Trust Terminology Explained: A Structural Guide for New Readers

Trust law is rich in terminology. Words such as discretionary, resulting, life interest, revocable, and bare trust are often used interchangeably in conversation, even though they describe entirely different things.

This article explains the most commonly encountered trust terms, grouped under four headings:

1. How trusts arise

2. How trusts operate

3. How trusts are taxed (UK context)

4. Other commonly used descriptions

It is not a substitute for legal advice, but a structured glossary designed to clarify language used throughout this site.

I. Trusts Distinguished by How They Arise

Express Trust

An express trust is deliberately created by a settlor, usually by deed (during lifetime) or by will (on death), with clearly articulated terms.

Almost all planning trusts fall into this category.

Resulting Trust

A resulting trust arises automatically by operation of law where property is transferred but beneficial intention is incomplete or fails.

Common examples include:

• A contributes to property held in B’s name

• A trust fails but assets remain undisposed

Resulting trusts are usually encountered in property disputes rather than estate planning.

Constructive Trust

A constructive trust is imposed by equity to prevent unconscionable outcomes. It arises from conduct, not intention.

Common contexts include:

• Domestic property disputes

• Breach of fiduciary duty

• Unjust enrichment

Constructive trusts are remedial tools of the court, not planning instruments.

II. Trusts Distinguished by How They Operate

These are the terms most commonly encountered in planning.

Bare Trust (Simple Trust)

In a bare trust, the beneficiary is absolutely entitled to the trust property and can demand it at any time (if legally capable).

Trustees hold assets only as nominees. There is no discretion.

Bare trusts are structurally simple but offer limited planning flexibility.

Interest in Possession Trust (IIP)

An interest in possession (IIP) trust gives a named beneficiary an immediate, present right to enjoy trust property during the term of the interest. In many cases this takes the form of a right to the trust’s income as it arises. However, where the trust holds non-income-producing assets, the “possession” may instead be expressed as a right to use or occupy the asset—such as living in a trust-owned house, or having the use of a trust-owned car, boat, or similar property—on the terms set out in the trust instrument.

The capital usually passes to other beneficiaries later.

A common subtype is the:

• Immediate Post-Death Interest (IPDI)

An IPDI arises on death (often in wills between spouses) and gives a beneficiary a right to income for life.

Discretionary Trust (DT)

In a discretionary trust, trustees decide:

• who benefits

• when

• and to what extent

No beneficiary has a fixed entitlement until trustees exercise discretion.

Discretionary trusts are widely used in long-term and multi-generational planning.

Power of Appointment Trust (PoAT)

A power of appointment trust gives a designated person (the power-holder) the ability to direct how trust property is distributed among a defined class.

The power-holder is not necessarily a trustee.

This structure is often used for flexibility in succession planning.

Protective Trust

A protective trust combines elements of fixed entitlement with a shift to discretionary terms if certain triggering events occur (such as bankruptcy).

Purpose Trust (PT)

A purpose trust exists to fulfil a defined purpose rather than to benefit specific individuals.

In English law, non-charitable purpose trusts are generally restricted, but certain jurisdictions allow them more freely (often requiring an enforcer).

III. Trusts Distinguished by How They Are Taxed (UK Context)

In UK tax law, trusts are often grouped differently from how they are structured legally.

Relevant Property Trust

Most discretionary trusts fall into the relevant property regime, meaning they are subject to:

• entry charges (in some cases)

• periodic ten-year charges

• exit charges

This is a tax classification, not a structural one.

Interest in Possession Trust (Tax Meaning)

For inheritance tax purposes, IIP trusts are often treated differently from discretionary trusts, particularly where they qualify as IPDIs.

Bare Trust (Tax Transparency)

For tax purposes, a bare trust is generally transparent. The beneficiary is treated as owning the assets directly.

Settlor-Interested Trust

A settlor-interested trust is one where the settlor (or spouse) can benefit.

This classification affects income tax and capital gains tax treatment.

IV. Other Common Descriptions

These terms often appear in marketing or general discussion but require careful interpretation.

Revocable vs Irrevocable

A revocable trust allows the settlor to revoke or unwind the trust.

An irrevocable trust does not.

In serious estate planning, most trusts are irrevocable in substance, even if limited amendment powers exist.

Onshore vs Offshore

These terms describe jurisdiction, not structure.

An “offshore trust” is simply a trust governed by a non-UK jurisdiction. It is not inherently tax-free or protected from UK law.

Family Trust

A family trust is not a technical category. It simply refers to a trust used for family planning purposes.

Living Trust

Common in US terminology, a “living trust” refers to a trust created during lifetime. In English law this simply means an inter vivos trust.

Testamentary Trust

A trust created by will, taking effect on death.

Fixed Trust

A trust where beneficiaries have fixed, defined shares rather than discretionary interests.

V. Why Trust Terminology Matters

Many misunderstandings in trust planning arise from mixing categories.

For example:

• “Discretionary” describes how a trust operates

• “Relevant property” describes how it is taxed

• “Offshore” describes where it is governed

• “Irrevocable” describes amendment rights

These are different dimensions of analysis.

Understanding which dimension a term refers to prevents confusion and unrealistic expectations.

Conclusion

Trust terminology reflects centuries of legal development. Words that sound similar often refer to entirely different aspects of a structure: origin, operation, taxation, jurisdiction, or control.

Before assessing whether a trust is appropriate, it is necessary to understand what the relevant terms actually mean.

Clarity of language is the first step toward clarity of structure.

This article is provided for general informational purposes only and does not constitute legal or tax advice.