One reader asked if I could step back and explain the basics of some of the lingo within setting up a ‘Trust’.
In any type of trust (discretionary, unit, fixed, hybrid etc) – common elements are present. Hopefully I can explain them in as simple terms as possible. But please make sure you understand these more thoroughly if you’re pursuing a Trust structure.
(Cont’d)
Appointor – a person, per the Trust Deed, who can replace the Trustee (Explained below).
Settlor – the person who provides the trust property (which could be any assets) and creates the trust
Trust Deed – a legal document specifying who indemnifies who, identifies the Trustee, beneficiaries, as well as the role and procedures of the Trust.
Trustee – The legal owner of the Trust property (all of the Trusts assets/liabilities etc) – it is not the beneficiaries! (Explained below). A Trustee is responsible for managing the Trust. The Trustee’s name is the name that will appear on all legal documents. All duties the Trustee has are provided by the Trust Deed.
A trust is not a separate legal entity hence the Trustee has unlimited liability for that contract or obligation. To put simply, if anything goes wrong – the Trustee is held personally liable. It is common to use a company as a Trustee from an asset protection viewpoint as it provides limited liability for the Directors of that company should the Trust get into any trouble.
Beneficiaries – for whom the Trust was created and those who are entitled to the capital and income disbursed by the Trust. Beneficiaries can be named by specific name, via a class structure or via family connection ie the parents, siblings, husband of Ms X.