ACCA ATX ^UK Syllabus A3. Inheritance Tax - What are the different types of trusts? - Notes ^{1 / 2}

Definition of a trust

A trust is an arrangement whereby:

- Property is transferred by a settlor
- To the trustees
- To be held for the benefit of one or more specified beneficiaries 
- On specified terms in the trust deed

Therefore:

Settlor ->  Property passes into a trust -> Trustees are given the legal title to the property

What is interest in possession?

IIP can be the legal right to receive income generated by the trust assets and/or use the trust asset or live in a property owned by a trust.

Types of trusts

• Discretionary trusts

• Interest in possession trusts

Discretionary trusts

1. No interest in possession exists

2. The beneficiaries have no legal right to benefit from the income or capital of the trust

3. The trustees decide how the trust assets are invested and managed

4. Any distribution of income or capital out of the trust is at the complete discretion of the trustees

Interest in possession trust

1. Interest in possession exists

2. The beneficiary is known as the life tenant

3. The life tenant has a legal right to benefit from the income of the trust

4. The trustees will distribute the life tenant’s full entitlement every year

It is now not possible to create an Interest In Possession Trust but they may still exist.

Most trusts that you will see in your exam will be Relevant Property Trusts which is a generic name for most trusts and these are treated for tax purposes in the same way as Discretionary Trusts.