What is a Trust?
A trust is a well established concept in common law, which separates the
legal and beneficial ownership of assets. The legal ownership of assets is
vested in the trustee, but the beneficial ownership of the same assets is vested
in another person (the beneficiary).
A trust is established ("settled") when a the original owner (the "settlor")
transfers his or her assets to a third person ("trustee"). The trustee is
responsible for taking care of and disposing of the assets following the rules
established in the Trust Deed. In some cases, a Letter of Wishes is
provided by the settlor (which is basically his personal instructions to the
Trustee of what he would like to have done with the assets). The beneficiaries
of a trust are the persons described in the Trust Deed who may benefit from the
trust (this may include the settlor, the trustee, or third parties).
The principal parties and documents involved:
| The Settlor (also called the Grantor) |
This is the person (corporate or natural) who requests
the drafting of the trust deed and who transfers (settles) his assets
into the trust. |
| The Trust Deed (or Trust Document) |
This is the legal trust document itself and contains
all the permutations and combinations of what the trust is and what the
Trustees can and cannot do according to both the wishes of the Settlor
and the laws of the jurisdiction where the trust is written. |
| The Trustee(s) |
The person (corporate or natural) appointed by the
Settlor to administer his assets according to the Trust Deed. The
Trustee has absolute control over the trust assets. Furthermore,
the assets are titled in the name of the Trustee (usually followed by:
f/b/o Name of Trust; which means for the benefit of Name of Trust).
|
| The Trust Property (or Assets) |
The assets which the Settlor places into the trust from
time to time. In many cases, the Trust Deed does not need to specify the
assets. They may simply be added later. |
| The Beneficiary(s) |
The person(s) to whom the Settlor wishes to benefit, by
paying them the assets (or their income) as dictated in the Trust Deed.
In some cases, the Trust Deed does not mention who the beneficiaries
are. |
| The Protector |
A Settlor can name a third-party to 'watch over' a
trust to ensure that the Trustee is administering the trust according to
his wishes. |
| The Letter of Wishes |
In some cases, the Settlor will write a Letter of
Wishes which specifies how the Trustee should act in different
scenarios. This Letter is totally private between Settlor and
Trustee. It is not legally binding on the Trustee, but it provides the
Trustee with a guide to follow, especially if the Settlor has passed
away or is no longer in contact with the Trustee. |
Types of Trusts
The trust legislation in different jurisdictions allows us to offer
flexibility to the client, according to their particular needs. Among the
types of trust which may be established we have:
Purpose Trusts. A purpose trust is a trust which has no beneficiaries,
but instead exists for some specific non-charitable purpose of some kind.
A VISTA Trust is an example of a purpose trust.
Revocable or Irrevocable. A Revocable Trust may be terminated or
revoked on the instruction of the Settlor. For most financial planning purposes,
Revocable Trusts are ineffective, as they are seen to be only temporary holding
agents for the assets of the Settlor and this is insufficient to achieve the
legal purposes for which most trusts are created. Offshore trusts are almost
invariably Irrevocable Trusts.
Specific or Discretionary. A Specific Trust sets out clearly in the
trust Deed the specific wishes of the Settlor concerning the handling and final
distribution of the assets held in the Trust. Nothing is left to the discretion
of the Trustee and all Parties are clear on exactly who benefits from the Trust
and to what extent. The disadvantage of this is that the Trust is inflexible and
cannot effectively accommodate changes in the circumstances of the Settlor or
the Beneficiaries during the term of the Trust.
Charitable Trusts. in which the beneficiary is a charity or charitable
cause;
'Spendthrift' Trusts. which distribute money to the beneficiaries at a
regular rate but do not permit the distribution of large lump sums and are
designed to protect the Trust fund from any legal actions of potential creditors
of the spendthrift;
Testamentary Trust. which is created in a will to be effective on the
death of the Settlor;
Protective Trusts. which attempt to shield assets from Beneficiaries
creditors by causnig a beneficiary to lose their interest in the trust if a
creditor attempts to reach that interest;
Inter Vivos Trust. which a trust is created by a living Settlor as
opposed to a Testamentary Trust. Clients for offshore trusts are typically
interested in Inter Vivos Trusts and so on.
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VISTA Trusts
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Page updated
27-Oct-2009 | 