Trusts play a vital role in private wealth planning, business structures, local government — in the form of education and healthcare trusts — and charity. The families we work with often establish vast charitable trusts benefiting good causes on a truly under-appreciated scale.

Real-estate trusts own vast swaths of property, and many employee benefit and pension schemes are also trust-based, with the largest pension trusts being worth more than the gross domestic product of some states.

So, trusts don’t just concern the rich and famous — millions of blue-collar workers will be beneficiaries.

Trusts are everywhere, but in Bermuda and most other jurisdictions that recognise trusts, they don’t exist as a legal person.

Sometimes, trust lawyers make the mistake of talking about trusts as though everyone understands them, when even other lawyers commonly make mistakes when it comes to trusts, such as making them parties to agreements, which they cannot be. It is their trustees who own their assets and must enter into contracts on their behalf.

Trusts trace their history to Ancient Rome, and were developed further in England in response to injustice experienced by early Crusaders.

They often transferred their lands to trusted friends before going to fight for years or decades — for them to be administered for their families in their absence — only to return and find that the person holding the title to the land refused to hand it back.

To counter this injustice, a new concept was needed that recognised that legal and beneficial title in a single asset could be split.

Legal title means owning something on paper; beneficial title denotes a right to benefit from the asset. Most of the time, legal and beneficial ownership vest in the same person.

When a trust is created, there is a split — the person who holds legal title to the thing is a trustee, and the person for whose benefit they are holding the asset is the beneficiary.

When the Crusaders signed their lands over to friends, they intended to part with legal, but not beneficial, ownership — the friend was intended to hold the legal title for the benefit of the Crusader and his family, ie, as a trustee.

The recognition of this led to the development of trusts law by the ancient Court of Chancery, which strived to ensure that a strict application of the common law was tempered by innovating in the interests of justice — the case law so developed was known as “equity”.

Legal principles were developed in relation to trusts — for example, the principle that someone cannot benefit from acting as trustee — so in the case of the Crusaders, lands intended to be held in trust could not be kept by the trustee for his own benefit.

It’s odd to think of ownership in one asset being split into different dimensions. It gets even more interesting where discretionary trusts are concerned — if such a trust is established for A, B and C, none of them has any fixed rights to benefit from the assets, only a right to be considered as an object of distributions. A, for example, may never receive a cent.

Further, many offshore jurisdictions such as Bermuda recognise trusts with no beneficiaries at all — as long as they meet certain conditions including having clear purposes — so the “real” owner of their assets is, effectively, an idea.

With a history tracing back through holy wars and ancient empires, trusts fulfil a diverse range of functions, from education, to family trusts, charities, trusts set up to orphan special-purpose vehicles, and investment trusts.

They are ubiquitous yet mysterious to many.

They help the wealthy with intergenerational wealth planning, and workers to survive in their old age.

They are often invoked in circumstances where it would be unfair for someone to benefit from an asset they are holding.

In Britain, the National Health Service is run largely through trusts.

They are one of the most complex and interesting concepts in law.

First Published in The Royal Gazette, Legally Speaking column, April 2024

Share
Twitter LinkedIn Email Save as PDF
More Publications
23 May 2024

Regulatory oversight is key for Bermuda’s insurance sector

Bermuda’s thriving insurance and reinsurance sector requires effective regulatory oversight if it ...

9 May 2024

It is all about the data

All successful enterprises have a voracious appetite for data. The advanced abilities of IT systems ...

3 May 2024

Best Practices for Conducting Investigations into Employee Grievances

Grievance procedures are very important, but often overlooked, procedures that all employers should ...

8 Apr 2024

Electronic dissemination of corporate communications by Hong Kong listed issuers from an offshore perspective

In June 2023, The Stock Exchange of Hong Kong Limited published consultation conclusions to its cons...

3 Apr 2024

Bermuda: Lack of New Players Is Supporting Strong Interest in ILS

All signs point to another very strong year for the catastrophe bond and related insurance-linked se...

2 Apr 2024

Choosing the right structure for your business in Bermuda

Anyone seeking to set up a business in Bermuda has a variety of options, depending on the nature of ...

25 Mar 2024

PIPA Compliance is Not Just a Domestic Affair

As organizations in Bermuda prepare for the full application of the Personal Information Protection ...

25 Mar 2024

How Bermuda trusts can help with worldwide estate planning

Trusts still have an important role to play in onshore tax planning, as acknowledged by the British ...

14 Mar 2024

Privacy Rights Extend Outside Bermuda

As Bermuda prepares for the full application of the Personal Information Protection Act 2016 on Janu...

14 Mar 2024

Bermuda trusts can offer substantial inheritance tax advantages to non-doms following UK budget announcement

The UK government has recently announced radical changes to the way in which non-domiciled individua...