Trusts - The Technical Things
One of my favourite topics of discussion is Trusts. What are they? How do they work? Should I have a Trust? In my next two Blogs I will explain the technical and the practical things you should know about Trusts.
What is a Trust?
A Trust is created when a settlor gifts or sells (settles) an asset into a Trust for the benefit of the beneficiaries. The settlor is the person who creates and initially funds the Trust. A Trust separates the ownership and control of an asset from those who benefit from the asset. The trust deed records the details of the Trust and outlines what the trustees can and cannot do - a set of rules. The trust deed can be changed but it is not always a simple process. A Trust has a finite life of 125 years or earlier.
Trustees
The trustees are the people who own, control and manage the assets of the Trust. They are appointed by the settlor, who normally holds the power of appointment of trustees. The settlor can be a trustee. The trustees primary duty is to act in the best interests of the beneficiaries and to follow the terms of the trust deed. In my opinion, the decisions of trustees should be unanimous and it is also important to consider the appointment of an independent trustee. This will improve the credibility of the Trust and it can help avoid claims that the Trust is a “sham” particularly where the settlor is also trustee and a beneficiary.
Beneficiaries
The beneficiaries are the people who may receive a benefit from the Trust. There can be different classes of beneficiaries including primary, final and discretionary beneficiaries and they can be named and un-named. In most cases the beneficiaries have discretionary rights, meaning they have a right to be considered by the trustees, as opposed to an absolute right. The most common groups of beneficiaries are immediate family, relatives, charities and Trusts of the beneficiaries.
Trust Management
It is important that a Trust is managed properly. Remember the assets in a Trust are owned by the trustees and not an individual. The trustees should make sure:
They have regular meetings and document any decisions.
Seek professional advice if required.
They follow the rules as outlined in the trust deed.
Act in the best interests of the all beneficiaries.
Other Matters
I recommend that the settlor prepares a memorandum of wishes. Although this is not legally binding on the trustees, it does provide guidance to them as to how the settlor wishes the Trust to be administered. It should not be too specific (as things change over time) but more of a general guide for the trustees.
It is also important that you review your wills as part of establishing a Trust. This would include reviewing who is your executor, who has the power of appointment of trustees on your death and dealing with any debts due to you from the Trust. This review should also include updating or establishing power of attorney’s.
Any assets can be owned by aTrust but as a general rule you should look to transfer large value assets or assets that are likely to increase in value over time.
One final point to think about - consider naming the Trust something different than the family name. This can help you identify the Trust documents from your own.
James
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