11/ 17/ 12Tr ust l w - Wi i edi , t he f r ee encycl pedi a kp a o a Trust law From Wikipedia, the free encyclopedia (Redirected from Inter vivos trust) In common law legal systems, a trust is a relationship whereby property (real or personal, tangible or intangible) is held by one party for the benefit of another. A trust conventionally arises when property is transferred by one party to be held by another party for the benefit of a third party, although it is also possible for a legal owner to create a trust of property without transferring it to anyone else, simply by declaring that the property will henceforth be held for the benefit of the beneficiary. A trust is created by a settlor (archaically known, in the context of trusts of land, as the feoffor to uses), who transfers some or all of his property to a trustee (archaically known, in the context of land, as the feoffee to uses), who holds that trust property (or trust corpus) for the benefit of the beneficiaries (archaically known as the cestui que use, or cestui que trust). In the case of the self-declared trust, the settlor and trustee are the same person. The trustee has legal title to the trust property, but the beneficiaries have equitable title to the trust property (separation of control and ownership). The trustee owes a fiduciary duty to the beneficiaries, who are the "beneficial" owners of the trust property. (Note: A trustee may be either a natural person, or an artificial person (such as a company or a public body), and there may be a single trustee or multiple co-trustees. There may be a single beneficiary or multiple beneficiaries. The settlor may himself be a beneficiary.) The trust is governed by the terms under which it was created. The terms of the trust are usually written down in a trust instrument or deed but, in England and Wales, it is not necessary for them to be written down to be legally binding, except in the case of land. The terms of the trust must specify what property is to be transferred into the trust (certainty of subject-matter), and who the beneficiaries will be of that trust (certainty of objects). It may also set out the detailed powers and duties of the trustees (such as powers of investment, powers to vary the interests of the beneficiaries, and powers to appoint new trustees). The trust is also governed by local law. The trustee is obliged to administer the trust in accordance with both the terms of the trust and the governing law. In the United States, the settlor is also called the trustor, grantor, donor or creator. In some other jurisdictions, the settlor may also be known as the "founder". Contents 1 History 2 Significance 3 Basic principles 3.1 Overview 3.2 Terms 3.3 Creation 3.4 Formalities 3.5 Trustees 3.6 Beneficiaries 4 Purposes 5 Types 5.1 Alphabetic list of trust types 5.2 Directed Trusts 6 Tax and regulation en. w i edi . or g/ w i I nt er _vi os_t r ust k ip a k i/ v 1/ 15 1 Parties to the trust 8. The Lord Chancellor would consider it "unconscionable" that the legal owner could go back on his word and deny the claims of the Crusader (the "true" owner). often to pay and receive feudal dues. he needed someone to run his estate in his absence. The Crusader was the "beneficiary" and the acquaintance the "trustee". Personal trust law developed in England at the time of the Crusades.4 Tax considerations 9 See also 10 Notes 11 References History Main article: History of trusts Roman law had a well-developed concept of the trust (fideicommissum) in terms of "testamentary trusts" created by wills but never developed the concept of the "inter vivos trust" that applied while the creator was still alive. However. it became known that the Lord Chancellor's court (the Court of Chancery) would continually recognize the claim of a returning Crusader. The Lord Chancellor could do what was "just" and "equitable". w i edi . the land belonged to the trustee. who would refer the matter to his Lord Chancellor. and would be compelled to convey it back to him when requested. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 2/ 15 . he would convey ownership of his lands to an acquaintance. Crusaders would often return to find the legal owners' refusal to hand over the property. The Crusader had no legal claim. The disgruntled Crusader would then petition the king. he would find in favor of the returning Crusader. in which the first-born male inherited all the property and "usually assumes the responsibility of trusteeship of the property and of adjudicating attendant disputes". The legal owner would hold the land for the benefit of the original owner. and in time developed into what we now know as a trust. who was under no obligation to return it.[1] The waqf is an equivalent institution in Islamic law. "Antitrust law" emerged in the 19th century when industries created monopolistic trusts by entrusting their shares to en. English common law did not recognize his claim. restricted to charitable trusts. could be considered a trust. Over time. Therefore.11/ 17/ 12 Tr ust l w . The term "use of land" was coined. As far as the King's courts were concerned. To achieve this. t he f r ee encycl pedi a kp a o a 7 Inter vivos trusts in the United States 8 Inter vivos trusts in South Africa 8. Unfortunately for the Crusader. The primogeniture system.2 Establishing a living trust 8. When a landowner left England to fight in the Crusades. land ownership in England was based on the feudal system. and had the power to decide a case according to his conscience.Wi i edi .[citation needed] At the time. At this time. the principle of equity was born. on the understanding that the ownership would be conveyed back on his return. This was created by later common law jurisdictions.3 Asset protection 8. during the 12th and 13th centuries. Although trusts are often associated with intrafamily wealth transfers. t he f r ee encycl pedi a kp a o a a board of trustees in exchange for shares of equal value with dividend rights. though not quite comparable. Curaçao for example has introduced a trust in its Civil Code from 1 January 2012. especially in countries within the English law sphere of influence.[5] France has recently added a similar. and their respective creditors (particularly the trustee's creditors). constituted by a Notarial deed. and their success has led some civil law jurisdictions to incorporate trusts into their civil codes. trusts play a significant role in most common law systems. they do recognise the concept under the Hague Convention on the Law Applicable to Trusts and on their Recognition (partly only the extent that they are parties thereto).11/ 17/ 12 Tr ust l w . but growth assets are more commonly placed into trust (for tax and estate planning benefits). w i edi .