Types of Trust
Building on the basic principles of a trust, there are a number of variations, which can be particularly advantageous for specific family requirements and provide tailor made planning opportunities for many purposes.
The main types of trust are:
1. Discretionary Trust
Under the Discretionary Trust, the Trust Deed is extremely wide ranging and gives the Trustees the flexibility to respond to any conceivable need and requirement of the Beneficiaries.
The Settlor hands over the initial Trust assets and any other assets they wish to pass into the Trust to the Trustee who then takes legal title and administration powers on behalf of the Beneficiaries of the Trust. As this can be an unnerving concept for people unused to the Anglo-Saxon Trust concept of giving away their assets, the Trustees will typically sit with the Settlor at the creation of the Trust and record their wishes for the future administration of the Trust in a Memorandum of the meeting, or by inviting them to submit a Letter of Wishes setting out how they would wish the assets to be administered both during their lifetime and in the event of their death.
In the event that the Settlor is still uncomfortable with the concept of giving away his assets, there is a provision to appoint a Protector if so required. The role of the Protector is to enforce and oversee certain of the Trust powers, such as the power to make Trustee distributions, the power to force a Trustee to retire in favour of a new Trustee, the power to monitor investments and to generally supervise the conduct of the Trustee on behalf of the Settlor and Beneficiaries.
The Discretionary Trust is probably the most widely used Trust in the international financial planning world because of its ability to hold most assets, provide flexibility and respond to most financial planning scenarios required by individuals and families.
2. Charitable Trusts
Charitable Trusts are increasingly popular with wealthy philanthropists who have made considerable fortunes or indeed less wealthy individuals who wish to make provision for charitable purposes both during and after their lifetime.
The Charitable Trust is essentially based on the Discretionary Trust concept and the Settlor will outline which charitable purposes he or she wishes to benefit and typically the names of the charities. There is great flexibility drawn in to include other charities later on as the Settlor or Trustees decide fit and for the Settlor at the outset to decide whether he or she would wish the selected charities to receive income or capital and for discretion to be given to the Trustee to respond to changing charitable needs. An “Advisory Committee” of individuals can be appointed if required.
3. Forced Heirship Trusts
As many jurisdictions have forced heirship provisions, which restrict an individual’s right to give money away as they see fit, Guernsey Trust Law specifically allows an individual to create a Trust to benefit individuals who would not otherwise have been able to receive benefit under the laws of their home country.
4. Purpose Trusts
Guernsey Trust Law has specific legislation allowing the creation of a Purpose Trust.
A Purpose Trust is one which does not have any Beneficiaries but has a specific purpose. This can be extremely useful in both private and commercial scenarios. For example, a Purpose Trust can be used to set up a Charitable Trust where the intentions are not strictly charitable, for instance, benefiting the environment.
Equally, they are useful for holding Special Purpose Vehicles in commercial transactions for securitisations or for owning a company, which in turn owns an aircraft or yacht.
5. Settlor Reserved Powers
Guernsey Trust Law now allows a number of powers to be reserved by a Settlor. This could include the power to revoke the Trust, vary or amend the terms of the Trust and the power to direct the Trustee on investment matters.
6. Spendthrift Trusts
Where a Settlor believes that one or more of the Beneficiaries would potentially fritter away or waste either income or capital if they were given it during their lifetime, it is possible to set up a Spendthrift Trust provision either through an interest in possession Trust or through drawing the provision into the Letter of Wishes in a Discretionary Trust, depending on the circumstances.
In this way, the individual would for instance only receive income in the event of the death of the Settlor, which would allow them not to waste capital. In the event that they were to become bankrupt, it is possible for their interest to cease so that creditors do not have any claim over their assets.
7. Shari’a Trusts
The Shari’a Trust is aimed at the fast growing market amongst the Islamic community. Not only does this allow a Muslim to take advantage of the traditional benefits of the Anglo Saxon Trust in effectively structuring their financial affairs during their lifetime and in making arrangements for seamless succession planning, but they can now do so in a Shari’a compliant way.
Will discuss individual requirements, ranging from investment to inheritance considerations and will then produce a tailor made Trust Deed from our specially crafted template., which has been drawn up by a qualified London based QC who is an expert in the Shari’a field.