Trusts are inherently flexible. They can take many legal forms and have multiple practical applications. The following legal forms are among the most commonly encountered:
Bare trusts are commonly used to transfer assets to minors who lack legal capacity to deal with those assets and can also be useful if an individual wishes to acquire shares without that acquisition becoming a matter of public record. Bare trusts are ‘look through’ for tax purposes, such that the beneficiary, rather than the trustee, remains liable for any taxes arising.
To assist the trustee, the trust settlor will generally provide a ‘memorandum of wishes’ detailing how he/she would like the trust assets to be distributed. The tax implications of establishing a discretionary trust can be significant and therefore specialist tax advice should always be obtained.
A beneficiary may be granted a present entitlement to the income of the trust for a specific period of time, for example, their lifetime. On the expiration of that ‘limited interest’, the trust assets vest automatically and absolutely in a specified beneficiary. It is also possible for the settlor to provide for a succession of limited interests before the ultimate vesting of the assets.