What is a ‘’trust’’
The term ‘’trust’’ refers to the legal relationship which is created by one person (i.e. the settlor), when property, movable or immovable, is put under the control of a trustee of a trust for the benefit of another person, the beneficiary, or for a prescribed purpose, in such a way that the real benefit from the property belongs not to the trustee but to the beneficiary.
Characteristics of a trust
A trust has the following characteristics:
- The property constitutes a separate fund and is not part of the property of the trustee
- The title of the trust property is registered in the name of the trustee
- The trustee has the power and duty, in respect of which he is accountable, to manage or dispose of the property in accordance with the conditions of the trust and in accordance with special duties imposed on him by law
- The reservation by the settlor of certain rights and powers and the fact the trustee may also himself have rights as beneficiary, are not necessarily incompatible with the existence of the trust.
The document which prescribes the directions on the management and administration of the trust property is the trust deed.
The trustee is the nominal owner, while the beneficiary is the real owner of the property. The person transferring the property to the trust is the settlor. A settlor of the property may be one of the beneficiaries or trustees, he cannot however be the only beneficiary.
‘’Trust property’’
A definition that can be given for the term ‘’trust property’’ is the property which is owned by two persons at the same time, the relation between the two owners being such that one of them is under an obligation to use his ownership for the benefit of the other. The former is called the trustee, and his ownership is trust-ownership and the latter is called the beneficiary and his ownership is beneficial ownership.
Types of trusts
Trusts are mainly categorised between fixed and discretionary:
- fixed trust is one that defines the rights of the beneficiaries i.e. it defines when, how and to whom the property will be distributed
- under a discretionary trust the method of administration and distribution of the property rests with the absolute powers of the trustee