What is a Trust
Trusts are legal arrangements which can assist you to pass on wealth to others. Described as using complex legal jargon, which can give you a headache, inderstanding trusts and knowing how they work or how best they could benefit you is a matter of considerable research to ensure that your expectations are delivered. Although trusts can take many forms, they all follow the same basic principles. They enable you, the “settlor”, to transfer ownership of assets to the “trustees”, who hold the assets for the benefit of “beneficiaries”.
Transferring the ownership of assets in this way will present many advantages. For example, avoiding probate [on assets transferred to the trust] provide an effective means for how those assets are used to benefit beneficiaries both during your lifetime and after your death or provide effective means for planning changes in circumstances.
The settlor – the person transferring assets into a trust. Once the assets are placed in trust, they are no longer owned or controlled by the settlor.
The beneficiaries – the people who benefit from the trust.
The trustees – the people who take control of the assets, manage them and, in some cases, decide on the benefits provided to beneficiaries. Trustees are obliged by law to act in the best interests of the beneficiaries in terms of how the trust is administered and managed.
The protector – some trusts have a protector. The protector can be a friend of the settlor who is known to the family. The protector acts in a supervisory role; he may be given certain powers in relation to the trust, e.g. the ability to hire fire trustees and the ability to veto decisions.
The trust deed – a legal document which sets out the terms of the trust.
The trust property (or the trust fund) – the assets added to the trust. The trust property / trust fund includes all assets transferred to the trust, e.g. real estate, cash, shares, bonds and other investments.
Letter of wishes – a non-legally binding document in which the settlor can provide the trustees with general guidance about how they want the trust to be run.
Fiduciary – a term used in a variety of ways to describe the responsibility undertaken by one party to another in a particular matter in circumstances which give rise to a relationship of trust and confidence. A person or organisation may be referred to as “a fiduciary”. You may also hear terms such as “fiduciary duty” which is often used to describe the duties of the trustee to the beneficiaries.
The cost of setting up and running a trust can vary widely, depending on its complexity. However you will typically be expected to pay an initial set-up fee followed by regular administration fees.
Nevertheless, it is important you choose your trustees based on more than costs alone. Although they will be obliged by law to act exclusively in the interests of your beneficiaries, the serious nature of their responsibilities means you should choose them with care