Modern Uses of Trusts

The question must always be asked: ”What do you want to achieve?" This usually indicates whether a trust is really justified. There may be little difference to the settlor if other means of achieving the aim are adopted.

In the case of a trust the settlor parts with the legal and beneficial ownership of the assets but by passing them to trustees he denies the full ownership of the assets to the beneficiaries. The beneficiaries have the beneficial ownership but not the legal ownership. That means there is severe restriction on the beneficiaries' powers to dispose of or to deal freely with the assets.

Although it is possible to establish conditional or revocable gifts, these are difficult to administer. The better way may be to establish a trust.

Although it is fundamental that the settlor parts with the legal and beneficial ownership of the assets, he is not prevented from influencing how the trust is administered and the income and capital distributed. The prime means of doing this is in the terms of the trust when it is set up. This is normally done either by deed or by will, where the settlor or testator indicates to the trustees how the assets are to be handled.

Where a trust is set up by a living settlor he may still influence how the trustees handle the assets but he must not control them. Excessive influence or interference by the settlor can result in the arrangement being disregarded at law. It is a sham: the apparent transfer of the assets to the trustee will be invalid; the settlor will not have achieved any of his purposes at all.

It is very clear therefore that after the transfer of the assets to the trustee, the trustee is in the driving seat. Under trust law he is responsible for the proper administration of the trust to the beneficiaries.