Trust Basics
What is Trust?
A trust is a private arrangement between two parties: the settlor and the trustee. The settlor is the person who creates trust. A trustee is the person or trust company that holds and administers property or assets for the benefit of the third party who is called the beneficiary, the person or persons who have entitled the beneficial ownership of the trust assets.
A simple example would be the situation in which a dad might advance money and his property to his son and ask his neighbor to hold the money and keep it until his son is old enough to manage it. Maybe you're worried about what if your neighbor uses the money or sells the property? That's why trust is so important.
In this case, the dad opts to trust a licensed trust company rather than his neighbor. He writes down his wishes and signs a legal document called a Deed of Trust. He is now a settlor, who created a trust. The trust company is the trustee who will transfer the trust assets (money and property) to his son who is the beneficiary.
Who can be the settlor? Who can set up a trust?
- An Individual
- Any two people Similar to a joint bank account, a trust account can also be held by one individual and a spouse, partner, family member, or business partner. Assets in joint trust accounts belong to both owners.
- A Corporate
A single person can set up a trust account. It's just like your bank account.
Similar to business accounts, companies of any size can set up a corporate trust account.
Who can be the beneficiary? Choosing Beneficiaries - Determining who gets what and when
Generally speaking, there are no restrictions as to who can be a beneficiary of a trust
A beneficiary can be
- a person
- a described group of people (a class of beneficiaries). An example of a class of beneficiaries is “the grandchildren of A”. Describing the beneficiaries as a class will not make the trust invalid provided that at some point members of the class will be able to be specifically identified.
- a minor
- a person under a mental disability
- unborn children
- a charity
- a company
You can always change your beneficiary designations. In fact, it's likely that you'll want to do so as your family and finances change over the years. For example, there's no automatic change when you get married. Be proactive and update your plan.
What types of assets I can inject into the trust?
- Financial assets
- Cash in multiple currencies (we also offer offshore bank accounts)
- Stocks, bonds, and other investment
- Precious metal
- Large life insurance policies (if the beneficiary is a child, the insurance trust can store the policy compensation in the trust, managed by the Trust Company for the child, until the child reaches adulthood before allocating assets, avoiding possible family disputes)
- SME ownership and income (small business shares, partnership income, or limited liability company ownership)
- Non-financial assets
- Works of art, aircraft, yachts
- Automobile
- Real estate
According to s81(f) Trustee Ordinance (Cap. 29) a trustee can hold currencies, securities, jewelry, automobile license plate or other valuable property and of papers, documents, deeds, wills, debentures, and other evidence of title or indebtedness on trust for and on behalf of you.
Who is in charge of the trust?
Once the settlor has transferred assets to the trust, the trustee is in charge of administering and operating the trust. Trustees have the fiduciary duty, legal authority, and responsibility to manage your assets held in trust and handle day-to-day financial matters on your behalf.
What is a Fiduciary Duty? The fiduciary accepts legal responsibility for duties of care, loyalty, good faith, confidentiality, and more when serving the best interests of a beneficiary. Strict care must be taken to ensure that no conflict of interest arises to jeopardize those interests.
The trustee is mainly responsible for:
- Asset collection and protection
- Following instructions in the trust document
- Recordkeeping The trustee is responsible for documenting every transaction that takes place in the trust accounts. Prior to the final settlement, the trustee must demonstrate to the beneficiaries that all assets and income have been properly administered and distributed.
- Making maintenance and principal distributions as permitted by the trust
For instance, if a vehicle is included as a trust asset, the trustee is responsible for the maintenance and upkeep of the property and maintaining appropriate insurance on the property. In the case of financial assets, such as cash or securities, the trustee must maintain one or more separate accounts on behalf of trust beneficiaries.
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