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We hear of Trusts being used ever more frequently in financial planning scenarios and in particular with property purchase. Most folk are bewildered by their relevance and application to their own circumstances, falsely thinking Trusts are the reserve for the super rich. This is not the case and access to Trust vehicles and advice is readily available – this is how the super rich remain that way!? Typically, we meet many investors who have amassed wealth but have made very little provision for protecting it in the event of their demise, creditors, ex-spouses, unfriendly tax/legal regimes to name but a few.

By way of an introduction, the concept of a Trust was first used in Anglo Saxon times and is an arrangement whereby property is transferred from one person (the Settlor) to another person or corporate body (the Trustee) to hold the property for the benefit of a specified list or class of persons (the Beneficiaries). Although a Trust can be created solely by verbal agreement it is normal for a written document (the Trust Deed) to be prepared which evidences the creation of the Trust, sets out the terms and conditions upon which the Trust assets are held by the Trustees and outlines the rights of the Beneficiaries. In essence, a Trust is not dissimilar to a Will except that assets are transferred to Trustees during lifetime rather than those assets being transferred to Executors on death. The Trust Deed is comparable in some ways to the Will.

Those unfamiliar with the Trust concept usually express concern at the idea of transferring ownership of their property (fixed or moveable) to a Trustee. This concern can be alleviated if the Trust concept and the distinction between legal and beneficial ownership is properly understood and the Trust is governed by a sound Trust law which can be enforced in a reputable jurisdiction.

Trusts are a powerful tax planning tool but they also have many other uses which are of equal, if not greater, importance. Trusts can be one of the most effective ways of protecting assets. In simple terms, assets transferred to a Trust no longer form part of the Settlor’s property so the Trust assets cannot be seized if a Settlor gets into financial difficulties because of bankruptcy, divorce, a court award made as a result of, for example, a professional negligence claim or otherwise. Many of the offshore jurisdictions enacted legislation which amended their trust or bankruptcy laws and created what is now commonly referred to as the “Asset Protection Trust”.

Assets transferred into Trust are, in simple terms, no longer considered as belonging to the Settlor and therefore the income and capital gains generated by those assets are taxed according to the rules governing the legal owner – the Trustee. Inheritance tax would normally be eliminated because the Trustee would not die upon the death of the Settlor.

The death of the head of the family will usually result in major disruption of the family estate whether or not there is a Will. In most common law jurisdictions the estate must go through the probate procedure with much consequential delay, expense, publicity and upheaval. Probate can be avoided by establishing a Trust because the fact of death will have no effect on the Trust property which will continue to be held and managed in confidence by the Trustee. Proving a Will is a public procedure, the tax authorities will need to receive a complete list of all the property worldwide owned by the deceased so that the property can be assessed for estate duty and so that the property can be legally transferred to the Executors who may then distribute to the legal heirs of the deceased according to the Will.

In non-common law jurisdictions (like the United Arab Emirates) there will often be questions of forced heirship to consider i.e. the deceased will not be permitted to leave his property to whom he wishes on his death. This is a particular problem in continental European countries and other civil law jurisdictions as well as in countries of Islamic Law tradition. A Trust can be used to overcome the problem of forced heirship. Regardless, Gordon you will need some professional guidance since there are so many forms of Trusts and you need to select the right vehicle for the job.