What is a Trust?
A Trust is a widely used and well established way of protecting and enhancing a family’s
wealth. Trusts also facilitate the safe and efficient passage of such wealth to the chosen
beneficial class, which typically includes future generations of the family.
The origin of the modern trust is Anglo-Saxon, originating under medieval English law,
and trusts have long been associated with the protection of assets.
During any absence from England on Crusade a knight would transfer ownership of his
property and personal belongings to a “trusted person” so that he knew if he was killed
his wife and children would inherit his estate.
Types of Trusts
There are many different types of trusts however, the Discretionary Trust is commonly
the most effective and is the most widely used for international financial and estate
planning.
The Parties to a Trust
A Trust enables the transfer of legal ownership of assets from one person to another for
the benefit of nominated beneficiaries. The parties to a trust are the Settlor, the
Beneficiaries, and the Trustees.
The SETTLOR is the person who donates the assets to the Trust (there can be joint
Settlors).
The BENEFICIARIES are the persons entitled to benefit from the trust. (NB: The Settlor
can also be a Beneficiary).
The TRUSTEES are the appointed legal owners of the assets within the Trust. They have
the responsibility of administering the Trust and the trust assets in accordance with the
terms of the TRUST DEED and the prevailing trust law.
A PROTECTOR is sometimes included in a trust arrangement who is granted oversight
powers and can be the Settlor or someone close to the family who can help to guide the
trustees and who’s written consent must be obtained before certain trustee actions may
take place and to whom the power to appoint trustees may be reserved.
1
The Trustee’s Responsibilities
The Trustees legally own the assets within the Trust; however, they have no beneficial
interest. The Trustees’ responsibilities are as follows:
• The assets must only be used for the benefit of the Beneficiaries.
• The Trustees are only entitled to receive agreed trustee fees. They are not able to
profit themselves from the assets.
• The assets are not available to the Trustees’ own creditors.
• The Trustees must act in the best interests of the Beneficiaries.
The Settlor typically provides the Trustees with a “LETTER OF WISHES” regarding their
desired wishes on how they would like the Trustees to execute their discretion with
regard to the Trust Fund and distribution of the trust assets.
The wishes contained will cover both the period during the Settlor’s lifetime and also
after death. A Letter of Wishes is not a legal document (unlike the Trust Deed or a Will &
Testament) and can be reviewed and amended from time to time. The Letter of Wishes
does not form part of the Trust Deed.
USES OF TRUST
Some of the advantages and benefits Trusts may provide to individuals are:
Preservation of Wealth
For the wealthy individual who wants to ensure his wealth can continue for the benefit
of future generations, the Trust is ideal. He can effectively lock up the capital of the Trust
and specify to whom of his family or other specified people the income and capital
should be paid in the years to follow. He can also give the Trustees the discretion to pay
capital to Beneficiaries if they think it appropriate. In such manner the Settlor can guard
against or provide for, in particular, the following:
• Children under the age of majority who require provision for their maintenance
and education until they come of age.
• Extravagant children who might otherwise fritter away capital given to them
outright.
• Naive members of the family who could be taken advantage of by others.
• Members of the family with special needs such as mental or physical impairment.
• Family matters which need to be provided for in a discreet and confidential
manner
• Retired employees or servants and their dependants.
2
An Alternative to a Will
The proving and administration of a deceased person’s estate can be cumbersome and
costly, often causing cash flow difficulties for the dependants of the deceased. Trusts
do not require the formalities of probate administration in order to make distributions of
income and capital following a death. The Trust may therefore own all the individual’s
estate and replace his Will, or else own a part of it, with a view to assisting dependants
while the deceased’s estate is administered.
The re-writing of Wills or drafting of codicils is both time-consuming and rigid in form. A
discretionary trust requires only a fresh Letter of Wishes from the Settlor, signed by the
Settlor without the need for witnesses, for the Trustees to be able to administer the trust
in accordance with the Settlor’s revised intentions.
In certain circumstances an individual may die without being entirely certain as to his
preferred beneficiaries or the fiscal climate at his death. Leaving such decision-taking to
the Trustees of a discretionary trust can be an attractive solution for him.
Fiscal Benefit
Trusts, and in particular discretionary trusts, are generally taxed beneficially. The
position will vary from country to country, but trusts can offer particularly attractive
fiscal benefits.
Anonymity
A Trust does not require registration or production of the Trust Deed to any authority. It
is also possible to draft the Trust Deed without the name of the intended parties
appearing on the Deed itself, and to restrict who may be entitled to information relating
to the Trust other than the Settlor.
Repatriation
Because the assets of a Trust are owned by the Trustees independently of the Settlor or
Beneficiaries, it is not possible to enforce repatriation procedures against the Trustees
(although if the assets in question are held in the enforcing jurisdiction it is sometimes
difficult in practice to prevent such repatriation).
Asset Protection
If a Trust is set up specifically for the purpose of avoiding creditors, most jurisdictions
will overturn the Trust and seize the assets for the creditors. However, if the Trust was
not set up for such purpose, it is likely to provide protection in the event of later
3
bankruptcy by the Settlor. Similar protection may also be available in a subsequent
divorce.
Contact for more information:
Christian Brown
[email protected] Managing Director
Riverside Trustees Limited
One North Bridge Road
06-16 High Street Centre
Singapore 179094
