Trusts are set up by people for a number of reasons including succession planning, asset protection and tax maximization and sometimes trusts are set up unintentionally due to the operation of the law. The basic elements of a trust are:
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trustee
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trust property or asset
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beneficiary or object
Situations in which trusts are created by the operation of law are:
First, a resulting or implied trust, arises when the settlor fails to distribute the whole of the interest or there is a surplus after the original purpose of the trust has been satisfied. Such situation also arises when a person buys a property in somebody else's name.
Second, a constructive trust, arises upon an order of the Court, as a remedial devise, where the Court would impose a trust relationship to correct a wrongful act.
People would see their solicitors and tax advisors to create a specific trust for them to serve the purpose intended. These are called express trusts and are categorized as follows:
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Discretionary trust - which confers discretion on the trustee, as to not only how to deal with the trust property but also how to distribute any income and property to the beneficiaries.
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Family trust - a trust set up for the benefit of family members. This is usually a discretionary trust and the advantage of the trust is splitting of income earned by the trust between the family members to maximize any tax advantage.
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Unit trust - the beneficiary is a unit holder in such trust and the entitlement to the trust property/asset depends on the number of units held by the beneficiary. The units in the trust can be bought and sold like shares in a company.
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Trading trust - a trust carrying on a business as an alternate to a company. Usually a unit trust is used as the trading entity.
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Superannuation trust - most people with self managed superannuation fund may use the monies held by the fund for investment purpose rather than investing in personal names.
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Hybrid trust - a trust created using a mixture of the rigidity of a unit trust whilst providing the trustee with some discretion at the same time.
Other forms of trusts include:
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Testamentary trust - a trust created pursuant to a will
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Protective trust - a trust set up so that the income goes to the beneficiary and is available for the beneficiary and the beneficiary's family's maintenance and support
Whilst most people would create one or the other of the above trusts for personal reasons, some do wish to create a trust for benevolent purposes which is called "charitable trust" - a trust set up for strictly "charitable" at law, that is, for the benefit of the public at large can include purposes such as:
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relief of poverty
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advancement of education
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advancement of religion
Whatever your reasons or motives, consult a lawyer to advise you as to which trust would best suit your purpose
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