Six types of trusts
There are six different types of trust sometimes with sub-categories. Here they are –
1) Intervivos Discretionary Trust.
A trust set up during the lifetime (intervivos) of the founder and in which he/she gives the trustees absolute discretion to handle the trust assets and income for the benefit of the beneficiaries. This kind of trust is used for asset protection and estate planning.
There is a sub-category which is an intervivos non-discretionary trust. This is effective for estate planning, but not for asset protection. The trustees do not have absolute discretion. The Master has recently, with absolutely no authority to do so, begun refusing to register such trusts.
2) Testamentary Trust
This can be discretionary or non-discretionary. It is a trust which comes into being on the death of the founder and is created by his/her will, usually to care for survivors who are too young to receive bequests directly or over whom the founder wishes to retain some degree of control.
3) Special Trust
Any trust (intervivos or testamentary) whose beneficiary(ies) is a minor or a disabled person is a special trust and is taxed as if it were a natural person. It can be discretionary or non-discretionary depending on the wishes of the founder. A testamentary trust is often a special trust.
4) Bewind Trust
A rare kind of trust in which a beneficiary has legal title to assets, but the assets are in the control of the trustees. These assets can be attacked by the creditors of the beneficiary. I’ve seen these trusts set up by mistake by attorneys who don’t realise what they are doing when they insert certain clauses into a trust deed.
5) Business Trust
A trust set up to do business as would a company or CC. This form of trust is taxed at 45% compared to a company or CC at 28%, so it is not common. They are often created by mistake. For example, if an intervivos trust owns property from which it earns income, it is a business trust.
6) Blind Trust
This kind of trust is also fairly rare. I am trustee of only one. It is a trust in which the founder is often a public figure. He/she and the beneficiaries are not allowed to know anything about the trust assets or the trustees’ decisions (they are blind to them). This is to demonstrate (though not necessarily prove) that the founder has avoided conflicts of interest. The trustees always have absolute discretion.