What is a trust?

Trusts exist to safeguard property or assets and streamline the transfer of wealth between generations. In a trust, one party (the settlor) transfers assets to another party (the trustee) for the benefit of a third party (the beneficiary). 

Beyond that simple definition, trusts come in several “flavours”, including revocable, irrevocable, discretionary, fixed and charitable. Among other purposes, they’re used for estate planning, tax optimisation, asset protection, charitable giving and providing for dependents. 

In this guide, we’ll explain how trusts work, why they’re popular and who the key stakeholders in a trust are. We’ll also reveal two leading locations for trusts, unpack why they’re popular destinations for wealth management and provide a brief overview of the steps involved in establishing a trust of your own. 

Important: The information in this guide is general in nature, not legally binding, and should not be considered financial or investment advice.   

Key takeaways: 

• Trusts are legal structures designed to protect and transfer wealth across generations, offering control, privacy and long-term planning benefits. 

• There are many types of trusts – including discretionary, fixed, revocable and irrevocable – each suited to different financial goals. 

• Establishing a trust overseas can offer additional advantages, including enhanced asset protection, legal stability and tax efficiency. 

• Setting up a trust requires careful planning, legal expertise and ongoing administration – but the right support can make the process straightforward and effective. 

  
  

Why establish a trust? 

Trusts are powerful legal structures. They’re not basic asset management tools but rather a means of strategically safeguarding wealth. With that in mind, here are four of the most compelling reasons why people establish trusts. 

To protect wealth 

Trusts provide robust protection for family wealth across generations. By placing assets within a trust, you can minimise potential future liabilities and ensure they're managed according to your wishes – even when you’re no longer there to oversee the process. 

To preserve privacy  

Unlike wills, which often become public records after your passing, trusts are private arrangements. This confidentiality can be particularly appealing to those who prefer to conduct their financial affairs with discretion. 

To maintain control 

A trust empowers you, as the settlor, to retain a significant degree of control over how and when your beneficiaries receive assets. Via the trust deed – the governing document of the trust – you can impose specific conditions, timelines and even the purpose for which funds can be used.    

To maximise tax benefits 

Trusts potentially offer tax advantages – for example by reducing estate or income taxes – depending on the jurisdiction in which they’re set up. If you hope to maximise tax benefits, we strongly recommend seeking expert advice to understand your unique responsibilities. 

Why establish a trust overseas? 

We’ll talk about two of the most popular places to establish trusts later in this article. Overall, though, establishing a trust in an overseas jurisdiction can offer additional layers of protection and opportunity by: 

• Shielding assets from political or economic instability: In regions facing potential political or economic uncertainty, placing assets in a stable offshore trust jurisdiction can provide a secure haven.    

• Providing access to solid legal and financial systems: Reputable offshore jurisdictions like Jersey and the UAE have well-established legal and financial systems, offering a secure and reliable environment for your trust.    

• Offering better asset protection in common law jurisdictions: Many offshore trust jurisdictions operate under common law, which often provides strong legal frameworks for asset protection.    

For many individuals, setting up an overseas trust is their first experience with managing finances abroad – and while it can seem daunting at first, the right expert guidance can make it an intelligent and rewarding decision. 

How do trusts work? 

We’ve covered the “why” part of setting up a trust; now, let’s look at how trusts work.  

There are four potential players in any trust: the settlor, the trustee (or trustees), the beneficiary (or beneficiaries) and, sometimes, a protector.  

• The settlor: The individual who initiates the trust by transferring their assets into it. They define the trust's terms and the beneficiaries who will benefit.    

• The trustee(s): The party or parties who hold legal ownership of the trust assets and are legally responsible for managing them according to the trust deed. Trustees have a fiduciary duty to act in the best interests of the beneficiary or beneficiaries. Trustees can be individuals, a professional trustee company, or a combination of both.    

• The beneficiaries: The individuals, entities or class of people who are entitled to benefit from the trust assets, either through income distributions or eventual capital transfer. 

• The protector (Optional): In some trusts, particularly larger or offshore structures, a protector may be appointed. The protector acts as an overseer of the trustee's activities and may have specific powers – for example, the ability to appoint or remove trustees, ensuring the trust operates according to the settlor's original intentions.    

  
  

Beyond these key players, various advisors often contribute to the smooth functioning of a trust, including wealth advisors, investment managers and legal counsel who provide expert guidance on investment strategies and legal compliance as well as trust administration. 

Understanding how settlors, trustees, beneficiaries – and, if appropriate, protectors – work together can help you appreciate the power of a trust. So, let’s imagine you’re the settlor, and you’re ready to place some of your assets into a trust. 

These assets are then legally transferred to the trustee. The trustee takes on the responsibility of managing the assets according to the instructions outlined in the trust deed for the benefit of the beneficiaries. The beneficiaries will ultimately receive income or capital from the trust according to the terms of the trust deed, which we explain below. 

The most crucial point about a trust is the legal separation of ownership. Once assets are placed into the trust, the trustees become the legal owners, even though the assets are managed for the benefit of others. This separation is fundamental to a trust’s asset protection and estate planning benefits. 

Let's circle back to the trust deed, which is the cornerstone of any trust. This legally binding document sets out the rights and responsibilities of all parties involved – the settlor's wishes, the trustee's duties and the beneficiaries' entitlements. It dictates how the trust will operate and how the assets will be distributed. 

Together, settlors, trustees and protectors create a solid framework for the trust, collectively safeguarding assets for its beneficiaries. 

What are the different categories and types of trusts? 

Before moving ahead with plans to put assets into trusts, it’s important to know the options available to you.  

