12. Parties to a trust Flashcards
What is a sham trust?
A trust may be set aside as an invalid sham trust if the settlor restricts the trustee’s powers, and continues to operate as if they own the fund.
What is a dummy settlor?
A person who’s name is recorded within a trust instrument as the settlor of a trust who was not the provider of the funds used to create the trust. (a declaration of trust achieves the same level of confidentiality)
-this is not longer common practice or acceptable in well-regulated jurisdictions
What are the duties of a trustee?
- Keep accurate accounts and records of the trusteeship, including minutes of trustee meetings
- Preserve the trust fund
- Hold assets effectively, i.e. in safe custody
- Act honestly with due care and diligence
- Cannot profit personally
- Enhance value of trust fund - consider investment
- Delegate wisely e.g. investment manager
- Recognise different interests of beneficiaries
What are the powers of a trust in a discretionary trust?
Grants absolute powers of discretion to the trustee.
- power of addition (new beneficiaries)
- Power of investment (enhance / maintain value)
- Power to employ agents
- Power to distribute
- Power to receive remuneration
- Power to insure trust property
- Power to ignore interests
- Payment to persons not of full capacity
- Power of delegation
- Disclosure
- Vary settlement
What determines the minimum number of trustees?
Usually set out in the trust deed but local laws may require a minimum number.
What happens if there are a sufficient amount of trustees?
Trust law provides that the trust will continue to exist but there a special provisions that affect the administration of the trust in these instances.
Remuneration and expenses of trustees
Trustee Act 2000 provides for reasonable remuneration to be paid to professional trustees.
Trustees are entitled to reimburse themselves from the trust property for all expenses and liabilities reasonably incurred in connection with the administration of the trust.
Who is usually appointed for offshore trustees?
Trust companies are often appointed as sole trustee of trusts settled by non-residents. This is usually a limited liability company.
What offshore service provides may be appointed as trustees?
-Banks, bank-owned trust companies, law firm-owned trust companies, accounting firms or independent trust companies.
What is the definition of a beneficiary?
A person entitled to benefit under a trust or in whose favour a discretion to distribute property held on trust may be exercised.
What is a blind trust?
A trust is created with only a well-known charity identified as a beneficiary. Following the establishment of the trust, the trustee would exercise power to add the person the settlor intends to add as a beneficiary. The identity of the beneficiary is therefore concealed and not connected to the trust by any paper work.
Rights of fixed interest beneficiaries
e.g. they are a life tenant of a life interest trust - the trustee may not have power to vary the beneficiary’s interest.
What is a beneficiaries vested interest?
interest that the beneficiary is absolutely entitled to
What is contingent interest?
A beneficiary’s interest is dependent upon a specified event occurring, e.g. specific birthday.
Beneficiaries right to information
There is a presumption that beneficiaries are entitled to some information, the trustee must be cautious when considering what information to share. Their right to information is not absolute.
