Introduction To Trusts

• Published date: 16 August 2022
• Subject Matter: Corporate/Commercial Law, Family and Matrimonial, Trusts, Wills/ Intestacy/ Estate Planning
• Law Firm: Forsters
• Author: Mr Anthony Thompson, James Brockhurst and Charlotte Evans-Tipping

This note provides an introduction to discretionary trusts, and an overview of the control mechanisms that can be incorporated into a trust arrangement - including the appointment of protectors and the use of letters of wishes.

What follows is intended as a general introduction only, and should not be relied upon without more specific advice. It is not intended to address tax questions arising from the use of a trust.

The Trust Relationship

A trust (or "settlement" - they mean virtually the same thing) is a legal relationship created when a person (the settlor) places assets under the legal ownership of a trustee for the benefit of one or more beneficiaries. The division between ownership and control of assets and the ability to benefit from those assets lies at the heart of the trust relationship.

Parties to the Trust Relationship

Settlor

The settlor is the person who establishes the trust and determines all the checks and balances that are included in the trust documents. The settlor transfers assets to the trustee, who then holds them on the terms contained in the trust document.

Once the settlor has transferred assets to the trustees, he or she is no longer the legal or beneficial owner of the trust property. He/she may, however, continue to benefit from the property as a beneficiary.

Trustee

The trustee is appointed by the settlor and is the legal owner of the trust assets. The trustee has day-to-day control of the trust property. In an offshore context, the trustee is usually a company in one of the offshore financial centres (such as Jersey or Guernsey) that specialises in trust business.

It is also possible to have a private trust company (PTC) as trustee. This is a private company, set up in an offshore financial centre, which has the sole purpose of acting as a trustee of a family's trust or trusts. Typically, the directors of the PTC are a mix of family members and professionals.

The trust document sets out the trustee powers to manage the trust assets, in addition to those set out in the local Trust Law (each trust jurisdiction has its own statues relating to trusts). In managing the trust assets, a trustee is under a duty to act in the best interests of the beneficiaries.

Beneficiaries

The beneficiaries are the persons for whose benefit the trust is created. They may be named in the trust document or described by reference to a class of beneficiaries (such as "the settlor's children").

Depending on the terms of the trust, a beneficiary may...