This is the most common type of trust, in which the settlor will absolutely and, usually, irrevocably gift the assets to the trustee to hold on trust. The trustee will generally have unfettered discretion regarding major decisions. A beneficiary will not have an automatic right to receive trust assets.
It is common for the settlor to appoint a trust protector and provide a ‘letter of wishes’. We believe it is important that a trustee has ongoing communication with its beneficiaries and other trust principals. This is especially true with regards to the investment of trust assets as the circumstances and needs of beneficiaries will constantly evolve.
Private Trust Company (PTC)
A PTC is a popular way to retain some control over assets settled on trust. Its sole purpose is to act as trustee for a specific trust or a group of family-connected trusts. The board of the PTC, which can be made up of family members, advisers and other confidants, makes the trustee decisions. It is routine for the board to also have at least one board member provided by the offshore service provider.
A PTC enables dynastic estate planning and can involve a family’s younger generation in the management of a trust’s assets. An added benefit is that a service provider can be easily changed. Unlike a traditional trust, the trustee will not need to be replaced.
Reserved Powers Trust (RPT)
An RPT allows a settlor to retain, or assign to a third party, certain powers which would have traditionally been vested in a trustee. This enables the settlor to retain a degree of control in relation to decisions regarding the investment, distribution and administration of the trust assets but may impinge on some of the benefits that a discretionary trust would typically offer.
Fixed Interest Trust
This form of trust is similar to a RPT as the trustee’s powers are not fully discretionary. The trustee is bound to distribute assets in a pre-determined manner as specified in the trust deed. This may include the distribution of income or the distribution of both income and capital.
This type of trust is settled for a specific charitable or non-charitable purpose and does not have beneficiaries. The right to enforce the trust rests with an enforcer who is appointed from the moment that the trust is settled. As well as charitable reasons, this type of trust may be used to incorporate and own the shares of a PTC or to own a Special Purpose Vehicle (SPV) which may hold off balance sheet finance.
Companies are separate legal entities that typically have limited liability and can be used either on a standalone basis or more commonly as part of a trust structure. They can be used to hold a variety of assets including investment portfolios, bank accounts, aircraft, yachts, real property, patents and royalties. Where a trust has an underlying company, the estate planning benefits of the trust are typically passed on to the company.
Families from civil law jurisdictions have traditionally used foundations as an alternative to trusts. They can offer similar transparency, family control and dynastic structuring. However, unlike a trust, a foundation is a legal entity in its own right which holds assets in its own name.
A foundation allows a family to have direct control over the assets transferred to the foundation but, as with trust planning, this has tax consequences. In a similar role to a trust protector, a foundation has a guardian who will monitor the foundation council’s activities and may have to provide approval for certain decisions. A foundation must also have a public charter and regulations. However, beneficiaries are not usually named in a public document.