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Types of Trusts (Unit Trusts (Closed ended unit trusts have a fixed number…
Types of Trusts
Unit Trusts
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Investors' funds are pooled in a unit trust, enabling them to achieve exposure to a wider range of investments than they could achieve on their own as well as spreading investment risk
Still a trust and therefore subject the laws governing trusts and subject to the terms of its trust deed
Trust deed divides the beneficial ownership into units, each of which represents a proportion of trust property
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Trust deed sets out the right and obligations of the trustee and the unit holder and details the terms of the redemption and valuation rules
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Assets of the trust are vested with the trustee, who must usually be regulated and supervised in their jurisdiction
Contractural provisions between trustee and unit holders are usually set out in the subscription agreement
Trustee or custodian usually acts as custodian of all the investments within the trust, acting as a registrar and maintaining appropriate registers
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Trust fund is divided into a number of units, each representing a proportion of the assets held by the trustee
May be open ended or closed ended, with most being open ended
It the trust is open ended, units may, in accordance with the provisions contained within the trust deed and other documentation be issued or redeemed at their net asset value
Closed ended unit trusts have a fixed number of units that does not change throughout the trust period
Units prices are therefore determined by supply and demand, and units may be issued at a premium or at a discount to the net asset value
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Charitable Trusts
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What constitutes a charitable purpose will differ in the legalisation between jurisdictions but typically include the relief of poverty, for the advancement of education and the advancement of religion
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Laws provide that the court can order that the property be applied to another purpose that is similar to that originally intended if the charitable purpose cannot be carried out within the spirit of the settlor's wishes
Subject to cy-pres doctrine, which provides that if a charitable trust finds itself without beneficiaries, the court can make an order that the trust property be applied for similar charitable purposes
VISTA trusts
The Virgin Islands Special Trusts Act 2004 enable their creation. There must be a provision in the trust deed that states this act applies
It can be difficult for a trustee to properly manage the investments if the underlying investment is family business or if the settlor wants the trustee to retain the assets regardless of performance
This can be the case where the settlor has wealth outside the trust and it is of no consequence to them whether the investment is profitable or not
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May be useful where the settlor wishes to retain control over underlying company or where they wish shares to be retained regardless of performance
Also useful where the settlor would like the trustee to make investments that would usually be inappropriate due to risk involved or where the trustee would have no desire or a lac of skill or expertise to become involved with the running of the company
Fixed Interest Trusts
Trustee does not need to exercise discretion to decide how to distribute the trust property, as the beneficiary is absolutely entitled to a fixed interest
Life interest trusts
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A beneficiary referred to as the life tenant has an absolute right to enjoy the trust property or income arising from the trust property during their lifetime
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Only on the death of the life tenant may the other beneficiaries (referred to as the remainder men) stand to benefit
Upon the death of the life tenant the terms of the trust may provide for the trust property to be held on trust for the remainder men, with the trustee having discretionary power. Or it may provide for the capital to be paid in fixed proportions to the beneficiaries and the trust wound up
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Trustees must manage the trust fund in a manner that does not unduly affect the interest of either the capital or income beneficiaries, eg it would be unfair to tie up the capital in a non-income earning asset as this would affect the income due to the life time
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Bare Trusts
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Trustee has no discretionary powers and simply holds the property and deals with it or transfers it when instructed
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Employee Trusts
Employers who may wish to provide for their employees and their families, may create trusts for their benefit
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