In the situation that the beneficiaries of a trust are young and not able to manage their inheritance, the entitlement could be confined to income, thus preserving the capital value of the trust assets. A discretionary trust would enable the trustees to tailor the distributions according to the needs of the beneficiaries, for example in relation to education.
A trust can also protect assets against claims by third parties. If a beneficiary of a Life Interest Trust is declared bankrupt, the ability of the trustees in bankruptcy to access the trust fund would be confined to any income entitlement, and in the case of a discretionary trust there would be no such entitlement. Life Interest Trusts are also often used to protect children of second marriages or children of surviving spouses where the testators fear that there may be predators ready to take advantage of the surviving spouse wealth, including local authorities charged with providing care home accommodation.
Trusts can also be used to protect assets against claims arising in divorce and to preserve entitlements to local authority funding of care for the elderly, which is dependent on recipients’ financial assets not exceeding defined levels. Again, a discretionary trust would be the appropriate way of conferring benefits but not entitlement.
Discretionary, Life Interest and Bare trusts are the main trusts available. Declaration of Trusts are also available to set the distribution of a property on sale where the buyers have provided different amounts towards the purchase price.