The general public has very little knowledge of Trust’s outside of the ubiquitous television drama about the absurdly wealthy.
Therefore this page is designed to give answers to the simple and more complex questions surrounding Trusts.
What is a Trust?
A Trust can be a simple contract expressed/written down for one individual to grant control of an asset/property to a trustee for the future benefit of another individual or group of beneficiaries. Originally it was while the Title holder went away on the crusades, or overseas for extended periods of time, so they were not able to deal with the day-to-day obligations of the property. Hence, they required a Trustee to manage the asset/property. Asset Manager & Trustee are nearly interchangeable, as they provide the same service, however a Trustee is more bespoke than an Asset Manager, as you set more of the terms on the Trustee than an Asset Manager. Also, Asset Managers have multiple similar clients, whereas a Trustee has less but unique clients and more flexibility for each client. Trustees are more general and then use more specific services from asset managers, insurance firms and banks to achieve the wishes of the client. All institutions that handle client funds, securities, assets etc are Trusts with different purposes and rules.
When a Trust is Created there are three main parts called the Three Certainties.
- The intention and purpose.
- The subject matter, the property, asset or funds to be managed.
- The objects, the beneficiaries.
A trust can also be created to benefit a certain group of people for charitable purposes which has a class of beneficiaries rather than specific individuals.
How many people are required to form a Trust?
A Trust requires 4 people minimum;
- Creator/Administrator,
- Grantor/Exchangor,
- Trustee
- Beneficiary
The Creator/Administrator is the individual that drafts the trust agreement on behalf of the Grantor/Exchangor.
The Grantor is the individual holding title/claim/interest to the asset/property/funds that are going to be held in trust in exchange for the units of beneficial interest and then gifts them to the beneficiary/beneficiaries.
The Trustee holds the title/claim/interest to the asset/property/funds on behalf of the Grantor/Exchangor for the trusts term to then gift to the beneficiary/beneficiaries or they too gift on another generation.
The Trustee can have the discretion to provide for the beneficiary/beneficiaries in certain ways laid out by the Grantor/Exchangor’s wishes or what is considered to be in the best interests of the beneficiary/beneficiaries for example, purchasing a property and making it available to them.
Are trust’s tax avoidance schemes?
Trusts are asset protection entities, they create a separate entity to hold titles/claims/interest in asset/property/funds that have separate agreements on how they are maintained, managed and utilised. They are seen as tax transparent or pass-through entities for tax purposes, ultimately the taxes are owed by the persons when they receive an income from the trust or capital, a capital gain for personal tax purposes.
Who can have a trust?
Any individual can have a trust, however certain jurisdictions do not recognise trust law, so the trust may be limited in which titles/claims/interest of asset/property/funds it can hold directly. This is why you may need to use a locally recognised entity/corporation to directly hold the titles/claims/interest of asset/property/funds in your home jurisdiction.
Can a trust have a bank account?
Yes, however only in jurisdictions that recognise trust law.
What jurisdictions/countries recognise Trusts?
At the Hague convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition, the following signed and ratified the agreement:
Australia, Canada, China, (Hong Kong only), Cyprus, Italy, Liechtenstein, Luxembourg, Malta, Monaco, Netherlands, Panama, San Marino, Switzerland, United Kingdom (including 12 dependent or Crown territories) and the United States of America (The individual States, not the UNITED STATES).