| A trust may be described as a fiduciary relationship in which rights to property are divided between a trustee, who holds legal title, and a beneficiary, who holds equitable title. However, this summary begins at an elementary level with a historical examination of trusts. With this base, the discussion turns to the mechanics of trusts and what role they may occupy in an offshore structure. The concept of the trust finds its origins in English common law dating from the Middle Ages. Trusts derive from a system employed in that era known as "uses." While this system is no longer existent, a cursory understanding of use law aids in understanding the modern trust law. The use was implemented to solve the problem of property ownership faced by Franciscan Friars. The Friars were bound by a vow of poverty, which prohibited them from owning real property. While important to their faith, the practical reality was that the vow made it difficult for the friars to satisfy material needs. This conflict between spiritual sacrifice and earthly requirements was solved by splitting the concept of ownership into two distinct realms: one was the right to hold title to property while the other was the right to "use" the property. Thus, while their vow would not permit them to hold title to property, the friars could enjoy the right to use the property. In this way, the friars became beneficiaries of the "use" mechanism, which became widespread because it permitted a person to enjoy the benefit of property, without being subject to the consequences holding legal title. The trust derived from this arrangement and was implemented to assuage the burden of heavy feudal taxes on property transfers, including inheritance. The early prototypes allowed the transfer of title to assets to be passed to a trustee, who would administer on behalf of beneficiaries, who were often spouses and children. The essence of a trust, both then and now, is that it allows people to reconfigure ownership of assets such that they avoid the consequences of legal ownership. After establishing a trust, an individual may continue to enjoy the benefits of the underlying asset. A trust, like a corporation, is a legal entity with its own property, distinct from the individuals associated with it. There are three central participants, or roles, to be fulfilled in a trust arrangement. These are "settlor," "trustee" and "beneficiary." The settlor, who may also be known as the the trustor, donor or grantor,is the person who establishes the trust. The trustee is the individual or entity who holds legal title to the trust property. If a trust is "passive," the trustee has no duties beyond holding title, but if the trust is "active," the trustee has affirmative duties. A beneficiary is the person for whose benefit the trust is established and the for whose benefit the trustee holds the property. Usually, there are several beneficiaries. A trust is established when the four basic elements have been established. These elements include: intent, identification of property, designation of parties and articulation of trust purpose.Intent is satisfied when the settlor has objectively manifested definite and specific intent to establish a trust with regard to property. Identification of trust property, or "res," requires that the settlor’s interest be an existing interest and that the property be capable of being owned and adequately identified. In designating the parties, the settlor must have mental capacity, the trustee must have the capacity to take and hold title, and the beneficiaries must either be identified, or be reasonably ascertainable within a specified period of time. The trust purpose may generally be anything which is not illegal or contrary to public policy. A trust is usually established through a written legal document which, depending on the jurisdiction in which it is formed, may or may not be registered with a governmental agency. A modern trust is usually expressed by a written "Trust Agreement" or "Deed of Settlement" which specifies how the trust's capital and income are to be held, managed and distributed. It is a living concept supported by law from thousands of cases and legislative enactment's. It is extremely flexible and can provide for almost any eventuality. There are few restrictions and therefore most trust agreements are customized to accommodate the personal wishes of the settlor. Because the trust is a separate legal entity created when the settlor transfers assets by deed to a trustee for the benefit of named beneficiaries, the need for probate or letters of administration on the death of the settlor is eliminated. After a trust is established, the general rule is that creditors cannot reach the trust assets unless the creation of the trust was a fraud on such creditors. A trust may be challenged as being invalid if it can be shown that the settlor was attempting to accomplish an end that is illegal, requires the commission of a crime or tortuous act, or generally offends public policy. Today, people typically use trusts to achieve the following objectives: 1) Administer family wealth for investment purposes ("Family Trust"); 2) Provide for the needs of a limited group of individuals under strict conditions which are imposed for the protection of the group ("Protective Trust"); 3) Fulfill a charitable objective ("Charitable Trust"); 4) Provide for oneself and others through life ("Inter Vivos Trust"); and 5) Provide for others post mortem ("Testamentary Trust"). Offshore trusts serve a central role in estate planning and asset protection for citizens of all nations. Although recent legislation has modified the effectiveness that trusts offer American citizens in tax planning, they may continue to have significant applicability, within a greater offshore structure. |