Business Management · Trusts and agency

Nature and Types of Trusts: Parties, Kinds and Entitlements

Updated 11 October 2026 · Fact-checked

A trust is an arrangement where a trustee holds property for the benefit of beneficiaries, on terms set by a settlor. Types include express, implied, resulting and constructive trusts, and fixed or discretionary trusts. To answer questions, name the parties, identify how the trust arose, then say what each beneficiary is entitled to.

Understand Nature and Types of Trusts

A trust is a legal relationship. One person, the trustee, holds and manages property for the benefit of others, the beneficiaries. The person who creates the trust and puts property into it is the settlor. The property held is the trust property, also called the trust fund.

The key idea is a split of roles. The trustee holds legal title and controls the property. The beneficiaries hold the benefit. Because the trustee has power over assets that are not theirs to enjoy, the law treats the trustee as a fiduciary and expects loyalty and care. This is why trusts matter to actuaries: pension funds and many employee benefit arrangements are commonly held in trust.

The same person can fill more than one role. A settlor can also be a trustee. A trustee can also be one of the beneficiaries. What the law generally does not allow is a sole trustee being the only beneficiary, because the benefit and the legal title then merge and there is no separate trust. Check this point in your study material.

Trusts are classified by how they arise. An express trust is created deliberately, by words or a document. An implied trust is not stated but arises by law from the circumstances. Implied trusts include resulting trusts, where the benefit returns to the settlor or the person who paid, and constructive trusts, which the law imposes to prevent unfair gain, for example where a fiduciary makes a secret profit.

Trusts are also classified by what beneficiaries receive. In a fixed trust, each beneficiary's share is set in advance. In a discretionary trust, the trustees decide who gets what, and when, from a class of possible beneficiaries. Fixed trusts give certainty. Discretionary trusts give flexibility but put more responsibility on trustees.

Key rules to remember

Definition of a trust: Trust = settlor transfers property → trustee holds legal title → beneficiaries receive the benefit; Use this chain to define a trust in any answer. Name all three parties.
Classification by creation: Express (intended) vs Implied (arises by law): implied = resulting + constructive; Resulting trusts return benefit to the provider. Constructive trusts prevent unjust gain.
Classification by entitlement: Fixed: shares set in advance. Discretionary: trustees choose among a class.; The test is who decides the shares: the trust terms or the trustees.

How to solve Nature and Types of Trusts questions

Use this method for definition, classification and scenario questions on trusts.

1Read the facts and list every person. Mark who put property in, who holds it and who benefits.
2Label the roles: settlor, trustee, beneficiary. Note any person with two roles.
3Decide how the trust arose. Was it deliberately created (express) or imposed by law (implied)?
4If implied, ask which kind. Did a payer or settlor keep the benefit (resulting)? Did someone gain unfairly through a fiduciary position (constructive)?
5Decide the entitlement type. Are shares fixed in the terms, or do trustees choose (discretionary)?
6State the consequence: who holds title, who can claim benefit and what duties the trustee owes.
7Close with a one-line conclusion that answers the exact question asked.

Quickest way: Three-question trust classifier

When to use it: Use for MCQs and short scenario questions when time is tight.

Q1: Who holds the property for someone else? That is the trustee.
Q2: Was the trust deliberately declared? Yes means express. No means implied.
Q3: Do the terms fix each share? Yes means fixed. No, trustees choose, means discretionary.
For implied: benefit returning to the provider points to resulting. Unfair gain by a fiduciary points to constructive.

Common mistakes in Nature and Types of Trusts

Confusing the settlor with the trustee.
Both deal with the property and one person can be both.
Fix: Settlor creates and funds the trust. Trustee holds and manages it. Judge by function, not by person.
Treating resulting and constructive trusts as the same.
Both are implied and both arise without a document.
Fix: Resulting: benefit goes back to the provider. Constructive: imposed to stop someone keeping an unfair gain.
Saying a discretionary trust has no beneficiaries with rights.
Students see that shares are not fixed.
Fix: Objects of a discretionary trust can still require trustees to consider them properly and act in good faith, though they have no fixed entitlement.
Calling every trust an express trust because it has a trustee.
The word trustee suggests deliberate creation.
Fix: Ask whether there was an intention to create the trust. If the law imposed it, it is implied.
Describing the trustee as the owner who may use the property freely.
Legal title is mistaken for full ownership.
Fix: Say the trustee holds legal title for the beneficiaries and must act within the trust terms and fiduciary duties.

Worked examples

Example 1

Define a trust and identify the parties. Meera transfers shares to her brother Arun to hold for her two children until they turn 25. Name each party and the type of trust by creation.

Show the solution

Meera puts property into the arrangement, so she is the settlor.
Arun holds the shares and manages them, so he is the trustee.
The two children receive the benefit, so they are the beneficiaries.
Meera clearly intended the arrangement, so it arose by deliberate creation.

Answer: Meera is the settlor, Arun the trustee and the two children the beneficiaries. It is an express trust.

Example 2

A trust deed lets the trustees distribute income each year among the employees' dependants as they think fit. Another trust gives each of three named sons exactly one-third of the fund. Classify both and state one key difference.

Show the solution

In the first trust, trustees choose who gets what from a class, so it is discretionary.
In the second, shares are set in the terms, so it is fixed.
Difference: in the fixed trust each son has a defined entitlement.
In the discretionary trust, no object has a set entitlement, and trustees must exercise their choice properly.

Answer: The first is a discretionary trust and the second is a fixed trust. The difference is who determines the shares: the trustees in the first, the trust terms in the second.

Exam tips

Always name all three parties and their roles before classifying. It earns easy marks.
In scenarios, quote the fact that points to the type, such as secret profit for constructive or deliberate declaration for express.
Keep resulting and constructive apart in one line each. Examiners test this pair often.
For written answers, link to the trustee's fiduciary position. It connects this topic to the duties of trustees and actuaries.

Practice questions from Trusts and agency

Nature and Types of Trusts in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ProfessionalMeaning and Essentials of a Trust

Nature and Types of Trusts: frequently asked questions

What is the difference between a settlor and a trustee?

The settlor creates the trust and transfers property into it. The trustee holds that property and manages it for the beneficiaries. One person can be both.

What is the difference between a fixed and a discretionary trust?

In a fixed trust, the terms set each beneficiary's share. In a discretionary trust, trustees choose who benefits and by how much from a class of beneficiaries. Discretionary trusts are more flexible.

Are resulting and constructive trusts express trusts?

No. They are implied trusts, which arise by operation of law rather than by deliberate declaration. A resulting trust returns the benefit to the provider. A constructive trust is imposed to prevent unfair gain.

Why do actuaries need to know about trusts?

Many pension and employee benefit schemes are held in trust. Actuaries advise trustees and need to understand their roles, duties and the rights of beneficiaries.