Last month's column may have raised reader's anxiety levels by emphasising the importance of forward planning – in particular the preparation of a will – and setting out some of the problems that could arise from a failure to undertake this simple, but crucial, step. In doing so I touched briefly upon the concept of a trust – sometimes known as a "living will" – and promised to explore this more thoroughly next time around.

As I head a trust company licensed in Gibraltar, I am often asked to explain what it is we "trustees" do and what trusts can be used for. I always have to answer that although the basic legal concept is incredibly simple, trusts are so endlessly flexible and varied in their application as to defy any "one size fits all" answer.

So let's start with the concept. A trust is quite simply a relationship whereby property is transferred from one person to another – known as the trustee – who holds the property solely for the benefit of specified people or objects – known as the beneficiaries. A legal word for transfer is "settle", hence the transferor is usually referred to as the "settlor" and the trust is often referred to as a "settlement". This relationship is documented in a trust deed that sets out the terms and conditions under which the trustee must hold and administer the trust assets. The deed will also set out the rights and interests of the beneficiaries.

In other words, setting up a trust during one's lifetime is very similar to making a will, with the trustee fulfilling the role of an executor. With careful planning, this can eradicate the unnecessary costs and delays of probate, as well as providing potential benefits in respect of taxation, asset protection or enhanced confidentiality. For all these reasons, the use of trusts as a means of holding and passing on family estates – even those of a modest value – has increased dramatically in recent years.

Gibraltar boasts a large number of trust companies, which employ several hundred people locally, and is at the forefront of best practice in the area of trusts. It was, for instance, one of the first international finance centres to introduce the regulation and supervision of trust service providers.

Local trust companies are regulated by the Gibraltar Financial Services Commission. Those of us involved in the industry – whether we work for larger international groups such as the one for which I toil daily, or smaller "boutique" style firms – are obliged by law to follow the same rules and employ best practice at all times. But when and where did the trust originate? Time to dust off the history books.

What did the Romans ever do for us? Well, not surprisingly Roman law had a well-developed version of a trust. Indeed the Latin word used for this type of arrangement was fidecommissum, which is very close to the modern Spanish word for a trust – un fidecomiso. However, the Roman version dealt with "trusts" created by a will so these were used to deal with someone's estate only when they had passed on.

For the "life time" version we must fast forward to the time of the crusades. It is not perhaps surprising that at a time when people with substantial properties and rights were setting out on incredibly dangerous campaigns of a long duration, they would need a legal mechanism that would allow them to place their assets into someone else's safekeeping during their lifetime – or inter vivos to use the correct legal term.

The difficulties arose if and when the knight returned from the crusades and wanted his property – perhaps even his wife – restored to him. Beset by problems arising from these disputes, a whole raft of law and practice developed so that the concept of transferring assets into "trust" was accepted on the basis that the "trustee" or person to whom property had been transferred was in fact only holding it on behalf of others – the beneficiaries.

From such roots, the trust remains a predominantly "Anglo Saxon" concept that is recognised primarily in jurisdictions where the system of Common Law applies. It is no surprise that beyond the UK itself, trusts have prospered in its former colonies – the US, Canada, Australia and New Zealand – as well as in its former and current dependencies and territories around the world. Gibraltar trust companies therefore compete with firms in the Channel Islands and Isle of Man, together with further flung jurisdictions in the Caribbean and Pacific.

In countries that operate under Civil Law Codes, such as Spain, the concept of "giving away" assets – or at the very least surrendering control of them to trustees – can prove impossible to accept. Settlors often seek to exert influence – or control – over the transferred assets once the settlement has taken place. In Gibraltar and other common law jurisdictions this is not permitted because it could lead to the trust being declared a "sham" and forcibly unwound by a court at a later date.

Various options have been developed to deal with this problem for clients in civil law countries. The most common alternative is the "foundation" which for many years was to be found in only a few jurisdictions such as Liechtenstein and Panama. In recent years though, we have seen robust, up to date foundation legislation enacted in several British overseas territories, including Guernsey and Isle of Man. Although the end results may appear similar, foundations are materially different from trusts and I will discuss them in more detail as part of a future article.

As so often with financial services, a particular segment comes with its own confusing jargon and acronyms. Earlier I set out the different parties to a trust arrangement as I did last month when describing how a will should be executed. Some terms are the same; beneficiaries exist under both wills and trusts. Under a will however, terms such as testator and executor are used rather than settlor and trustee.

Other terms you might come across when reading about trusts (as I am sure you will now do) can refer to the type of trust – irrevocable, discretionary or perhaps for charitable purposes. If trustees fail to comply with the trust deed this can lead to a "breach of trust" and as you would expect with any regulated financial services business, legal remedies will apply.

A particularly dangerous area is where some illegal intent exists – perhaps related to an imminent divorce or a pending legal case where someone is being sued. A trust cannot be used to place your assets out of the reach of legitimate creditors such as an aggrieved spouse or business associate.

Trusts are used for many purposes and in the past I have written at some length on overseas pension schemes including QROPS and QNUPS. In both cases the underlying schemes are based on a type of trust that sets out the way in which specific types of pensions are established and managed. There are several other examples which demonstrate that the original crusade era concept is still very much under development as further uses are found for trusts.

This is a complex area so if considering whether the use of any type of trust might be suitable for you, as always professional advice should be sought at the outset. It can also pay to do your own research. Trust services are not necessarily cheap but they can be highly effective so it may be money well spent. As in other areas, we are very fortunate here in Gibraltar because we benefit from good trust legislation, an effective legal system and a wide range of world-class trust companies and professionals. Trust me.

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.