An Explanation of Trusts

Trusts, those ubiquitous structures that govern large parts of our commercial and legal experience, tend to be shrouded in mystery. In our society, wealth and power flow through trust structures, out of sight of the public eye, in private and privy only to those who create, administer or benefit from them.
The rich frequently use trusts to ensure that their wealth expands without erosion through taxation. Within the courts of equity, judges rely upon these structures to pass judgements, construing their existence within all manner of unexpected scenarios.

Within the courts of equity it is actually not necessary for a trust deed to exist, or indeed even for the actors in the relationship to be aware that a trust exists, for a judge to decide that a trust exists. However, for the purposes of asset protection, it is essential that trust deeds are in place and that there is very clear understanding and agreement of the existence of a trust and the nature of the roles assumed by participants in the trust.

Although trust law is universal throughout the English-speaking world and increasingly within all of the major western capitalist democracies, and has been standardised within the scope of the Hague Convention articles, there still exist many key differences across nation states. This also holds true where the taxation of trusts is concerned, and the specific national laws that apply to a trust will be dependent upon a number of factors related to location:

• Location of trust administration;
• Location of trust assets;
• Location of residence of the trustee;
• Location where the intent of the trust is to be fulfilled.

Despite the many flavours that a trust may take on, a trust, is a trust, is a trust, and the participants in the arrangement will always remain the same:

• Grantor / Settlor (the creator and contributor to the trust);
• Trustee (sometimes also called a Fiduciary);
• Beneficiary (on whose behalf the trust is established);
• And additionally in some cases a Protector (whose role is to supervise the trustee to ensure that the deeds of the trust are honoured).

There are other elements in a trust relationship, and it helps to understand the nature of a trust by recognising that is more a relationship, than it is anything else.
The elements to be cognisant of are:

• Body or Corpus of the trust – another way of saying asset;
• Trust deed – the document laying out the intention and ‘rules’ of the trust

Understanding the definitions above begins to clear the mystery relating to trusts somewhat. One area in which the uncertainty remains however is in the actual legal interpretation of trust law when it comes to a conflict of opinion. This is because in equity a judge is expected to rule with his conscience, rather than strictly following a set of guidelines written in black and white. There will always be room then for interpretation and opinion in terms of how a trust ‘should’ be operated.

The restriction that judges operate within in making any judgement, are the precedents of standard of case law – which does set guidelines and give some indications as to what a judge can and cannot rule. If a precedent has been set, then until the high court rules otherwise, all judgements will tend to follow by that standard. In this respect, the knowledge and guidance of a lawyer can prove crucial to ensuring that your trust is entirely compliant with the law, and the assistance of a tax-planning specialist will ensure that you receive the best value from your investment in lawyers’ fees.