Like a will, a trust is a very useful instrument in the estate planning arsenal. Estates can be as diverse as people, and the flexibility of a trust makes it useful for many different needs. A trust can do a number of things a will cannot do as well, including:

• manage assets efficiently if you should die and your beneficiaries are minor children or otherwise not up to the responsibility of handling the estate;

• protect your privacy; and

• if it is a living trust, the trustee can manage the property for you while you're alive, providing a way to care for you if you should become disabled. This would not happen with a will, since a will only becomes operative upon your death.

Trusts can be very simple, intended for limited purposes, or can be quite complex, spanning two or more generations, providing protection from creditors of the beneficiary, and displacing a will as the primary estate planning vehicle.

A trust is a flexible tool that you can tailor to your needs; it offers you management control and certainty. A trust is a legal agreement between the individual creating the trust (the settlor) and the trustee (the person/institution named to manage the trust assets).

The trustee holds legal title to the trust assets for the benefit of one or more trust beneficiaries. The trust may be established and become operative either during your lifetime (inter vivos trust) or on your death (testamentary trust) - thus, it would be dormant until you die.

Purposes

Trusts are used for many purposes, including:

• managing assets. The responsibility of making investment decisions and maintaining adequate records can be transferred to a trustee with investment and administrative experience;

• protecting assets. Sometimes a properly drafted trust can protect assets in a trust from the creditors of a beneficiary. Additionally, the assets may be protected from a spouse in the event of a legal separation of a beneficiary;

• providing privacy. The assets, terms and conditions of a trust are generally not subject to public inspection;

• providing for multiple beneficiaries. A trust can benefit more than one beneficiary and allow the trustee discretion in making distributions when one beneficiary would need more than the other in the case of, for example, an expensive operation;

• providing for special needs. A beneficiary may have special needs related to education, health, disability or something else;

• providing for children from prior marriages in the case of 'blended' families - since the children of the first spouse to die may be left out in the cold if the surviving spouse changes the dispositions of a joint will, remarries or squanders the estate;

• providing for a life partner (where no marriage certificate exists) while retaining privacy of your dispositions in favour of such partner;

• simplifying the estate administration process for the family on one's death and the payment of taxes;

• avoiding the possibility of your ex spouse managing your children's estate on your death; and

• to provide discipline on a beneficiary by requiring the beneficiary to live within a set figure, getting a certain amount of income each year, regardless of inflation and need.

Who needs a trust?

Parents with young children who want to assure a good education for them, and will have enough assets to do so after death; people with beneficiaries who need help, in particular those beneficiaries who are not able to manage property well or for improvident beneficiaries; people who own property that is hard to divide; people who want to control their property because of family dynamics (for example, where there are doubts as to a beneficiary's spouse); and people who want to provide for administration of their estate if they become physically or mentally unable to do so.

Whatever the size of your estate is - you need to plan. If it is small in value, you may focus simply on who is to receive your assets after your death and who should be in charge of its management and distribution.

If your estate is larger, then you would need to consider also who is to receive your assets, and more importantly when, and also various ways to preserve your assets for your beneficiaries.

You may gamble, and wait until the last possible minute to plan your estate; you could be that person who takes estate planning decisions from his/her death bed - which all too often, are hasty decisions that are unwise and wrought with error.

Wouldn't it be better to put a plan in place now, and then possibly have years to think about it, polish it and fine-tune it until it's just right? Planning your estate now does not mean you will die tomorrow, just as buying a homeowner's insurance does not mean your house will burn down tomorrow.

But if you act now, you would not have to worry about what could happen to your family if your life does not follow the normal progression, or about making bad decisions when you have run out of time.

In a nutshell, it is called peace of mind - which you could have if you begin to act and plan now, since failure to plan is a plan for failure!

(Concluded. Part 1 was published last Sunday.)

Dr Chetcuti Ganado is legal advisor at BoV's Trustee Services Unit. Bank of Valletta plc is licensed to provide trustee services by the Malta Financial Services Authority.