What is a Trust?
A trust is created when a person, called a settlor, entrusts property to another, called a trustee, under the obligation to manage the property for the benefit of persons, called the beneficiaries.
A trust may be created in any manner, although the most common is through an instrument in writing known as a trust deed and may continue for a maximum period of 125 years.
The Trust Deed
A trust is usually created through a written instrument known as a Trust Deed. The Trust and Trustees Act allows massive flexibility in the terms of the Trust Deed. The settlor may reserve the power to add or remove trustees, protectors, investment advisors, beneficiaries, or classes of beneficiaries.
Separate Patrimony
Upon the creation of a trust, the trustee becomes the fiduciary owner of the trust property. However, the law specifies that the trust property shall constitute a separate fund, distinct and separate from the personal property of the trustee. Therefore, the personal creditors of the trustee have no right of recourse against property held on trust by the trustee, nor does the trust property form part of the trustee’s estate upon his insolvency, bankruptcy or death.
Main Players and Other Roles
The Settlor
A settlor creates the trust by settling property on trust to a trustee. He is entitled to identify which persons or classes of persons are to be appointed as beneficiaries of the trust, which could also include himself.
A settlor may also reserve the power to (i) appoint or remove trustees, beneficiaries, investment advisors or managers, (ii) settle additional property on trust, and (iii) revoke the trust.
It is also possible for a trust to be created by a plurality of settlers.
The Trustee
A trustee is a natural or juridical person appointed to hold the trust property under the obligation to manage and deal with the property for the benefit of the beneficiaries.
The main duties of the trustee consist of (i) carrying out and administering the trust according to the trust deed, (ii) safeguarding the property from loss or damage, (iii) keeping trust property distinct and separate from their own personal property, (iv) drawing up an inventory of trust property, (v) keeping accurate records of their trusteeship, (vi) providing information to settlors and beneficiaries and (vii) distributing property upon the termination of the trust.
A trustee may also be entrusted with the power to (i) appoint, add or exclude persons as beneficiaries of the trust, (ii) appoint, add or remove trustees, protectors, investment advisers or investment managers, or (iii) delegate his powers.
A trustee may also be held liable for any breach of trust.
The Beneficiaries
A beneficiary is a person entitled to benefit under the trust. A trust deed may be drafted in a manner to allow for the addition or exclusion of beneficiaries during the trust period.
Beneficiaries enjoy the right to (i) be informed of their beneficial interest at a reasonable time or when the trust deed specifies for such notification, (ii) enjoy their beneficial interest in the trust property, (iii) disclaim their interest at any time and (iv) benefit from the fiduciary obligations of the trustee. The trust deed may also grant them the right to (v) request accounts and records of the trustee’s trusteeship, (vi) request information regarding the state and amount of trust property and (vii) transfer their beneficial interest.
The Protector
The protector is not required for the validity of a trust. However, a protector may be appointed by the settlor through the trust deed with the power to (i) oversee and manage the trustee’s discretion, (ii) add or remove trustees, and (iii) request information as to the state and amount of the trust property from the trustee.
Benefits
Inheritance Management
In the conventional succession framework, heirs typically gain the authority to manage and distribute inherited property upon reaching adulthood. However, by opting to establish a trust, the settlor gains the flexibility to defer the inheritance of an heir until a more mature and responsible age. This approach allows for a thoughtful and strategic consideration of the heir's readiness to handle the responsibilities associated with managing and distributing assets. The establishment of a trust thus enables the settlor to implement a more nuanced and considerate approach to the timing of inheritance, aligning it with the individual circumstances and preparedness of the designated heir.
Professional Management
Likewise, the trust deed has the capacity to accommodate the appointment of an investment manager and investment advisors, thereby enhancing the overall management and growth of assets. This provision allows for a more sophisticated and specialized approach to asset management, ensuring that professionals with expertise in investment strategies and financial growth are actively involved in the decision-making processes. By incorporating such provisions into the trust deed, the settlor demonstrates a commitment to optimizing the performance of the trust's assets, fostering prudent financial stewardship, and potentially maximizing returns for the benefit of the trust and its beneficiaries.
Asset Preservation
By placing assets within a trust, settlors can ensure that their wealth remains intact and passes seamlessly to the intended beneficiaries without the risk of division into smaller, less manageable portions. This can be particularly crucial in protecting family legacies, businesses, or substantial financial portfolios.
Tax Efficiency
Transferring property into a trust can potentially postpone taxable events for the settlor. Additionally, it provides the settlor with the opportunity to shift the tax responsibility to a beneficiary who may benefit from a more favourable tax rate.
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