Question 1

What is a trust?

Accepted Answer

A trust is not a legal entity, but rather a private legal arrangement where the ownership of someone’s assets (which might include property, shares or cash) are transferred to someone else (usually, in practice, not just one person, but a small group of people or a trust company) to look after and use to benefit a third person (or group of people).

Question 2

Why have a trust?

Accepted Answer

There are a number of reasons why one should have a trust, some of which are as follows:

• Trusts are flexible, varied and complex; depending upon the type of trust which is being used. It is often said “that a trust can do anything an individual can”
 • In using a trust you can leave your estate to your heirs in a way that is not directly and immediately payable to them upon your death. For example, you may want to stipulate that they receive their inheritance in three parts, or upon certain conditions being met, such as reaching a specific age, graduating from a university or getting married
 • You may want, on your demise, to support a surviving spouse but also ensure that the principal or remainder of your estate goes to your chosen heirs (e.g. your children from a first marriage) after your spouse dies. A trust is a perfect vehicle for giving effect to your wishes
 • Atrust may be used to protect beneficiaries (for example, one’s children) against their own inability to handle (administer wisely) money
 • Providing funds via a trust to benefit a disabled relative, e.g. a child, whom you would like to provide for, does not necessarily disqualify the child from receiving government financial assistance
 • Trusts assist in keeping an individual’s personal affairs confidential from the general public and minimise the expense and delay in seeking probate of a Will
 • One can use a trust to create a pool of investments that can be managed by professional advisers
 • Trusts are an effective way of providing short and long term benefits to charity or charitable causes
 • A trust can be used to prevent assets gifted to children as being classified as matrimonial property
 • A family trust can help you protect your assets against future claims by creditors, spouses, de-facto partners, and challenges against your estate
 • Trusts often help aged parents deal with issues associated with providing benefits to different family members and sibling rivalry
 • Trusts can assist in estate planning, where a liability to tax is more often deferred rather than avoided

Question 3

Who is involved with a trust?

Accepted Answer

The principal parties involved with establishing and administering a trust are:
 • The Settlor(s);
 • The Trustee(s);
 • The Beneficiary(s); and
 • The Protector.

Question 4

Who is the settlor of a trust?

Accepted Answer

A Settlor is someone who gifts (“settles”) property on the terms of a trust for the benefit of the beneficiaries.  In some legal systems a settlor is also known as a “creator” (as in Israel), “donor” (as in Ireland), “grantor” (as in the United States) or in legal and financial terms, “trustor”.
A Settlor is therefore not only the person named and identified as such in the trust deed of a trust, but any person that settles assets into a trust during its perpetuity period (lifetime).

Question 5

Who can be a trustee and what do they do?

Accepted Answer

A trustee may be either a person (individual) or a legal entity such as a company.  A trust may have a number of trustees.  A trustee has many rights, responsibilities and obligations (some fiduciary) and these vary from one type of trust to another.
Where there is more than one trustee, the trustees must act in unison, i.e. together.
A trustee is usually someone that is known to and with whom the settlor “trusts”, i.e. is able to rely upon and has the integrity, strength, ability and surety, to look after the funds vested [gifted] into the trust for the benefit of the trust’s beneficiaries.

Question 6

Who can be a Protector and what do they do?

Accepted Answer

A protector, who may be an individual or a company, is a person who has some control or influence over the trustee(s) and/or the trust.
The powers and responsibilities of a protector are set out in the trust deed of a trust and it is usual, if the protector has no other power, for a protector to be able to remove a trustee as well as to appoint additional or replacement trustees.  The trust deed of a trust may also provide that the protector has some degree of control over whom the trustee may use as investment adviser to the trust, or who may become a beneficiary of a trust from the family of a settlor after a given event, e.g. such as on the death of the settlor or any principal beneficiary.
A protector will usually seek to ensure that the trustee administers the trust in accordance with the provisions of the trust deed, makes a suitable account to the beneficiaries of the trust’s income and expenditure and investments and to act as an independent intermediary between the trustee and any of the beneficiaries to resolve any misunderstanding and disputes.  If the actions of a trustee are found wanting, then a protector may well seek to appoint an additional or replacement trustee.

Question 7

What is a trust deed?

Accepted Answer

A trust deed is an instrument in writing (sometimes referred to as the trust instrument) executed by a settlor setting out the terms upon which the trust is established and administered, what is being put into the trust initially and who is to benefit from it.

Question 8

Who owns the assets within a trust?

Accepted Answer

One common misconception is that the assets in the trust fund are legally owned by the trust. In fact, a trust, unlike a company, cannot own assets and instead the trustees are the legal owners of the assets.
The distinctive feature of a trust is therefore the separation of legal ownership and beneficial ownership of the assets in the trust fund. The trustees are the legal owners of the assets, but the trustees must at all times put the interest of the beneficiaries above their own. Thus, the settlor of trust can be a trustee, but they must still act in the interests of the beneficiary(s), not themselves.

Question 9

What types of family trust are there?

Accepted Answer

One common misconception is that the assets in the trust fund are legally owned by the trust. In fact, a trust, unlike a company, cannot own assets and instead the trustees are the legal owners of the assets.
The distinctive feature of a trust is therefore the separation of legal ownership and beneficial ownership of the assets in the trust fund. The trustees are the legal owners of the assets, but the trustees must at all times put the interest of the beneficiaries above their own. Thus, the settlor of trust can be a trustee, but they must still act in the interests of the beneficiary(s), not themselves.

Question 10

What is an Accumulation and Maintenance Trust?

Accepted Answer

An accumulation and maintenance trust (an “A&M”) is one where the property in the trust is held for the maintenance, education or benefit of the beneficiaries or accumulated, i.e. saved and added to the trust fund, until the beneficiaries reach a specific age, e.g. 18, whereupon the beneficiary becomes absolutely entitled to the property in the trust.

FAQ

Accounting and Bookkeeping