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Trusts

 

An equitable obligation, binding a person (called a trustee) to deal with the property over which he has control (the trust property) for the benefit of persons (the beneficiaries) any one of whom may enforce the obligation.

In simple terms, a Trust is a way of arranging property (assets) for the benefit of others without giving them control over it.

Common reasons to set up a trust are:

  • to provide for the orderly distribution of assets after death
  • to protect the beneficiaries' best interests
  • to allow more than one generation to enjoy the use of a property
  • to reduce income and capital gains tax liabilities

The Parties of a Trust

Settlor: A person who transfers his assets out of his name and into a trust.

Beneficiaries: Named persons who will benefit in some way from the trust asset.

Life Tenant: A person (beneficiary) who will have the right to enjoy the trust asset during his lifetime but will never own the asset or have control over it.

Trustee: A person who is responsible for looking after the assets and legally obliged to ensure all the trust deed requests are complied with. By law the trustee has a similar role as a company director.

Protector: A person appointed by the Settlor to oversee the trustees' decisions. He has no authority over the trust but acts as an advisor to the trustee.

Professional Advisors: Such an advisor may be appointed to provide independent and professional investment and legal advice to the trustee where needed.

Types of Trusts

Life Interests Trusts - This form of trust is designed to protect the family home. Each individual's share of the jointly owned property is preserved for the benefit of their children, while surviving partners may occupy the property for the remainder of their lifetime.

Children's Trust - Should both parents die, this form of trust allows the guardians to maintain and educate the children. The balance of the fund goes to the children at a predetermined age.

Accumulation and Maintenance Trust - This trust is usually set up for children or those incapable of looking after their own affairs. The trustees will be authorized to use the trust funds at their discretion to cover the expenses of education and maintenance for the beneficiary.

Inheritance Tax Mitigation Trust - A number of different trusts can be used to provide the maximum flexibility for the surviving spouse and children who may be liable to inheritance tax.

Protective Trusts - These trusts are protected against action by a trustee on behalf of a beneficiary seeking to use trust funds to pay off debtors in case of bankruptcy.

Fixed Trust - Allows a Settlor to ensure that his property can be enjoyed by more than one generation without the risk of it being squandered by the first generation. Beneficiaries will be named in the trust deed.

Discretionary Trust - This is the most flexible form of trust. It allows the Settlor to place the assets under trust at the discretion of the trustee(s) who will decide who is to benefit and how. A Settlor may wish to do so to protect himself against forced heirship rules. The Settlor will usually draft a letter outlining his wishes to the trustee.

Charitable Trusts - Generally, a trust will be recognized as charitable if its purpose is the relief of poverty, the advancement of education, religion, or any other community benefit.

Trust Structures

Trusts which are established as part of a tax or estate planning strategy may own all or part of the share capital of a company, which in turn owns the assets, originally settled on the trust. Offshore companies in particular offer tax benefits, which can be favourably incorporated within a trust structure.

Offshore companies are often used to separate personal debt from business debt, to provide limited liability for shareholders, to provide anonymity and to raise capital.

Establishing the most appropriate trust requires professional assistance. Your GlobalNet's advisor will have access to various trustee companies and other independent taxation experts.