Sunday 2nd July, 2006

 

Trust in trusts

 
 
 
 
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My parents were shopkeepers, and in my childhood environment, there was special relationship between shopkeeper and customer called ‘trus’. The Dictionary on Caribbean English Usage, gives its meaning as " to sell goods on credit.” In our environment it was a verbal agreement, without collateral, no written contract, and based upon the shopkeeper’s goodwill.

The concept of trus’ has its origins in earlier times when the words “use” and “trust” were interchangeable. In fact under British Law, in 1536, the concept of transferring legal title of property to a trustee, was documented in the “Statute of Uses.”

Today, that word trust more commonly refers to a written legal agreement whereby property title is transferred to a fiduciary agent, called a trustee. The trustee is charged with managing the property with care and diligence, for the benefit of a third party called the beneficiary.

The party that creates the trust is called the “grantor.” The beneficiary has what is called “equitable ownership.” The trustee is the one deemed to have expertise in financial management.

There are significant uses for establishing a trust:

n To outsource a competent authority skilled in astute property and money management, in light of our own admission of ignorance in the field.

n To protect property and assets for adult beneficiaries who do not themselves have the requisite knowledge, judgement or ethic. It avoids the possibility of heirs squandering wealth that they did not themselves accumulate.

n To protect the assets in the interest of minors. A fourth use would be to prolong the life of an estate by staggering the release of funds and other assets over many years.

n To allow the grantor to see during his lifetime, whether those heirs who he believes to be competent, are in fact competent. Since the heirs will have access to certain assets to use as they wish. If the grantor is dissatisfied with what he sees, then the trust can be revoked.

n Though it sounds a bit bigoted, trusts can be used to manage the estate from the grave

The outcome from use of a trust would in fact give the owner of the wealth some form of security, that his family will be protected and enjoy financial security for many years.

Note that trust agreements or deeds, or instruments as they are variously called, in any typical jurisdiction, do not run indefinitely. At some point, commonly 21 years after the creation of the trust, the property must revert to the mainstream economy. This is a common law rule in most jurisdictions, referred to as the “rule against perpetuities.”

The date of creation of the trust will vary according to whether it is created by Will, or during the lifetime of the grantor, and whether it is a revocable trust or one that is irrevocable.

It is possible to put into the trust instrument a “spendthrift provision.” Typically such a provision restricts against attachment by creditors of trust assets. The creditor can be either creditors of the equitable owners or of the grantor himself. This seeks to protect us from our own indiscretions.

Another useful provision in trusts is the selection of a successor trustee, in the event that the one initially appointed ceases to exist, or resigns.

If you thought trusts were only for the rich, consider this. You can put away $5,000 now for 21 years, and if left alone, you can accumulate $30,000 for the benefit of any heir that you choose.

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Designed by: Randall Rajkumar-Maharaj · Updated daily by: Sheahan Farrell