Chris Thorpe outlines some of the basics of trusts for law and tax purposes.
Trusts are formed when the legal ownership of an asset is separated from the beneficial ownership, i.e., a legal owner (the trustee) holds it ‘on trust’ for another person (the beneficiary) who benefits from it. The person who establishes the trust is the ‘settlor’.
These trusts are known as ‘express trusts’, i.e., those deliberately created by the settlor in the form of a deed outlining who the parties are and what assets are in the trust; such trusts can also be created by the settlor upon their death with their will being the constituent document.
Common types of trust
The most common trust is a ‘discretionary’ trust, whereby the trustees have total discretion as to what happens with the trust’s income and capital.
