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What is a Trust?

A trust is simply a legal concept using common laws and principles between two parties, the Settlor and the Trustee for the benefit of a third party, the beneficiary. This is a private arrangement and there is no requirement to register the trust.

The owner of the assets is known as the Settlor, and they transfer ownership of the assets to another party known as the Trustee. The Trustee is responsible for the administration and management of the assets under the terms outline in the Trust Deed. This creates a Legal separation of ownership of an asset from the enforceable rights of beneficial use of that asset.

The trustee manages the assets for the interest of a third party called the Beneficiary. This structure also protects the beneficiaries’ from additional taxes levied on profits from the Trust for an indefinite period.

Trust companies are a highly effective way of structuring your assets to limit tax exposure, structure your estate and protect the ownership of the assets.

Trusts are often tailored for a specific purpose as outlined in the Trust Deed. The purposes need not be charitable or relate solely to an individual and therefore are often used for succession planning or to protect the ownership of the asset.

Structure of a Trust

There are 3 primary parties required when setting up a Trust Company.

Settlor

The Settlor may be either an individual or a legal entity. The Settlor creates the Trust when he transfers ownership of the asset from themselves to the Trustee. The Settlor is also responsible for outlining the conditions for management and the beneficiaries in the Trust Deed.   

Trustee

The Trustee may be an individual or legal entity to which the Settlor transfers legal title/ownership to the Trust asset(s). The Trustee is responsible for the management of the trust and its assets for the benefit of the beneficiaries in accordance with the terms of the trust deed.

Beneficiary

The Beneficiary may also be the Settlor, if not the sole beneficiary. The beneficiary’s identity must be outlined in the Trust Deed and include an ascertainable reference to either their exact name and location, or by a relationship to another person, whether living or deceased, at the time of the creation of the trust. The beneficiary may also be outlined as a group of people or a charity.

Assets held by the trust can include shares and stocks in both quoted and unquoted companies, investment portfolios, IP and patents, insurance policies and bank deposits. Most of types of assets may also be transferred to the Trust.

The Trust Deed is the primary document required when establishing a Trust. This is a written contract setting out the formal agreement between the Settlor and the Trustee. It will describe the duties and objectives for the Trustee in reference to the management of the Trust assets for the benefit of the Beneficiaries.

What is the difference between a Foundation and a Trust Company

What is a Foundation and its purpose?

A Foundation is a separate legal entity (similar to Limited company) but with beneficiaries instead of shareholders. Assets (both movable and immoveable, such as property, shares and money) can be donated to the Foundation by its Founder and becomes the legal property of the Foundation.

Foundations are commonly used as an alternative to Trusts; however, there are several key differences. These are, most primarily, the legal structure, asset ownership and governing laws.

Below is an outline of the key differences between a Trust and a Foundation.

 

LEGAL STRUCTURE AND OWNERSHIP

TRUST

FOUNDATION

A Trust is created as an agreement to transfer the assets of one party to another party for the benefit of a third party.

A Foundation is a corporate entity whereby assets are transferred for ownership and management for the benefit of specific beneficiaries.

This is a Private Agreement that need not be registered

This is a legal entity governed by statutory laws in the jurisdiction

Legal ownership of the assets are split where the Trustee legally owns the asset but for the sole benefit of the individuals or institutions detailed in the Trust Deed.

Assets are donated by the Founder to the Foundation and become legally owned by the Foundation. The beneficiaries receive proceeds based upon on the purpose of the Foundation and its management obligations.

 

CONTROL AND OWNERSHIP

TRUST

FOUNDATION

Control and administration of trust assets is exercised by one or more trustees in accordance of the trust deed.

Control and administration under the power of the foundation board, as appointed by the founder. The board may comprise of individuals or corporate bodies and maybe be the Councillor.

After the trust is settled, the settlor no longer has any rights in respect of the trust unless clearly expressed in the Trust Deed.

The founder may maintain control of the Foundation via a written mandate. This mandate may state the Founder as a principal to instruct the foundation board. However, the foundation board must still act in the interests of the founder and the beneficiaries.

The trustee, as the legal owner of the assets, has a fiduciary duty to act in the best interests of the beneficiaries

A foundation may grant a proxy to any person.

 

ASSETS

TRUST

FOUNDATION

The trustee is legally responsible for the management of the assets and must act in the best interests of the beneficiary. This includes investments and commercial activities, which affect the underlying value of the assets. The trustee is liable to the beneficiaries and if it fails to carry out it duties, this is typically deemed as gross negligence, or wilful default.

Management of the foundation assets is restricted to those on the foundation board (the Councillors). Directors of the foundation do not own a direct fiduciary duty to the beneficiaries, but must act in accordance with the by-laws.

Distributions made by the trustees must comply with the conditions set by the trust deed and take into account the wishes of the settlor.

Distributions are made in accordance with the management instructions set by the founder and regulated through the by-laws.

 

ANONYMITY

TRUST

FOUNDATION

A trust is a private arrangement between the settlor and the trustee and the trustee may be subject to a duty of confidentiality. Beneficiaries are only known internally through the Trust Deed. Commonly, the assets are held in the name of an underlying company owned by the trustees.

Foundation companies guarantee complete confidentiality and anonymity for the Founder and its beneficiaries. Although the statutes are registered, the regulations and Foundation Charter need only to be maintained internally.

The beneficiaries’ typically have the right to the view the trusts, documents and accounts.

The beneficiaries’ rights to information can be limited, or in some case excluded.

 

 

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