Types of Trusts
In a discretionary trust, the trustee has the discretion to determine the identity of specific beneficiaries and the extent and timing of the entitlement of each beneficiary subject to the terms of the trust deed. This means that the trustee can determine whether or not to make a distribution to a member of a class of beneficiaries and if the trustee determines to make a distribution, the trustee can determine how much the distribution will be and when the distribution will be made.
A discretionary trust contrasts with a fixed trust where the trust deed specifically identifies each beneficiary and his or her entitlement and the circumstances and times at which such entitlement will be paid. In a fixed trust, the trustee has no discretion as to the distribution of the trust fund.
A living trust is also known as an inter vivos trust. A living trust is one which has effect during the lifetime of the settlor. In contrast, a testamentary trust is one which has effect following the death of the settlor.
In a living trust, as soon as the settlor injects assets into the trust, the family trust can begin to operate and beneficiaries can begin to benefit from the trust. There is no need to wait until the settlor dies. In a typical living trust, the trust deed will provide that the settlor will be a beneficiary during his or her lifetime and will provide for the dependants of the settlor following the settlor's death. As a result, a living trust enables the settlor to make provision for himself while he or she is still alive and his or her family following his or her death.
A testamentary trust, also known as a will trust, is one which is formed under the terms of a will. Ownership of the assets to be placed into the trust remains with the settlor until his or her death, at which time, the assets will become subject to the trust. The will will set out the terms of the trust and, typically, the executor of the will will serve as the trustee. A testamentary trust enables the settlor to make provision for his or her family following his or her death.