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Trust in deed

Many wealthy families have established some of the most valuable asset-holding trusts in existence in the world today.

As well as maintaining anonymity in the conduct of financial affairs, there are a number of advantages associated with the use of a trust in the overall management of your wealth.

What is a trust and how does it work?

A trust is a set of obligations imposed by an individual, known as the settlor, on another individual or corporation, called the trustee, to provide a framework within which the trustee can utilise assets, transferred to him by the settlor, for the exclusive benefit of designated individuals, known as beneficiaries.

These obligations will usually be contained within a formal trust deed and the settlor may himself be a beneficiary of the trust, thereby retaining an ongoing interest or enjoyment of the trust assets.

A professionally managed trust is a highly effective wealth management tool. Trusts and private companies have played a key role in the financial planning strategies of the wealthy for centuries.

The trust structure allows an individual (or settlor) to retain the enjoyment of their assets during their lifetime and a high degree of control over how the assets should be managed after their death, while looking after the best interests of their beneficiaries.

The concept is simple. To “settle” a trust, the settlor transfers the legal title of property to the trustees who undertake to hold and administer these assets for the benefit of named individuals who are the beneficiaries of the trust.

The trustee has a duty of care to exercise its powers in the best interest of the beneficiaries. A trustee must act prudently and may be liable if the trust fund suffers a loss attributable to its negligence.

The standard of care that the courts expect of a professional corporate trustee is even higher than that required of an individual and they are held financially responsible if they fail to use the special expertise they offer to clients.

Creating a trust

A trust is created when an individual or corporation holds legal title to certain assets but is under an obligation to utilise those assets exclusively for the benefit of others, the beneficiaries.

As the trust agreement is usually confidential, the trust assets appear to belong solely to the trustees. However, the legal relationship that exists between the trustees and the beneficiaries dictates that the trustees can derive no personal benefit from the trust assets.

Any beneficiary can obtain the court&#39s assistance in compelling trustees to carry out their obligations and ultimately, by acting together, the beneficiaries can bring the trust to an end and take legal title to the trust assets themselves. There are also other ways that the trust can be terminated before the end of its theoretical lifespan.

A trust can be established by a settlor during his lifetime (an inter vivos trust) or upon his death through his will (a testamentar trust). Like an individual, a trust is able to own any kind of asset located anywhere in the world, provided that the trustee can receive valid title.

Real estate, investments, cash, intellectual and real property, commercial undertakings and interest in other legal entities are the most common trust assets.

Advantages of trusts for the private client

Trusts have many strengths. They enable families to manage wealth through the generations. The trust structure allows the head of the family to influence the way in which the assets will be managed both during his or her lifetime and following his or her death.

Trusts have many advantages as a financial planning and estate planning tool and can be structured to provide income for family members, charities and other organisations.

Estate planning

Many individuals do not wish their assets simply to pass to their heirs upon death; they prefer to make alternative long-term arrangements. They may want to provide a surviving spouse with income or fund the education of children. They may also want to make provision for friends or charities.

Trusts avoid disruption and publicity of a person&#39s est-ate on death. Whether the individual lives in a common or civil law country, upon death, his or her estate will be subject to considerable disruption and become a matter of public information.

In a common law jurisdiction, the estate must go through lengthy probate formalities. In a civil law country, an individual may be prevented from leaving property to his chosen beneficiaries by forced heirship rules. A trust ensures that management of an individual&#39s property continues uninterrupted at his death, and that his choice of heirs is respected.

Tax planning

A trust is one of the most useful tax planning tools. Establishing offshore trusts can lead to considerable tax benefits and may protect an estate from further change
s in onshore tax legislation.

Asset protection

In an uncertain world, offshore trusts can protect assets from all manner of disasters.

Individuals may want to guard against political uncertainties, unfavourable legislation, exchange controls, nationalisation or other laws or regulations that block or seize assets. They can reduce tax liabilities and protect assets from future creditors or certain civil suits to the extent permitted by law.

Preserving the family fortune

An individual who has built a substantial fortune may want to safeguard it for several generations. A trust is an enduring and stable vehicle that protects wealth from the fragmentation often caused by immediate distribution to heirs upon death.

Distributions from the trust to beneficiaries may be made on a regular and controlled basis over long periods of time. Many people are concerned that their heirs will not be able to manage their own affairs or may be careless with their new found wealth.

A trust provides a vehicle for protection of the weak and a restraining mechanism for over-expenditure. It can ensure equitable treatment for children, individuals of unsound mind or the less assertive members of a family.

Continuing the family business

An individual who has built up a family business may want to ensure that his heirs do not liquidate it following his death.

Trusts can ensure that a settlor&#39s wishes are honoured while enabling heirs to continue to benefit from the profits of the business.

Managing complex transactions

Trusts can be used to manage complex transactions and to provide separate and confidential ownership of assets such as aircraft, boats or real estate.

Few would have predicted that trusts would continue to be as relevant and as useful as they are today in a modern and sophisticated wealth management environment. This is largely because they have evolved into sophisticated financial planning and wealth protection vehicles.

In view of their versatility and flexibility it seems without doubt that trusts will continue to adapt to the changing wealth management needs of wealthy individuals and families and will increasingly become recognised and accepted throughout the international wealth management arena.


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