The Different Types of Trusts
There are lots of different types of trusts and each type is treated differently for tax purposes. We will explore the main types:
Although the assets held in a bare trust are in the names of the Trustees, the beneficiaries have the right to all of the capital and income of the trust provided they are over the age of 18. Which means that the assets set aside by the settlor will go directly to the intended beneficiary. These types of Trusts are often used to gift assets to children under the age of 18.
Interest in Possession Trusts
In these types of trusts the beneficiary, often referred to as the Life Tenant is entitled to all of the income of the trust and the trustees must pay this to the beneficiary. They are not usually entitled to the capital. When the Trust comes to an end, the capital is then paid to the beneficiaries, who are referred to as the remaindermen.
These types of trusts allow the trustees to have the discretion to make decisions on what gets paid out of the Trust, to who, how often payments are made and how much is to be paid. These types of trusts are often used to set aside money for a future need, such as a grandchild who may need more financial assistance later on in life or for a beneficiary who may not be capable or responsible enough to deal with money themselves.
There are many types of different trusts and this covers the most commonly used ones. You can find out more here.