Trusts are popularly used for achieving various business and estate planning objectives, but their effectiveness depends on individual circumstances and careful consideration of tax implications and legal requirements.
Trust:
A trust arises when there is a division between legal and beneficial ownership of the trust property. A trust exists where property is held by a person, or is transferred to another person to be held, for the benefit of themselves or one or more other persons. The trust relationship is fiduciary in nature, one where a trustee has a special relationship of trust, confidence and responsibility to the beneficiaries.
A trust is a relationship among a settlor, trustee, and beneficiary.
Parties to a trust:
Settlor: A person who creates an express trust
Trustee: A person who holds title to property on trust for the benefit of another person
Protector: A person who ensures the terms of the trust are complied with
Beneficiary: A person for whom a trust is created
Trust Document:
A trust deed or trust document is a written document that may be set out the intention and instructions for a trustee in managing and administering an express trust.
Classification of trusts:
The classification of trusts is important to understand the trust law. Trusts may be classified in many possible ways. Trusts may be classified based upon:
- How the trust was created- Trust may be an express trust, trust by operation of law or a statutory trust.
- The object of the trust- Trust may be created for persons or for purposes.
- Whether the trust was created during the life of the settlor or upon the death of the settlor- Trust may be an inter vivos trust or a testamentary trust.
- Whether the trustee has a discretion as to who the beneficiaries of the trust are or the amounts the beneficiaries are to receive- Trust may be a discretionary trust or a fixed interest trust.
- The nature of the trust purpose – Trust may be a charitable trust or a non-charitable trust.
An express trust is a trust that is expressly intended to arise. It may be an inter vivos or a testamentary trust.
A discretionary trust is the one where, in addition to other trustee powers, the trustee is given the discretion to choose beneficiaries from a class and/or to determine the amounts which the beneficiaries shall receive.
A resulting trust is a trust that arises by operation of law. It arises when there is no express intention to create a trust but the trust arises, so the property is held by the owner for the benefit of someone else, typically the original owner. It can arise when an express trust has failed, or an apparent gift of property was never intended to be a gift.
A constructive trust is another trust that arises by operation of law. It arises when someone has been unjustly enriched by another, and so a court imposes a trust on property they own to remedy the injustice that has been identified.
If the settlor has not imposed any duties on the trustee, other than to convey the property to the beneficiaries on demand by the beneficiaries, then the trust is referred to as a “bare trust”. The trustee of a bare trust has no duties other than conveying the property to the beneficiaries on demand.
A private trust is a trust created for the benefit of specific and ascertainable persons. A public trust is created for the benefit of the public at large or a significant section of public.
If you would like to consider the possibility of a trust as part of your business structure or estate plan, our lawyers at Cassady Law LLP would be happy to discuss with you how a trust may assist you in meeting your objectives.
Disclaimer
Disclaimer: The information in this article (“Article”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information contained in this Article should be construed as legal advice from Cassady Law LLP or the author.
