Navigating the world of Trusts involves understanding a specialised vocabulary. From legal jargon to financial terminology, familiarising yourself with these common terms and their definitions is key to making informed decisions. In this blog, we'll break it all down for you in easy-to-understand terms. Whether you're new to the concept, or seeking to deepen your knowledge, this glossary will serve as your compass, helping you navigate the world of Trusts with confidence.
- Settlor
A “Settlor” is the person who creates the Trust and transfers his/her assets into it. Settlors establish the Trust, define its purpose, and outline the terms and conditions in the Trust deed under which the assets are to be managed and distributed. The Settlor may also retain certain rights and powers over the Trust, depending on its type and structure.
- Trustee
The Trustee is the individual, or entity, responsible for managing and administering the Trust in accordance with the Settlor's instructions and applicable laws. They have a duty to act in the best interests of the Beneficiaries and carry out the Trust’s objectives. While the Trustee holds control of the assets within the Trust, he or she has a legal obligation to use them solely for the benefit of the Beneficiaries.
- Beneficiaries
Beneficiaries are the individuals, or entities, designated to receive benefits from the Trust. They can include family members, charitable organisations, or even the Settlors themselves. Beneficiaries may receive income generated by the Trust’s assets, distribution of corpus, or other specified benefits as outlined in the Trust document.
- Trust Deed
The Trust is established based on a legal document, known as the Trust Deed, which outlines the terms, conditions, and instructions governing the management and distribution of the assets held within the Trust.
- Revocable/Irrevocable Trust
There are primarily two types of Trusts - Revocable and Irrevocable. In a Revocable Trust, the Settlor has the option to revoke or modify the Trust whenever s/he likes, thus maintaining control over the Trust’s assets. In contrast, an Irrevocable Trust cannot be changed or revoked by the Settlor. Here, the Trustees/ Beneficiaries (in some scenarios) are given certain rights to amend the Trust.
- Discretionary Trust/Determinate Trust
The Revocable and Irrevocable Trusts mentioned above can further be categorised as Determinate or Discretionary. Under Determinate Trusts, Beneficiaries have fixed shares, whereas Discretionary Trusts allow for flexibility in distribution.
- Trust Principal/Corpus
This is essentially the initial, or underlying, assets or funds that are contributed to a Trust. It serves as the foundation of the Trust, and is managed by the Trustees to generate income, or provide benefits to the Beneficiaries, as per the Trust’s objectives.
- Trust Income
This refers to the money or financial returns earned by the assets held within a Trust. Trust income can include gains or value appreciation from investments, interest on savings, dividends from stocks, or any other financial gains that the Trust’s assets generate, contributing to the overall financial resources of the Trust.
- Distributions
Distributions are the payments or assets given to the Beneficiaries of a Trust, based on the guidelines stated in the Trust document. These distributions can include money, property, or any other resources that are allocated to the Beneficiaries in accordance with the Trust's provisions.
- Protector / Trust Advisor
Protectors are individual(s) appointed to supervise and ensure that the Trustee(s) fulfil their responsibilities and act in accordance with the Trust’s goals. They serve as a safeguard, overseeing the Trustee’s actions to protect the interests of the Beneficiaries and the overall integrity of the Trust.
