Trust

Definition

A trust is not a legal entity, but rather a private legal arrangement where the ownership of someone’s assets (the “Settlor”, “Disponer” in Ireland) is transferred to someone else (the “Trustee”) to look after and use to benefit another person (a “Beneficiary”).

Taxation

The taxation of the capital, income and/or gains of a trust varies from jurisdiction to jurisdiction and whether the person receiving any benefit from a trust is in a jurisdiction which recognises the legal concept of a trust or not.  Trusts managed and controlled in the offshore [international finance] centres generally are not subject to any local taxation.

Typical Purposes

·          Succession planning

·          Wealth management and protection

·          Confidentiality and continuity

·          Flexibility

·          Charitable purposes

·          Employee benefits

·          Commercial transactions

Working

The trustee holds the assets of a trust, pursuant to the terms of any trust deed for the benefit of individuals or institutions known as the beneficiaries. The trustees will legally own and hold the assets initially transferred to them by the settlor and others in their own name.  Subsequently they will hold other assets as the trust continues to grow through investment.

Alternatively assets can be held through underlying companies, nominees and custodians.

Settlor/Founder

The settlor separates himself from the assets previously owned. In a discretionary trust arrangement the settlor may express his wishes to the trustee as to the trust’s administration and beneficiaries. Whilst the settlor may make recommendations and requests to the trustees these are not contractually binding on the trustees.

Trustee/Council

The trustee will normally be located in a common law jurisdiction where the legal system has a tradition of trusts and expansive case law. The trustee, as the legal owner of the assets, has a fiduciary duty to act in the interests of the beneficiaries and where appropriate to account for income and expenditure.

Protector/Enforcer

A protector may be appointed by the settlor of a trust to oversee the activities and actions of the trustee. The protector may have the power to sanction and veto decisions of the trustee and may also hold the power to appoint and remove trustees.

Registered Agent

A trust does not require a registered agent.

Beneficiaries

The beneficiaries may include the settlor. The beneficiaries are defined in the trust deed and may be a natural person, companies or charities. Distributions are made by the trustees in accordance with the trust deed having regard to the wishes of the settlor.

Forced heirship laws

Established and planned correctly, a trust can present a way of escaping the forced heirship provisions of civil law countries. Situs of assets and place of trusteeship are important.

Revocability

A trust may be revocable or irrevocable. If irrevocable, the settlor has relinquished control of the assets in favour of the trustee. Revocable trusts imply retention of control by the settlor.

Lifespan

Depends on trust jurisdiction; the Isle of Man has unlimited life span.

Registration

A trust is a confidential agreement. There is no register of trusts in the isle of Man.

Portability

Control and management of a trust can easily be transferred to another jurisdiction, whilst maintaining the original governing law or adopting that of the jurisdiction to which control, and management is transferred.

Flexibility

Highly flexible in terms of the way the trust operates over time.

Body of law and precedent

Case law and precedent developed over many countries.

Management

Settlor’s ability to choose trustees at outset and his freedom to appoint/involve trusted advisors both during lifetime and post-death (through appointment of a protector).

Protection of Beneficiaries

Trustees must act in accordance with Trust law and precedent and at all times in the best interests of the beneficiaries.

Bringing to an end

Generally done by a determination of the Trustees if all funds are to be appointed out of a trust and there is no likelihood that any future funds will be “settled” onto the “trusts of the trust”.