Personal trusts are usually one of two main types; 'testamentary' and 'inter vivos'

Trusts can be traced back to thirteenth century England when land owners went overseas to fight in the crusades. They would convey ownership of their land to another party who would pay and receive dues; on the understanding that their property would be conveyed back to them on their return.


knight


Unfortunately, that did not always happen because the crusaders had no
legal claim to their lands.

The Court Chancery, a sort of medieval ministry of justice, developed the
notion of a settlor (a leaving crusader) a trustee (an interim land manager) and a beneficiary (a returning crusader) in order to protect the rights of the returning warriors. In these cases, the settlor and the beneficiary were one and the same person.



Trusts involve three people and are a list of instructions about how someone’s wealth is to be held and managed. These instructions are prepared by the first person (the settlor), who transfers his wealth into the legal instrument to be temporarily owned and managed by a second person (the trustee) - for the ultimate benefit of a third person (the beneficiary) who will receive the wealth someday (it might also include a monthly allowance for the beneficiary).

Today, they come in a bewildering array of sorts and sizes

The ones that are familiar to most people are of two main types. One,  'testamentary', meaning ‘in a will’, is included in the settlor’s will and comes into force when they die. The other, ‘inter vivos ’ meaning between living persons, is set up while the settlor is still alive and can be managed by them or another party.

Whether it’s 'testamentary', or 'inter vivos', the reasons for setting them up
are similar, such as:-

•    Protecting property for certain beneficiaries
•    Reducing or eliminating estate taxes
•    Managing property on incapacity
•    Avoiding probate
•    Avoiding a will contest
•    Privacy

Here’s an example of protecting wealth:-


A couple has a 19-year old son who is at university. Understandably, if they both die, they want their only child to get all their property, including the equity in their home, life insurance, retirement plans, etc. The total value of the estate is $600,000. Having the executor write a check for that amount is probably not a good idea. It might be better to create a testamentary trust. The money would then be held and invested for the son’s benefit until he reached a more mature age, 25 say. His schooling, general living expenses and any other expenses would be paid for as specified. Then, when he reaches 25, all property held would be turned over to him.

These estate planning instruments are not for everyone - they can be quite complicated and expensive to set up and run.  Consult with your financial adviser and lawyer before making any decisions.

Related subject matter:- 

Creating favorable tax treatment for your estate and your beneficiaries


Return to wealth management

Return to Family Ties

Link to list of articles


Return from Trusts to Home Page