The Trust: Its main elements and key players
The definition above already identifies two of the three key players in a trust - the trustee and the beneficiary, the other being the settlor.
The settlor is the creator of an express trust and the trust is created where said settlor, as an absolute owner of property, passes the legal title in that property to the trustee to hold that property on trust for the benefit of another person (the beneficiary) in accordance with terms set out by the settlor. There are therefore three key players to bear in mind in the creation of a trust: the settlor, the trustee and the beneficiary.
The settlor decides the form which the trust property may take, the interests of the beneficiaries, the identity of the beneficiaries, and the persons who will be appointed as trustees. Settlors can reserve themselves the right to change the trustee or even to revoke the trust. A trust is considered to be completely established only when the property has been transferred to the trustee.
Any person can be a beneficiary of a trust, whether such person is a legal or a natural person, and irrespective of whether such person is a minor, mentally incapacitated, bankrupt or even unborn. However, in some cases, it may be necessary for a legal representative to be appointed for the beneficiary.
For the duration of the trust, the beneficiary occupies a peculiar position in law. While it is the trustee who holds the legal title in the property per se the beneficiary has an equitable interest in the said property. There therefore results a sort of "dual ownership" in the trust property with the trustee having rights in rem (ownership) and the beneficiary having rights in personam (personal; against the trustee). Beneficiaries are given the power to compel the due administration of the trust. They are entitled to sue the trustees and any third party for damages. They are also entitled to trace the trust property in the hands of third parties, except for bona fide transferees of the legal estate. Beneficiaries are given an interest in the trust property and are entitled to assign the whole or part of their interest to others.
If in agreement, the beneficiaries have also the right to prematurely terminate the trust in spite of the wishes of the settlor, and resettle the trust property in any terms they wish if all are adult, sui juris, and between them entitled to the entirety of the trust property. This rule was established in Saunders vs Vautier. Therefore, if some of the beneficiaries are infants, or if the trust creates rights in favour of persons yet unborn, or undetermined, the termination of the trust as outlined above would not be possible.
Trustees bear the responsibility of controlling and managing the trust property solely for the benefit of the beneficiaries. As a fiduciary, the trustee's relationship to the beneficiary is based on trust, loyalty, integrity and confidence. Ultimately, the trustees are accountable to the beneficiaries for what occurs in the course of administration, subject to such exoneration as may be afforded by the terms of the trust settlement. Trustees are responsible to the beneficiaries, in their personal capacity, in case of mismanagement of the trust funds.
The uses and advantages of a trust are various. A trust can be used as a tool for estate planning, tax planning and asset protection. A trust can also be set up to regulate the disposition of assets in succession instead of a will. It could also be beneficial to use trusts in cases where individuals are not able to manage their own affairs such as spendthrifts, minors, disabled persons or persons suffering from an illness.
The author specialises in trust law at Fenech & Fenech Advocates.