What is a 'trust'?
A trust is an obligation binding a person (which can be an individual or a company) called a 'trustee' to deal with 'property' in a particular way, for the benefit of one or more 'beneficiaries'.What is a 'trustee'?
Trustees are the legal owners of the trust property. They are legally bound to look after the property of the trust in a particular way and for a particular purpose. Trustees administer the trust and in certain circumstances make decisions about how the property in the trust is to be used. The Trustee must remain independent and exercise proper control over the trust property. If the person who sets up the trust continues to exercise control over the trust assets the trust may be rendered void. The trust can continue even though the trustees might change, but there must normally be at least one trustee.What is 'property'?
The property of a trust can include- money
- investments
- land or buildings
- other assets, such as paintings.
The cash and investments held in the trust are also called the 'capital' or 'fund' of the trust. This capital (or fund) may produce income, such as interest or dividends. The land and buildings may produce rental income.
What is a 'beneficiary'?
A beneficiary is anyone who benefits from the property held in the trust. There can be one or more beneficiaries, such as a whole family or a class of people, and each may benefit from the trust in a different way.For example, a beneficiary may benefit from
- the income only, or
- the capital only, or
- both the income and capital of the trust.
What is a 'settlor'?
A settlor is a person who has put property into the trust. The settlor may be a natural person or a body corporate. A settlor may also be a trustee, a beneficiary, a protector or an enforcer, but cannot be the sole beneficiary of a trust of which he is a settlor.Property is normally put into the trust when it is created, but it can also be added at a later date.
What is a ‘protector’?
A protector is a person appointed under the trust instrument to direct or restrain the trustees in relation to their administration of the trust.The terms of the trust will generally provide powers and functions of the protector. Unless otherwise provided in the terms of the trust the protector has the following powers:
(a) to remove a trustee and to appoint a new or additional trustee;
(b) to determine the law of which jurisdiction is the proper law of the trust;
(c) to change the forum of administration of the trust; and
(d) to withhold consent from specified actions of the trustees either conditionally or unconditionally.
The Act provides that a protector exercising any of the above powers is not by reason only of the exercise of the power deemed to be a trustee and, unless otherwise provided under the terms of the trust, is not be liable to the beneficiaries or the trustees for the bona fide exercise of the power.
How is a trust created?
Normally a trust is created by a deed. A settlor might ask a professional adviser to draw up a trust deed, which then sets out the terms of the trust.What is the Letters of wishes?
Letters of wishes is a common feature where a settlor creates an offshore discretionary trusts. The trustees may have regard to a letter of wishes or memorandum of wishes in exercising any functions conferred upon them by the terms of the trust but shall not be accountable in any way for their failure or refusal to have regard to that letter or memorandum. No fiduciary duty or obligation is imposed on a trustee merely by the giving to him of a letter of wishes or the preparation by him of a memorandum of wishes.It is worth noting that the settlor as well as any beneficiary of a trust may give to the trustees a letter of his wishes or the trustees may prepare a memorandum of the wishes of the settlor with regard to the exercise of any functions conferred on the trustees by the terms of the trust.
What is a 'discretionary trust'?
Trustees of a discretionary trust generally have 'discretion' about how to use the income of the trust. They may be required to use any income for the benefit of particular beneficiaries, but the trustees can decide- how much is paid
- to which beneficiary or class of beneficiaries payments are made
- how often the payments are made
- what, if any, conditions to impose on the recipients.
The trustees may, or may not, be allowed to 'accumulate' income within the trust for as long as the law allows rather than pass it to the beneficiaries. Income that has been accumulated becomes part of the capital of the trust.
Duties and Powers of Trustees
Trustees have a general duty in the exercise of their functions to observe the utmost good faith and to act with due diligence with care and prudence and to the best of their ability and skill. Trustees must execute and administer the trust, and exercise their functions in accordance with the Trust legislation under which it is governed and the terms of the trust and only in the interest of the beneficiaries or in fulfillment of the purpose of the trust. Subject to the terms of the trust, trustees have the duty to preserve and enhance, so far as is reasonable, the value of the trust property. Trustees are required to keep updated and accurate accounts and records of their trusteeship. In addition, trustees must keep trust property separate from their own property and separately identifiable from any other property of which they are trustees. Where a trust has more than one beneficiary, or more than one purpose, the trustees, subject to the terms of the trust, must be impartial and must not execute the trust for the advantage of one beneficiary at the expense of another.Trustees may delegate any of their powers. Any desired or intended restriction of trustee powers should be included in the trust deed.
