What Trusts are and how they are created

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What is a 'trust'?

A trust is an obligation binding a person (which can be an individual or a company) called a 'trustee' to deal with 'property' in a particular way, for the benefit of one or more 'beneficiaries'.

What is a 'trustee'?

Trustees are the legal owners of the trust property. They are legally bound to look after the property of the trust in a particular way and for a particular purpose. Trustees administer the trust and in certain circumstances make decisions about how the property in the trust is to be used.

The trust can continue even though the trustees might change, but there must normally be at least one trustee.

What is 'property'?

The property of a trust can include

• money
• investments
• land or buildings
• other assets, such as paintings.

The cash and investments held in the trust are also called the 'capital' or 'fund' of the trust. This capital (or fund) may produce income, such as interest or dividends. The land and buildings may produce rental income. The way income is taxed depends on the type of trust.

What is a 'beneficiary'?

A beneficiary is anyone who benefits from the property held in the trust. There can be one or more beneficiaries, such as a whole family or a class of people, and each may benefit from the trust in a different way.

For example, a beneficiary may benefit from

• the income only, or
• the capital only, or
• both the income and capital of the trust.

What is a 'settlor'

A settlor is a person who has put property into the trust. Property is normally put into the trust when it is created, but it can also be added at a later date.

Is a settlement the same as a trust?

The words 'settlement' and 'trust' are sometimes used in place of each other, and to describe the same thing. For tax purposes, the term 'settlement' can have a wider meaning and can include various other arrangements or agreements. This only deals with trusts, and settlements that are trusts.

How is a trust created?

Lifetime Trusts take effect during life, for example, immediately.

'Will Trust' is the term for a Trust that is created under the terms of a Will, when somebody leaves instruction that when he or she dies some or all of the estate is to be placed in Trust.  A Will Trust has its place without any doubt, but if property is to be protected during life, clearly a Will Trust would not be the appropriate vehicle to choose.

Sometimes the Courts will create a trust, for example, when deciding how to deal with property for the benefit of a child or an incapacitated person who cannot manage his or her own affairs. 

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