What is a Trust?
It is an arrangement under which you can transfer assets to someone called a “Trustee” to hold them and look after them for the people you wish to benefit, who are called “Beneficiaries”. The person who creates a Trust is usually called a “Settlor”.
Does that mean that it is registered, like a company?
No, a Trust is not a registered legal entity. It is an arrangement between the persons concerned governed by a “Trust Deed”, which is a private and not a public document.
Why should I make a Trust?
For many reasons, some of which are as follows:-
For the protection and succession of your family;
To protect your assets from creditors and if marriages fail;
To provide an umbrella for assets, if they are in many locations, to avoid Wills and the time costs and difficulties of Probate;
For ongoing control and succession to companies and businesses; and
To have a suitable structure in place for you in advance of an IPO.
If I do not like the Trust, can I stop it and have the assets back?
Trusts can be “revocable” so that you can revoke the Trust and stop it. If so there may be tax consequences and there will be no asset protection.
Can I be the Trustee?
You can but it will probably be unwise. If you do not transfer sufficient control to someone else as Trustee there may be no Trust at all.
Is it better to have individuals or a corporate Trustee?
You can have individuals you know and trust but if they are not in a suitable jurisdiction there may be tax consequences. Will they know how to administer a Trust? An independent Trust Company is a better choice.
Can I be a Beneficiary?
Usually you can, unless there will be tax consequences.
I hear that Trusts are often “discretionary”; what does that mean?
Yes, they usually are discretionary. Then no Beneficiary has an actual interest. This is often safer for asset protection and tax. It gives flexibility. “Discretionary” means that the Trustee decides whom of the Beneficiaries receives what and when.
So how do I make sure the Trustee does what I want?
If the Trust is discretionary, you give the Trustee a Letter of Wishes. You should also have power to remove and appoint the Trustee.
What happens when I am not there to oversee things?
You can appoint a “Protector”, who is a watchdog for the Beneficiaries and can appoint and remove Trustees after you. There can be Successor Protectors too.
Can the Beneficiaries be changed?
You alone will probably want the power to add to the Beneficiaries. If you wish, you and then the Protector can remove from the Beneficiaries and create “Excluded Persons”, who can never benefit from the Trust.
Even if there is a Trust, can I still direct the Trustee on investments?
Some jurisdictions have “reserve power” Trusts, which may reserve powers, including the power of investment, to you. Some jurisdictions will enable the reservation to continue to a Protector or someone else.
If the Trust holds the share of my company, can I go on controlling and managing it?
Yes, but this must be carefully and properly done. You could use a Private Trust Company but would you wish to have the responsibility? Would you know what to do? Would you have the time? This usually does not save cost. There are other types of Trust, including a Trust combined with a Limited Partnership designed for this.
Can the Trustee run away with my assets? It seldom happens but in theory this could happen and you must check that the Trustee is properly insured. However, if you have a Trust combined with a Limited Partnership, it is impossible for the Trustee to run away with your assets.
How long can the Trust go on for?
Nowadays, many jurisdictions allow Trusts to go on for ever. Even so, it is sensible to be able to have a fixed period if you want or need one. Flexibility in this is a good idea.
What happens when the Trust comes to an end?
The Trust is often drafted to allow you to decide what will happen. If you do not decide, then the Trustee will have power to do so and will look to your Letter of Wishes. In the unlikely event that this does not happen, the Trust will provide for what happens to meet what you want.
What law governs the Trust?
That is your choice. Often you should choose the Trustee first. Sometimes you will pick a jurisdiction first, because it offers a solution which you want. It is wise to ensure that there is some connection with the jurisdiction chosen, such as the Trustee being there, the administration being carried out there or a company owned by the Trust or other Trust assets or Beneficiaries being there.
Who can have information about the Trust?
Obviously if there is a requirement under a Treaty or of the Court or a Regulator, it will be necessary to comply so far as the law requires. Otherwise, usually you, as Settlor, a Protector and a Beneficiary with an actual interest (rather than a mere discretionary beneficiary) can have information.
Why don’t I just insure?
Insurance involves obtaining money if the risk insured against occurs. Trusts are arrangements to try and prevent the risk occurring.
Could I simply give the asset away?
Yes. You would then no longer have the benefit of it or control it.