[2]:475–6 One of the most significant aspects of trusts is the ability to partition and shield assets from the trustee. a trust can be viewed as a generic form of a corporation where the settlors (investors) are also the beneficiaries. and leading to its use in pensions. "appointment" also has a technical trust law meaning. unlike the trust. for example. or the name of the document which gives effect to the appointment. they have become very important in American capital markets. In trust law. notion to its own law with la fiducie.Wi i edi . Trusts may be created during a person's life (usually by a trust instrument) or after death in a will. trusts were used in this case because a corporation could not own other companies' stock[2]:447 and thereby become a holding company without a "special act of the legislature".[2] Terms Appointment. is a contract.[2]:447 Significance The trust is widely considered to be the most innovative contribution to the English legal system. be organized as a cooperative corporation. mutual funds. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 3/ 15 .[3] Holding companies were used after the restriction on owning other companies' shares was lifted. "appointment" often has its everyday meaning. which does only allow express trusts.[7] la fiducie. or perhaps even a nonprofit corporation.[6] which was modified in 2009. and whilst most civil law jurisdictions do not generally contain the concept of a trust within their legal systems.[4] Today. either: the act of appointing (i. Trusts are widely used internationally. It is common to talk of "the appointment of a trustee". and asset securitization.[2] Basic principles Overview Property of any sort may be held on trust. giving) an asset from the trust to a beneficiary (usually where there is some choice in the matter—such as in a discretionary trust). The uses of trusts are many and varied.e. these boards could then enforce a monopoly. particularly through pension funds (essentially always trusts) and mutual funds (often trusts). with the language in the "governing instrument". This is particularly evident in the Delaware business trust. The Hague Convention also regulates conflict of trusts. en. making it "bankruptcy remote". However. However. limited liability corporation. multiple beneficiaries. In a relevant sense. which could theoretically. the settlor must have described a clear class of beneficiaries (McPhail v Doulton). a power of appointment is given to someone other than the trustee. 2. Trust property may be any form of specific property. A resulting trust is implied by the law to work out the presumed intentions of the parties. a written trust instrument created by the settlor and signed by both the settlor and the trustees (often referred to as an inter vivos or "living trust"). Also. for example. and by others that they do not.Wi i edi . It is often.[8] 3. tangible or intangible. en. If a protector also has fiduciary responsibilities then the courts—if asked by beneficiaries—could order him or her to act in the way the court decrees. The property subject to the trust must be clearly identified (Palmer v Simmonds). Trustee. settle "the majority of my estate". a protector is unnecessary to the nature of a trust—many trusts can and do operate without one. 3. Intention. while the nature of trusts has been established over hundreds of years. w i edi . A constructive trust is a trust implied by law to work out justice between the parties. An implied trust is one created by a court of equity because of acts or situations of the parties. a corporation or more than one of either) who administers a trust. where the trustees have power to decide who the beneficiaries will be. where it exists. Typically a trust can be created in the following ways: 1. A protector may be appointed in an express. In the case of discretionary trusts. a trust requires three certainties. No-one doubts that a trustee has fiduciary responsibilities. Implied trusts are divided into two categories: resulting and constructive. A person (either an individual. A trustee is considered a fiduciary and owes the highest duty under the law to protect trust assets from unreasonable loss for the trust's beneficiaries. There must be a clear intention to create a trust (Re Adams and the Kensington Vestry) 2. The case law has not yet established this point. Subject Matter. but it does not take into consideration their expressed intent. for example state. protectors are comparatively new. an oral declaration. as determined in Knight v Knight: 1. Sometimes. the protector. inter vivos trust. However. regardless of their intentions. or a beneficiary. a court order (for example in family proceedings). or 4. Objects. real estate. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 4/ 15 . is called a power of appointment. The beneficiaries of the trust must be clearly identified. be it real or personal. It is therefore thought by some that protectors have fiduciary duties. as the precise extent cannot be ascertained. Protector. the will of a decedent. One may not. In some jurisdictions certain types of assets may not be the subject of a trust without a written document. as a person who has some control over the trustee—usually including a power to dismiss the trustee and appoint another.[9] Formalities Generally. t he f r ee encycl pedi a kp a o a The trustee's right to do this.11/ 17/ 12 Tr ust l w . such as the settlor. or at least be ascertainable (Re Hain's Settlement). Creation Trusts may be created by the expressed intentions of the settlor (express trusts) or they may be created by operation of law known as implied trusts. usually called a testamentary trust. The legal status of a protector is the subject of some debate. shares or cash. Trusts may be created purely for privacy.Wi i edi . Therefore. For example. The circumstances in which this discretionary authority is exercised by trustees is usually provided for under the terms of the trust instrument. In order to sue a trust. the object of a trust could be a charitable purpose rather than specific beneficiaries. a court may appoint a trustee. A trustee has many rights and responsibilities. