What Is A Trust, And How Does It Function As A Legal Entity?

Understanding Trusts: Key Elements and Functions

A trust involves a settlor, trustee, beneficiaries, trust property, trust deed, purpose, revocable or irrevocable nature, distribution of assets, administration, legal entity, tax considerations, and termination.

1. Settlor/Grantor: The settlor, as the trust creator, transfers assets and defines terms, specifying beneficiaries in the trust.

2. Trustee: The trustee, entrusted by the settlor, manages the trust and adheres to fiduciary duties, prioritizing the best interests of the beneficiaries.

3. Beneficiaries: Beneficiaries, whether current or future, are designated individuals, organizations, or entities entitled to receive the benefits outlined in the trust deed.

4. Trust Property/Assets: The corpus of the trust comprises assets, property, or funds transferred by the settlor, which the trustee manages for the benefit of the beneficiaries.

5. Trust Deed/Trust Agreement: The trust deed is a legal document outlining the trust's purpose, the trustee's responsibilities, and the beneficiaries' rights and interests.

6. Purpose of the Trust: The trust is established with a specific purpose, such as financial support for beneficiaries, charitable endeavors, estate planning, or asset protection.

7. Revocable or Irrevocable: Trusts can be revocable (modifiable during the settlor's lifetime) or irrevocable (providing permanence and asset protection).

8. Distribution of Assets: The trust deed outlines the timing and method of distributing trust assets to beneficiaries, either during the settlor's lifetime or posthumously.

9. Administration and Record-Keeping: The trustee is responsible for administering the trust, managing assets, keeping accurate records, and fulfilling any reporting requirements.

10. Legal Entity: While a trust is a legal entity, it does not have a separate legal personality like a corporation. Instead, the trustee holds legal title to the assets on behalf of the beneficiaries.

11. Tax Considerations: Trusts' tax implications, determined by their revocable or irrevocable nature, can impact treatment, with some trusts designed for tax planning.

12. Termination of the Trust: The trust may terminate based on conditions outlined in the trust deed, such as achieving a specific purpose, a designated event, or the passage of time.