TYPE OF TRUSTSEach trust instrument is specifically tailored to meet the individual requirements of the settlor. There are various types of trust, the choice of which will depend upon the circumstances of the settlor. Three common types are explained in more detail below.
The most common form of trust used in Gibraltar is the discretionary trust. The trustee has the legal discretion to exercise his own judgment as to the manner and amount by which beneficiaries of the trust might benefit from the trust assets. Such flexibility is a useful succession planning tool. The availability of this discretion to the trustee is also a component of tax planning.
In addition, such a trust may be particularly useful where, at the time of creation of the trust, the needs of particular beneficiaries cannot be predicted. The beneficiaries have no legal rights to a particular portion of the trust fund. However, it is usual for the settlor to indicate his wishes to the trustee on the conduct of the trust fund and this expression of wishes is often contained in a “Letter of Wishes”. The letter is not a legally binding document, merely a guide as to the settlor’s wishes.
FIXED INTEREST TRUST
It is possible to make a trust in fixed form so that the trustee does not have discretion in relation to its dispositive powers or over the rights to income or capital of certain beneficiaries.
Instead, the deed will stipulate the extent of a beneficiary’s interest. For instance, the trustee may be required to distribute all of the income of the trust fund to a particular individual during that person’s lifetime and, on that person’s death, may be required to distribute the capital in fixed proportions to specified beneficiaries. Again, an important factor in the decision to use such trusts is taxation.
It is possible to have a combination of fixed and discretionary trusts so that the trustee may have a discretionary power to distribute the income of the settlement for a period of time but may be required to effect an ultimate distribution of the capital of the trust fund in certain fixed proportions. Conversely, the trustee may be compelled to distribute the income to a specified person or persons in fixed proportions, but may have discretion on the distribution of the capital among the class of beneficiaries.
Trusts may be created by a Will and such trusts may be of any type. Indeed, it is usual for the executors of a will to be given trustee responsibilities in relation to certain assets and gifts to beneficiaries. Abacus will consider appointment to such trusts after taking appropriate advice.