 Trusts
The
Parties of a Trust
Types
of Trusts
Trust
Structures
Trusts
An equitable obligation, binding
a person (called a trustee) to deal with the property over which
he has control (the trust property) for the benefit of persons
(the beneficiaries) any one of whom may enforce the obligation.
In simple terms, a Trust is a way of arranging property (assets)
for the benefit of others without giving them control over it.
In the simplest terms, a trust is a popular financial planning
tool for those who wish to arrange their property and/or assets
for the benefit of others without giving them immediate control
over them.
Common reasons to set up a trust are:
- to provide for the orderly distribution of assets after death
- to protect the beneficiaries' best interests
- to allow more than one generation to enjoy the use of a property
- to reduce income and capital gains tax liabilities
The Parties of a Trust
Settlor: A person who transfers his assets out
of his name and into a trust.
Beneficiaries: Named persons who will benefit
in some way from the trust asset.
Life Tenant: A person (beneficiary) who will
have the right to enjoy the trust asset during his lifetime but
will never own the asset or have control over it.
Trustee: A person who is responsible for looking
after the assets and legally obliged to ensure all the trust deed
requests are complied with. By law the trustee has a similar role
as a company director.
Protector: A person appointed by the Settlor
to oversee the trustees' decisions. He has no authority over the
trust but acts as an advisor to the trustee.
Professional Advisors: Such an advisor may be
appointed to provide independent and professional investment and
legal advice to the trustee where needed.
Types of Trusts
Life Interests Trusts: This form of trust is
designed to protect the family home. Each individual's share of
the jointly owned property is preserved for the benefit of their
children, while surviving partners may occupy the property for
the remainder of their lifetime.
Children's Trust: Should both parents die, this
form of trust allows the guardians to maintain and educate the
children. The balance of the fund goes to the children at a predetermined
age.
Accumulation and Maintenance Trust: This trust
is usually set up for children or those incapable of looking after
their own affairs. The trustees will be authorized to use the
trust funds at their discretion to cover the expenses of education
and maintenance for the beneficiary.
Inheritance Tax Mitigation Trust:
A number of different trusts can be used to provide the maximum
flexibility for the surviving spouse and children who may be liable
to inheritance tax.
Protective Trusts: These trusts are protected
against action by a trustee on behalf of a beneficiary seeking
to use trust funds to pay off debtors in case of bankruptcy.
Fixed Trust: Allows a Settlor to ensure that
his property can be enjoyed by more than one generation without
the risk of it being squandered by the first generation. Beneficiaries
will be named in the trust deed.
Discretionary Trust : This is the most flexible
form of trust. It allows the Settlor to place the assets under
trust at the discretion of the trustee(s) who will decide who
is to benefit and how. A Settlor may wish to do so to protect
himself against forced heirship rules. The Settlor will usually
draft a letter outlining his wishes to the trustee.
Charitable Trusts: Generally, a trust will be
recognized as charitable if its purpose is the relief of poverty,
the advancement of education, religion, or any other community
benefit.
Trust Structures
Trusts which are established as part of a tax or estate planning
strategy may own all or part of the share capital of a company,
which in turn owns the assets, originally settled on the trust.
Offshore companies in particular offer tax benefits, which can
be favourably incorporated within a trust structure.
Offshore companies are often used to separate personal debt from
business debt, to provide limited liability for shareholders,
to provide anonymity and to raise capital.
Establishing the most appropriate trust requires professional
assistance. Your Inter-Alliance WorldNet's advisor will have access
to various trustee companies and other independent taxation experts.
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