Trusts originally developed in England. A trust can be defined as a unilateral legal arrangement by which the settlor transfers specified assets to one or more trustees, who have an obligation to hold, manage and use them for the benefit of one or more third parties (beneficiaries).

The main characteristics of a trust are as follows:

  • A trust is not a separate legal entity. This distinguishes it from a family foundation.
  • A trust can hold any type of assets: immovable property, paper securities, cash and other moveable property.
  • Although a trust is initially created by a settlor, once it has been formed the main legal relationship is between the trustee and the beneficiaries. This relationship is governed firstly by the trust instrument (a document) and secondly by the proper law of the trust (i.e. the law governing the trust).
  • When a trust is created, ownership of the assets concerned formally passes to the trustee. The trustee has an obligation to manage the trust assets in the interest of the beneficiaries, or for a valid purpose in the case of a purpose trust, and not for the benefit of the trustee or settlor.
  • In principle, the settlor loses all power over the trust. However, the trust instrument can provide for the settlor to retain some control, in which case we talk of settlor reserved powers.
  • Settlors can set out their intentions and decisions via a letter of wishes.
  • The trust assets are separate from the trustee’s personal wealth. They are consequently protected from the trustee’s own creditors and are not part of the trustee’s estate in the event of death, or assets in the event of divorce.
  • If settlors so wish, they can appoint a protector to ensure the trustee acts in accordance with their original intentions. The extent of the protector’s powers is defined in the trust instrument.
  • As a general rule, trustees are required to be licensed and their operations are strictly regulated by local supervisory authorities. In certain jurisdictions however, it is possible for settlors to designate themselves (or a trusted third party such as a personal advisor) trustee of their own private trust company. This solution enables the settlor to retain control of the way the trust is managed.

When used judiciously, trusts offer excellent tax and inheritance planning opportunities. Before forming a trust it is vital to carry out a detailed review of the wealth status of the settlor and beneficiaries, and to fully understand the goals of the trust. Legislation, and in particular tax legislation, applicable not just to the trust but also to the settlor’s and beneficiaries’ places of residence, must also be studied carefully. The location of the assets to be placed in the trust is another important consideration.

In addition, very careful attention must be paid to the drafting of the trust instrument and to the powers reserved by the settlor or given to a protector, if one is appointed. An error (resulting, for example, in the trust being classified as a “sham trust”) can have serious consequences for the settlor, the beneficiaries and even the trustee.

At CROCE & Associés Trust, our capabilities and experience mean we are perfectly placed to ensure the trust you form meets your requirements perfectly. Our staff, the majority of whom are lawyers, have received specific training and are members of the Society of Trust and Estate Practitioners (STEP).

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