What is a Trust?
A Trust1 involves the separation of the legal title, or ownership, of property from the right to benefit from that property. It involves a person (the "settlor") transferring property (the "trust fund") to another (the "trustee") to hold for the benefit of another person or purpose (a "beneficiary"). A typical trust structure may look something like the following:
It is a useful and practical concept that has been around for centuries. Both the Romans and early Islamic societies developed similar structures, but it is England, and its affiliated Crown Dependencies and former commonwealth countries that have been at the forefront of the development of trusts.
Historically, trusts were used as a way of delegating the responsibility for looking after a property to one person whilst dictating that another had the right to benefit from it either immediately or at some point in the future. Thus medieval knights would leave their estate to a trusted friend to look after for the benefit of their family whilst they went on crusade on the understanding that, if they returned the property would be returned to them, but if they didn't, it would pass to their family.
The law developed to enforce this arrangement on the basis that it was not "equitable" (i.e "fair") to allow the trusted friend to walk off with the property unchecked. Nowadays, although a trust can still be established orally or by conduct most trusts are formally established in a written instrument and are additionally governed by local law (such as The Trusts (Guernsey) Law, 2007).
The last paper in the Advanced Series looks in more detail at the Origins and future of the trust.
Footnotes
1 In modern usage the terms "trust" and "settlement" are used interchangeably.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.