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 5/ 15 . these vary from trust to trust depending on the type of the trust. The settlor has much discretion when creating the trust. The trustee's duty is to determine in the specific instance of a beneficiary request whether to provide any funds and in what manner. "my future grandchildren"). the trustees must make decisions as to whether beneficiaries should receive trust assets for their benefit. being a trustee is an unpaid job. accounting for and reporting periodically to the beneficiaries concerning all transactions associated with trust property. Trustees are usually appointed in the document (instrument) which creates the trust. bankers or other professionals who will not work for free. Trustees The trustee may be either a person or a legal entity such as a company. the lawsuit must be brought by the trustee in his or her capacity as such. subject to some limitations imposed by law. whereas another may be entitled to the entirety of the trust property when he attains the age of twenty-five years. but are mere relationships. interest from a bank account). A trust may have one or multiple trustees. conversely. The trust's affairs may include investing the assets of the trust. if a trustee does not properly invest trust monies to expand the trust fund. Alternatively.11/ 17/ 12 Tr ust l w . w i edi . In some cases. one must sue the trustee in his or her capacity as trustee for a specific trust. A trustee may be held personally liable for certain problems which arise with the trust. In modern times trustees are often lawyers. Either immediately or eventually. One beneficiary may be entitled to income (for example. By default. There are two main types of trustees. filing any required tax returns on behalf of the trust. or in Ireland the trustee may be any administrator of a charity to which the trust is related. he or she may be liable for the difference. The trustees are the legal owners of the trust's property. The extent of a beneficiary's interest depends on the wording of the trust document. Where a trust is absent any trustees. Thus. professional and non-professional. if the trust needs to sue someone. Trusts are often confused with legal persons. t he f r ee encycl pedi a kp a o a Beneficiaries may include people not born at the date of the trust (for example. The trustees administer the affairs attendant to the trust. not entities. A trust generally will not fail solely for want of a trustee. often a trust document will state specifically that trustees are entitled to reasonable payment for their work. ensuring trust property is preserved and productive for the beneficiaries. Liability is different for the two types. the beneficiaries will receive income from the trust property. The terms of a will are public and the terms of a trust are en. Beneficiaries The beneficiaries are beneficial (or equitable) owners of the trust property. or they will receive the property itself. they have no legal existence independent from the trustee and his or her ownership of the subject matter of the trust. Purposes Common purposes for trusts include: 1. Privacy. and other duties. In some families. t he f r ee encycl pedi a kp a o a 2.. corporations) in their structure. The above is a considerable simplification of the scope of asset protection. Unit Trusts. Some asset protection is legal and (arguably) moral. 10.g. most often in the finance and insurance sectors. Wills and Estate Planning. Pension plans are typically set up as a trust. If the children are under 18. w i edi . and the employees and their dependents as beneficiaries. with the employer as settlor. It is not unusual for an individual to create an inter vivos trust with a corporate trustee who may then disburse funds only for causes articulated in the trust document. However. In most jurisdictions. The tax consequences of doing anything using a trust are usually different from the tax consequences of achieving the same effect by another route (if. 6. In others. courts were asked to determine the efficacy of spendthrift clauses as against the trust beneficiaries seeking to engage in such assignments. the administration of every deceased's estate is a form of trust). 9. for example. Trusts frequently appear in wills (indeed. or g/ w i I nt er _vi os_t r ust k ip a k i/ v . Remuneration Trusts. 5. and therefore without them being available to his creditors. indeed. 8. and then to the children equally. a trust must come into existence until the contingency age is reached. one's children) against their own inability to handle money. technically. 4. Tax Planning. This form of trust was developed by Paul Baxendale-Walker and has since gained widespread use. while some asset protection is illegal and/or (arguably) immoral.. of which the settlor may be the protector and a beneficiary. In such an arrangement the settlor may be in a position to benefit from the trust assets. Co-ownership. not. without owning them. but not the trustee and not the sole beneficiary. the tax consequences of using the trust are better than the alternative. and the creditors of those beneficiaries seeking to reach trust assets. corporations may be charities also. The executor of the will is (usually) the trustee. Trusts may be used to protect beneficiaries (for example. charities are tightly regulated for the public benefit (in England. It is a subject which straddles ethical boundaries. by the Charity Commission). For an example see the "nil-band discretionary trust".[11] Corporate Structures. The trustee will have powers to assist the beneficiaries during their minority.[10] Charities. In many cases.g. In particular. Pension Plans. it would be possible to do so). or under some other age mentioned in the will (21 and 25 are common).Wi i edi . A fairly conventional will. A case law doctrine developed whereby courts may generally recognize the efficacy of spendthrift clauses as against trust beneficiaries and their creditors. 3. this alone makes the use of trusts ideal. explained at Inheritance Tax (United Kingdom). In many cases. sometimes use trusts among various other entities (e. Asset Protection. The principle of "asset protection" is for a person to divorce himself or herself personally from the assets he or she would otherwise own. but not against creditors of a settlor. "The Teddy Bear Trust"). Trusts for the benefit of directors and employees or companies or their families or dependents. Such a trust will usually preserve anonymity with a completely unconnected name (e. In some common law jurisdictions all charities must take the form of trusts. The trust has proved to be such a flexible concept that it has proved capable of working as an investment vehicle: the unit trust.11/ 17/ 12 Tr ust l w . 