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2 Methods Of Settling A Trust

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Two methods of settling a trustThere are several types of trusts and also several ways to settle them. Trusts can be settled verbally or in writing.  In this blog post, we will examine two methods of settling a trust in writing.

First Steps: The Three Certainties

Before a trust can be settled, it must meet the requirements of the three certainties. The trust must show certainty of intention, certainty of subject matter and certainty of object. That is to say that the settlor must have intended for the trustee to be under a duty to hold property for the benefit of the beneficiaries; the trust assets and the beneficiaries must be readily identifiable.

Related: What Is A Trust?

Advantages To Creating A Trust In Writing

Although an express trust can be created orally, it is recommended that it is settled in writing. There are several advantages to creating a trust in writing.  The formality of settling the trust in writing may have a cautionary effect, and prevent the parties from entering into a trust without due consideration. For example, the settlor, trustee and protector are more likely to carefully consider their respective positions before executing a deed than if making an oral promise.  However, the main advantage is that a trust instrument executed in writing can clearly set out the terms of the trust, thus removing any uncertainty. In addition, the written trust instrument can confer powers on each party over and above those provided for in relevant case law or legislation.  

The two main methods of settling a trust in writing are to create a declaration of trust or a trust deed.

Related: Creating A Trust - What Are The Requirements? 

1. Declaration Of Trust

A declaration of trust is made and executed by the trustee of the trust. It is a binding declaration by the trustee, as the legal owner of the assets, declaring the beneficial interests of the beneficiaries on whose behalf the trustee holds the legal title. It is commonplace for the declaration to set out the powers of the trustee and other applicable provisions, as described below, to avoid any confusion concerning the obligations of the trustee and the entitlements of the beneficiaries. As a declaration of trust is a declaration by the trustee, the settlor is not party to the documentation and his or her name need not be mentioned on its face.  This can be useful in cases where confidentiality is a concern.

Related: 3 Types Of Trusts Explained In 3 Minutes

2. Trust Deed

A trust deed is a more common form of written trust. The document is a legal instrument which is executed as a deed. The settlor is party to the trust instrument together with the trustee and protector if applicable. In a similar fashion to the declaration of trust, the deed will usually set out the powers of the trustee and other applicable provisions, as described below.

Related: New Zealand Trusts [whitepaper]

Applicable Provisions

The applicable provisions which are usually contained in a declaration of trust or trust deed are as follows:

  • The legal nature of the trust and the proper law of the trust;
  • Administrative powers of the trustees;
  • Powers to add and exclude beneficiaries;
  • Trusts over property added to the trust fund;
  • Powers regarding distributions;
  • Rules regarding the appointment and resignation of trustees and protector where applicable;
  • A trustee remuneration clause; and
  • An indemnity clause for the trustee.

This blog has dealt with only two methods of settling an express trust. It is recommended that where possible, a trust should be settled in writing and it is important that appropriate professional advice be sought when settling a trust.

 

Advantages and benefits of Trusts - webinar

 

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