What is a Trust?

Trusts have been used for hundreds of years in common law countries. A trust is created when one individual (the settlor) transfers part of his assets to another individual or corporation (the trustee) to control and manage on behalf of a further specified individual or group of individuals (the beneficiaries). The beneficiaries may include the settlor and his or her family.

The 1985 Hague Convention recognised the concept of a trust and that, although assets transferred into a trust were the legal property of the trustees, these assets were not accessible to any personal creditors of the trustees. The trust concept is similar to that of the Dutch "stiftung" and the Liechtenstein "anstalt" and is now generally recognised in civil law countries.

Whilst a trust is not an independent legal entity in its own right, the legal title to the trust property rests with the trustee and not the settlor. Thus, unless the terms of the trust specifically provide otherwise, the settlor has no legal right to interfere in the running of the trust. As some settlors have difficulty in giving total control to the trustee, who may be well known to him, there are circumstances whereby the settlor or a respected associate can retain certain supervisory powers (this role is often referred to as "Protector" or, if more than one, a "Council") to monitor the actions of the trustees. It is also common practice for the settlor to provide the trustee with a non-binding letter of wishes, setting out the circumstances he would like the trustee to consider before exercising any discretionary powers.