Frequently asked questions
What is a trust?
A trust is an Anglo Saxon concept under civil law in which a person has legal title to assets transferred to them but not the right of economic enjoyment of those assets. The establishment of a trust is one in which a legal obligation - contained within both the trust law and the terms set out in the trust deed - is placed upon the trustee, ensuring that the assets of the trust are dealt with in a manner which is in the interests of the trust's beneficiaries.
The settlor is the person who transfers to the trustees the legal title of the assets being transferred into trust.
The trustee is the legal owner of the assets transferred by the settlor. The trustee may be either a corporate or a personal trustee. The trustee has a fiduciary obligation to look after the assets of the trust in accordance with not only the law governing trusts but also the terms set out in the trust deed.
The beneficiaries (of which the settlor may be one) of a trust, are the individuals and/or companies who may benefit from the assets settled into the trust.
Trusts are normally irrevocable, i.e. the settlor has no power to revoke the terms of the trust and force the return of the trust's assets. It should be noted that some jurisdictions consider the assets of a revocable trust as remaining the property of the settlor and not the trustee.
Why do people establish trusts?
There are many reasons why an individual may consider the establishment of a trust. The more common reasons are as follows:
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Preservation of family wealth
In some situations, the split of a family's wealth into tranches (for instance, to family members), may be wholly inappropriate. By settling the assets into a trust, it may be possible for the trustees to exercise discretion and allow beneficiaries to enjoy those assets without ever having to pass over direct ownership to other members of the family.
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Asset protection
In situations where there may be a possibility of political or social unrest, having assets contained within a trust structure may assist the individual when it comes to disclosing details of their assets.
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Forced heirship
In some countries, the laws of that country determine which assets of a person's estate must be left to whom, and in what proportion. Where the existence of forced heirship is seen as being contrary to a person's wishes, the transfer of assets into a Jersey trust may be of distinct advantage as assets which have been transferred then become the legal ownership of the trustee and not those of the settlor. In this way, the rules of forced heirship may legally, in Jersey at least, be avoided.
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Emigration
Depending on the intended choice of country that a person decides to emigrate to, and the law which exists over that country, it may be possible before emigration for a person to establish a trust in order to take advantage of tax and/or exchange controls which may exist in the chosen country. The establishment of the trust may allow the person emigrating greater flexibility in managing their assets.
What types of trust are there?
Whilst there are various types of trusts available, all of which may be tailored to the wishes of the settlor, the most common are as follows:
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Discretionary trust
With a discretionary trust, full discretion as to who receives benefit from the trust and the amounts involved is left with the trustee. None of the beneficiaries of such a trust has any legal right to the trust's assets.
As the trustee is given full discretion over the trust's assets, it is common practice for a ‘Letter of Wishes' to be provided to the trustee by the settlor. Whilst this is not a legally binding document, it is extremely useful to trustees as it provides them with a clear indication as to how best they should exercise their discretion when considering the powers vested in them under the trust deed. This letter may be altered to suit a change in circumstances.
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Fixed income trust
With a fixed income trust, no discretion is exercised by the trustee when distributing trust assets. Instead, the trust deed specifies precisely the manner in which the income or assets of the trust are to be distributed to the beneficiaries. It is possible to have an amalgam of a discretionary and a fixed income trust. Discretion may, for instance, be given over the income but not the capital.
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Accumulation and maintenance trust
An accumulation and maintenance trust is often used where a settlor wants to provide assistance with the upbringing of a specific class of beneficiary; their children or grandchildren, for example.
The trust deed may provide the trustee with a discretionary power to distribute, on behalf of a named class of beneficiaries, income or capital to assist with the education and maintenance up to a specific age. Distributions may be made to the parents of the specified class of beneficiaries whilst they are minors.
Upon reaching a specified age set out in the trust deed, the trustees may, under the terms of the trust deed, be directed to distribute to the beneficiaries their portion of the trust fund which remains.
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Will trust
A will trust is any trust created under the terms of a will.
For more information, please contact
Jane Dee Director in charge
of Client Administration
Phone + 44 (0)1534
505800
Fax + 44 (0)1534
505805
Email
jane@europlantrust.com
Debbie du Feu Director of Client
Administration
Phone + 44 (0)1534
505800
Fax + 44 (0)1534
505805
Email
debbie@europlantrust.com
This information is meant to be used as a guide only. We strongly recommend that professional advice is sought before passing instruction on the establishment of any structure, as individual circumstances may significantly affect the suitability of the proposed structure.