You may be considering setting up a Trust. Trusts have been around for many years and there are several to choose from, depending on your circumstances. They are still very relevant in today’s world, but it’s interesting to learn where the concept first arose, which resulted in the modern day Common Law concept of a Trust.
Trusts were first established under English Common Law several hundred years ago, dating all the way back to the 12th Century Crusades. During this time, Landowners who went off to battle would transfer their title to a trusted party so that the land could be properly maintained in their absence, with the view that they would take possession of the title upon their return. Unfortunately, in many cases, the so called ‘trusted’ party retained possession of the land, refusing to transfer the property back to its previous owner. Common Law Courts ruled that the new owner was now the rightful owner of the land. Suffice to say this didn’t go unnoticed and many complaints were made to the King. As a result of this and where Common Law Courts were unable to provide remedy, the King tasked the Lord Chancellor of the time with deciding the ‘true’ ownership of the title and the Court of Chancery was born, in turn giving birth to the Law of Equity.
In its simplest form, a trust is an equitable obligation whereby a person known as the Settlor, transfers the legal title of property from his / her name to another party known as the Trustee, to hold upon trust as per the terms of the Trust Deed, for the benefit of persons known as the Beneficiaries, who by law have an equitable interest in such Trust property.
In order for a Trust to be valid, the Trust must meet what is known as the ‘Three Certainties’:
- Certainty of Intention – i.e. without a doubt, it is shown that the Settlor intended creating a Trust;
- Certainty of Subject – i.e. the property of the trust is known and it is sufficiently detailed that the property in question belongs to the Trust; and
- Certainty of Objects – i.e. the intended Beneficiaries are named or are of an identifiable class (e.g. grandchildren of the Settlor). The class of beneficiary should not be too wide (e.g. any person or persons in Scotland).
The Trustee has a fiduciary duty of acting in the best interests of the Beneficiaries, who may individually or collectively enforce this obligation upon the Trustee at any time. The Settlor usually provides the Trustee with a Letter of Wishes, setting out how he / she wishes the Trustee to administer the Trust. Whilst this provides guidance, it is not legally binding on the Trustee.
Even though the concept of a Trust has been around for many years, it remains a very useful planning tool for individuals and families looking to structure their wealth. Some of the key advantages a Trust provides are:
- Asset Protection – the placing of assets in a stable, well-regulated jurisdiction. This is particularly relevant if you reside in a politically unstable country;
- Estate Planning – providing for seamless intergenerational wealth transfer from one generation to the next;
- Probate Mitigation – a Trust does not form part of your personal estate and continues after your demise. Unlike a Lasting Will & Testament, there is no need to apply for probate, and your family (if beneficiaries) are able to request distributions from the Trustee to cover funeral expenses and ongoing living expenses;
- Investment Holding – Trusts are able to hold any asset directly, subject to the provisions of the Trust Deed, but usually hold assets through a private Company. The Company may hold various assets, from investment portfolios, residential or commercial property, shares in a family business, classic cars, yachts etc. the list is endless, but the Trust ensures that the wealth is protected and is able to be passed on from one generation to another; and
- Forced Heirship Issues – Trusts can provide for family members who may not necessarily benefit from your estate under forced heirship rules.
An Isle of Man inter vivos Discretionary Trust is usually the most popular choice. This type of Trust usually grants the Trustee with full discretion over the administration (investment) and dispositive (distribution of funds) powers. It is also possible for the Settlor to reserve powers under the Trust Deed, however, it should be noted that reserving too many powers could potentially result in the Trust being seen as a sham, which could have significant consequences for the Settlor, Trustee and Beneficiaries.
The Isle of Man is a safe and stable jurisdiction, with a solid legal and regulatory framework on which to structure your wealth. The Isle of Man has enacted modern Trust legislation making it a premier destination for international finance and wealth structuring. The Isle of Man is well connected, with air links to many of the UK’s airports, and stable telecommunication links.
In addition to the many local Trust and Corporate Service providers, there are a large network of professional firms available locally who are very well versed in this type of work. These range from banks, tax advisors, accounting firms to legal practitioners. Freeport have longstanding relationships with many of these local firms, should support be required for the trust structure.
Freeport is an independently owned and managed Trust and Corporate services provider, licensed and regulated by the Isle of Man Financial Services Authority. Freeport has been actively providing trust, corporate and accounting services fora continuous 28 years. As a result, Freeport Trust Company is well placed to discuss your requirements and provide services to Trust structures.