11. even for a comparatively poor person. with the intention that future creditors will not be able to attack that money. and the children are the beneficiaries. These are especially attractive for spendthrifts. a family member or friend has prevailed upon the spendthrift/settlor to enter into such a relationship. ownership of a matrimonial home is commonly effected by a trust with both partners as beneficiaries and 6/ 15 en. Complex business arrangements. and trusts are therefore frequently used for legal tax avoidance. One method of asset protection is the creation of a discretionary trust. over time. Ownership of property by more than one person is facilitated by a trust. even though they may be able to bankrupt him or her personally. often leaves assets to the deceased's spouse (if any). Spendthrift Protection. 7. a life interest ("to pay the income to x for her lifetime"). In the event of contractor insolvency. Common examples are: a trust for a minor ("to x if she attains 21"). which is also a revocable trust. where the wrongdoer has acquired legal title to some property and cannot in good conscience be allowed to benefit from it.11/ 17/ 12 Tr ust l w . t he f r ee encycl pedi a kp a o a one. either now. not the grantor's children. The intention of the parties to create the trust must be shown clearly by their language or conduct. or both. Almost all trusts dealt with in the trust industry are of this type. because any income generated by the trust's assets can be made accessible to the grantor's children while still leaving the assets in trust for the grandchildren. Constructive trust. a court of equity recognizing a plaintiff's request for the equitable remedy of a constructive trust may decide that a constructive trust has been created and simply order the person holding the assets to deliver them to the person who rightfully should have them. In these cases this will be achieved by signing a trust instrument. and en. essentially. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 7/ 15 . Generation-skipping trusts can still be used to provide financial benefits to a grantor's children. which will either be a will or a trust deed. The constructive trustee is not necessarily the person who is guilty of the wrongdoing. For example. or upon his or her later death. In Canada[12] and Minnesota[13] monies owed by employers to contractors or by contractors to subcontractors on construction projects must by law be held in trust. The children of the grantor never take title to the assets. the entitlement of the beneficiaries is fixed by the settlor. The trustee has little or no discretion. Because trusts often have multiple characteristics or purposes. In the USA Statute of Frauds provisions require express trusts to be evidenced in writing if the trust property is above a certain value. a constructive trust is not created by an agreement between a settlor and the trustee. A constructive trust is imposed by the law as an "equitable remedy.Wi i edi . w i edi . depending on the characteristics or the purpose of the trust. over their assets. owning the legal title as trustee." This generally occurs due to some wrongdoing. A constructive trust is. For example. In a fixed trust. Dynasty Trust (also known as a generation-skipping trust). Types Alphabetic list of trust types Trusts go by many different names. This allows the grantor to avoid the estate taxes that would apply if the assets were transferred to his or her children first. a living trust is often an express trust. For an express trust to exist. however. An express trust arises where a settlor deliberately and consciously decides to create a trust. Fixed trust. 12. the institutional constructive trust and the remedial constructive trust. the former arising due to some defect in the transfer of property. there must be certainty to the objects of the trust and the trust property. a single trust might accurately be described in several ways. and might include an incentive trust. this makes it much more likely that subcontractors will be paid for work completed. The latter is an "equitable remedy" imposed by law being truly remedial. and in practice it is often a bank or similar organization. Construction law. and so forth. They contrast with resulting and constructive trusts. a legal fiction. or is real estate. The distinction may be finer than the preceding exposition in that there are also said to be two forms of constructive trust. Express trust. Unlike an express trust. A type of trust in which assets are passed down to the grantor's grandchildren. but objects not explicitly set out may also be an object of a charitable trust. a public trust (also called a charitable trust) has some charitable end as its beneficiary. By extension. A resulting trust may be deemed to be present where a trust instrument is not properly drafted and a portion of the equitable title has not been provided for. In such a case. A settlor who is living at the time the trust is established creates an inter vivos trust. a court may change the terms of the trust due to unexpected changes in circumstances that make the trust uneconomical or unwieldy to administer. but usually with legislative modifications to make them more commercially attractive by abolishing or modifying certain common law restrictions. A hybrid trust combines elements of both fixed and discretionary trusts. Private and public trusts. as distinct from an express trust. By contrast. en. A personal injury trust is any form of trust where funds are held by trustees for the benefit of a person who has suffered an injury and funded exclusively by funds derived from payments made in consequence of that injury. The permissible objects are generally set out in legislation. the law may raise a resulting trust for the benefit of the grantor (the creator of the trust). Strictly speaking. carrying out some religious purpose. is created where some of the legal requirements for an express trust are not met. A trust that uses distributions from income or principal as an incentive to encourage or discourage certain behaviors on the part of the beneficiary.11/ 17/ 12 Tr ust l w . A private trust has one or more particular individuals as its beneficiary. The term "incentive trust" is sometimes used to distinguish trusts that provide fixed conditions for access to trust funds from discretionary trusts that leave such decisions up to the trustee. w i edi . but an intention on behalf of the parties to create a trust can be presumed to exist. Offshore trusts are usually conceptually similar to onshore