Nature and classification of trusts

Nature and classification of trusts—the nature and classification of trusts

The nature of trusts

There is no single agreed definition of a trust, but one that has been accepted by the courts is:

'A trust is an equitable obligation, binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property), for the benefit of persons (who are called the beneficiaries or, in old cases, cestuis que trust), of whom he may himself be one, and any one of whom may enforce the obligation.'

Classification of trusts

There is no generally agreed classification of trusts. However, it is possible to make distinctions according to:

  1. mode of creation

  2. validity and enforceability

  3. whether private or public

  4. tax treatment

The traditional generic categorisation of trusts distinguishes between those that are express, implied, constructive or resulting.

Express trusts are:

  1. created by the terms of an inter vivos or lifetime settlement, declaration or other trust instrument or by Will or codicil, or

  2. expressly imposed by statute

Implied trusts may be express

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All in? Court confirms when a settlement is 'made' for the purposes of excluded property (Accuro Trust (Switzerland) SA v The Commissioners for HMRC)

Private Client analysis: This case considered the meaning of 'relevant property' under the settlements regime of the Inheritance Tax Act 1984 (IHTA 1984) and, in particular, the time at which this definition is to be tested. The question arose as to whether the trustees of an offshore trust established by a non-UK domiciled settlor were subject to the UK settlements regime in respect of property added to the trust after the settlor became deemed domiciled in the UK, or whether they were exempt from such charges as the trust consisted solely of excluded property. The First-tier Tribunal (FTT) held that whether trust property is excluded property is based on the status of the trust at the time that it was established, not at the time that the property in question was added to the settlement. As a result, the trust in this case did consist solely of excluded property and no inheritance tax (IHT) charges arose as a result of either the ten-year anniversary or capital distributions. The FTT was also asked to consider whether their jurisdiction was appellate, or supervisory only. The FTT held that, while their jurisdiction was supervisory, the questions raised by the trustees were relevant in establishing whether HMRC had acted reasonably and that the outcome (ie that the paid IHT should be refunded and that no further IHT was due) would be the same in either case. Written by Katherine Willmott, senior associate solicitor at Foot Anstey LLP.

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