Trust instrument
Overview
 
A trust instrument is an instrument in writing executed by a settlor
Settlor
In law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator...

 used to constitute a trust
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...

. Trust instruments are generally only used in relation to an inter vivos trust; testamentary trust
Testamentary trust
A testamentary trust is a trust which arises upon the death of the testator, and which is specified in his or her will...

s are usually created under a will
Will (law)
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...

.
Although in most legal systems there are certain formalities associated with settling a trust, most legal systems impose few, if any, strictures on the trust instrument itself. Historically, the concept of a trust is the intervention of the courts of equity to prevent a legal owner treating the property as beneficially his own; provided that state of affairs exists, a trust arises notwithstanding any lack of formality in relation to the form of the trust instrument.

However, notwithstanding the flexible approach taken by the law, characteristically the legal profession has taken an extremely formalised approach to trust instruments.
Discussions
Encyclopedia
A trust instrument is an instrument in writing executed by a settlor
Settlor
In law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator...

 used to constitute a trust
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...

. Trust instruments are generally only used in relation to an inter vivos trust; testamentary trust
Testamentary trust
A testamentary trust is a trust which arises upon the death of the testator, and which is specified in his or her will...

s are usually created under a will
Will (law)
A will or testament is a legal declaration by which a person, the testator, names one or more persons to manage his/her estate and provides for the transfer of his/her property at death...

.

Formalities

Although in most legal systems there are certain formalities associated with settling a trust, most legal systems impose few, if any, strictures on the trust instrument itself. Historically, the concept of a trust is the intervention of the courts of equity to prevent a legal owner treating the property as beneficially his own; provided that state of affairs exists, a trust arises notwithstanding any lack of formality in relation to the form of the trust instrument.

However, notwithstanding the flexible approach taken by the law, characteristically the legal profession has taken an extremely formalised approach to trust instruments. Not only are they invariably always executed under seal
Seal (device)
A seal can be a figure impressed in wax, clay, or some other medium, or embossed on paper, with the purpose of authenticating a document ; but the term can also mean the device for making such impressions, being essentially a mould with the mirror image of the design carved in sunken- relief or...

 as a deed, but frequently the initial trust fund (usually a nominal amount), will actually be physically affixed to the trust instrument itself to prove that the initial trust property was transferred.

Some slightly unusual practices have arisen in relation to the drafting of trust instruments, which again, are rigidly adhered to by professionals in many common-law countries (although not the U.S.A.). For example, trust deeds will generally avoid all punctuation (including full stops) - to avoid confusion, all new sentences commence with a new, numbered, paragraph. Dates, including years, are conventionally spelled out in words rather than using figures.

Part of the over-formalisation which attends the creation of trusts is justified by the significant tax implications which may follow if a trust were to be subsequently held to be void
Void (law)
In law, void means of no legal effect. An action, document or transaction which is void is of no legal effect whatsoever: an absolute nullity - the law treats it as if it had never existed or happened....

, as most professionally drafted trust instruments are prepared as a part of tax mitigation schemes
Tax avoidance and tax evasion
Tax noncompliance describes a range of activities that are unfavorable to a state's tax system. These include tax avoidance, which refers to reducing taxes by legal means, and tax evasion which refers to the criminal non-payment of tax liabilities....

.

Most jurisdictions do not require trust instruments to be publicly filed (in contrast to wills). But in many jurisdictions they are subject to stamp duty
Stamp duty
Stamp duty is a tax that is levied on documents. Historically, this included the majority of legal documents such as cheques, receipts, military commissions, marriage licences and land transactions. A physical stamp had to be attached to or impressed upon the document to denote that stamp duty...

.

