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What is a ‘trust’?
A trust is an obligation binding a person (which can be an individual or a company) called a ‘trustee’ to deal with ‘property’ in a particular way, for the benefit of one or more ‘beneficiaries’.
Trustees are the legal owners of the trust property. They are legally bound to look after the property of the trust in a particular way and for a particular purpose. Trustees administer the trust and in certain circumstances make decisions about how the property in the trust is to be used. The trust can continue even though the trustees might change, but there must normally be at least one trustee.
What is ‘property’?
A Settlor is a person who has put property into the trust. Property is normally put into the trust when it is created, but it can also be added at a later date. The property of a trust can include:
Land or buildings
Other assets, such as paintings
The cash and investments held in the trust are also called the ‘capital’ or ‘fund’ of the trust. This capital (or fund) may produce income, such as interest or dividends. The land and buildings may produce rental income. The way income is taxed depends on the type of trust.
What is a ‘beneficiary’?
A beneficiary is anyone who benefits from the property held in the trust. There can be one or more beneficiaries, such as a whole family or a class of people, and each may benefit from the trust in a different way.
For example, a beneficiary may benefit from:
the income only, or
the capital only, or
both the income and capital of the trust>
How is a trust created?
Normally a trust is created by a deed. A Settlor might ask a professional adviser to draw up a trust deed, which then sets out the terms of the trust.
A trust can be created under the terms of a will, when someone leaves instructions that when he or she dies some or all of the estate is to be placed in trust. A trust can also occur if a person dies without leaving a will. Sometimes the Courts will create a trust, for example; when deciding how to deal with property for the benefit of a child or an incapacitated person who cannot manage his or her own affairs.