The two most common types of trusts are Living and Testamentary trusts. Living trusts are active at the same time as you are (i.e. whilst you are alive). Testamentary trusts on the other hand are activated upon your death. Other permutations of trust types (trust funds, offshore trusts, etc.) all fall under one of these two categories.
A third type of trust is a Unit trust. Established for investment purposes, these are commonly known mutual funds and other similar investment schemes.

Living Trusts

As the name might suggest, Living trusts are designed to enable you to enjoy the benefits of the trust while you are alive. In other words, you can use the wealth generated by your assets immediately without having to worry about the details of managing it. This is especially beneficial if you find yourself travelling often or heavily occupied with work, leaving you with no time to keep track of your finances.

Furthermore, by establishing a Living trust you are putting into motion an agreement that will also benefit your heirs in the future.

Unit Trusts

A Unit trust is an investment of capital from different investors. The funds are pooled from a number of individuals and managed by a professional fund director. The investors buy into the Unit trust by purchasing “units” that are essentially stakes in the investments made by the trust.

The earnings from a Unit trust are paid in multiples of units purchased. This means that if you bought 100 units, the profit you earn will be ten times greater than someone with 10 units.

Testamentary Trusts

A Testamentary trust is part of a person’s will. The trust is activated only after the settlor’s death. Besides that difference, a Testamentary trust is very similar to a Living trust.

The main benefit to having a Testamentary trust is the privacy of such an arrangement that a will cannot offer since a normal will is considered a public document. No public records or court filings are kept for trusts, thus the confidentiality and privacy of your financial details are assured.

Another practical benefit to having a trust is that assets can be set up to be released and distributed according to a schedule that minimises the cost of taxes. For instance, if the trust fund is worth £450,000 and the maximum amount that can inherited tax-free £100,000 then the trust can be set up to release only £100,000 each year in order to avoid the significant tax that would have been levied on the lump sum value of your assets.