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.

Diagram 1 - Parties to the Trust


Beneficiaries

The trust deed will state who the initial beneficiaries are and 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 remove existing beneficiaries or appoint additional beneficiaries. It is therefore possible that the initial trust deed will not list all of the eventual beneficiaries.

Trustees

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 is not necessary to appoint 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
Sometimes the settlor wishes to appoint a respected individual (or more than one, in which case it is often referred to as a "Council") to oversee the actions of the trustee. Protectors' powers are defined in the trust instrument and are normally restricted to appointing new trustees and removing existing trustees if necessary. It is possible to give protectors additional powers, either of a "positive" nature (the protector may instruct the trustee to perform a specific action) or a "negative" nature (the protector's consent is required before a trustee can undertake certain defined actions). These powers must be given carefully, taking account of potential issues concerning the tax residence of the trust. However, the assistance of a protector or council can give comfort to a settlor faced with an unfamiliar trustee.