Parties to a Trust

Settlor

When an individual decides to set up a trust he will arrange for a portion of his assets (the initial settled funds) to be transferred to the trustees. An agreement or deed will be prepared which sets out the duties and powers of the various parties to the trust. This agreement will normally be signed by the individual (known as the settlor) and the trustees and is known as the trust deed. If the settlor would prefer not to be referred to in the document itself, then it can be signed by the trustees on their own. In this case the agreement is known as a declaration of trust.

Parties to a Trust

Beneficiaries

The trust deed will state who the initial beneficiaries are or specify a class from which the beneficiaries may be drawn.  Beneficiaries may include the settlor, the spouse, children, grandchildren, any future children not yet born, or any other parties the settlor may propose. In a discretionary trust (Types of Trust) the trustees will normally have the power to decide which beneficiaries are to benefit and to what extent, as well as the power to appoint new or additional beneficiaries from a defined class. It is possible that the initial trust deed will not name any of the eventual beneficiaries. This allows for the provision of a further degree of confidentiality and flexibility, since provisions may be included to provide for the trustee to add or remove beneficiaries at any time in the future.

Trustee

It is normal to appoint professional trustees or a corporate entity managed by a professional firm authorised to act as a trustee. A corporation allows for continuity as it avoids the necessity of appointing a new trustee if any one individual dies. It is important that the settlor selects a reputable and professional company to act as trustee.

Protector or Council

A protector is usually a trusted friend or a professional adviser to the settlor. The principal responsibilities of the protector may be the appointment and removal of the trustees and the nomination of additional beneficiaries. The power of the protector is to provide an additional layer of comfort to the settlor should there be concern that the trustees may not act in accordance with the provisions of the trust and to the satisfaction of the beneficiaries.

There are a number of potential dangers where a sole protector is appointed, with very wide ranging powers. For example, the protector may be deemed to be able to control the trust.  This would then become resident in the protector's home jurisdiction and subject to that territory's laws.

These potential dangers can be overcome by limiting the powers of the protector or by appointing a council of four. This council would be appointed to consist of four individuals resident in four different countries who would act by a majority. Each member of the council of four has the power to appoint a successor.

The appointment of a council of four has additional benefits, including:

i) Continuity, in that protection is provided to the beneficiaries beyond the life of any one protector.

ii) Security, since by appointing four trusted friends or professional advisers in four different countries, no one country can block the actions of the council and no two countries can force action by the council. This protection against political change can be useful should, for example, the country of residence of the trustees suddenly impose exchange control restrictions requring a change of location of the trust to an alternative jurisdiction.