Types of Trusts
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In the context of estate planning, a trust can be described as a legal relationship which has been created by a person (known as the founder, donor, or settlor) through placing assets under the control of another person (known as the trustee) during the founder’s lifetime (an inter vivos trust) or on the founder’s death (will trust, testamentary trust or trust mortis causa) for the benefit of third persons (the beneficiaries).
Trusts are typically classified in terms of the following:
- The method of formation (inter vivos trusts and testamentary trusts)
- The rights conferred on beneficiaries (discretionary trusts and vested trusts)
- The purpose of the trust (Special trust, Charitable trust, Employee trust, etc.)
These descriptions are not mutually exclusive. For example, a trust could be founded during a person’s lifetime (inter vivos), for the purpose of holding and administering a rental property portfolio on behalf of beneficiaries (ownership/trading trust), where the trustees are to exercise their discretion in distributing income or capital (discretionary trust).
A combination of both vested and discretionary rights is possible within both a vested and a discretionary trust.