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Types Of Trusts Notes

LPC Law Notes > Private Client Notes

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What is a trust?
 The terms upon which 'settled' property is held
 Settlement = any arrangement whereby an individual 'settles' property of any kind upon trust for a beneficiary or beneficiaries
 Fiduciary arrangement → enforceable by beneficiaries → imposing strict obligations on trustees → in which beneficiaries have limited interest (except in bare trusts)
 Four main categories of trust:
Interest in Possession Trusts
 IRC v Pearson (1980): "a present right to the present enjoyment of income"
 Essential feature: there is a beneficiary within the trust who has the right to call upon the trustees to pay the income of the trust to them
 e.g. life interest - for example, if a trust is set up "to A for life remainder to B", A has a life interest and B has an interest in reversion
 Main aim is setting up an interest in possession trust is to restrict or postpone a 1 beneficiary's entitlement to receive the underlying capital
 Can create successive interests:
o e.g. to A for life, remainder to B for life, remainder to C absolutely

e.g. all income to go to A for 10 years or until he qualifies as a solicitor and then the remainder to B
o by giving one person the right to receive income immediately, but postponing the right to receive the capital until a later date
Non-Interest in Possession Trusts
 Where there is no person with a present right to the present income of the trust - no one with a right to demand that the trustees pay the income to them 2  Discretionary trust = most common type - settlor will identify the beneficiaries whom they wish to benefit from the trust, but will leave it to the discretion of the trustees as to precisely which of them is to benefit, when and by how much
Bare Trusts
 Where a person holds property in trust for the absolute benefit and at the absolute disposal of other persons who are of full age and sui juris in respect of it
 The trustees will have no duties to perform in respect of the trust, except to transfer the property to the beneficiaries when required by them to do so or deal with the property at the direction of the beneficiary
 Very common
 e.g. if A and B buy a buy to let property as tenants in common, but contributed in 3 different proportions to the purchase price, they may declare a trust that reflects their equity share, e.g. 75% to 25%
 The trustees (usually the co-owners) have no discretion about how the income and sale proceeds are divided.
 The owners' interests are not limited in any way - absolutely entitled to the income and the capital.
 There are no contingencies - if one beneficiary dies, their share of the property is part of their estate 4 Charitable Trusts
 Involve conveying a benefit to the public
 Generally exempt from income tax, corporation tax and CGT
 Charities Act 2006: charity must still be for the public benefit and exclusively charitable,
but it must now fit within one of thirteen statutory heads of charity:
(a) The relief of poverty

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