A Trust must have five (5) essential elements being:
1. The “Settlor” is the person who “settles” a nominal amount of funds upon the Trustee, upon terms and conditions as set out in the Trust Deed. In the case of a Testamentary Trust (i.e. a Trust set up in a Will), then the Settlor is the deceased person.
2. A “Trustee” – is the party who is noted as appointed as being the registered legal owner or the holder, or the party in whom the legal name of the property shall vest and/or be held.
A Trustee can be a private individual, more than one (1) private individual, or a company.
It is (normally) easy to change the Trustee(s) and to appoint a different Trustee at any time – except in circumstances of a Testamentary Trust (for obvious reasons!!).
3. The “assets” or “property” of the Trust (being the Trust “fund”) is/are all held by or in the name of the Trustee. The word “Trust” however does not in fact ever appear on registered ownership documentation (be it in respect of land, shares, bank bills, etc.)
4. The “beneficiaries” are the various persons, parties or “class” of persons for whom the Trustee holds the Trust fund/property, and the persons to whom the Trustee has obligations or duties.
These are the statutory obligations with which the Trustee must comply, to ensure that the Trust exists and so that the benefits can flow. If a Trustee is not bound by certain duties or obligations then there is no trust!
A Trustee cannot hold the Trust fund for him or herself, alone/only.
5. The “Parent/Appointor/Nominator” – or person(s) with a similar name.
This person (or company) is the person who is vested with the power to appoint and/or remove the Trustee.
It is more often than usual that this power of appointment will be first vested in the person who has caused the Trust to be established (or a very close friend).
This person/entity holding this power of appointment is critical.
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Let me now give you a simple, practical example of a Trust.
T is a/the “trustee”.
“A” gives or transfers to T $100,000.00 (or leaves it in a Will?), to be held “by T on trust for A and B and/or C, and for my family /children etc (?)”. A is more than likely also going to be the “Appointor” or the “Nominator”.
“A” can be and usually is one of the beneficiaries (along with his/her wife/husband, children, grandchildren and the spouses of each of those parties etc).
The $100,000.00 becomes the trust ‘fund” or the trust “property”. T has “total control” of the fund, by definition. Other parties can contribute to the trust fund, and the Trustee can acquire other assets.
T is bound to only invest or expend monies into ventures which comply with certain investment criteria, specified by the Trustee Act. T then buys land, shares, bank bills, or “whatever”.
For all intents and purposes the amount or fund is vested in T’s name, except that T knows that T is only holding it as Trustee, and T must account to the beneficiaries in each year for all the income (and eventually for the capital retained).
If the investment goes bad, then T is entitled to indemnification and protection from the Trust fund.
If the investment goes very well, T receives nothing and is obliged to distribute the income (and capital eventually) completely, through to any or all the beneficiaries, as T may so decide.
The Trustee’s discretion is totally unfettered, by definition, however, a Trustee will always take into account the wishes of the respective beneficiaries and or what the Trustee understands to be the intention of and/or the purposes of why or how the Trust was originally established.
Beneficiaries can hold to “account” and seek Orders that the Trustee behave in a certain way.
Similarly a Trustee can go to a Court to seek direction if he or she is of the opinion that the conflicting interests of the beneficiaries are too diverse for he or she to resolve.
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The shareholding in the trustee company will therefore determine the Directors to be appointed, and so also the decision making process within a Trustee company.
In succession or estate planning issues, it remains vitally important that the controlling shares in the trustee company pass to those parties who is intended will eventually assume control of that particular trust.
Control can of course also pass to a neutral person who will and MUST then act in accordance with the trustee obligations and duties for the collective benefit of all the nominated beneficiaries.
(Wherever the word “Trust” is used, it is being used as a noun, and not as a verb).