trusts in common law countries. the term is more commonly used to describe a trust in one of the jurisdictions known as offshore financial centers or. by analogy. In a hybrid trust. an offshore trust is a trust which is resident in any jurisdiction other than that in which the settlor is resident. the trustee must pay a certain amount of the trust property to each beneficiary fixed by the settlor. Charitable trusts are entitled to special treatment under the law of trusts and also the law of taxation. the trust must have as its object certain purposes such as alleviating poverty. But the trustee has discretion as to how any remaining trust property. colloquially. an irrevocable trust is one in which the terms of the trust cannot be amended or revised until the terms or purposes of the trust have been completed.Wi i edi . once these fixed amounts have been paid out. Offshore trust. In other words. Implied trust. etc. An implied trust. providing education. Although in rare cases. under normal circumstances an irrevocable trust may not be changed by the trustee or the beneficiaries of the trust. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 8/ 15 . the grantor may be deemed to be a beneficiary of the portion of the equitable title that was not properly provided for in the trust document. Inter vivos trust (or living trust). However. "onshore trust" has come to mean any trust resident in a high-tax jurisdiction. is to be paid to the beneficiaries. Personal injury trust. In order to qualify as a charitable trust. Irrevocable trust. In contrast to a revocable trust. t he f r ee encycl pedi a kp a o a a remainder ("to pay the capital to y after the death of x") Hybrid trust. as tax havens. Incentive trust. All other trusts are special trusts where the trustee has active duties beyond this. A could establish a trust with B as the beneficiary. a special trust contrasts with a simple trust (see above). with the trustee instructed to allow A use of the property until they died. A post mortem trust constituted externally from a will but imposing obligations as a trustee on one. This is also called a bare trust. and thereafter to allow its use to B. Bare trusts are commonly used to transfer assets to minors. Secret trust. In the US. altered or revoked by its settlor at any time.[14] Special trust.) Often a person. Certain jurisdictions (principally. or 16 in Scotland. A. offshore jurisdictions) have enacted legislation validating non-charitable purpose trusts generally. Revocable trust. A would establish a trust with both A and B as beneficiaries. wishes to leave property to another person B. and that therefore B would receive none of it. This use of trusts is similar to life estates and remainders. or more. legatees of a will. Quistclose trusts). Revocable trusts are becoming increasingly common in the US as a substitute for a will to minimize administrative costs associated with probate and to provide centralized administration of a person's final affairs after death. Here the terminology is different between the UK and the USA: In the UK. and are frequently used as alternatives to them. In the US jurisdiction this has two distinct meanings: In a simple trust the trustee has no active duty beyond conveying the property to the beneficiary at some future time determined by the trust. wholly or in part. Protective trusts were developed as a solution to this situation. non-charitable purpose trust (all charitable trusts are purpose trusts). Resulting trust. at least so long as the debt was entered into after the trust's establishment. Generally. A simple trust in Federal income tax law is one in which. arguable. The property is then safe from being claimed by A's creditors. Or. A trust of this kind may be amended. as a result of which the settlor becomes entitled to the assets. a protective trust is a life interest which terminates on the happening of a specified event such as the bankruptcy of the beneficiary or any attempt by him to dispose of his interest. or (2) a voluntary payment is made by A to B in circumstances which do not suggest gifting. They have become comparatively rare. w i edi . A however fears that the property might be claimed by creditors before A dies. but then A would not be entitled to use of the property before they died. In the USA. Purpose trust. t he f r ee encycl pedi a kp a o a Protective trust. In the UK a bare or simple trust is one where the beneficiary has an immediate and absolute right to both the capital and income held in the trust. provided the settlor is not mentally incapacitated. A resulting trust is a form of implied trust which occurs where (1) a trust fails. B becomes the resulting trustee of A's payment.Wi i edi . en. more accurately. (In another jurisdiction this might be thought of as one type of asset protection trust. all net income must be distributed on an annual basis. the law does not permit non-charitable purpose trusts outside of certain anomalous exceptions which arose under the eighteenth century common law (and. Trustees hold the assets on trust until the beneficiary is 18 in England and Wales. under the terms of the trust document. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 9/ 15 . Simple trust.11/ 17/ 12 Tr ust l w . a protective trust is a type of trust that was devised for use in estate planning. coordinating trust participants and offering dispute resolution among those participants. Standby Trust or Pourover Trust. A unit trust is a trust where the beneficiaries (called unitholders) each possess a certain share (called units) and can direct the trustee to pay money to them out of the trust property according to the number of units they possess. Major changes in trust law. trust protector. In the face of these demands. where single or co-trustees lack either the in-depth expertise or the appetite for risk needed to effectively manage the gamut of issues that trusts face.