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Defining a trust and its aims

The act which regulates Trusts and Trustees is the Trust and Trustees Act (TTA), which carries this definition: “A trust exists where a person (called a trustee) holds, as owner, or has vested in him property under an obligation to deal with that property for the benefit of persons (called the beneficiaries), whether or not yet ascertained or in existence, which is not for the benefit only of the trustee, or for a charitable purpose or for both such benefit and purpose aforesaid.”

Trust property may not form part of the trustee’s estate upon his death
- Albert Cilia

A more practical definition could possibly be that a trust arises where ownership of property is transferred by a person, the settler, to another person, the trustee, to be managed or dealt with for the benefit of another person, the beneficiary or a charitable purpose. The property transferred is not part of the trustee’s but it is a separate patrimony and not available for the trustee’s private creditors, spouses or heirs.

From these definitions, it is apparent that there are three legal capacities to bear in mind in the context of a trust: the settlor (who transfers the property in trust); the trustee (who receives the property in ownership); and the beneficiary (for whose benefit property is held, managed and administered by the trustee). Each party in this relationship is essential to the existence of a valid trust.

The “ownership” concept may prove difficult to digest for people not too conversant with the TTA but this was one of the significant amendments to the 1988 Act.

This was a welcome clarification because the term ‘holds’, traditionally used in this context, may be somewhat ambiguous and easily confused with deposit, a contract through which one person (depositor) gives to another (depositary) a thing (excluding immovable property) to be kept for him gratuitously and returned on demand in the same condition as received, or a mandate, a contract whereby one person (mandatory) gives another (mandatory) a commission to do something for him without reward and the other accepts the commission.

These latter institutes are examples where fiduciary obligations can feature without the existence of a trust.

The TTA provides that the implications of ownership include full control of the property, full administration, power of disposal, power to sue and be sued, as long as the trustee’s activities are not incompatible with any terms of the trust agreement. It is paramount to any law of trusts that it ensures that any property held in trust by a trustee constitutes a separate and distinct patrimony ‘insulated’ from the personal estate of the trustee.

The TTA, provides for this unequivocally as it specifies that “the trust property shall constitute a separate property owned by the trustee, distinct and separate from the personal property of the trustee and from other property held by the trustee under any other trust”.

The law subsequently reiterates the legal effects of this separate and distinct patrimony in a series of sub-articles, establishing a set of norms. Personal creditors of the trustee have no recourse against trust property. In case of insolvency or bankruptcy of the trustee, any property held by him on trust property will not form part of the trustee’s personal estate.

Trust property may not form part of the matrimonial or communal property of the trustee or his spouse. Trust property may not form part of the trustee’s estate upon his death. Public registers and authorities should allow trustees to record the fact that they act as trustee in transactions.

[email protected]

Albert Cilia FCCA is trust manager at Ganado Trustees & Fiduciaries Limited.

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