These are generally used where assets need to be looked after for children. Once the beneficiary reaches the age of 18 (in England and Wales or 16 in Scotland) they have the right to access all income and capital contained in the trust.
Interest in possession trusts (also known as 'liferent trusts' in Scotland)
This type of trust only entitles the beneficiaries (or ‘liferenter’) to any income (after expenses) arising from the assets contained in the trust. Often the assets comprise shares that cannot be sold by the trustees. The beneficiaries do not have any access to the capital, only a right to income.
Trustees have a lot more control over discretionary trusts. Depending on how the trust has been set up, trustees may have discretion over:
- any income or capital which is paid out (eg the amounts and how often payments are made)
- which beneficiaries should receive any payment
- any conditions imposed upon beneficiaries
This type of trust is often designed to provide for beneficiaries who might otherwise struggle to manage their financial affairs.
This allows any income which derives from the assets of a trust (eg stock market or investment gains) to be ploughed back into the trust, thereby increasing the value of the capital within the trust. Payments can also be made to beneficiaries.
This form of trust is designed to provide an income or payment to the settlor of the trust; the settlor (and their spouse or civil partner) is therefore also the beneficiary. The structure of this type of trust follows a discretionary, accumulation or interest in possession model.
Mixed and non-resident trusts
Elements of different types of trusts can be combined to create a personalised trust which has very specific aims; this is known as a mixed trust. Meanwhile, special non-resident trusts (where the trustees and/or settlor do not reside in the UK for tax purposes) can be used for estate planning purposes.