Consumer law - Trusts

What is a trust?

A trust is a legal relationship in which you give another party - called a trustee - authority over certain assets for the benefit of a third party, known as a beneficiary. A trustee has a fiduciary duty to a beneficiary, and must administer the assets for the benefit of the beneficiary, rather than themselves.

How does a trust work?

There are some basic rules that govern the forming and administration of a trust.

  • 1
    A trust should have a limited time period, although the period can be long. It frequently is.
  • 2
    The person who establishes the trust, known as the settlor, cannot be a beneficiary of it. In such a case, the status of the property does not change simply by virtue of placing it within a trust, and it would not be protected from creditors.

Trustees have certain legal limitations that apply to the techniques they use to execute their duties. They are required to be responsible, to take care, and to complete their work in good faith. They should be meticulous in their management of the trust for its beneficiaries. Any cash or investments held in trust must be looked after by the trustees, who are responsible for any fraud that occurs.

Trustees can appoint people to help them, such as an investment manager. If the trustees take a salary, it is provided by the property held in trust, and must meet certain requirements based on the amount of the assets held in trust. The trust’s deed should lay out this information.

What is the purpose of a trust?

  • It provides someone with the benefits of an assured property.
  • It helps to limit the use of the property by the individual by creating restrictions.
  • In the case of a minor without the legal ability to manage a property, a trust will provide a means to handle that.
  • A trust allows for a compensated party to spend time managing the property effectively.
  • After the property is put into a trust, it no longer belongs to the settlor, so it keeps that property out of probate.

What are the benefits of a trust?

  1. 1 It protects your property: An increasingly common purpose for using a trust is to protect property from attachment by creditors. Certain professionals are under constant threat of legal action, such as medical practitioners, lawyers, and the directors of companies. In some countries the penalty for divorce is significant, and may cause you to lose your property. A trust helps to protect you from such outcomes.
  2. 2 It paves a secure path for the next generation: A trust is designed to suit the settlor's wishes and avoid the possibility of a property becoming subject to forced heirship or other inheritance laws.
  3. 3 Secrecy prevails: A trust is a private agreement that is signed between the settlor and trustee. The establishment of trust enhances privacy, making it easier to maintain secrecy regarding matters related to the trust’s assets.
  4. 4 A trust is a tax planning device: A trust can help reduce liability to property and wealth, serving as a tax planning device.

Why should you get legal help to create a trust:

  1. 1 If you believe your property may be subject to an estate tax, an estate attorney may be your best option for avoiding it. If the situation in your family is complicated - and it usually is if your estate is worth enough to trigger the estate tax—then an attorney can help you make a trust that distributes it according to your wishes.
  2. 2A living trust is a trust that is created while the trustor is still alive. They can be set up as revocable or irrevocable. In either case, a living trust helps to avoid probate, and can result in assets being distributed much more quickly as a result.
  3. 3 By avoiding probate, your family’s privacy can be maintained. Probate is a legal process, and as a result much of the proceedings become a matter of public record. Create a trust to keep your family matters a secret.
  4. 4 Deciding what assets to include in a trust can be a complicated matter. In most cases, you will be best off, and your family will receive the most protection, by consulting an attorney and establishing the trust with their assistance.
  5. 5 You can consider to include a no-contest clause while creating your trust.

Terms you need to know:

  • Trustee - An individual who holds or manages assets in trust for the benefit of another.
  • Fiduciary - A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets for the benefit of the other person rather than for his or her own profits.
  • Settlor - Settlor - a person who makes a settlement of property

Last Updated on: Wed, 16 Jun 2021