Once appropriate advice has been obtained and the decision has been made to set up a trust, careful consideration needs to be given to the choice of trustees and beneficiaries.
A solicitor will then be needed to draft the trust deed. This should set out the purpose of the trust, state the beneficiaries of the trust and state what discretion the trustees will have. Settlors can also draft a letter of wishes to accompany the trust deed which will give the trustees guidance on how to act.
At Menzies, we can refer you to recommended solicitors to assist with the drawing up of the trust deed and can advise on the most appropriate type of trust and terms of trust to suit your circumstances.
What is a trustee?
Careful consideration needs to be given to the choice of trustees for the trust as they need to manage the trust effectively.
Settlors may wish to act as trustees in order to maintain control of the trust assets and any distributions. Alternatively, settlors may wish to nominate trusted family members, close friends or professional trustees such as an accountant or trustee company. There are normally at least two trustees and not more than four trustees. Trustees can usually be changed during the lifetime of the trust so settlors can pass on the responsibility to others as they get older.
It should be noted that trustees are personally liable to the beneficiaries and should therefore take care to discharge their duties carefully.
Trustees have duties of honesty, integrity, loyalty and good faith to the beneficiaries of the trust. They need to observe the terms of the trust, act impartially between beneficiaries, keep clear and accurate accounts, provide beneficiaries with any requested information, act unanimously, act carefully and distribute assets correctly. Trustees may sometimes be compensated, have their expenses reimbursed, but must otherwise turn over all profits from the trust’s assets.
What is a beneficiary?
Beneficiaries are individuals that can benefit from the trust. They may have an entitlement to income or may receive distributions at the trustees’ discretion.
Trusts can be set up for the primary benefit of a single named individual or group of individuals or may be set up for a general class of beneficiaries.
For example, a class of beneficiaries may be the direct descendants of the settlor. This gives much greater flexibility regarding distributions depending on future events and needs. Trusts can last for 125 years and so it is important that the creation of a trust considers its long-term future. It should be noted that discretionary trusts must have more than one beneficiary.
It is possible to set up a trust with the flexibility to add new beneficiaries at a future date. It is also possible to exclude certain people, to prevent them from ever being able to benefit.