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There’s trust and there is a trust

To the question what the term “trust” means to them, most people would probably promptly answer that it’s the special bond they have with a particular person, that is, they feel they can tell that person everything since that person will never betray them. Their answers would be correct to define “trust” but, then again, there is a different kind of “trust”, which might put the word “betray” in quite a conflict with what the other type of trust consists of.

The kind of trust we are considering here is of a different type. Take a person (who, in this example, we shall refer to as A) who owns substantial assets, say, a large amount of shares in company X and this person could be incurring a substantial amount of tax because he is the owner of these shares. So what does he do? A trust.

A sets up a number of trusts with a number of trustees (persons whom he trusts – hence the name “trust”, which is a play on the verb to trust) to administer and be, in the eyes of the law, the “owners” of these shares and he would appoint himself as the beneficiary of such trusts. Legally, therefore, the trustees would be the owners of those shares. But the “real” owner, that is, the person who is ultimately going to benefit from those trusts, would be A. But since, in the eyes of the law, he is not the owner and since the amount of shares owned are divided among a number of new “owners” – that is, the trustees – then the amount of tax to be paid on their income would be much lower or none at all!

This results in tax evasion and, obviously, the intention behind that kind of trust is a bad one. However, trusts are not always used for such a purpose, some are used to protect the interests of the people one holds dear, for example a widowed parent is terminally ill and he has four minor children who will not be able to take care of his property because they are still young. So what does he do? A trust.

He appoints his friend as a trustee administering and taking care of the property with the widowed parent’s children as the beneficiaries. There are a multitude of other examples which one can talk about to illustrate the point regarding trusts but they all boil down to the same thing: a person, as the owner of X, is legally transferring his ownership of X to another person to administer for his benefit or for the benefit of the people he would like to appoint as his beneficiaries.

Trusts can be used with a multitude of good intentions and there are a number of trusts that are set up like this but, unfortunately, there are other trusts that are not set up with a good intention. These are trusts that are set up to “betray” someone, to “cheat” someone, to “avoid” something

Trusts can be used in various scenarios and are not strictly relegated to commercial use but are also used in family scenarios. What is more, they are increasingly becoming more popular. Why? For obvious reasons: to cheat the spouse of his/her share of the community of acquests! Is that fair? No but, then again, there are situations when a trust, in certain circumstances, is fair.

Usually, trusts within the family are not set up when everything is rosy. They are usually set up when things have gone south and, let’s say B, a wealthy businessman, decides he does not want his wife C to get hold of his multi-million euro family fortune, what does he do? A trust. He sets up a trust behind C’s back and most of the multi-million euro fortune “disappears” because, in the eyes of the law, B is no longer the owner but D is, whom, in reality, is the trustee, with B being the beneficiary. And what about C?

Another scenario is if a wife, E, who had a number of adulterous relationships behind her husband F’s back. F is hurt and, to top it all, E is after F’s fortune. He does not want to share his hard-earned earnings with the wife who has hurt him for so many years. So what does he do? A trust.

In these cases, who can say whether these trusts are done for the right or wrong reasons? Would it be right for E, the adulterous wife, to share F’s fortune after giving him so much grief? Is B right when he wants to exclude his wife C from his fortune, even though she might have been a very good wife and has not caused him any grief? The answer to the second question is obviously no. But separations are not easy on the heart and they are fraught with emotions that, sometimes, might lead to trusts being set up for various reasons, whether good or bad.

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Dr Mangion is a lawyer and a published author with a special interest in family and child law.

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