Isle of Man Trust and Trustee Services

Discretionary Trusts are the most commonly used because they provide the most flexibility. The trustees of a discretionary trust are given wide powers as to how the trust fund may be invested and who and when beneficiaries may benefit, and to what extent. No one beneficiary has an absolute right to benefit because this decision lies in the hands of the trustees. Whilst not binding on the trustees, the settlor may provide a note of his or her wishes, which the trustees may use as guidance when exercising their powers.

An Interest in Possession Trust is a trust where a beneficiary has an absolute right to the income of the trust. They are often referred to as ‘life tenants’ and this type of trust is often referred to as a ‘life interest trust’. Even though the income is paid to the trustee, it must all then be passed on to the beneficiary, net of any trust expenses.

In addition to a life tenant, an Interest in Possession Trust must also have at least one ‘remainderman’. This beneficiary will be entitled to the capital of the trust at the point when the interest in possession (life interest) comes to an end.

Fixed Interest Trusts can be created to provide income, capital or other benefits to a specific beneficiary, either during their lifetime or until a certain event occurs (e.g. marriage or reaching a certain age). The trustees then distribute the trust fund to the settlor’s chosen beneficiaries. The trustees have no discretion over the distribution of trust assets.

An Excluded Property Trust (EPT) can be any type of trust – absolute, interest in possession or discretionary. However, in most cases, a settlor would use a discretionary trust due to its flexibility.

For UK Inheritance Tax (IHT) purposes, the settlor of an EPT can also be a beneficiary without the UK’s ‘gift with reservation of benefits’ applying. This means that even if the settlor later becomes UK-domiciled for IHT purposes, he or she is still able to benefit under the trust because UK legislation only requires the settlor to be non-UK domiciled “at the time the settlement is made”.

Provided the settlor is non-UK domiciled at the time the gift into trust is made, and therefore has no IHT liabilities, then no IHT reporting or IHT is due at that time. Provided the property remains within the definition of ‘excluded property’, exit charges and periodic changes are also not applicable. As such an EPT can be a highly effective tax planning solution for those who are currently non-UK domiciled but who may wish to move to the UK and become UK domiciled.

This type of trust is used where a settlor wishes to provide for a beneficiary to receive the trust fund at a certain age; for example, when grandchildren reach the age of 18.

The Charities Registration & Regulation Act 2019 and the Charities Regulations 2020 provide for the creation of charitable trusts, where the trust fund is to be used for a purpose that is charitable. The document establishing the trust must state the purpose or purposes for which the trust has been created.

‘Purpose Trusts’ for non-charitable purposes are also permitted in the Isle of Man under the Purpose Trusts Act 1996, provided that the purpose or purposes of the trust are “certain, reasonable and possible; are not unlawful, contrary to public policy or immoral” . An ‘enforcer’, who is independent of the trustees, must be appointed.

A Private Trust Company is a company set up to act as a trustee to a specific trust or a group of connected trusts. It is not permitted to act as trustee ‘by way of business’, meaning that it cannot receive fee income from acting as trustee. A PTC may be preferable to some clients because it allows the settlor to retain a certain amount of control if they are not familiar or comfortable with the trust concept and do not wish to transfer assets directly to a professional trustee.