A trust is a legal relationship in which a person transfers property to a trustee, who holds legal title for the benefit of another, known as the beneficiary.

Purposes of Trusts

Trusts may be established for a variety of purposes, including:

  • To control and protect family assets
  • To manage the affairs of someone who is too young to handle them
  • To manage the affairs of someone who is incapacitated
  • To pass on assets during the settlor’s lifetime
  • To distribute assets upon death through a “will trust”
  • To manage the distribution of assets under intestacy rules (i.e., when someone dies without a will) in England and Wales

Creation of a Trust

A trust is created by a settlor (or testator, in the case of a will) who transfers assets into the trust. The settlor transfers legal title of the assets to a trustee, who manages them according to the terms of the trust.

For a trust to be valid, it must satisfy the three certainties: intention, subject matter, and objects.

Trustees

A trustee is the legal owner of the trust assets and has specific duties, including:

  • Administering the assets in accordance with the settlor’s instructions, as outlined in the trust deed or will
  • Managing the trust on a day-to-day basis, including paying any taxes due
  • Making decisions on how to invest or utilize the trust assets

Beneficiaries

A trust is held for the benefit of one or more beneficiaries. The beneficiaries may be a single individual, a family, or a defined group of people. Beneficiaries may benefit from:

  • Income only
  • Capital only
  • Both income and capital