First, we can separate trusts into two distinct categories: revokable and irrevocable. 

What are revocable trusts? 

Also known as living trusts, revocable trusts allow the settlor to retain control over the trust assets. If you establish a revocable trust, you can alter, amend or even dissolve the trust during your lifetime. 

While offering flexibility and avoiding probate (the legal process of proving a will), revocable trusts are less common in asset protection planning because of the settlor's continued control, which limits the legal separation of assets. 

What are irrevocable trusts? 

Irrevocable trusts involve the settlor relinquishing control over the assets once the trust is established. This transfer of control is what typically offers stronger asset protection and potential tax benefits, as the assets are no longer considered part of the settlor's estate. Irrevocable trusts tend to be more popular because of this reason. 

Exploring trusts by type 

Beyond the two categories mentioned above, trusts come in several types: 

• Discretionary trusts: Trustees decide how and when to distribute benefits. Common in wealth preservation and tax planning. 

• Fixed interest trusts: Beneficiaries receive predetermined entitlements – for example, regular income. 

• Bare trusts: Trustees hold assets on behalf of a single beneficiary, who has an absolute right to them. 

• Charitable trusts: Set up to support philanthropic causes, often enjoying tax exemptions. 

• Purpose trusts: Created to fulfil a specific goal (other than charitable) without named beneficiaries, often used in offshore jurisdictions. 

• Testamentary trusts: Established via a will and activated upon the settlor’s death. 

  
  

Each type offers distinct benefits. For example, a discretionary trust might allow parents to support children as their needs evolve, while a charitable trust could serve as the foundation for long-term giving. 

Where are the best places to establish a trust? 

Domestic trusts – in other words, trusts set up in the jurisdiction where you live – provide a structured way to pass assets to beneficiaries while reducing the risk of disputes. So why, then, do people so frequently establish trusts in overseas jurisdictions? 

Simply put, choosing a country with favourable tax laws can help you maximise your wealth, now and in the future. However, selecting a destination is a significant decision with long-term implications rather than a choice to be made lightly. 

We strongly recommend taking professional advice before proceeding with plans to set up a trust overseas. With that said, the UAE and Jersey are both very popular trust jurisdictions, and here’s why: 

• The UAE is emerging as a growing trust sector, particularly within its financial free zones like the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC). These zones offer robust and modern legal frameworks for trusts, making the UAE increasingly attractive for Middle East-based families and international investors seeking a stable and well-regulated environment. 

• Jersey has a longstanding reputation for providing high-quality trust services and adheres to strong regulatory standards. Its common law system is familiar to many international advisors, making it a comfortable choice for global families. Jersey offers political stability, a well-developed financial infrastructure, and a commitment to client confidentiality.    

  
  

Other notable jurisdictions frequently considered for establishing trusts include: 

• Guernsey 

• Cayman Islands 

• Singapore 

• Isle of Man 

When evaluating a jurisdiction, most experts suggest considering its political and economic stability, the clarity and fairness of its tax laws, the strength and independence of its regulatory oversight, and the level of confidentiality protections it offers. 

How do you set up a trust? 

We’ve covered why trusts are popular, who the key players in a trust are and what types and categories of trusts are available. We’ve also explored a number of popular places to establish a trust. Now for the big question: how do you actually set one up? 

What follows is a six-step overview on trust setup – but it’s important to remember that because your trust is unique, the steps you take may be different from the ones below. 

Step 1: Define your objectives and select the right type of trust  

Clearly articulate your goals for the trust – including wealth preservation, estate planning and tax efficiency – as these will help you decide upon the most suitable type of trust structure. 

Step 2: Choose a jurisdiction 

The jurisdiction in which you establish the trust can have significant legal, tax and asset-protection implications. Consider the country’s political stability, legal framework, tax laws and confidentiality protections. 

Step 3: Draft the trust deed (with legal support) 

This is the most critical step. The trust deed is a complex legal document that outlines the terms of the trust, the powers and duties of the trustees, and the entitlements of the beneficiaries. For this reason, it’s essential to work with experienced legal counsel to ensure the deed accurately reflects your wishes and complies with the laws of the chosen jurisdiction.    

Step 4: Appoint trustees and any additional roles 

Carefully select trustworthy and capable individuals or entities to act as trustees. If you feel it's necessary, this is also the moment to appoint a protector to oversee the trustees. 

Step 5: Fund the trust (transfer of assets) 

Once the trust deed is in place, you will need to formally transfer the chosen assets into the ownership of the trust. This may involve changing legal titles and completing specific documentation.    

Step 6: Implement ongoing administration and governance 

Trusts require ongoing administration, including accounting, tax filings, and communication with beneficiaries. It’s vital to create clear governance procedures to ensure the long-term success of the trust.   

As you consider the best strategies for your financial future, we encourage you to speak with trusted legal and financial advisors to explore whether a trust aligns with your objectives. 

Finding the right financial partner for your trust 

By themselves, trusts can be excellent vehicles for wealth preservation. However, banking them can be difficult – particularly if they’re offshore. Traditional banks can be risk-averse, and domestic institutions aren’t always familiar with compliance rules in other jurisdictions. As a result, many are reluctant to onboard overseas trusts.  

Thankfully, there is an alternative for international trusts: Interpolitan Money. With an experienced cross-border compliance team and extensive experience onboarding trusts, we’re confident and comfortable handling the most complex structures. We regularly work with trustees, family offices and legal advisors, delivering personal service on a global scale. 

To find out more about our multi-currency accounts, cross-border payments and escrow services for trusts, get in touch today.