Forms of trust

Forms of trust

Various types of trust have been developed over time and the most appropriate structure for the settlement will depend on the settlor’s particular circumstances and objectives. Some of the more common types of trust are described below.

Fixed interest in possession trust
Under the fixed interest trust the principal beneficiary will normally be granted a vested interest in the income of the trust fund throughout his lifetime and the discretion of the trustee regarding the disposition of the trust fund will be limited. For example, the trust instrument may specify that the trustee is required to distribute all

of the income of the trust fund to a particular individual during that person’s lifetime and subsequently to distribute the capital of the trust fund in fixed proportions to named beneficiaries (such as the settlor’s children).

Accumulation and maintenance trust
An accumulation and maintenance trust is one where no beneficiary has a fixed entitlement to the benefits accruing to the trust for a certain period, during which time income is accumulated and becomes an accretion to capital. The persons who are ultimately entitled to the trust capital may thus benefit from the accumulation of capital. The trust instrument may give the trustee a discretionary power to make distributions amongst the beneficiaries up to a specific age for their education, maintenance and benefit and to provide thereafter for a designated share of the trust fund to be distributed to each child on attaining a specified age. An accumulation and maintenance trust may be particularly appropriate where the settlor wishes to benefit a group of children, for example, his grandchildren.

Discretionary trust
The discretionary trust provides maximum flexibility and is often the most efficient structure for both settlor and beneficiaries. Under the terms of a discretionary trust the trustee is given wide discretionary powers as to when, how much and to which beneficiaries he should distribute the income and capital of the trust. Such a form of trust is useful where at the time of creation of the trust the future needs of beneficiaries cannot accurately be determined. The beneficiaries are not regarded as having any direct legal rights over any particular portion of the trust fund but only a right to be considered to benefit when the trustee exercises his discretion.

Revocable trust
Although for tax and other reasons it is generally desirable for a trust to be constituted as an irrevocable settlement, in certain circumstances the settlor may require the additional comfort of knowing that he has retained the power to revoke the trust and enforce the return of the trust fund.

Careful consideration should be given to the possible consequences of a revocable trust because, under the jurisdiction of the settlor’s domicile, residence or nationality, revocation may negate some of the expected benefits of creating the trust.

Charitable Purpose Trust
Generally, in order for a trust to be valid there must be identifiable beneficiaries. In brief, the onerous duties imposed upon trustees are owed to the beneficiaries and without ascertainable beneficiaries who may enforce these duties against the trustees a trust will not be upheld. A long held exception to this general rule has permitted trusts to be established in favour of charitable purposes. In such instances a representative of the state is tasked with the role of enforcing the trustee’s duties and obligations.

Non-charitable Purpose Trust / ‘STAR’ Trust
Jersey amended its legislation to permit the creation and enforcement of non-charitable purpose trusts, i.e., trusts in which property is held by trustees on trust to carry out specific purposes which do not qualify as charitable purposes. This new type of trust is often simply referred to as a ‘purpose trust’. All the usual rules for trusts apply save in two respects. First, the trust deed must set out the particular purpose or purposes for which the trust has been established. Second, the trust instrument must provide for a person whose duty it is to enforce the trust in relation to its non-charitable purposes.

This person is called the ‘enforcer’ and must be a person different from the trustee or trustees. Although an enforcer may be likened to a protector, the role of an enforcer is essentially quite different. Non-charitable purpose trusts enable purposes which are not charitable in the strict sense but are, or may be, beneficial in a wider sense, to be fulfilled. However, important commercial advantages may also be obtained by the use of such trusts. Cayman has gone further with provisions introduced in the Special Trusts (Alternative Regime) Law 1997 (now incorporated in the Trusts Law (2007 Revision)).

Under Cayman law trusts may be established for non-charitable purposes (in the same way as for Jersey) but this can be as an alternative to, or jointly with provision for persons to benefit. The regime provides that no beneficiary under a STAR trust has any right to take court proceedings to enforce the accountability of the trustee or any right to be involved in, or informed about, the conduct of the trust and that all rights of that description are to be the exclusive concern of an ‘enforcer’; a person or persons chosen by the settlor.

Source: Ogier, Jersey

Forms of trusts

 

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