In this article
Categories of trust.
There are many different types of trust, but all trusts fit into one or more of the categories listed below.
Funded or unfunded
If a settlor places assets within a trust during their lifetime, then it is a funded trust. Unfunded trusts will consist of only the trust agreement, with no funding. An unfunded trust can become funded upon the death of the settlor, or in some cases can remain unfunded.
It is important to ensure the proper funding of a trust, as failing to do this can expose the assets to many dangers that the trust should guard against. This could lead to the failure of the whole trust arrangement.
Living or testamentary
A living trust is a document that the settlor makes during their lifetime. They will sign the trust deed and transfer assets to their trustees whilst they are still alive.
You would write a testamentary trust in the settlor’s will so it will only come into existence after the settlor passes away.
Revocable or irrevocable
A revocable trust is a trust that the settlor can change or end during their lifetime. An irrevocable trust cannot change once established. They contain assets that are permanently moved out of the settlor’s legal ownership. Irrevocable trusts are usually used to lessen taxes upon the settlor’s death.
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As a settlor, you may use this type of discretionary trust for your grandchildren, with their parents as the trustees.