What is a Trust?

Which answer is correct? A trust is

A. a bunch of archaic, incoherent and incomprehensible rules made up a very long time ago by sadistic English judges with funny names for the purpose of torturing law students and lawyers;

B. a method used by tax evaders, arms dealers, drug dealers and other bad guys (and gals) to hide money on small islands; or

C. a relationship in which one or more persons (called "trustees") hold title to property, and manage the property, for the benefit of others (called "beneficiaries").

The answer that is closest to the correct answer is C, but at one time I thought it was answer A.

Answer C might be too simple, but it is a start.

Mr. Albert Settlor wishes to help his mentally disabled adult nephew Paul. Mr. Settlor knows that Paul may outlive him, and wishes to make sure his nephew's needs are met now and in the future. Albert Settlor wants to commit $300,000 for Paul, but Paul is unable to manage money. Mr. Settlor must separate management of the money from the enjoyment of the money. Mr. Settlor transfers the funds to Ms. Ann Trustee, to invest and use for Paul's benefit during his lifetime, with whatever is left going to Paul's children on his death.

In this example the relationship involves three parties: Mr. Albert Settlor (who coincidently is called the "settlor" of the trust), Ms. Ann Trustee (too obvious), and Paul and his children (the "beneficiaries"). Ms Trustee's powers and duties may be set out in a document, which may be referred to as a "trust deed" or "trust agreement."

Instead of transferring the funds to Ann to act as trustee, Mr. Settlor could have declared himself as trustee of the trust for the benefit of Paul.

Although the functions of settlor, trustee and beneficiary are distinct, it is possible for the same person to fill more than one role. For example, you can be both a trustee, and one of several beneficiaries of a trust.

For most of the trusts that I deal with the beneficiaries are people or charitable organizations. But, you can also set up a trust in British Columbia for the benefit of charitable purposes. Unless your purpose is charitable, or falls within a limited group of exceptions, a trust for a purpose will not be valid in British Columbia.

Although trust law is a product of history, and does have technical rules and complexity, I think that the essence of a trust--the separation between title and management on the one hand, and enjoyment of property on the other--is elegantly simple.

I may joke about bad guys using trusts to hide money, but in my experience people set up trusts to further worthy goals, such as looking after their families.