The Classic guides to trusts

Trusts have existed in Britain since mediaeval times and have long been used for the protection of assets.
A trust (or settlement) is difficult to define but usually it is an agreement under which by a person (The Settlor) transfers assets to a third party (The trustees) to hold for the benefit of specific persons or purposes. The terms of the trust are normally set out in writing.

The parties involved in a trust are: -

The Settlor, who provides the initial trust capital and specifies the terms under which it is to be held in trust, normally in the form of a standard deed.

The Trustee(s) who have the fiduciary duty of administering the trust using the powers set out in the trust deed. The trustees may be one or more individuals or a specialist trust corporation.

The Beneficiaries. The terms of the trust need to be specific as to who can benefit but may give the trustees the power to add or exclude beneficiaries. The beneficiaries do not need to be told of the trust. The beneficiaries may include can include charitable purposes as well as listed individuals.

However it is also possible to add a fourth party - The Protector. The protector is often someone well known to the settlor (e.g. a family lawyer or close business associate) and under the terms of the trust deed the trustees must obtain his permission before exercising certain key powers. The protector is often given powers to remove trustees and appoint new ones.

So why create a trust?

Trusts can be used to facilitate the division of a person's estate during his lifetime whilst retaining some control over it.

For example you can use one:-

• Where a rule of law might otherwise prevent you from disposing of your property in his will in accordance with your wishes (e.g. The Napoleonic Code).
• To provide for certain beneficiaries even unborn, who may need to benefit in circumstances that cannot be determined in advance.
• In place of a will to ensure that the distribution of the estate is not delayed while letters of probate are obtained (particularly where an individual has property in a number of different countries).
• As part of your estate planning. A trust can assist in ensuring that family wealth is protected for future generations or to assist in preventing wealth from passing out of the family by undesirable marriage or enforced inheritance.
• To protect your assets when there is some concern that they may be liable to expropriation or restriction, or potential future claims of creditors. For example, a professional person may wish to protect his asserts against future claims for negligence and in particular to discourage those of a speculative nature.
• To prevent spendthrift or minor beneficiaries from dissipating the assets later.
• For general tax planning, including mitigation of income tax, inheritance tax, capital gains tax, and wealth taxes generally.
• To benefit a charity
• As a pension vehicle for expatriate personnel to enable investment income to be accumulated with little or no tax and to defer taking the income until a lower personal tax rate will apply.

How does it work?

A trust is a confidential arrangement by which the trustees are legally bound to hold certain assets for the benefit of the beneficiaries under the terms of the trust deed.

By creating a trust, the settlor ceases to be the legal owner, but his nominated beneficiaries (which may include himself) can continue to enjoy the benefits of the assets. This makes the trust a useful and flexible vehicle for tax and other financial planning.

Types of trust and trust deed

The trust document may be tailored to the settlor's requirements and there are consequently many different types of trust, of which the most common forms are:

• Interest in possession trusts where a beneficiary, receives the income of the trust fund during his or her lifetime.
• Accumulation and maintenance trusts where the income of the trust is either accumulated or paid out for the maintenance, education or benefit of children or other minor beneficiaries.
• Discretionary trusts where the trustees have wide powers to distribute or to retain, the income and capital of the trust to a number of different beneficiaries at their own discretion.

Where a trust document gives the trustees such discretionary powers, it is usual for the settler to write a letter of wishes for their guidance. Although not legally binding, it is nonetheless an important document for ensuring that the settlor's intentions are understood so that his wishes may be respected.

Trusts in Belgium

There is a popular misconception that civil law countries do not recognise trusts but this is not always correct. For example, foreign trusts can be recognised in Belgium in certain cases. Belgium has also enacted legislation permitting the creation of family Foundations, which can achieve many of the objectives of a trust.