MATRIC: 15060104
COURSE TITLE: LAW OF TRUSTS
A trust is an obligation which binds a person (or persons) to deal with property for the benefit of
beneficiaries or for a charitable purpose in accordance with the terms of the trust. A trust can
come into existence in any manner, by an instrument in writing (including a will), by a unilateral
declaration, by operation of law and also by oral declaration. The basic idea of the trust is that
the settlor passes on full ownership of the property to the trustee. The settlor may write a
document setting out his wishes in relation to the trust property and the trustee has the duty to
execute those wishes.
Trusts can be tailor-made for a number of uses, depending on the specific requirements and
circumstances of the individual. As a result of their flexible nature, trusts have been and are still
being used for a numerous uses, the limit being set only be the imagination of the practitioners in
the field. Such uses can be categorized into two broad classes’ namely private uses and uses of a
commercial nature. While private trusts deal with the ‘inter vivos’ or ‘causa mortis’ needs of
private individuals, on the other hand commercial trusts offer practitioners in the commercial
world a variety of tools which can be drawn up in particular contexts to provide for
commercially useful results.
Private trusts can be employed to provide for situations mainly involving family members, such
as providing for children with special needs or to protect a spendthrift beneficiary from
dissipating the patrimony left to his benefit. Apart from providing for family members, trusts
may be used for Asset protection, Estate planning, preservation of wealth and confidentiality.
Asset Protection
Trusts can be one of the most effective ways of protecting assets. In simple terms, assets
transferred to a trust no longer form part of the Settlor’s property, so the trust assets cannot be
seized if a Settlor gets into financial difficulties. This is an oversimplification of the law. Under
certain circumstances, the transfer into trust may be set aside and a court may order the trust
assets to be transferred back to the Settlor.
Tax Planning
Assets transferred into trust are no longer considered as belonging to the Settlor, so the income
and capital gains generated by those assets are taxed according to the rules governing the legal
owner – the Trustee. Inheritance tax would be eliminated because the Trustee would continue in
existence despite the death of the Settlor. Anti-avoidance legislation in the home country of the
Settlor, or in the location of the trust assets, may seek to counteract this outcome but a correctly
structured and administered trust should produce substantial tax savings and ultimately promote
the creation of wealth by an individual.
Confidentiality of Assets
Proving a will is a public procedure. The tax authorities will need to receive a complete list of all
the property owned by the deceased in order to assess the amount of estate duty payable before
the property can be transferred to the executors who may then distribute to the legal heirs
according to the will. This procedure is entirely unsuitable for those who wish to keep details of
their assets confidential. The only other legal form of transfer is via a trust and this would
generally save estate duty and keep the trust assets confidential.
Preserving Family Assets
Preserving the family assets, or increasing them, is often a motive for setting up a trust. An
individual may wish to ensure that wealth accumulated over a lifetime is not divided up amongst
the heirs, but is retained as one fund to accumulate further, with provision for payments to
members of the family as the need arises while preserving some assets for later generations. This
can be achieved through a trust.
Continuing a Family Business
An entrepreneur who has built up a business will often be concerned to ensure that it continues
after their death. If the shares in the company are transferred to Trustees prior to death, a trust
can be used to prevent the unnecessary liquidation of a family company and to ensure that the
individual’s wishes are observed. These might include provision for payments to be made to
members of the family from dividend income, with the Trustees retaining the shares and keeping
the company running except in special circumstances justifying sale of control or liquidation.
This may be particularly advantageous where family members have little business experience of
their own or where they are unlikely to agree on the correct way to manage the business. This not
only aid in protection of existing wealth, it also helps in the creation of more wealth for the
family.
