Frequently Asked Questions

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  1. What is a trust?

A trust is a legal relationship that arises when one person (the Settlor) transfers his assets such as money,

immovable property and/or shares to another person (the Trustee), to hold that property for the benefit of yet
another individual(s) / organization(s) (the Beneficiary). In an express inter vivos trust, a person may be
appointed by the Settlor i.e. the Protector to exert some form of supervisory role over the Trustee.

  1. What makes a trust valid?

Certainty of Intention
The intention to create a trust must be certain; there is however no requirement that the word “trust” must be used.

Certainty of Subject Matter
The subject matter of a trust has to be clearly defined/identified and ascertainable. For example, you cannot settle
“the majority of my estate” as the precise extent cannot be ascertained.

Certainty of Objects
A trust must be certain as to the individuals who are entitled to benefit from it. The beneficiaries of a trust have to be
expressly designated or capable of being affirmed or identified. A fixed trust is one where it is possible to draw up a
complete list of beneficiaries. A trust which is not a fixed trust will qualify as a discretionary trust so long as there is
a clear class of beneficiaries designated by the Settlor. The Trustee will have the power to decide whether a particular
person is within the class of beneficiaries. Beneficiaries can include individuals not as yet born at the date of the trust,
for example “my future grandchildren”.

  1. What are the types of trusts?

Fixed and Discretionary trusts
These are the two main types of trust. Trusts may be classified according to whether the beneficiaries are entitled
to a fixed share in the trust property or only to a share that is left to the trustee to decide. A fixed trust is one in
which the beneficiaries are fixed and their interests are identifiable. A discretionary trust is the opposite of a fixed
trust and exists whenever there is a selection of beneficiaries or a variable amount of a beneficiary’s interest, all at
the discretion of the trustee.

Private and Public trusts
Trusts may also be separated according to whether the objects are of a private or public nature. A trust is a public
trust if it is significantly constituted for the public benefit or purposes and is widely known as a charitable trust.
As from November 2007, a new Code of Governance was introduced to regulate charitable trusts. To qualify as a
charitable trust, the trust must have as its object certain purposes such as alleviating poverty, providing education,
carrying out a religious purpose etc. The permissible objects are set out in legislation. A private trust is any trust
that is not a public trust.

Bare and Active trusts 
Trusts may also be grouped as to whether they are bare or active trusts. Where the Trustee has no active duties to
perform, and merely holds the legal title for the beneficiary, the trust is a simple, bare trust. An active trust is one
that imposes duties on the Trustee to carry out the Settlor’s objectives.

Revocable and Irrevocable trusts
A revocable trust can be amended, altered or revoked by the Settlor at anytime, provided that the Settlor is not
mentally incapacitated. In contrast, an irrevocable trust is one in which the terms of the trust cannot be amended
or revised. In rare cases though, a court may, upon application by either the Trustee or the beneficiaries change
the terms of the trust due to unexpected changes in circumstances that make the trust uneconomical or unwieldy
to administer.

Testamentary and Inter vivos trusts
A trust created in an individual’s Will is called a testamentary trust. As a Will takes effect only upon death, a
testamentary trust is generally created at or following the date of the Settlor’s/Testator’s death. An inter vivos
trust is created during the lifetime of the Settlor.

  1. Why set up a Trust?

There are various reasons as to why trusts are set up, and the following list of reasons should not be seen
as exhaustive.

    • To preserve the family fortune
    • To ensure family business continuity
    • To make provision for the family and later generations in case of unforeseen circumstances
    • To protect assets where one thinks it is appropriate that assets are placed in trust rather than allowing
      a beneficiary full freedom to deal with or dispose of them
    • To protect a beneficiary from his own extravagance by making it difficult for creditors to proceed against
      his limited interest
    • To provide for someone discreetly
    • To minimize the incidence of estate duty on property (where applicable)
    • To avoid disruption on death
    • To ensure confidentiality
    • To overcome forced heirship rules
    • To provide for philanthropic and/or charitable purposes
  1. When can trust assets be distributed?

The distribution of trust assets is dependent on whether the gains are of an income or capital nature. Certain trusts
are investment based i.e. where trustees, subject to investment risks, seek to generate ongoing income. Capital gains
on the other hand arise from a trust that merely preserves assets/property to be passed on fully to the beneficiaries.
Trust assets can be a combination of both.

  1. What are the trustees’ duties and liabilities?

Compliance and administration
A trustee is required to strictly adhere to the terms of the trust in relation to performance. Any non-compliance with
the terms of the trust, however trivial, is tantamount to a breach of a trust.

Duty of care
The Trustees Act introduces a statutory duty of care that supplements the common law duty of care. In the case
of a professional trustee, the standard of care is even higher.

Management duties
A trustee’s management duties and powers are dependent on the nature of the trust and the property subject
to the trust.

  1. What is a Settlor?

A Settlor is the person who creates a trust and appoints the first trustee. The rights and responsibilities of
a Settlor depend on the type of trust created.

  1. What are the rights of beneficiaries?

The rights and entitlements of the beneficiaries are also determined by the instrument of trust.

  1. When are trustees appointed or removed?

The first trustees are usually appointed by the Settlor in the trust instrument. A trustee can only be replaced or
substituted in accordance with the terms of the trust instrument. Where the trust instrument is silent on the
appointment and removal of trustees, statutory power given by the Trustees Act (“the Act”) on the appointment of
new trustees may be used. The Act also provides for surviving or continuing trustee to appoint a new trustee in place
of a discharged trustee where there is no person empowered by the trust instrument to do so. Removal of trustees
can only be done by persons vested with the power of removal as provided for by the trust instrument.

  1. When is a trust terminated?

Perpetuity period
The rule against perpetuities stipulates that no trust can be valid for an indefinite length of time, i.e., in excess
of the period of perpetuity. The Trustees Act sets the perpetuity period at 100 years.

Variation of trust
A trustee must administer the trust according to its terms. Any deviation is a breach of trust for which the trustee
may be personally liable.

Termination of trust
A trust terminates when the instrument creating it so stipulates. In all other cases, it can only be terminated by the
consent of all the beneficiaries.

  1. What happens when a trust fails?

The general rule is where a private trust has failed, there will be a resulting trust for the Settlor or his estate. In the
case of a public / charitable trust, and where the charitable purpose for which it was given cannot be carried out in
the precise manner intended, then the trust property will be held in trust for a charitable purpose deemed to be similar.
The Trustee would have to apply to court to vary the terms of the trust.