As of April 25, 2023, the Trust and Corporate Services Providers Act (the Act) mandates that individuals and entities must be licensed to offer certain specified trust and corporate services. Only those who are licensed, or those who were already providing such services before April 25, 2022, and have applied to be licensed, can continue offering these services, where this is being done as a business.

This change has far-reaching implications for trust services, and estate planning. The administration of wills, particularly those that include trust provisions (which almost every well-drafted will contains), may now fall under the categories of “acting as a trustee, executor or administrator” and “administration services in relation to trust” according to the Act, requiring those offering these services, as a business, to be licensed.

With the passage of the Act, there has been increased curiosity about trusts. This article will briefly look at trusts, and explore how trusts may be used as an alternative method of estate planning. 

What is a Trust?

A trust is a legal structure that allows a third party (the trustee), to hold the legal title of assets and/or deal with property, while assigning the benefit of those assets to others (the beneficiaries). 

The Trust Deed/Instrument

A trust deed, or trust instrument, is the document that creates the trust, and is signed by the person creating the trust (the settlor). A well-drafted trust deed/instrument will set out all the crucial details of the trust, including the appointment of trustees, the trust’s beneficiaries, and how the trust property is to be dealt with. 

The Nature of Trusts 

  • ● To be valid a trust must satisfy the three certainties:

  • ➢ Certainty of words (intention) – this means that the settlor must show an intention (not merely a moral obligation) for the trust to be created, and this intention must be sufficiently certain. 
  • ➢ Certainty of subject – this means that there must be certainty as to the property to be held on trust, and there must be certainty as to the beneficial interests which each beneficiary is to receive.
  • ➢Certainty of objects – the objects of a trust are the persons who are intended to benefit from it, that is, the beneficiaries. The identity of the beneficiaries of a trust must be sufficiently ascertainable. Use of vague descriptions like “my dependents” or “my old friends”, will not be sufficiently certain, and benefits to these classes of persons will fail. 

  • ● Trust property is vested in the trustees for the benefit of the beneficiaries. 
  • ● A settlor may utilise a trust to ensure that his/her purpose is effectively carried out by the appointed trustees, who have a duty to ensure that the trust property is being used productively. 
  • ● A trust is flexible, and it may be used for a variety of purposes such as creating a life tenancy which entails, for example, a settlor granting his property on trust for his wife for her lifetime, and thereafter, to his children, in whatever shares.

Types of Trusts

There are different types of trusts, such as living trusts and testamentary trusts. A living trust enables the settlor to act as both trustee and beneficiary during his/her lifetime. Upon death, the designated successor trustee(s) manage and distribute the remaining assets according to the terms of the trust. This process does not involve probate, as is the case with wills.

On the other hand, a testamentary trust takes effect upon the settlor’s death, and must adhere to specific legal requirements outlined in the Wills Act, including mental capacity, written documentation, and proper witnessing.

Comparing Wills and Trusts

Some important points to note about the differences and similarities between trusts and wills are:-

  • ● The legal interest of beneficiaries under a will, or beneficiaries where there is no will, in the deceased’s property, arises when the grant of probate or administration (as the case may be) is given. The legal interest of beneficiaries under a trust arises when the trust is created. 
  • ● Trustees have a duty to all the beneficiaries individually and must “hold the balance evenly between the beneficiaries”. Under a will, the duty of the executor is to the estate and to carry out the wishes of the testator. 
  • ● Trustees manage and administer the trust estate, which can continue for years. Executors under a will wind up the estate, paying debts and duties, and handing over the gifted property to the beneficiaries to an eventual end.
  • ● Wills often involve a long and costly probate processes which requires the involvement of the court and other government agencies, and the paying of certain fees, duties, and taxes. It is important to note that establishing and maintaining a trust is not without cost. Duties and taxes, such as stamp duty and transfer tax, apply to trusts when vesting property in trustees, and stamp duty will also be payable on the trust deed/instrument, and other instruments necessary to give effect to the trust. While the probate process can be costly, trusts can often involve more substantial up-front expenses, and other costs including ongoing asset management, and legal compliance for the trust’s lifetime. 

Whether you are young, old, or somewhere in between, and regardless of asset value, estate planning is crucial for everyone. So, in whom do you put your trust?