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Bermuda News Weather Property Rentals Jobs Reviews Social
December 16, 2018
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A Very Simple Introduction to Trusts

A trust is based on the concept that ownership of an asset involves 2 distinct elements:

legal ownership - this involves several rights, including:

the right to have title to the asset registered in the owners name;

the right to sell, mortgage, lease or otherwise effect ownership of the asset; and

beneficial ownership - this is the right to enjoy the benefits of ownership, including the rights to:

use the property, for example live in a house or use a cottage;

enjoy the income generated from the asset.

A trust arises where a person called the "settlor" transfers legal ownership of assets to another person (the "trustee"), the transfer usually occurs by will or trust deed. The trustee holds the assets not for his benefit but for the benefit of another person who has been named in the trust document (the "beneficiaries"). Subject to the terms of the trust, a trustee may buy and sell trust assets as if he were the absolute owner, but is accountable to the beneficiaries for his actions involving trust property. The trust property does not form part of the trustee's estate on death, nor is it available to the trustee's creditors.

The case law has indicated that there must be "three certainties" before a trust exists, certainty of intention, certainty of the trust property, and certainty of the beneficiaries of the trust.(2)

Further, it is essential that the transfer of legal ownership actually occurs, otherwise the trust is an incompletely constituted trust and invalid. For example, if the trust property consists of shares of a private corporation it is important to ensure that the transfer has been approved in accordance with any restrictions on transfer in the Articles of Incorporation [typically board of directors approval] and has been recorded in the share registers of the Corporation's Minute Book.(3)

Although an express trust may be created orally, they are typically created by the execution of a written trust deed or indenture. It is not unheard of for Revenue Canada to challenge the existence of a trust where it has been created for tax planning purposes, accordingly it is important to be able to clearly show the establishment of the trust, and provide clear evidence of contribution and retention of the property used to settle the trust.

This article deals with complex issues in a brief manner, it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained herein. Although every reasonable effort has been made to insure the accuracy of the information contained in this publication, no individual or organization involved in either the preparation or distribution of this publication accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.