[15] Directed Trusts A directed trust is a trust in which the trustee is directed by a number of other trust participants in implementing the trust's execution. It gives the trustee the power to decide how the trust funds may be spent for the benefit of the beneficiary. The participants. etc. these duties and the other participants in the trust are defined and governed by the trust document itself. new tax factors and complex family and financial advisor dynamics. Testamentary trust or Will Trust. holding legal title to the trust assets. have created demands that traditional trusts and trust companies are not well equipped to handle. A directed trustee's role often includes: following distribution and investment instructions. As families move to gain more control over certain trust functions. Because a will can become effective only upon death. while limiting risks to participants. While the preceding list is a great starting point in trust education. combined with modern investment strategies. The trust is empty at creation during life and the will transfers the property into the trust at death. based on guidance from their expert advisors. multi-participant trusts have emerged as a powerful tool for achieving optimal estate planning results. charities. A Spendthrift trust is a trust put into place for the benefit of a person who is unable to control their spending. rather than disposition. a testamentary trust is generally created at or following the date of the settlor's death. location in advantageous trust jurisdictions or past relationships. w i edi . or "agents" of this new form of trust are granted specific powers by the trust based on their skills. This is a statutory trust. High net-worth families face an ever increasing set of challenges managing their wealth across generations. and therefore liable. That trustee is referred to as a Directed Trustee. as the person who gives the property to the trustee is also the beneficiary.Wi i edi .11/ 17/ 12 Tr ust l w . or investment advisor. and individuals seek to find new ways to properly transfer their wealth to individuals. as the IRS continues to expand tax law. This arrangement is also commonly referred to as "open-architecture" trust design. providing fiduciary and tax accounting. t he f r ee encycl pedi a kp a o a Special Power of Appointment trust (SPA Trust). many families. A trust implementing a special power of appointment to provide asset protection features. This approach is an advance over the traditional unitary trust model. They are responsible. A trust created in an individual's will is called a testamentary trust. Typically. A unit trust is a vehicle for collective investment. Examples of other trust participants include a distribution committee. are moving away from conventional trusts that rely on single or co-trustees to new “multi-participant” trusts. only for matters that they are best equipped and prepared to manage. this is an ever-expanding field of law. Tax and regulation en. Unit trust. with a directed trustee central to the administration of their trust. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 10/ 15 . New types of trusts continue to be created. charge a fee based on a percentage net worth of the deceased). accounted. A married couple having a trust can. Federal estate tax.S. or not at all depending on the circumstances. The fees for probate estate administration under a will are usually from 1% of the gross estate (for very large estates) to 4% of the gross estate (for very small estates). There are also some negative aspects to a living trust in the United States. The Dodd-Frank Wall Street Reform and Consumer Protection Act changed this somewhat by not allowing these assets to be a part of (large) banks' regulatory capital. that the decedent's closest relatives be identified. Trusts are conducted in private. and the expense is immediate. Living trusts are often used because they may allow assets to be passed to heirs without going through the process of probate. t he f r ee encycl pedi a kp a o a Trusts can be used to avoid taxes and regulation. In the case where two or more co-trustees serve. a living trust refers to a trust that may be revocable by the trust creator or settlor (known by the IRS as the Grantor). by giving discretionary powers to the trustee or executor of the will. Unlike trusts. Important safeguards contained in the probate laws of most U. Both living trusts and wills can also be used to plan for unforeseen circumstances such as incapacity or disability. These procedures do not occur when a decedent's estate passes by trust. however. the trust pays out to the en. but this is a one-time fee. although in the United States the IRS allows trusts to be taxed as corporations. such as the requirement that the executor of the will be bonded. Setting up a trust may be expensive. Avoiding probate will normally save substantial costs (the probate courts.[16]:23 Inter vivos trusts in the United States In the United States. and distributed to said relatives. while distribution through a trust is private). as most state laws allow a fee of 1% of the estate's gross assets to be paid to the trustee for every year the trust is in existence. If the decedent leaves a will. When the first married individual dies. Beneficiaries do not save on federal estate or state inheritance taxes. A formula clause takes advantage of the unlimited spousal deduction allowed under the internal revenue code. which creates the trust. effectively double the estate tax exemption amount (the amount of net worth above which an estate tax is levied) by setting up the trust with a formula clause. not delayed until after the grantor's death. the trust instrument may provide that either trustee may act alone on behalf of the trust or require both co-trustees to act/sign. Trust administration can be more expensive than the administration of a will in the long run. The trust instrument may also provide that the other co-trustee shall act as sole trustee if the grantor becomes incompetent and is unable to continue administering the trust. and that the decedent's real and personal property be collected. The same one-time fees apply when a person dies without a will or a trust (dies Intestate): State laws require that an intestate probate be opened at the local courthouse. time. in some states. The legal drafting of the trust instrument. w i edi . the executor’s sale of real estate monitored. Living trusts generally do not shelter assets from the U. and itemized accountings filed with the court during and at the end of probate administration. partnerships. and embezzlement.S.S. The grantor/settlor may also serve as a trustee or co-trustee. unless a conflict develops and one of the parties seeks resolution by a court order. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 11/ 15 . loss. his/her probate proceedings must be conducted under the auspices of the probate court. and maintain privacy (the probate records are available to the public. located and notified. jurisdictions do not apply to trust administration.[2] The trust-preferred security is a hybrid (debt and equity) security with favorable tax treatment which is treated as regulatory capital on banks' balance sheets. the real property insured.