Guide to Family Trusts

The different types of Family Trusts

The term “family trust”, envelopes a variety of different trusts which are available.

They differ in the terms and conditions which specify who, when and how the funds can be received.

Further terms and conditions are set out in a document called the deeds, this is a legal document which clearly specifies instructions for the trustees.

Family Trust Type Main features of the Trust Suitable for....
Simple/Accumulation Trust Beneficiaries have automatic rights to the asset and the income that maybe generated by the asset. This is the most common type of family trust. Suitable if you want to give your asset to your adult children.
Discretionary Trust Trustees are in full control of the asset and are able to decide when and who to distribute some or all of the asset to. Ideal if a family member wishes to hold funds in trust for young children, they can then decide to draw on the asset to pay for the beneficiaries education, lessons etc.
Interest in Possession Beneficiaries receive all the interest or income made from the asset. The asset maybe left to someone else at a later date. This fund is used typically when a property involved. The settlor (the person who originally owned the asset) may have passed away but has placed the house in trust, thus allowing their partner to receive rent from it or to live there, but once the partner has passed away the actual asset becomes the possession of another beneficiary, the children for example.
Accumulation and Maintenance This trust is a discretionary trust which then turns into an interest in possession trust. In the early years, the trustees are in full control of the account, this changes usually once the beneficiaries have turned 18yrs for example. Ideal for older family members such as grandparent’s who set up this type of trust for their young grandchildren. The trustees remain in sole charge of the trust and are able to allocate the income generated from the fund to the beneficiaries. Once the beneficiaries have reached a specified age, usually between 18 and 25 years, the trust is converted into an interests in possession trust which allows the beneficiaries automatic rights to the income and asset.

The different types of trusts stated above, provide the bare bones of the policy. From here, variations can be made which personalise the trust. This is usually detailed in the deeds document.

Placing assets into a trust is very complex. It may be wise to seek legal advice to ensure that the terms of the deed are valid.

Trusts also have another key feature to them. It must be decided whether to make the trust revocable or irrevocable. This decision is very important and has huge impact on the future of the fund. The difference is as follows;

  • Revocable Trusts allow alterations to be made to the deeds, alternatively it is possible to decide to remove the asset from trust altogether and terminate the fund.
  • Irrevocable Trusts work in the total opposite way, once the asset is signed into a trust it must remain there until the deeds state otherwise and all the conditions adhered to.

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Guide Contents

What is a Family Trust?
Why a Trust Fund?
The different types of Family Trusts
How to put assets into a Family Trust Fund
Frequently Asked questions about Family Trusts
Where to get more help and advice about Family Trusts

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