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Parties to a trust (The Trustee: A person who holds trust property for the…
Parties to a trust
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The Protector
Settlor's may wish to appoint a protector (of their choosing) who the trustees must liaise with or seek consent from when exercising some of their powers
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The settlor may appoint themselves as the protector, however if the settlor needs to demonstrate independence from the trust for taxation or asset protection reasons they may appoint an independent third party
May be appointed because
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The protector may be in a position to pass valuable information to the trustees regarding the beneficiaries and their personal circumstances
The protector can ensure that the settlor wishes are adhered to, which means that they are an indirect way of the settlor retaining some control without appearing to interfere too much with the running of the trust
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Usual for either the settlor or the existing protector to have the power to appoint a replacement protector
The extent of the role and powers of the protector will depend upon the content of the instrument of trust. The powers may include but no necessarily limited to the power of
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Consent may be required before the trustee exercises its dispositive powers, usually in writing. May include making a distribution of capital to a beneficiary or approving the addition or removal of a beneficiary
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Protectors do not usually instruct the trustee to make distributions and they do not otherwise become involved in the day-to-day running of the trust
Can be a valuable source of information for the trustee and can offer guidance due to their knowledge of the beneficiaries' circumstances
Cn make administering the trust a little more difficult at times, particularly if they believe the trustee should always follow the wishes of the settlor or if their demanding conduct increases the cost of administering the trust fund
The Enforcer
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In certain jurisdictions, eg Cayman Islands, non-charitable purpose trusts may have beneficiaries as well as a purpose. The beneficiaries have a right, but not a duty, to enforce the trust
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Trustee has a duty to appoint a new enforcer immediately upon the resignation of the enforcer, and in any other circumstance where the trust should find itself without one
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The beneficiaries
A person who is entitled by the terms of the trust to benefit from the trust property or in whose favour a discretion to distribute the property held on trust may be exercised
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Can be specifically identified in the trust deed by name. If not they should ascertainable by reference to a class of beneficiaries or by reference to a relationship to a person such as the settlor
Addition and Exclusion
The terms of a trust may provide that the trustee can exercise a power to add or exclude a person as a beneficiary
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Individuals who are excluded from benefitting are usually identified within a schedule attached to the settlement deed, unless they are excluded at a later date
It is usually the case that the trustee is an excluded person, while not needed, it is likely where the trustee is a professional service provider
Where there are tax planning considerations, a settlor may wish to irrevocably exclude themselves from benefiting
Rights of beneficiaries
With a discretionary trust, the trustee has discretionary powers to decide whether or not a beneficiary will benefit and if so, in what proportion
Where the beneficiary has a fixed interest (eg they are a life tenant of a life interest trust), the trustee may not have the power to vary the beneficiary's interest
Where the beneficiary has an interest that they are absolutely entitled to, this is referred to as a vested interest
There is a presumption that beneficiaries are entitled to some information, such as information relating to the accounts of the trust, the trustee should be cautious when considering what information should be disclosed and to whom, especially when there are many beneficiaries
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Trustees are not usually required to disclose to beneficiaries or to anyone else their deliberations as to the manner in which they have exercised a power or discretion, or the reason for their decisions
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Trustees who take risks with the trust fund at the request of one beneficiary may find themselves open to attack from other beneficiaries or even future beneficiaries
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Right to disclaim their interest in a trust either permanently or for such period as they may specify in whole or in part if they do so in writing
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Dummy Settlor: A person whose name is recorded within a trust instrument as the settlor of a trust but who is not the provider of the funds used to create the trust
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Where they were used , either the person named as the settlor in the trust deed was not the originator of the funds or they contributed only the initial settled funds with the bulk of the assets being provided by someone else at a later date
It was common for the dummy settlor to write a letter of wishes to the trustee immediately upon creation of the trust to explain that the trustee should deal with another individual in future (the real provider of the funds) and they they no longer wished to be contacted in connection with the trust
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