Trusts

A trust may be used to achieve asset protection and tax flexibility between, for example, your family members. When you decide to establish a trust the terms of the trust deed should be carefully tailored to ensure that the purposes you wish to achieve are in fact achieved by the terms of the trust. Any later amendments of the terms of a trust may cause a “re-settlement”, which would trigger capital gains tax and stamp duty liabilities. Decisions concerning the settlor, appointor, trustee and beneficiaries of a trust are also of particular importance.

Our experienced lawyers at the Argyle Family Legal Office can provide you with the proper advice needed to establish your family and other trusts considering the best asset protection and tax outcome.

What is a trust?

A trust could be described as a relationship between three parties whereby property is transferred by one party to be held by another party for the benefit of a third party.

Who are these three parties?

The settlor transfers property to the trustee who will hold the property for the benefit of the beneficiaries.

The settlor addresses the trustee with the wish to settle/establish a trust for a certain person or group of persons, their immediate family, their extended family as well as entities related to them. The settlor then transfers the settlement property (which might be a sum of cash) to the trustee of the trust.

The settlor of a trust is not allowed to receive any benefits from the trust.

The trustee determines the distribution of income and capital of the trust in accordance with the terms of the trust deed. In addition, the trustee is responsible for day-to-day administration and investment decisions concerning the trust.

Only the original (first) trustee or trustees are entitled to be beneficiaries of the trust.

The beneficiaries are the persons who may benefit from the trust income and capital in accordance with the terms of the trust deed.

Who is the principal/appointor of the trust?

The principal or appointor of a trust generally has the power to remove the trustee as well as appoint a new or an additional trustee. In other words, the principal/appointor controls the trustee and is therefore the ultimate controller of a trust.

What happens if a principal/appointor or a trustee dies or becomes incapable of acting?

The terms of a trust deed may allow the principal/appointor of a trust to appoint his or her successor as well as successor of the trustee who takes his or her place upon death or in case of mental capacity. This may be done under a person’s Will (which only covers the situation of death) or by way of a deed of conditional appointment.

Are there different types of trusts?

There are many types of trusts and not all of them may suit your purposes. Two of the most common trusts are discretionary family trusts and unit trusts.

Under the terms of a discretionary family trust, the trustee has broad discretion to determine which of the beneficiaries receives how much of the trust income and capital at what time. The beneficiaries do not have a right to claim a certain share of the income or a certain capital asset from the trust.

Under a unit trust, the beneficiaries (called “unit holders”) have a right to a fixed share in the income and capital of the trust. The share generally depends either on the class of units or the number of units held.