Deed of Trust

One effective alternative to a will is for the individual to set up a deed of trust. A failure to plan for your death in advance puts your life’s work at risk. An ill-prepared estate will have to be administered by your successors – often at great expense and inconvenience.

With careful planning, a deed of trust can eliminate delays and slash administration costs and tax liabilities.

Owing to these benefits, the uptake of trusts is rising dramatically.

Deed of trust

Trust concept

A trust is an arrangement where property is transferred from one person (the settlor) to another person or corporate body (the trustee) to hold the property for the benefit of a specified list or class of persons (the beneficiaries).

A written trust deed will evidence the creation of the trust, set out the terms and conditions upon which the trustees hold the trust assets and outline the rights of the beneficiaries.

A trust is not dissimilar to a will, except that assets are transferred to the trustees during the settlor’s lifetime rather than to executors upon the death of the owner. The trust deed is, therefore, similar to the will.

Legal and beneficial ownership

By distinguishing the legal owner of the property and the person who has the use or benefit of the property, trusts can offer many practical advantages. For formal legal purposes, the trustee is recognised as the owner, whereas the persons who have the use or benefit of the property are the beneficiaries.

It is possible for the settlor to retain an interest in the trust and to be an actual or potential beneficiary, but this can have estate duty and tax disadvantages.

It is vital that the trustee remains independent and exercises proper control over the trust property. The trust may be invalid if the settlor continues to exercise control over the trust assets by retaining benefit or control, or by giving directions to the trustees.

Duty of trustee to obey trust document

Trustees must follow the trust deed and are subject to stringent rules governing how their powers and discretion may be exercised.

Fiduciary relationship of the trustee

The courts regard a deed of trust as creating a special relationship that places severe and onerous obligations on the trustee. Trustees are therefore subject to the following rules:

  • No personal advantage. A trustee is not permitted to use or deal with trust property for private benefit.

  • Maintain the best interests of the beneficiaries. Trustees must exercise all their powers for the best interests of the beneficiaries of the trust.

  • Act responsibly. Whether or not a trustee is paid or not, he/she must act prudently in the management of trust property and will be liable for breach of trust if – by failing to exercise proper care – the trust fund suffers loss.
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