A trust is a private relationship between the settlor, the trustee and the beneficiaries. There are no registration requirements in most common law jurisdictions, and no details or records are automatically furnished to any government agency. Information is disclosed only to beneficiaries and only to the extent provided under the trust deed and the applicable trust law. Under a trust, distributions may be made discreetly to the beneficiaries without the knowledge of anyone else. In contrast, assets passing under a will are generally subject to probate or some similar procedure, which can become a matter of public record in the settlor’s home country.

This privacy is enhanced because the legal owner of the trust fund is the trustee rather than the settlor or beneficiaries. This can provide an effective shield against unwanted discovery of who holds the beneficial interest in the trust fund. This protection can be strengthened even more when the assets are held by an investment company which is in turn held by the trust.

Because the trustee is the legal owner of the trust fund, a trust can continue well beyond the lifetime of the settlor or any of the beneficiaries. It is possible, and quite common, for a trust to continue for three generations or more before final distribution is made. This can be a big advantage where the trust fund includes a business that would lose much of its value if ownership were divided into too many shares; or where the trust fund is expected to provide an education or maintenance fund for the settlor’s children, grandchildren or even great-grandchildren. This is also useful where the trust is created for a charitable purpose that should continue long after the settlor’s lifetime.

Because the fiduciary duties of a trustee under common law set the highest standards possible, a trust offers excellent security. These duties continue even after the settlor’s lifetime, so that the settlor can be certain that his or her plans and intentions will be fulfilled. This can be especially important for settlors in “forced heirship” jurisdictions where there is little flexibility for the settlor to plan for the distribution and administration of the estate after his or her lifetime. Under a trust, the settlor may be able to provide for those persons in the amount and manner he or she wishes and not as required under forced heirship laws.

Because a trust is so flexible it is often the best solution for fulfilling the settlor’s special needs both during and after his or her lifetime. For example: the trust deed could provide for distribution of income to the settlor (as a beneficiary) and also grant the settlor, or someone chosen by him or her, power over investments, with the income after the settlor’s death distributed equally among the settlor’s children until they reach the age of 30, when they receive their share of the capital. There may be further provisions for alternative beneficiaries if any of the children do not survive until age 30. The possibilities are almost endless. The only real limitation is that the trust fund and the trustee’s duties and powers must be acceptable to the trustee.

The flexibility of a trust also makes it possible for the trustee to deal with unforeseeable changes in the future without undermining the settlor’s basic intentions in creating the trust. At the same time the settlor can retain sufficient control to make any modifications that may be required by a change in circumstances during his or her lifetime, even to the extent of revoking the trust or changing the trustee.

A trust combined with one or more investment holding companies can be a very useful tax planning tool, especially for a settlor living in a jurisdiction with high estate- and inheritance tax rates, or who owns property in such a jurisdiction. Under many tax systems the legal owner is responsible for taxes relating to the property or the income it produces. By holding the property in trust this responsibility is shifted to the company and/or the trustee. Because the tax consequences depend primarily on where the trust and the company are located, taxes can be minimised by selecting jurisdictions with low or no taxes or a favourable tax treaty.

Expropriation or blocking of assets because of a political or economic crisis is a major consideration in any international investment programme. Many promising investment opportunities exist in countries where the risks are high that the investment will be endangered by adverse events such as expropriation, the imposition of controls on foreign exchange or movement of capital, or new tax laws. When a country takes action which threatens property located within its borders, little can be done to avoid the loss. However, the combination of a trust and one or more investment companies can protect other assets such as bank accounts located outside the country, thereby limiting the loss to the local assets.

A settlor can protect certain property from future claims by transferring it to a trust as long as this does not leave him or her incapable of paying known or predicted liabilities. While this method is effective only if the settlor has no personal interest in the trust and has no power to revoke the trust or otherwise obtain access to the property, it can provide a way for the settlor to ensure that the property will benefit his or her family or other persons rather than creditors.

Another form of asset protection can be provided where the trust is to hold a number of different types of investments. This is accomplished by combining a trust and one or more investment holding companies to hold the different investments, thereby protecting the trust fund by isolating many of the risks involved, e.g. taxes, lawsuits, bankruptcy and expropriation. This is a classic, time-tested method for reducing the risk that losses from one investment might jeopardise others. Where a company has been properly established and maintained, a court will in most cases limit the damages caused by its activities to the company itself, even where this would force the company into bankruptcy or where the company’s owners are otherwise solvent.

One problem with disposing of assets to family or friends under a will is that the giver will not be there to ensure that his or her wishes are observed in the way they envisage, particularly when the executors are given discretion on how to use and distribute assets. So a trust can also be seen as a type of living will, whereby the settlor is able to supervise the setting up and operation of structures designed to function both during his or her lifetime and after death.