Explanation Of Terms
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.
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.
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
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.