Bare Trust (Absolute)
The beneficiaries are entitled to a specific share of the trust, which can’t be changed once the trust has been established. The settlor (person who puts the assets in trust) decides on the beneficiaries and shares at outset. A simple and straightforward trust – the trustees invest the trust fund for the beneficiaries but don’t have the power to change the beneficiaries’ interests decided on by the settlor at outset. Offers the potential Income Tax and Capital Gains Tax benefits, particularly for minor beneficiaries. The assets, both income and capital, are immediately owned and can be taken by the beneficiary at age 18 (16 in Scotland).
Interest in Possession Trust
With this type of trust, the beneficiaries (known as a 'life tenant') have a right to all the income from the trust (having a 'life interest'), but not necessarily the capital. Sometimes a different beneficiary will get the capital – say, on the death of the life tenant.
They are often set up under the terms of a Will to allow a spouse to benefit from the income during their lifetime, but with the capital being owned by their children. The capital is distributed on the remaining parent’s death.
Discretionary Trust (Flexible)
The settlor decides who can potentially benefit from the trust, but the trustees are then able to use their discretion to determine who, when and in what amounts beneficiaries do actually benefit. Provides maximum flexibility compared to the other trust types, and for this reason is often referred to as a ‘Flexible Trust’.