There are many different types of trust, some which overlap and depend how they are set up and for what purpose. However, the two main common types of trust are:
Bare/absolute trust
The trustees are simply holding the assets for the named beneficiaries who are absolutely entitled to all the capital and income from the trust. The trustees will manage the trusts until the beneficiary is entitled to receive the money, normally when they turn 18 years old, though it can be later if the trust deed provides for a different age e.g. 21 years.
The trustees have little say as to who the assets are paid out to and the category of beneficiaries is normally fixed. The beneficiaries may be able to compel the trustees to transfer assets to them.
These trusts are common in a will where a person wants to pass assets outright to children who may still be minors at the date of their death.
Discretionary trust
The trustees are holding the assets for a number of beneficiaries though none of the beneficiaries have a fixed interest in in the trust. They are not entitled to receive anything from the trust as of right. The trustees have a massive amount of control over the trust assets and can ultimately decide who receives anything, when they receive it and how much. The trustees do not have to give any particular beneficiary anything from the trust.
These trusts are very flexible and are common in wills especially if there is a lot of money or significant assets such as land. They can be used to assist family members who may need financial help at different stages or may need more help than others. They can also be used to assist beneficiaries who are not capable or responsible enough to look after their own finances. They are a useful estate planning tool. As none of the beneficiaries have any guarantee that they will receive anything from the trust, the assets won’t form part of their estate upon their death or if they were to divorce.