Who are the parties to a trust?
The settlor is the person who provides the assets for to be held on the trust.
As stated, the settlor can also be a beneficiary of the trust, although this represents a ‘gift with reservation,’ and therefore generally makes the trust ineffective from an IHT perspective.
Some trusts allow for joint settlors.
This option should only be chosen where both settlors are the providers of the funds, or (for example) joint insurance policy owners to be held in trust, in the case of an existing policy.
As the name implies, a trustee should be a person the settlor (and, ideally, the beneficiaries) can trust.
Legally speaking a trustee must be at least 18 years of age, of sound mind and not bankrupt.
Settlors can appoint themselves as a trustee, and additional trustees can include family members or friends, professional advisers or a trust corporation (in theory these can be as many as the settlor wishes, but not commonly more than a handful and often only two; there are disadvantages in having a single trustee other than a trust corporation, since a single trustee cannot give a good receipt for land).
Beneficiaries may also act as trustees, although this gives rise to likely conflicts of interest.
Before accepting the role of trustee, anyone tasked with this role needs to fully understand the terms of the trust deed, the general law principles that govern trusts, and appreciate that being a trustee is a “high duty” – a duty for which law requires the trustees to operate with the highest degree of integrity.
Beneficiaries are beneficial owners of the property held in trust, although this will often not provide an immediate right to use of the assets. Beneficiaries benefit according to the terms of the trust, as operated by the trustees.
‘Discretionary trusts’ (also known as ‘flexible trusts’) appoint both discretionary and named beneficiaries.
‘Bare trusts’ (see below) have no discretionary beneficiaries, and instead the settlor appoints one or more absolute beneficiaries.