Hello again, Matt Battye here, and today we’re going to look at trusts. Trusts are one of those very, very commonly used legal structures, there’s a number of different types of trusts, but essentially a trust is a relationship between a couple of parties. So we’ve got our sort of example trust here, and we’ll just run through some of the major roles involved with trust. So the most important thing to understand with a trust is a trust is really just a relationship where one person holds a particular asset on behalf of another person. So the standard set up here is we have a trustee, trustee being the person who holds a particular asset on behalf of somebody else being the beneficiary. Now, in order for a trust relationship to actually exist though, we need to actually do what we call settle a trust. The way that actually works is there’s a few things you can do and can’t do when it comes to trust. First and foremost is you can’t set up a trust for yourself. We have this bloke over here we call the settler. The settler is the guy who sets the trust up in the first place. Now interestingly, the settler is the only person who has no interest in the trust from that point on. The settler essentially says to the trustee, hey, Mr. Trustee, do you mind hanging on to this particular asset on behalf of this particular beneficiary for me? And that essentially establishes a trust relationship. So the trustee then holds the asset on behalf of the beneficiary based on what the settler asks them to do. So ordinarily when this is set up, most trusts are set up by accountants or advisors. This is a great role for those people because the accountant or the advisor is not really involved in the trust anymore, they’re not going to hold any roles within it. The settler is the only person in the world who can’t benefit from the trust because you can’t set a trust up for yourself. So, the settler basically chucks 10 bucks in and says, “Can you hang onto this for these beneficiaries please and I’m out of here.” Now, most people think because the trustee is then the person who will hold the asset and essentially controls and operates the trust, the trustee is the person with all the power. Now that’s true to a degree because the way a trust works is the beneficiary, whilst the beneficiary is a person who benefits from the trust, the beneficiary has no entitlement to anything within the trust unless the trustee decides to give it to them. So the way this essentially works is the beneficiary has what we call a beneficial interest, but they don’t have any current interest unless the trustee decides to give it to them. So the beneficiary can turn around the trustee and say, “Hey, can I please have some income or capital?” Unless the trustee agrees to give it to the beneficiary, then nothing actually happens. Now, whilst the trustee is responsible for the day-to-day operations and seems to be in control of the trust, the real controller of the trust is is the person we actually call the appointor. The appointor is effectively the god of the trust. There’s a little halo over here. The reason for that is the appointor is the person who actually appoints the trustee of the trust. So if you follow this through for a moment, we have a trustee over here who’s controlling the assets and the income of the trust. Mr. Beneficiary turns around and says, “Hey, can I have something, “perhaps some money from the trust?” Trustee says, “No, I don’t think so.” The beneficiary happens to also be the appointor, turns around and says, “Hey, you’re sacked. “I’m now gonna put someone else in to be the trustee “who might do what I want them to do.” So while the trustee seems like they’re in control of the trust, it’s an important job, they’re really only in control of the trust as long as the appointor lets them be. So the appointor is God. The appointor controls everything that happens in the trust in the ultimate sense, and therefore it’s the most important position to get right. It’s surprisingly common to find appointors family or discretionary trust, who are in fact random people, accountants, lawyers, advisors who set trusts up and wandered off with the clients themselves, the trustee or companies that they control being set up as trustee, not realising that they have no effective control in the trust should they appoint or decide to step in and reappoint a different trustee. So, these are the major roles within a trust. The important thing to understand is a trust is a relationship between parties and the person who sets the trust up, or the settler, can’t benefit from the trust. So make that someone that’s absolutely got no intention to be involved in the trust. Trust is set up on behalf of the beneficiaries, keeping in mind that the beneficiaries have no present entitlement to anything. So the beneficiaries can be anyone you like, they can be anyone with a heartbeat who isn’t a settler. They have no rights to anything, they’ve got no entitlements to anything unless the trustee actually allows them or decides to give it to them. So there’s no danger generally in allowing your class of beneficiaries or people you may distribute from your trust to be as broad as possible. The trustee is an important position, make sure you’ve got a company or someone there that you can control, but the really critical position here is the appointor. And the other important thing to realise with a trust is a trust doesn’t belong to anyone. So you may, well set up your family trust, it’s been set up by your accountant as a settler, it’s important to understand that those assets of the trust don’t belong to a person, they really are assets of the trust and therefore can’t be disposed of via your will as part of your estate planning. It’s very, very important though that things like trusts are included as part of your estate planning though because ordinarily if you’re the appointor and therefore have effective control of the trust, we want to make sure that that control is passed on with the right person in the right way. And if it’s not done properly, we can end up with your executor’s executor suddenly taking control of your trust because your estate planning wasn’t properly in place. One of the more dangerous ones I’ve seen is the client a number of years ago, who turned out that his ex-wife was the appointee of the trust and didn’t realise. She effectively controlled the trust that now controls their business, despite the fact that they had a financial settlement many years prior. Very difficult things to fix if you have someone who’s down the track not going to play ball. So that’s basically the overview of the trust, how it works and the various roles. If you’ve got any questions make sure you drop us an email or check out some of the other videos on the site.