Hybrid Trusts

meeting

Hybrid trusts are the result of modern trust drafting. They are written to give the trustees all the powers of a discretionary trust as described above to appoint income or capital to any one or more of a class of individuals. However, the trust deed states that, until the trustees exercise their power of appointment, the trust income shall be paid to `x` for life (Interest in Possession) or retained in trust until `x` attains 25 (A & M) The trustees’ ability to switch the benefit from `x` to another member of the class at any time means that the hybrid trust, like a chameleon, can change its form to suit any changing family or tax situation.

Thus you might create a hybrid trust for your son for life but should he risk bankruptcy or his marriage fail, the trustees can use their power to remove the benefit of the trust fund from him and switch it to his children or his sister or accumulate it until the danger has passed. It may be would not cause inheritance tax to be paid at that time and so the trust would continue for the benefit of other class members.

Just as a discretionary trust can be created to commence in your lifetime, it can also be a feature of your Will, becoming effective only on your death. It is often used in the Will of the first of a couple to die to ensure that the Nil Rate Band is not wasted. Alternatively you might prefer that your executors decide how your estate is to be dealt with in the light of the tax and domestic circumstances existing at that time – a discretionary Will trust could achieve that.

Hybrid trusts are the result of modern trust drafting. They are written to give the trustees all the powers of a discretionary trust as described above to appoint income or capital to any one or more of a class of individuals. However, the trust deed states that, until the trustees exercise their power of appointment, the trust income shall be paid to `x` for life (Interest in Possession) or retained in trust until `x` attains 25 (A & M) The trustees’ ability to switch the benefit from `x` to another member of the class at any time means that the hybrid trust, like a chameleon, can change its form to suit any changing family or tax situation.

Thus you might create a hybrid trust for your son for life but should he risk bankruptcy or his marriage fail, the trustees can use their power to remove the benefit of the trust fund from him and switch it to his children or his sister or accumulate it until the danger has passed. It may be possible to restore the benefit to him at a later time if the trustees so wish.

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