[2]:478 Tax avoidance concerns have historically been one of the reasons that European countries have been reluctant to adopt trusts.Wi i edi .11/ 17/ 12 Tr ust l w . usually costs much more than the legal drafting of a will. the number depending on state law. protect the decedent's assets from mismanagement. not yearly. Several safety provisions of probate law in the U. wills must be signed by two to three witnesses. the property will usually be held for the grantor/settlor on resulting trusts. because the unified credit increases over time. There are two types of living trusts in South Africa. other trusts. Trustees may also be beneficiaries. Parties to the trust There are three parties in a living trust. namely the founder. there are basically three types of trusts. the grantor/settlor will often retain some level of relevance to the trust. which in some notable cases.11/ 17/ 12 Tr ust l w . namely vested trusts and discretionary trusts. Testamentary trusts are created at the winding up of a deceased estate following a specific stipulation in the deceased person's will that a trust must be set up. However. The rest is subject to estate tax. the trustees and the beneficiaries. using the Unified Credit formula may have some unintended consequences for persons who die during 2010 and later. and released to the children in adulthood or their parents or guardian must furnish security to the value of the inheritance). Testamentary trusts are usually created to hold assets on behalf of minor children. in practical terms. not strict dollar amounts. assets from the deceased estate left to minor children are held in a state instutition. These are living trusts (in South Africa called inter vivos trusts). t he f r ee encycl pedi a kp a o a beneficiaries an amount up to the total unified credit. whereas in discretionary trusts the trustees have full discretion at all times as to how much and when each beneficiary is to benefit. the first decedent's unified credit is lost because everything is transferred to the spouse upon his/her death. The amount is set by the formula clause. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 12/ 15 . and registered businesses.Wi i edi . Thus. no estate tax is owed (just as if the individual died intestate). If a living trust fails. and property held by such a trust is not part of a decedent's probated estate. Bewind trusts are created as trading vehicles providing trustees with limited liability and certain tax advantages. The founder may be a trustee and a beneficiary. testamentary trusts and bewind trusts. when the second spouse dies. The trust is managed by the trustees for the benefit of the beneficiaries. including living people. when the first spouse dies. The beneficiaries can be any legal persons. the unified credit could be wasted. The trust becomes effective as soon as it is registered. A living trust is not under the control and supervision of the probate court. If the married couple had died intestate. Establishing a living trust The trust is created by drafting a trust deed (usually in co-operation with an attorney specialising in trust law) and registering the trust with the local High Court (the Master of the High Court is the court official that administers trusts). Living trusts also. In vested trusts. For a living trust. The remaining amount of the estate (after the unified credit is exhausted) is paid to the spouse. usually by appointing himor herself as the trustee and/or as the protector under the trust instrument (in jurisdictions where protectors are recognised). since minor children can not in terms of South African law inherit assets freely (in the absence of a trust. Inter vivos trusts in South Africa In South Africa. en. the benefits of the beneficiaries are set out in the trust deed. has had catastrophic tax consequences. although it is to be regarded with circumspection. the Guardian's Fund. the distribution to the trust beneficiaries is subject to that decedent's unified credit. A formula clause is necessary only if the value of the estate is larger than the amount of the unified credit. Due to changes in Federal Estate Tax Laws that affect the year 2010 and later. tend to be driven to large extent by tax considerations. Without a formula clause. w i edi . usually less than 20%). In terms of the provisions of the Insolvency Act (Act 24 of 1936) assets transferred into a living trust remain at risk from external creditors for 6 months if the previous owner of the assets is solvent at the time of transfer. in which the loan amounts are taxable with deceased estate tax). although they can attempt to attach the loan account. be taxed in the hands of either the trust or the beneficiary. since assets held by the trust are not owned by the trustees or the beneficiaries. Tax considerations In terms of South African tax law. The Taxation Law Amendment Act was promulgated on 30 September 2009 and takes effect on 1 January 2010 allowing a window period of 2 (two) years from 1 January 2010 to 31 December 2011 for the opportunity of a natural person to take transfer of the residence with advantage of no transfer duty being payable or CGT consequences. the creditors of trustees or beneficiaries can have no claim against the trust (there are exceptions). A trust pays income tax at a flat rate of 40% (individuals pay according to income scales. A common scenario of using living trusts for asset protection is a husband and wife acting as trustees along with a third unrelated trustee. w i edi . thereby forcing the trust to sell its assets. or 24 months if he/she is insolvent at the time of transfer. there were tax advantages to living trusts in South Africa.[18] See also Blind trust Charitable trust Fideicommissum Fiduciary Foundation (charity) Knight v Knight Rabbi trust Settlor STEP (Society of Trust and Estate Practitioners). The trust is granted a loan equal to the value of their assets. Assets can be transferred into the living trust by selling it to the trust (through a loan granted to the trust) or donating cash to it (any natural person can donate R100 000 per year without attracting donations tax. the international professional association for the trust industry en. 20% donations tax applies to further donations within the same tax year). or g/ w i I nt er _vi os_t r ust k ip a k i/ v 13/ 15 . living trusts are considered tax payers. The remaining advantage of a living trust is the protection of assets from creditors. After 24 months.Wi i edi . creditors have no claim against assets in the trust. In an ideal situation. although most of these advantages have fallen away with new legislation. The trust's income can.