Key Components of a Trust

A trust is composed of several key components, each playing a distinct role in the management and benefit of the trust assets:

The Settlor

• The settlor is the person who creates the trust by transferring ownership of certain assets to the trust.

• Once the trust is created, the settlor no longer legally owns the trust assets. However, the settlor may still have some involvement, such as being a beneficiary or, in certain situations, a co-trustee.

• The settlor may retain some control over the trust, such as the ability to approve distributions, appoint or remove trustees, or even revoke the trust. However, for the trust to be valid, the settlor must genuinely relinquish ownership of the assets. The settlor cannot be both the sole trustee and the sole beneficiary at the same time.

The Trustee

• The trustee holds legal title to the trust assets and is responsible for managing the trust according to the terms set out in the trust instrument and the law.

• They must administer the trust fairly, considering the interests of all beneficiaries, with diligence and in good faith.

• They are responsible for keeping accurate accounts and records of all distributions and decisions related to the trust.

• The trustee must actively manage the trust, making decisions independently and not simply following the instructions of others.

The Beneficiaries

• Beneficiaries are the individuals or entities entitled to benefit from the assets held in the trust.

• For a trust to be valid, there must generally be clear identification of the beneficiaries. However, the trust instrument can include provisions for adding more beneficiaries later.

• Beneficiaries may receive equal or unequal benefits, depending on the terms set out in the trust instrument. In discretionary trusts, the trustee has the authority to decide how benefits are distributed.

• The trust instrument may also allow the exclusion of certain beneficiaries from future benefits.

• In some cases, the settlor may direct that the trust assets or income be used for specific purposes rather than for individual beneficiaries.