Affinity Consulting Group

Trusts

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Explanation Of Terms

Trust Deed

A trust is normally evidence by a deed, which sets out the terms on which the trustees hold the assets and identifies the beneficiaries and the circumstances in which they are to benefit. The deed usually only refers to an initial nominal sum settled but applies equally to subsequent funds added. It may also allow for the substitution of trustees in another country. A trust deed signed by the settlor is not essential; instead, it is adequate for the trust.

Beneficiaries

Although beneficiaries are identified in a discretionary trust deed, they have no right to benefit from or participate in trust assets, unless and until the trustees exercise their discretion in favour of one or more of them. Sometimes the ultimate beneficiaries may note have been finally decided upon or it may not be desirable to name them in the trust deed, but the deed can contain powers to add or delete the names of beneficiaries during the trust period. Thus the ultimate beneficiaries may be added to the trust deed at some later time, when a distribution of income or capital is to be made.

Protector

Since, the Settlor of a discretionary trust gives up legal ownership of the assets settled, he may wish to retain some control over the trustees‘ discretionary powers. This can be achieved by the appointment of a "protector" to the settlement. The trust deed can give the protector power to appoint new trustees from exercising any discretion without prior consent from the settlor - for example, in connection with the addition or deletion of beneficiaries of the trust or the distribution of trust and income and capital.

Letter of Wishes

In view of the very wide powers of discretion the trustees may be given under a trust deed, it is usual for the settlor to express in a letter his wishes regarding the administration and distribution of the trust fund during his lifetime and after his death. The letter of wishes can be varied by the settlor at any time during his lifetime. Such a letter would provide details of the persons he wished ultimately to benefit from the trust fund and the proportions in which he wished them to participate. The trustees are not bound by the terms of the letter of wishes but normally take them into consideration in exercising any discretionary power.

Formation of Trusts

A trust becomes effective as soon as the trust deed has been signed and the assets transferred. The settlor then ceases to have any proprietary interest in these assets. In order to prepare the trust deed, the following information will be required:-
(a) The names, address and nationality of the settlor.
(b) Names and addresses of the beneficiaries.
(c) A description of the assets to be settled.
(d) A note of the terms under which the assets are to be held (including the "trusts" powers to invest monies, to accumulate or distribute income receipts and to advance capital to beneficiaries.
(e) Name for the trust.



Guide to trusts
Residence & Domicile
Importance of a will or trust for Isle of Man investments