The concept of a trust describes a legal relationship, enforceable against third parties, that arises when, on the basis of a constitutive instrument (the trust deed or “Settlement”), the settlor transfers specified assets to a trustee, who is obligated to manage and use them for a purpose previously defined by the settlor for the benefit of one or more beneficiaries.
A trust is not, in itself, a legal entity. It is a legal arrangement. The trust is created by a deed—the trust deed—which specifies, among other things, the identity of the settlor, the trustee, and the beneficiaries, as well as the duties and powers of the trustee.
The assets are transferred by the settlor to the trustee, who is responsible for administering and managing the assets for the needs of the trust and in the exclusive interest of the beneficiaries. The trustee is the legal owner of the assets, commonly referred to as the trust fund. The trust fund is separate from the trustee’s personal assets. This segregation means that any personal creditor of the trustee cannot seize the trust assets, even in the event of the trustee’s insolvency or bankruptcy.
The trustee is obligated to hold, manage, and distribute the trust and its income to the beneficiaries in accordance with the trust deed.
The settlor may appoint a protector, responsible for overseeing the trustee or exercising certain prerogatives over the trust.
The settlor may communicate his or her wishes and intentions to the trustee by means of a letter of wishes.
Advantages
Estate planning
Upon the settlor’s death, the trust assets continue to be held and managed in accordance with the terms of the trust rather than being transferred to the heirs.
Asset protection
A trust created for asset protection purposes is based on the principle that the trustee is no longer the legal owner of the assets that have been transferred to the trust. The trust fund is no longer part of the settlor’s personal estate and cannot be seized.
Generally, the following individuals may wish to transfer their assets into a trust:
persons living in politically or economically unstable jurisdictions who wish to protect their property from arbitrary government seizure;
persons engaged in high-risk professions;
persons living in jurisdictions where succession law imposes forced heirship rules (subject to the law governing the estate).
Protection of beneficiaries
As long as no distribution has been made, the trust protects the beneficiaries from claims by their personal creditors.
Tax efficiency
Depending on the tax residence of the persons involved in the trust, establishing a trust may allow for tax savings, particularly with respect to wealth tax and investment income tax, where applicable.
Confidentiality
A trust preserves privacy and confidentiality. Only the relevant parties have access to information concerning the trust, the settlor, the trust assets, the protector, the trustees and, where applicable, the beneficiaries. The trust is not recorded in any public register.