[17] The taxpayer whose residence has been "locked" in to a trust has now been given another opportunity to take advantage of these CGT exemptions. Whilst taxpayers can take advantage of this opening of a window of opportunity is not likely that it will ever become available thereafter. namely income tax and capital gains tax (CGT). the trust and any assets owned by it. t he f r ee encycl pedi a kp a o a Asset protection Until recently.11/ 17/ 12 Tr ust l w . When any of trustees die. A trust pays CGT at the rate of 20% (individuals pay 10%). Trusts do not pay deceased estate tax (although trusts may be required to pay back outstanding loans to a deceased estate. then the trust buys their assets using the loan. remain unaffected. however. and finally the trust pays off the loan over time. Two types of tax apply to living trusts. gouv. Retrieved 1 November 2012. International Finance Law Review (IFLR).com/EBchecked/topic/476550/primogeniture-and-ultimogeniture) .com/pdfdocuments/WPNR%202012-6926%20De%20Boer. Encyclopædia Britannica. le service public de la diffusion du droit.google.com/books?id=hUkqx76sF6oC&lr=&source=gbs_navlinks_s. ^ See for example T Choithram International SA and others v Pagarani and others [2001] 2 All ER 492 9. Legifrance.fr/affichTexte. w i edi . Ugo (May 1998). http://www. 4. New York University Law Review. 319–20. (15 July 2008). Mattei.Wi i edi .pdf.cifa-curacao.441 of 1994. Harvard University Press. 2.do? cidTexte=JORFTEXT000000821047&dateTexte=) . "The Functions of Trust Law: A Comparative Legal and Economic Analysis" (http://www. Alfred D.fr. http://scottrosenberglaw. http://www.cifacuracao. ^ Paul BW Chaplin#Biography 12. "Frequently Asked Questions" (http://scottrosenberglaw. Roth. 01 février 2009.html#Trusts) ..gouv. ^ For example.pdf) . ^ Rosenberg.google. 11. The Visible Hand: The Managerial Revolution in American Business (http://books.legifrance.iflr. Lori A (1 September 1997).gouv. Studio legale Tedioli.britannica. 8. ^ Chandler.com/faq.edu/documents/pdf/Faculty/The_Functions_of_Trust_Law. 28 April 2001. Notariaat en Registratie.gouv. 01 février 2009. "primogeniture and ultimogeniture" (http://www. ^ Elizabeth Prine Pauls. http://www. ed. Construction law: Breach of trust in the construction industry (http://www. http://www.pdf. ^ a b c d e f g Hansmann.do?cidTexte=JORFTEXT000000821047&dateTexte=) .html#Trusts. or g/ w i I nt er _vi os_t r ust k ip a k i/ v . t he f r ee encycl pedi a kp a o a Testamentary trust Trusts and estates Jurisdiction specific: Argentinian law number 24.fr/affichTexte.) 5. ^ Kirsh. Retrieved 1 November 2012.fr/affichTexte. http://www.fr/affichTexte.pdf) (PDF).pdf United States trust law Waqf Notes 1.do?cidTexte=JORFTEXT000000821047&dateTexte=.com/trust_law_china.legifrance.56 of the Law of Property Act 1925 10.law.11/ 17/ 12 Tr ust l w . Australian trust law Henson trust Italian trust law Trust law in Civil law jurisdictions Trust law in England and Wales (PDF) Trust Law of the People's Republic of China (Order of the President No. http://www. 50) (http://www. 14/ 15 en. http://books.legifrance.legifrance.html) .com/trust_law_china.com/pdfdocuments/WPNR%202012-6926%20De%20Boer. le service public de la diffusion du droit.yale. trusts over land must be evidenced in writing under s. ^ "Ordonnance n°2009-79 du 22 janvier 2009 (consolidated version)" (http://www. ^ "Loi n°2007-211 du 19 février 2007 instituant la fiducie" (http://www. Harvey J.pdf) . 3. Weekblad voor Privaatrecht.com/books?id=hUkqx76sF6oC&lr=&source=gbs_navlinks_s) . Legifrance.edu/documents/pdf/Faculty/The_Functions_of_Trust_Law. ^ Roy Goode. Henry.yale. Commercial Law (2nd ed.gouv.gouv.tedioli.tedioli.com/EBchecked/topic/476550/primogeniture-and-ultimogeniture.com/Article/1984910/Channel/193438/Construction-law-Breach-of-trust-in-the-constructionindustry. "De Curaçaose trust in de partijk" (http://www.do?cidTexte=JORFTEXT000000821047&dateTexte=. Jr. 6.law. Mansur (14 april 2012).fr.S. Bergervoet and D. 7. (1977). ^ M. pp. in England.com/faq. Scott D.britannica. (2009-2010). w i edi . ISBN 1-85941-729-9. 1998. industry.com/Article/1984910/Channel/193438/Construction-law-Breach-of-trust-in-the-constructionindustry. Underhill and Hayton's Law Relating to Trusts and Trustees (17th ed.uk/trusts/types/bare. ^ Richards. Mitchell.Wi i edi .pdf) (PDF). Hayton.za/article_family_trust_tax_window.com/Cimages/siteFile/Skadden_Insights_Special_Edition_Dodd-Frank_Act1.. "Subcontractors Rights Against a Contractor Not Paying" (http://www. ^ "Bare trusts" (http://www.htm.htm.co. References Books Hudson.hmrc.org/w/index. (18 December 2009). HM Revenue & Customs.co. ^ E-book: Trusts for Business Owners. Skadden.gov. http://www. P (2006). Equity and Trusts (3rd ed. Mitchell.lawchambers. 15. Retrieved 1 November 2012. DJ. Matthews.). Inc. 18. ^ "The Dodd-Frank Act: Commentary and Insights" (http://www. Winston E. additional terms may apply. Charles.htm) . Slate. 14. 16.co. http://www.php?title=Trust_law&oldid=521234788" Categories: Common law Wills and trusts Equity Inheritance This page was last modified on 3 November 2012 at 18:06.wikipedia.html. Arps. Hayton.ehow. Charles.ehow.html) .hmrc. Retrieved from "http://en.html. Wikipedia® is a registered trademark of the Wikimedia Foundation. http://www.uk/info_8644574_subcontractors-against-contractor-not-paying. Sweet & Maxwell. en. See Terms of Use for details.com/Cimages/siteFile/Skadden_Insights_Special_Edition_Dodd-Frank_Act1. "Dump That Trust Through The Window: Family Trust Tax Window" (http://www. Cavendish Publishing. by Peter Carruthers and Robert Velosa. a non-profit organization. Retrieved 1 November 2012.co.za/article_family_trust_tax_window. http://www. 17. t he f r ee encycl pedi a kp a o a 13. ^ Kam Fan Sin. or g/ w i I nt er _vi os_t r ust k ip a k i/ v 15/ 15 . Meagher & Flom LLP & Affiliates.htm) . Clarendon Press. A (2003). http://www.gov.iflr. Winston Miller Attorneys.html) .uk/trusts/types/bare.skadden. Leigh.skadden. DJ (2005).lawchambers. Butterworths.pdf.uk/info_8644574_subcontractors-against-contractor-not-paying.).11/ 17/ 12 Tr ust l w . Text is available under the Creative Commons Attribution-ShareAlike License. ^ Miller. The Legal Nature of the Unit Trust. International Finance Law Review (IFLR). Hayton and Marshall's Commentary and Cases on the Law of Trusts and Equitable Remedies (12th ed.).
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