As a British Overseas Territory, the similarities between Bermuda and Great Britain include embracing cricket as a national sport, driving on the left hand side of the road, displaying an image of the Queen on currency and referring to the surrounding seabed as the Queen's Bottom.

Bermuda also has similar legal traditions to Great Britain and has adopted the common law legal system (as opposed to civil law or Islamic law). Common law evolved in England from the 11th century and generally relies more on judicial decisions, in the form of written judgments, than is the case in civil law jurisdictions.

One legal relationship unique to common law jurisdictions, and often associated with offshore jurisdictions, is the trust.

This article will attempt to convey the basic elements and uses of trusts to those unfamiliar with the concept, and will place an emphasis on Bermudian trusts.

The above term legal relationship is used because a trust is not an incorporated entity like a company. Although difficult to define (a jurisprudential hot-potato), for the purposes of this article a trust is a legal relationship created by a person or entity where any type of property is held by trustees for the benefit of a beneficiary.

Importantly, the property does not become part of the trustee's own assets, but is held separately and is known as the trust fund. The trustee has the power and duty to manage, employ or dispose of the property in accordance with the terms of the trust and relevant legislation.

The person or corporation who creates the trust is called the settlor (or among other things, the grantor). The settlor often transfers a nominal cash sum to the trustees in order to establish the trust. Additional assets can be added under the terms of the governing document or trust deed.

A trustee can be an individual, public, or private trust company and does not necessarily have to be a resident of Bermuda (though there are potential stamp duty ramifications where there are no Bermudian trustees). Under Bermuda's trust legislation, it is possible to have a combination of the above types of trustee – however, generally speaking, a trustee should not also be a beneficiary of the same trust.

For most types of trusts a beneficiary, like a settlor, can be an individual or corporation, and can also be another trust. The general exceptions to the above arise for purpose trusts and charitable trusts, which tend to have commercial and charitable objectives rather than beneficiaries.

It is possible for a trust to have a protector, whose role is set out in the trust deed. Commonly, the protector will have powers to remove trustees, provide specified consents, declare early termination and make other important trust-related decisions.

Asset protection, tax mitigation and succession planning are three common uses for trusts in Bermuda.

One such form of asset protection involves reducing the exposure of assets to creditors by placing the assets in a trust. In this respect, Bermuda as a jurisdiction maintains a reasonable approach between well-intentioned individuals and legitimate creditors. Under Bermuda's asset protection legislation, eligible creditors would have a claim for assets provided they brought a claim within six years.

As a tax neutral jurisdiction, Bermuda also provides potential taxation mitigation benefits for assets held in trust.

Succession planning through trust structures can help to ensure that property is protected for future generations. By way of example, a settlor with three children, all of whom will study at different schools/universities and are enrolled in different courses, might wish to place assets in a discretionary trust. This would allow the trustees to make provision for the children in accordance with their particular needs and take into account changing circumstances and demands.

Fixed trusts (a basic form trust) specifically delineate the property that flows to each beneficiary. A discretionary trust, a popular form of trust in Bermuda, does not provide the beneficiaries with a legal interest over the trust property, but gives the trustees unfettered discretion to determine whether or not beneficiaries get any trust property at all. There are many uses for this type of trust – including being used for beneficiaries who may be prone to irresponsible use of funds if outside/trustee discretion was not employed.

Purpose trusts and unit trusts are generally employed for commercial purposes, including the investment of trust assets in order to generate investment returns. In Bermuda, a unit trust can have legally separate cells that ring fence assets in each trust cell. This prevents liabilities attaching to one cell from affecting other cells and thereby provides protection to certain investors.

In addition to the above, charitable trusts (and non-charitable purpose trusts) can provide for general non-commercial purposes --for example, improving the literacy rate in certain communities, or increasing the number of mating pairs of cahows.

The uses of Bermuda trusts are many and the very limited examples outlined above are by no means exhaustive. Equipped with a basic understanding of trusts it becomes clear that with a creative settlor and experienced legal practitioner there are a wide variety of practical uses for trusts in Bermuda.

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.