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Property in Trust explained

Before learning about how to create a Trust, we recommend reading ‘what is a Trust?’.

How is Property in Trust created?

A trust is created by a ‘settlor’, who transfers some (or all) of their property to a ‘trustee’. The trustee will then hold that Trust property for the benefit of the ‘beneficiaries’. This can include money, investments, land or buildings.

There are many types of Trust, but in the case of a self-declared Trust, the settlor and trustee are the same person.

A trustee can be anything from a real person, to a company or a public body. There can be a single trustee or multiple co-trustees. Similarly, there may be a single beneficiary or many beneficiaries.

It is important to realise that although the trustee has legal title to the Trust property, the beneficiary has equitable title to the Trust property. Meaning that when the terms of the Trust are met, the property becomes legally owned by the beneficiary.

The trustee will owe a ‘fiduciary duty’ to the beneficiaries who are the ‘beneficial’ owners of the Trust property. Which simply means that the trustee holds a position of Trust in relation to the beneficiaries and the trustee must act in the beneficiaries best interest.

The settlor may himself be a beneficiary. Similarly, the trustee may have a beneficial interest in the property.

The Trust is always governed by the terms under which it was created. It’s also governed by local law. So the trustee has to look after the Trust in accordance with both the terms laid down by the settlor and the governing law.

The initial terms of the trust must specify the following:

  • What property is to be transferred into the Trust;
  • Who the beneficiaries will be of that Trust.

It may also set out the responsibilities and duties of the trustees, such as:

  • Powers of investment;
  • Powers to vary the interests of the beneficiaries;
  • Powers to appoint new trustees.

The terms of the Trust are usually written down in a ‘Trust instrument’ or deed. Although, in England and Wales, it is not necessary for them to be written down to be legally binding. The exception, however, is in the case of land e.g. buying or selling a house.

As soon as you hear the word ‘Trust’ in a legal capacity, or you suspect you may need to put something in a ‘Trust’, go and have a chat with someone legally qualified who will be able to advise you properly.

Setting up a Trust is rather complex, so to try and tackle it on your own would be like playing chess against a big Russian super computer.

When dealing with property in trust matters, like Tax Law, we recommend that you seek the support, guidance and advice of a qualified solicitor who will take into account all of your personal and professional circumstances to ensure you have the right kind of Trust, or Trusts, in place.

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic. 

Published on 23rd January 2013
(Last updated 28th March 2018)

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