What is a trust?

Most people have heard of a trust but not many know what it is, what it does or even why it might be useful. Some people mistakenly believe that it is a thing only useful to rich kids, so I have decided to write a short series of articles explaining a complex subject in simple terms.

Simply put, a trust is a method of owning an asset other than either personally or by way of a company. It is an arrangement that is unique to English Common Law or to jurisdictions that have had their legal birth in that law, such as in Australia.

There are a few things that a trust needs that may or may not exist, but there is one element that it must have and that is the trust deed. This is the document that creates the trust and defines the powers of the trustees, who can be a beneficiary and how they might benefit. As trusts can no longer exist in perpetuity, the deed must also define how long the trust can exist before the final assets must be distributed.

This may sound very complex, but it isn’t when it’s broken down into its component parts. The longest journey starts out with the first steps. This series is designed to do exactly that, break down a complex subject into simple parts so that anyone with a modicum of intelligence can understand.

So, as a start, who are the classes of people involved with a trust and what do they do? The classes of people are:

· The Settlor (Not a settler who is a person who claims some virgin land.)

· The Trustees

· Life tenants

· The Remaindermen

What do these people do?

The Settlor is the person who gives the original assets to the trust. An idiosyncrasy of trusts is that they can exist, but own nothing.

The trustees are the people who have the power and responsibility to manage the assets. Their powers are defined by the trust deed and their responsibilities to the beneficiaries are usually also defined in certain ways by statute. A settlor can be a trustee, but doesn’t have to be.

Life Tenants are the people who may benefit from the trust in certain ways but are not entitled to the capital assets of the trust. The settlor can be a life tenant, but that usually has detrimental tax implications.

The Remaindermen are the classes of people who will receive the assets when the last of the Life Tenants has died and the trust is “Distributed.”

That is enough for now and is your first step into understanding trusts. Just as a caution, this series of articles is just a rough guide to trusts. Their history is steeped in time and there is therefore a great deal of judge made law applying to them. It is important that you get proper advice from an expert before taking any action, but I hope that what I say may help your understanding.