TRUSTS
A trust is a structure whereby money or property is managed by one person, persons, or organizations, for the benefit of another, but where ownership remains in the trust. A trust is created by a settlor, who entrusts some or all of his or her property to an entity of his choice, this person or people become the trustees. The trustees are the legal owners of the trust property, but they are obliged to hold the property for the benefit of one or more individuals or organizations. These people are known as the beneficiaries of the trust and are usually specified by the settler. The trustees owe a fiduciary duty to the beneficiaries, who are the beneficial owners of the trust property.
The trust is governed by the terms of the trust document, which is usually written and in deed form. It is also governed by local law. In the U.S., the settlor is also called the trustor, grantor, donor, or creator.
Common purposes for trusts include:
Privacy: Trusts may be created for privacy. The terms of a Will are public whereas the terms of a Trust are not. In some families this alone makes use of trusts ideal.
Wills: Trusts frequently appear in wills. A conventional Will, often leaves assets to the deceased's spouse, and then to the children equally. If the children are under 18, or under some other age mentioned in the will, 21 and 25 are common, a trust must come into existence until the contingency age is reached. The executor of the Will is usually the trustee, and the children are the beneficiaries. The trustee will have powers to assist the beneficiaries during their minority.
Charities: A trust is the most usual form for a charity to take. In most jurisdictions, charities are tightly regulated for the benefit of the public. In the UK, charity trusts are overseen, by the Charity Commission.
Unit Trusts: This trust is capable of working as an investment tool.
Pension Plans: Pension plans are typically set up as a trust, with the employer as settlor, and the employees and their dependents as beneficiaries.
Asset Protection: The principle of asset protection is for a person to set himself apart from the assets he or she would otherwise own, with the intention that future creditors will not be able to access that money, even though they may be able to bankrupt him or her personally. One method of asset protection is the creation of a discretionary trust, of which the settlor may be the protector and a beneficiary, but not the trustee and not the sole beneficiary. In such an arrangement the settlor may be in a position to benefit from the trust assets, without owning them, and therefore without them being available to his creditors.
Tax Planning: The tax consequences of doing anything using a trust are usually different from the tax consequences of achieving the same effect by another route if it is be possible to do so.
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