When a person makes a will, he specifies what happens to his possessions and assets when he dies. A trust provides an entity for owning and managing assets. It is created when a trust maker transfers part of his assets to another person or corporation called trustee, which controls the assets. The trustee also helps in managing and distributing assets to beneficiaries.
There are five types of trusts. Discretionary trust is the most common form of trust. In this trust, any investment or distribution of funds is at the sole discretion of the trustees. They also provide investment of the trust funds and its distributions to beneficiaries. The trustor generally provides trustees with a letter of wishes. It informs trustees the manner in which he wishes the trust assets were to be dealt during his lifetime and after his death. The trustor could also amend this letter at any time in future.
A protective trust is one where the beneficiary has a life interest. It may become a discretionary trust if certain events like bankruptcy of the beneficiary take place.
Fixed interest trust defines the interest that each beneficiary can have and trustees may not vary these constraints. An accumulation and maintenance trust is a gift of assets usually where beneficiaries are the testator’s children. The right to participate in accumulated income from the trust depends upon beneficiary attaining a certain age. Purpose trust does not have beneficiaries and is established to achieve a specific purpose.
A trust can be intervivos or testamentary. The former implies that the trust is made during one’s lifetime while the latter is prepared after death. A trust may also be revocable or irrevocable. If it is revocable, the trustor reserves the right to modify or even cancel the trust. He could even remove or substitute property as long as he is alive. An irrevocable trust means it cannot be changed once established. In addition, the trustor, who is bound by the terms of his trust, cannot recover property assigned to the trust.