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Classification of Trusts

A trust allows you to separate control and management of assets from its owners. This separation allows for distinct advantages that will result from the details contained within the trust deed. There are several types of trusts and legal scholars have attempted to make sense of all the thousands of cases on trusts by grouping or classifying them. The below is a high level summary borrowed from STEP and just one method of classification to allow us to understand the types of trusts that may be right for your circumstance.

An express trust is one that is intended to be created by a person. This expression may be evidenced by a trust deed and could be for the benefit or persons or for a particular purpose. For example, persons may benefit if the trust is set up by a grandparent for their grandchildren to fund their education. Alternatively, a trust may be for the purpose of encouraging good teaching and be set up to fund a reward to encourage teaching excellence at a particular school. And either of these may be set up during creator (settlor) of the trust’s lifetime (inter vivos) or after the pass away via their will (testamentary).

The trust will be administered by a trustee. The trust can be discretionary, allowing the trustee more leeway to make decisions, or it can be fixed in which case the terms of the trust are more stringent and must be followed.

Each of these trusts may also be for charitable purposes or non-charitable purposes.

A trust by operation of law may result where there was no express intention to create a trust. This resulting trust may occur where there was an implied intention to create a trust. In some cases, the resulting trust may be automatic, such as the case where the income from the trust is to be allocated to the settlor’s child during their lifetime with all capital to go to the settlor’s grandchildren who are yet to be born. If the child dies without any children of their own, there may be an automatic resulting trust for the child’s estate.

Presumptions are made in a presumptive trust. Such a situation may occur if Sam gave Shaq a large sum of money and Shaq uses those funds to purchase land in his own name. It could be argued that the funds provided to Shaq were not a gift and that Shaq holds the property in trust for Sam. This would be a presumptive trust that could result from an operation of law.

Where there is no express trust or trust that is implied resulting from an operation of law, the operation of the law could result in a constructive trust. One example this situation may occur is when a trustee sells trust property to a corporation owned by himself for fair market value and that same property doubles in value some years after the sale. A court may rule the corporation was held in trust for the original beneficiaries. This would be a trust by operation of the law that is not implied, or a constructive trust.

 

Different methods for classifying trusts include how the trust was crated, the object of the trust, determining if the trust is settled during the settlors’ lifetime or after, the amount of discretion of the trustee (if any) and if the trust is for charitable or non-charitable purposes. These considerations are further broken down in to types of trust classifications. Some of these include the following:

Types of Trusts

  • Public trusts – is made for the benefit of the public (a charitable trust would also be a public trust).
  • Private trusts – made for the benefit of specific and ascertainable persons.
  • Executed trusts – the terms of the trust have been fully set out. No further instructions to the trustees is required for the trustee to know what is to be done with the property.
  • Executory trusts – identify the beneficiaries without indicating how they are to share the benefits.
  • Completely constituted trusts – 3 certainties are met (intention to create a trust is clear, property clearly defined, objects are clear) and the property is in the hands of the trustee.
  • Incompletely constituted trusts – 3 certainties are met (intention to create a trust is clear, property clearly defined, objects are clear) however the property is not in the hands of the trustee.
  • Bare trusts – trustee has no duties imposed on them other than convey the property to the beneficiaries on demand by the beneficiaries.
  • Protective trusts – provides a beneficiaries’ interest comes to an end when the beneficiary becomes bankrupt.
  • Spendthrift trusts – prevents the beneficiary from disposing of his interests to another.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. © 2021 Shajani LLP