Declarations of trust and trust deeds are the documents used to set forth basic information about the formation of trusts. They explain who is forming the trust, who will manage the trust property, and who will benefit from the trust.
The terms “declaration of trust”, “trust deed”, and “trust instrument” are often used interchangeably in estate planning. However, a declaration of trust usually arises where a person declares themselves to be a trustee of property to which they hold legal title on behalf of a beneficiary. One example of this is where a person acts as a nominee shareholder for another and signs a declaration of trust in relation to the shares held for the beneficiary. A trust deed or trust instrument is used when a person (settlor) wishes to transfer assets to a third party (trustee) who will hold and administer those assets for the benefit of certain beneficiaries in accordance with the terms of the trust.
Trust deeds or trust instruments are legally binding documents that list the name of the trust, the trustee, sometimes the settlor, beneficiaries, specifications of how to administer the trust, and sometimes the assets to be held in trust. The settlor is the person who creates the trust and places his or her assets in trust. The trustee is the person who manages the assets and holds legal title to them for the benefit of beneficiaries. The beneficiaries may receive distributions from the trust, such as interest earned by trust assets.
Trusts separate the legal ownership of assets from the beneficial ownership of the same assets. The trustee has legal ownership, while the beneficiaries have beneficial ownership. Once the settlor places assets in trust, he or she no longer has any ownership interest in them unless the settlor is also a beneficiary of the trust. The settlor may specify conditions and specifications for trust administration in the trust instrument. He or she could, for example, instruct the trustee to make distributions only after a beneficiary turns 18 years old.
People forming trusts should ensure that a proper trust instrument is drawn up and signed by the trustee. Otherwise, it may be difficult to determine whether a trust has been formed and who manages it. Having everything written down in a formal trust deed is a safeguard to have your wishes carried out correctly.
If you are planning to create a trust, work with an attorney to determine who will be the trustee and who you would like to benefit from the trust. You should also have an idea of which assets you might place in trust, though you do not have to put money into the trust immediately. Assets could include money, real estate, personal property like jewelry, stocks, bonds, and more. Your attorney can advise you on how to best use a trust to your advantage in your overall estate plan. Your attorney can draft the trust instrument as well.
To find out more about estate planning, declarations of trust and trust instruments, visit Gonsalves-Sabola Chambers online or call the office at +1 242 326 6400.