Provisions

The provisions of a trust instrument will vary according to the type of trust, and the nature of the trust property.
  • A bare trust over a single asset will characteristically have very few provisions.
  • A discretionary trust over a mixed bag of investments will usually have far greater provisions regulation the exercise and management of the trust fund.
  • A trust which is set up as a unit trust
    Unit trust
    A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....

     will have additional specific provisions specific to the calculation of the NAV
    Net asset value
    Net asset value is a term used to describe the value of an entity's assets less the value of its liabilities. The term is most commonly used in relation to open-ended or mutual funds because shares of such funds registered with the U.S. Securities and Exchange Commission are redeemed at their net...

     and acquisition and redemption of units.
  • Settled land act settlements
    Settled land acts
    The Settled Land Acts were a series of English land law enactments concerning the limits of creating a "settlement". A settlement is a conveyancing device used by a property owner who wants to ensure that future generations of his family are provided for....

     have specific provisions relating to the underlying subject matter.
  • Trusts which are set up to protect vulnerable beneficiaries, such as blind trust
    Blind trust
    A blind trust is a trust in which the fiduciaries, namely the trustees or those who have been given power of attorney, have full discretion over the assets, and the trust beneficiaries have no knowledge of the holdings of the trust and no right to intervene in their handling...

    s or spendthrift trust
    Spendthrift trust
    A spendthrift trust is a trust that is created for the benefit of a person that gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary...

    s will have specific provisions relating to the nature of the beneficiaries.


However, in general, most trust instruments will have provisions which address the following aspects of the administration of the trust:
  1. The name of the settlement and definitions and interpretation provisions
  2. The legal nature of the trust (ie. a trust for sale)
  3. Powers to add and exclude beneficiaries
  4. Trusts over property added to the trust fund
  5. Power of appointment (ie. distribution)
  6. Trusts in default of appointment, and, sometimes, ultimate default trusts
  7. General administrative powers of the trustees
  8. Extended power of maintenance
  9. Extended power of advancement
  10. Usually, a trustee charging clause
  11. Regulation of the appointment of new trustees
  12. The proper law
    Choice of law
    Choice of law is a procedural stage in the litigation of a case involving the conflict of laws when it is necessary to reconcile the differences between the laws of different legal jurisdictions, such as sovereign states, federated states , or provinces...

     and forum
    Forum selection clause
    A forum selection clause in a contract with a conflict of laws element allows the parties to agree that any litigation resulting from that contract will be initiated in a specific forum...

     and place of administration for the settlement
  13. Often, an exclusion of settlor (and spouse) from benefiting from the trust (where required for tax reasons)
  14. Usually, an indemnity for the trustees out of the trust fund


Most trust instruments will then also have two schedules:
  1. a schedule setting out the powers of the trustees (often in addition to any powers granted or implied by operation of law)
  2. a summary of the initial trust fund (usually a nominal amount of money)

See also

  • Asset-protection trust
    Asset-protection trust
    An asset-protection trust is a term which covers a wide spectrum of legal structures. Any form of trust which provides for funds to be held on a discretionary basis falls within the category. Such trusts are set up in an attempt to avoid or mitigate the effects of taxation, divorce and bankruptcy...

  • Blind trust
    Blind trust
    A blind trust is a trust in which the fiduciaries, namely the trustees or those who have been given power of attorney, have full discretion over the assets, and the trust beneficiaries have no knowledge of the holdings of the trust and no right to intervene in their handling...

  • Express trust
    Express trust
    Where property is passed from an owner to a person an implied express trust, but no gift is made by the owner to that person, it is therefore held for the owner by the person, and this is the Resulting trust; where property should for some reason of public policy or rule of Equity be held by a...

  • Inter vivos trust
  • Offshore trust
    Offshore trust
    An offshore trust is simply a conventional trust that is formed under the laws of an offshore jurisdiction.Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settlor transferring assets on the trustees to manage for the benefit of a person or...

  • Protective trust
    Protective trust
    The Protective Trust is a form of settlement found in England and Wales and several Commonwealth countries. It has marked similarities to asset-protection trusts found in several offshore jurisdictions and US Spendthrift trusts....

  • Spendthrift trust
    Spendthrift trust
    A spendthrift trust is a trust that is created for the benefit of a person that gives an independent trustee full authority to make decisions as to how the trust funds may be spent for the benefit of the beneficiary...

  • Testamentary trust
    Testamentary trust
    A testamentary trust is a trust which arises upon the death of the testator, and which is specified in his or her will...

  • Unit trust
    Unit trust
    A unit trust is a form of collective investment constituted under a trust deed.Found in Australia, Ireland, the Isle of Man, Jersey, New Zealand, South Africa, Singapore, Malaysia and the UK, unit trusts offer access to a wide range of securities....


External links

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