Trusts and Foundations: Marlborough Gulf
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Trusts & Foundations

Trusts (also known as “Settlements”) have been used for hundreds of years for a variety of reasons. A trust is created when an individual or company (the Settlor) transfers assets to another individual or company (the Trustee). The Trustee then takes legal ownership of the transferred assets and controls and manages those assets on behalf of beneficiaries. The beneficiaries may include the Settlor.

Marlborough Gulf uses Trusts from various jurisdictions, because they are extremely flexible arrangements and can be structured to satisfy almost all circumstances, including owning commercial structures, private family wealth and investments.

A common objective of an offshore trust is to remove capital from the ownership and geographical jurisdiction of the principals. This capital can be held free of exchange control and other political or economic restrictions, which might be imposed, now or in the future in the country of residency of the individual or intended recipients of the income or capital from the Trust.

Parties to a Trust
Settlor

When an individual decides to set up a trust he will arrange for a portion of his assets (the initial settled funds) to be transferred to the Trustees. A document will be prepared which sets out the duties and powers of the various parties to the Trust (the Trust Deed). And that Trust Deed is usually signed by both the Settlor and the Trustees. However if the Settlor prefers not to be referred to in the Trust Deed itself, then the Trustees may alone sign the Trust Deed.

Beneficiaries

The Trust Deed will state who the initial beneficiaries are and may include the Settlor, their spouse, children, grandchildren, any future children not yet born, or any other parties the Settlor may propose. In a discretionary trust, the Trustees will normally have the power to remove existing beneficiaries or appoint additional beneficiaries. It is therefore possible that the initial Trust Deed will not list all of the eventual beneficiaries.

Trustees

It is normal to appoint professional trustees. Marlborough Group has acted as a corporate trustee for over a decade, which allows for continuity, as it is not necessary to appoint a new trustee if any one individual dies.

Protector

Sometimes the Settlor may wish to appoint a respected individual ("the Protector") to oversee certain actions of the Trustee. The Protectors' appointment and powers can either be defined in the Trust Deed or the Protector can be appointed after the creation of the Trust. The powers of a protector are normally restricted to appointing new trustees and removing existing trustees if necessary. It is possible to give protectors additional powers i.e. the Protector's consent is required before a trustee can undertake certain defined actions. These powers must be given carefully, taking account of potential issues concerning the tax residence of the trust. However, the assistance of a protector can give comfort to a settlor for whom a trust arrangement is unfamiliar.

Type of Trust

Many kinds of trusts exist and may be classified by their purposes, the ways in which they are created, nature of the property they contain and their duration. In all cases Trust Deeds are bespoke; taking into account each clients’ circumstances and requirements.

A trust can be entirely discretionary – whereby the Trustees have complete control over the trust assets and the timing of any distributions of income or capital to beneficiaries. Similarly, the Trustees would normally have the power to appoint or remove beneficiaries on a discretionary basis (although the Trustees themselves are usually excluded from being able to benefit). Equally, the Trust Deed can stipulate that any income arising or capital distributions should be distributed in a specific manner to specified beneficiaries in specified proportions.

As well as using the mechanism of a protector as detailed above, it may also be possible for the Trust Deed to reserve certain powers for the Settlor, thus giving the Settlor direct control over certain functions of the Trustees. As with protectors’ powers, care must be exercised to ensure that potential issues concerning the tax residence of the trust do not arise.

In addition, a trust can be "revocable" or "irrevocable". In general, a revocable trust is used when the Settlor does not want to lose permanent control of the trust property or is uncertain of the proper duration for the trust. An irrevocable living trust may not be altered or terminated by the Settlor once the agreement is signed.

The flexibility of the trust arrangement ensures that most commercial and familial circumstances can easily be catered for.

Letters of Wishes

Another useful device to provide comfort to a settlor is the Letter of Wishes. This is a non-binding indication by the Settlor of the manner in which he wishes the Trustees to exercise their discretion in relation to a trust.

Letters of Wishes are useful where a trust instrument gives the Trustees very wide powers and discretions, but it may be updated at any time by the Settlor. In particular, it may make reference to actions that the Settlor would like the Trustees to consider after his death. Marlborough Gulf takes great pride in ensuring that each Letter of Wishes is bespoke and strictly caters for the families’ requirements, and takes into account potential future changes in circumstances.

Foundations

Foundations are a product of civil law and historically were used in place of a Trust. A Trust was not possible under civil law as it is not possible to split the legal and beneficial ownership of assets. It is now possible to incorporate a Foundation in many common law financial centres much as it is possible for a Trust to be administered from many civil law financial centres so the choice of jurisdiction is very wide.

A Foundation is a separate legal entity (like a Company) and the Founder establishes the Foundation. In almost all instances the Founder will commit an initial endowment to the Foundation. There will be a Certificate of Incorporation and the name of the Foundation will appear on a register in the jurisdiction in which it is registered. A Foundation is an orphan structure in that there is no discernible ownership and this creates planning opportunities which are similar to those afforded by Trusts.

Foundations are very flexible and their use often depends on the drafting of the organisational documents – the Charter and the Rules (or Regulations). The Foundation must have a purpose and often the purpose is to provide for beneficiaries. Dependant on the jurisdiction it may be a requirement to appoint a Guardian who serves a similar role to a Trust Protector if beneficiaries are present.

Common uses of a Foundation include;

  • to hold shares in a family business
  • to own shares in a Private Trust Company
  • for charitable purposes
  • in place of a Trust in a simple Trust/Company structure
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