As set out in earlier posts, and with thanks to the Television Education Network, today’s post considers the above mentioned topic in a 'vidcast'.
As usual, an edited transcript of the presentation for those that cannot (or choose not) to view it is below –
On the basis that a picture tells a thousand words, we find the best way to explain a trust is via diagrams. Generally, we use triangles to represent a trust, rectangles for companies to keep things simple.
If pictures, symbols and diagrams are used then when you explore some of the technical issues with trusts it invariably makes it a lot easier. This is particularly the case when you then get into the detail of a trust document that run to dozens of pages.
If we, therefore, explore the creation of a trust arguably there are really only ultimately 4 key principles that need to be in place in order for there to be a trust relationship.
Many readers would probably argue very quickly, “Hang on, there’s a whole range of additional things that need to be satisfied.” On many levels that feedback is fair. However arguably the response is that, “Any other idea that you can come up with would be, I would argue, falls under one of the 4 headings.”
The first one is that you need to have legal ownership. Invariably, that’s the trustee. Invariably with a discretionary trust, that trustee will be a company. Its sole role is having the legal ownership of the underlying asset.
Where is that underlying asset? It's held within the trust, which is point two.
Without an asset, there is no trust relationship. It might again sound abundantly simple but it is a really key point.
Point three is that there are some rules. Invariably those rules will be set out in a trust deed, or a trust instrument. Generally this will be a written document.
Finally, the fourth point, is that there must be at least one beneficiary to receive entitlements, whether they be income distributions on the way through the life of the trust or capital distributions either interim or on the final vesting of the trust.