The term "Trust" is widely
known and used, however there are often many misunderstandings as to what
a Trust actually is. The correct definition of a Trust is an agreement or
contract. It is not, as many believe a special type of company. It is
purely an agreement -albeit a very special one, between three parties:
1. The Settlor
The Settlor is the transferor of the assets into the Trust. Any kind of
asset can be transferred, funds, shares, cars, boats, real estate and even
non entities such as patents or rights. Once the assets have been
transferred into the Trust this can not be revoked. Once the Settlor has
transferred all the assets into the Trust he can legally declare that he
does not then own them. This is of special interest in cases of bankruptcy,
divorce and inheritance or legal claims. Trusts are one of the most
preferred methods employed by US medics to protect their assets in case of
malpractice claims being brought against them.
2. The Trustee
The Trustee is the official manager of the Trust.
Officially the Trustee must be independent from the Settlor and has all
rights and full control over the actual running of the Trust. Obviously
few people would wish to pass that amount of control over their assets to
a third party so generally the Trustee will always act unofficially on
instruction from the Settlor. It is possible to draft a separate agreement
between the Settlor and Trustee ensuring the Settlor retains full control.
In order to act as Trustee over any Trust, the Trustee must hold a special
license. WSR have the benefit of using the services of a long established
and reputable Trustee.
3. The Beneficiary
As the name suggests, the Beneficiary is the person or persons who finally
receive the assets from the Trust. The Settlor can be a named Beneficiary.
All entitlements to beneficiaries must be set at the commencement of the
Trust and can not be revoked or changed. Once the beneficiary has received
the assets from the trust he is then liable to declare this and pay due
taxation. The Beneficiary can receive regular payments from the trust, for
example from the interest or can wait for the expiry of the Trust and
receive all assets and interest in full.
Advantages in forming a Trust
|- The Settlor can transfer
any assets he has and legally declare he does not own them
No assets that belong to
the Trust can be seized
- Potential inheritors can
not make claims against the Trust
|- Trusts are free from
Disadvantages in forming a Trust
can not engage in business but purely manage and protect the existing
have a maximum duration period of 99 years
Beneficiaries are liable for taxation upon payout of the assets
Trustee has been selected it is almost impossible to replace him