What is a trust?
When you establish a trust, you make a legal arrangement where you, called the settlor, transfer your assets, such as your property, shares or money, to someone or a company, called the trustee, to hold and manage for the benefit of others, called the beneficiaries.
What can you put in a trust?
You may transfer to a trust any type of assets, such as cash, securities, real properties, shareholdings in a trading or investment holding company or any assets located anywhere in the world.
How does a trust operate?
When you create a trust, you transfer property, assets, bank accounts, securities, real estate to a person or company you "trust." You no longer own these assets, the "trustee" does, but you still have access to them. There are different types of trusts and they are used for a wide variety of reasons.
Criteria for creating a trust
The Trustee Act of the BVI outlines how a trust can be created and specifies that a trust can have up to four persons. You can create a trust for any purpose once it meets the following criteria:
- the purpose must be specific, reasonable and possible;
- the purpose may not be immoral, contrary to public policy or unlawful;
- at least one trustee of the trust should be a designated person (defined by law, such as a lawyer, accountant, trust company, etc);
- the trust should appoint a person, who may be a protector, to enforce the trust and provides for the appointment of a successor to such a person;
- the person appointed to enforce the trust should be a party to the trust or should consent in writing to their appointment to enforce the trust; and
- the trust instrument must specify under what circumstances the trust terminates and must provide for the disposition of its surplus assets at termination.
Who owns the assets in a trust?
According to STEP, the Society of Trust and Estate Practitioners, there is a common misconception that the property and assets in the trust fund are legally owned by the trust. In fact, a trust, unlike a company, cannot own assets. Instead the trustees are the legal owners of the assets. A trust separates legal ownership and beneficial ownership of the assets in the trust fund. The trustees are the legal owners of the assets, but the trustees must at all times put the interest of the beneficiaries above their own. The beneficiaries are the beneficial owners of the asset. Whoever is appointed as a trustee must follow the rules of the trust and cannot go against its instructions.
Who can be a trustee?
You can appoint anyone 18 or over and competent to be a trustee. A trustee can be a friend, family member or a corporate trustee. At least one of your four trustees must be a “designated person,” such as a lawyer, accountant, bank or trust company. The designated person may charge you fees to take care of your trust, but may be able to invest your assets in a more informed manner than other trustees.
Can you be a trustee of a trust you establish?
You can be your own trustee. You, as the settlor of the trust, can also be a trustee, but you must still act in the interests of the beneficiary, not yourself. You can be the person that is responsible for managing and taking care of all the assets in your trust. After you die, the trust can be passed on to a successor trustee named in the original trust.
Why establish a trust?
You can use a trust for a variety of reasons. Trusts are not just for people with considerable assets. Even if you do not have many high-value assets, you too can establish a trust to help manage your affairs. A trust will give you greater confidence about how your assets, small or large, will be used in the future. For example, if you have children, you may want to put property, such as land, in a trust for your children.
Some common uses for trusts are:
- To provide for a spouse after you die while protecting the interests of your children.
- To protect the inheritance of young children until they are old enough to take responsibility for their own efforts.
- To provide for vulnerable relatives who are unlikely to be able to look after their own affairs.
- To help with succession planning in your family business.
- To simplify how assets are divided in complex family situations.
What is the difference between a trust and a will?
The main difference between a trust and a will is that your property won’t go through probate or the courts when you die. With a will, the transfer of property takes place at your death and needs to go through the court system or probate to determine the legalities of the will and the properties being dispersed. During probate, administration costs and any existing debts will be subtracted from the estate. When you create a trust, you transfer your properties to it while you are still alive and it continues on after you depart this life.
What are the advantages of establishing a trust?
Privacy - Assets are held in the trustee’s name, therefore the identity and interests of the beneficiaries are kept confidential until the trust terminates. Quite often, even the beneficiaries will not know about the trust. In the BVI, there are no requirements to publish details such as who the settlor, trustees or beneficiaries are or how much the trust is worth. Trustees, however, are required by law to report any suspicious activity to the BVI Financial Investigation Agency.
Asset protection - A trust may protect assets from claims of future creditors to the extent permitted by law.
Succession planning - Trusts are effective tools for succession planning. They enable you to make provisions for your family members, relatives and friends, charities and other organizations in the way you desire. Hence, they allow flexibility in situations where the law of intestacy may otherwise be imposed. They also enable efficient distribution of trust assets to beneficiaries, without consuming the time and money associated with lengthy and complicated procedures and formalities required for probate.
Asset consolidation and management - Trusts are a convenient means of placing your worldwide assets in one holding vehicle, simplifying both asset management and centralized financial reporting.
If you would like to establish a trust, contact one of the many local practitioners in the field of trusts and estates. For licensed practitioners, see the BVI FSC’s www.bvifsc.vg
For more information on Trusts, see STEP’s leaflet, Trusts Explained.