trust or via percentages or via specific assets. Used where the discretionary trust may cause adverse problems such as for land tax purposes, and where it is important to show an entitlement for a beneficiary. Units may be numbered and issued and also listed and work in a similar fashion to shares.|
|8||Grantor trust||Commonly used in the USA whereby the person who transfers the assets of the trust retains control over the trust and not the trustee||If the grantor retains control over the trust and the assets of the trust, then the grantor is still considered the owner and may be taxable estate planning purposes in the USA. in other jurisdictions, the grantor is also known as the settlor.|
|9||Hybrid trust||A trust that combines various elements of fixed entitlements and discretionary entitlements||A combination of a fixed unit trust whereby beneficiaries have fixed entitlements for say land tax purposes but discretionary entitlements for streaming of income. Can combine various aspects of all other types of trusts.|
|10||Life interest trust||A trust that gives an interest to a beneficiary for their lifetime||For example, X may live in this house rent-free for life but it is granted in ownership to Y. Excess interest is a possessory lifetime interest and even though the house may be unwise name, it is a lifetime interest trust.|
|11||Next Gen Trusts||Estate planning trusts for future generations of family||Common in New Zealand and may be implemented via wills or whilst the settlor law is alive.|
|12||Listed Property trust||Listed on the stock exchange and the structure used his a unit trust with units of entitlement as opposed to shares||Common used or commercial and other properties to be held via such a structure as unit holders have beneficial interests in the property which does not arise if they have shares|
|13||Non-resident trust||A trust where the trustees are non-resident||The general principle is that the residents of the trust is usually determined by the residence of the trustees. The structure commonly used in the UK. We have multiple trustees in the majority of whom may be non-resident.|
|14||Philantrophic Trusts||Trust established for charitable purposes||May qualify as a charity with tax and other benefits or as a non-profit. Interchangeable with charitable trusts, although the purpose of philanthropic trust may be more directly a charitable purpose.|
|15||Philantrophic Trusts||Trust established for charitable purposes||May qualify as a charity with tax and other benefits or as a non-profit. Interchangeable with charitable trusts, although the purpose of philanthropic trust may be more directly a charitable purpose.|
|16||PTC||Private trust company , as opposed to a public trustee company||The company that specifically acts as a trustee for your trust that is regulated as a trustee company but not a public trustee company.|
|17||Resulting trust||A trust that comes into operation by operation of law or court order, i.e., the result is a trust||There is a presumption that a trust exists by virtue of the nature of the transaction; for example, the money is provided by one person, but the property is put in another person’s name. A rebuttable presumption on evidence.|
|18||Revocable Trust||A trust that may be revoked by the grantor settlor||This type of power usually negates the purpose or intention of the trust, however, certain US states allow for this power to exist within a valid trust for inheritance tax and other purposes, such as Nevada. This effectively allows you to say you don’t own the assets and then reclaim them later on. By revoking the trust. Considered ineffective in many other jurisdictions.|
|19||Service trust||A trust that provides services to another trust||Commonly used to split income, for example, personal exertion income is not considered transferable to another, but if you set up a service trust which provides you with desks in property and administration at a markup. This effectively allows some of your income to be transferred to a service trust as it now becomes income from property. Common in Australia for lawyers and other professionals.|
|20||SMSF||A superannuation trust which accumulates retirement benefits for family members||The trustee is essentially a company of the family members themselves, who can then manage their own funds for retirement as opposed to having a public trustee or third-party do this on their behalf. Used for investing in art or property.|
|21||S.T.A.R. Trusts||STAR trusts – A Cayman Islands regime for trusts||Gifting your assets to a trustee, but allowing you to maintain control over the trustee via an enforcer or protector or with the trust deed. Very useful but may be seen as an ineffective transfer of rights over the assets from the viewpoint of other jurisdictions|
|22||Testamentary trust||All will trusts – trusts that are created for beneficiaries of your assets or a state by your will||Clauses in your will create the trusts and these are very effective for estate planning purposes; for example, my children to inherit once they are 25 or for my grandchildren to inherit in my children only to be able to have the income.|
|23||Unit trust||I trust where the beneficiary’s rights and entitlements comprise of units which may be tradable or quantifiable||Commonly used in commercial situations where you may have a number of beneficiaries that come together as opposed to shareholders and where the units are redeemable or transferable; i.e. a commercial property that is divided into 100 units and held by a unit trust is then sold or provided to beneficiaries in terms of the proportion of contribution to the 100.|
|24||VISTA trusts||Virgin Islands special trust arrangements – unique features||The British Virgin Islands (BVI) by law allows these trusts and the trustee to have as trust assets operating businesses, which typically is against the nature of the trust as the trustee should only be there to protect trust assets and not do business with them.removes the trustee from responsibility in this area and where there are commercially operated activities, this is extremely useful.|
|25||Will trust||A trust that is est by operation of the will – once you die – also known as testamentary trusts||These trusts are created in your will and operate the same way as trust that may be considered via a deed of trust while you are alive – contrasted with living trusts|
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