History Of Trust
It is believed that the Romans were possibly the first civilisation that developed the concept of Trust.
But it was the English who developed the equitable principles of Trust laws that governs all modern and creative developments of Trust instruments. Instruments which sets up legal structures for investments, SPVs, business holdings and also tax protections.
Trust instruments are commonly used by citizens of countries where heavy estate duties are imposed on estates of deceased persons. In the US where the tax is levied on the beneficiaries, rather than the estate, they are known as inheritance tax.
Personal trust law was first developed in England during the Crusades, (12th to 13th centuries).
A Knight is usually bestowed with lands by his King as rewards for his loyalty and services. When a Knight left England to fight in the Crusades, he would convey ownership of his lands to a friend or relative to manage his estate while he was gone.
The expectation was that if he returns alive, then the ownership of the lands would be conveyed back to him. But when he did return to England alive, he faced resistance and outright refusal from his entrusted person to return and convey his lands back to him.
Unfortunately, based on the laws then, there was only recognition of the initial act of the conveyance by the Knight of the lands to the new owner. English common law did not recognize the Knight’s claim.
The Knight having no recourse to the common law, of course brought his grievances to his King, for whom he had fought valiantly. The King then referred the matter to his learned Lord Chancellor, a keeper of the King’s seal and an advisor.
This learned Lord Chancellor then decided the matter according to conscience and all of a sudden, the principles of equity was born. The body of laws governing the concept of a Trust became known as “Laws of Equity”, which has much of their reasoning in conscience.
The Lord Chancellor adjudicated and concluded that it was “unconscionable” or unfair for the entrusted person, now the legal owner of the lands, to keep the lands when he had paid no consideration to the Knight for the transfer of the lands to him.
The learned Lord Chancellor then decided the matter in favor of the Knight.
Henceforth, the Lord Chancellor’s court (now known as the Chancery Court) would recognize the claim of a returning Knight with similar grievances against a person to whom he had entrusted and conveyed his lands.
The principles of Equity then established that the entrusted owner was only holding the land for the benefit of the Knight (the original owner) and had the obligation to transfer the titles to the lands back to the Knight when so required.
The Knight was established to be the “beneficiary” and the entrusted person (who was conveyed the title to the lands by the Knight) to be the “trustee”.
Henceforth, the idea of the relationship of trust between “a beneficiary” and “a trustee” was established.
The Trust as an Instrument of Intent
With the laws recognizing the rights of a beneficiary against a trustee in similar circumstances, people are now able to pen down their intention to create a trustee-beneficiary relationships in a Trust.
Living Trust and Testamentary Trust
A Trust can be set up while a person is alive (known as an “inter vivos” or “living” Trust) or stipulated in a Will to take effect only after a person’s death (known as a “testamentary” Trust).
Wills Smith will be rolling out 2 to 3 templates for “testamentary” Trust, embedding a trust within your Will, which you can choose from. More of that later.
But first, what is a Trust ?
A Trust is the creation of a relationship between the Beneficiary and the Trustee to hold specified assets (be it cash or real estates or the shares of a Company) for the benefit of the Beneficiary or beneficiaries.
This relationship can be created by the person with his assets for the benefit of his intended beneficiaries, like his children, parents, siblings or anyone, for that matter.
This 3rd party, so to speak, while not a beneficiary or the Trustee, is known as the Settlor, the person who “settles” the assets into the Trust.
The Trust began first as “Living Trust” but it can also be easily created to take effect after the death of the Settlor. This is known as a Testamentary Trust.
The difference is that for a Living Trust, the gifting is made while you, the Settlor, are alive and in a Testamentary Trust, the gifting is made after death, as stated in the Will of the Settlor.
The Living Trust has been a vehicle used by the super rich to create a pool of assets from which incomes are derived from investments or leasing or earnings, and these incomes are then disbursed on a monthly basis in proportions to different beneficiaries of the deceased. But it has also been used extensively by the middle class in the USA or jurisdiction to protect their assets, where they imposed hefty estate duty or inheritance tax.
In Singapore, Malaysia, Hongkong and some other countries in Asia, the motivation to set up a Living Trust is usually not to avoid these taxes, as estate duty has been abolished.
Business people who feels that they are highly exposed to potential liabilities may create living trusts and settle their assets into a Trust so that they no longer own these settled assets. But the legal rules involved can be quite complex and are outside the scope of this article.
The more common motivation for people to create a Living Trust is to provide for their loved ones. However, this will mean that these assets settled into the Trust, no longer belongs to them and they cannot use them as if the assets belongs to them. Also, it is common for a Living Trust to be managed by professional trustees at a fee, which may or may not be seen as hefty, dependant on the level of wealth of the Settlor.
However, the next best alternative is to create Testamentary Trusts, which takes effect only after the death of the Will-maker and the assets to be settled will also take effect upon the death of the Will-maker or as dictated by the Will-maker.
Our Testamentary Trust templates are simplified provisions designed to cater to the simpler needs of people who have no fanciful wishes to provide for grandchildren who may not yet have been born to their children.
These templates are crafted only to provide for Trusts for your immediate children, your parents, your siblings or to specific persons known to you.