TRUSTS

What is a Trust?

A trust (or settlement - the words are often used inter-changeably) comes into existence when somebody puts property into the name of another person (called "the Trustee"), but the Trustee is not to get the benefit from the property himself. He has to hold it for one or more people (called "the Beneficiaries") and the way he manages the property must always be for their benefit.

Is a Trust enforceable?

Yes. Generally, a trust is created by a document (called the "Trust" or "Settlement" or "Trust Deed"). This will set out the parameters (or private law) within which the Trustee has to manage the property, subject to the law of the country where the Trust is set up.

Who benefits from a Trust and when?

This depends on the sort of trust. There are, basically, two sorts of trust - a Fixed Interest Trust and a Discretionary Trust.

In the case of a fixed interest trust, it is clear who can benefit - for example, you may decide to give your spouse the right to receive income from your assets when you die. However, you may say that the capital of the assets should pass to your children equally on your spouse’s death. It is clear from the document exactly when everyone is to receive a benefit and what benefit they are to take.

On the other hand, in the case of a discretionary trust, the Trustees have power to say who receives income and who receives capital, how much each person receives and when they take it. Although it sounds very open, in fact, the group of people who can benefit under the trust will be set out, eg will be shown as being, say, you, your spouse and descendants. These are the only people who can benefit in any circumstances. In addition, the Trustees will normally be given guidance by the Settlor on how he would like them to exercise their discretions.

What about Management Powers?

In addition to setting out the benefits everybody is to receive under the Trust, the Trust Deed will have powers to enable the Trustees to administer property (eg powers of investment, powers to use stockbrokers or estate agents, power to borrow or insure - in a well drafted Trust these will be wide powers so that the Trustees can do the best for their Beneficiaries.

Can they be paid?

Generally, the Trust will provide that professional trustees can be paid (although it is not usual for lay people to be paid). The Trust will usually say that Trustees will not be liable for losses to the Trust, except those caused by conscious wrong doing and will contain provisions for replacement of trustees.

What are the benefits of a Trust?

Other than any personal tax issues Trusts are often set up because the donor (called "the Settlor") in the case of a Trust, feels that the intended donees will be too vulnerable to hold assets themselves. For example, a father might feel that he would like his children to have set themselves up in life before they are given large sums. Other reasons for setting up trusts include asset protection and confidentiality.

Want to know more?