A trust is not a legal person. An express trust is a fiduciary
relationship whereby a person, the settlor, transfers property a
trustee to hold and apply for the benefit of one or more persons or
purposes in accordance with the trust's terms.
There is no legal definition of asset protection trust under the
law of Bermuda or in most other jurisdictions. An asset protection
trust may be described as an express trust with specific
terms that aim to protect the trust property from claims
brought against the trust's settlor or beneficiaries. However,
asset protection is rarely the sole reason why a person might or
should wish to form a trust. The overriding reason why trusts
remain attractive to private clients is the flexibility that they
provide for long term succession planning.
Most jurisdictions permit trusts to last for many years. Under
Bermuda law, aside from trusts over Bermuda land, trusts can have
an indefinite duration if the trust instrument permits it. As
people are living longer, problems increasingly arise when
individuals lose mental capacity and are, for example, unable to
exercise or properly exercise voting or other rights in relation to
their assets, which may include controlling shareholdings in the
family business. Serious delays may occur in circumstances where an
individual's vote is required before the business can enter
into an important transaction. Trusts that provide trustees with
discretionary dispositive and management powers can facilitate
continuity when transitioning from one generation to the next.
Trusts can provide flexibility to adapt to unforeseen circumstances
without having to: dispose of the assets; apply to a court for the
appointment of a guardian, receiver, administrator or executor of
an individual or an individual's estate, as the case maybe.
Trusts can also facilitate efficient tax planning for example,
persons whose family members may be moving from one jurisdiction to
another might wish to ensure they do not unwittingly expose
existing capital and future income on such capital to taxation in
the jurisdiction where they intend to become resident. However, on
occasions, depending on the settlor's tax residency and other
circumstances, forming a trust may be unattractive for tax
Article first published in the Trusts & Wealth
Management Journal September 2016
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.
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When working with family businesses, it's sometimes surprising to see the gap between the founder and the next generation, particularly when the next generation do not see the importance of the business.
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