One thing which people who deal with a trust in the first time may get confused is that whilst the trustee has legal title over the Trust Assets, he does not necessarily need to have physical possession of them. For example, if B is holding a residential property on trust for C and his children, B does not have to live in that residential property. It is perfectly alright for B to let C live in the residential property. B may even give permission to C to decorate the property and make any alteration, as long as it is legal, to it. In other words, C is allowed to act as if he were the legal owner of the residential property. The only difference is that if C goes bankrupt, his creditors cannot create a charge on or force the sale of the residential property. Actually, B can allow C to continue living in the residential property even in his bankruptcy, so C’s living standard in this aspect can be maintained. Money which is distributed by the trust to C during his bankruptcy will be seized by the official receiver to satisfy creditors’ claims, but service-in-kind received from the trust, such as the permission to live in the residential property in the previous example, or maybe permission to use a car held by the trust, is something that is beyond C’s creditors’ reach.

The use of trust, as such, can increase the depth of the assets succession strategy of anyone who is minded to leave an estate to his heir. Instead of simply transferring the estate to his heir, who will then be in complete control of the use of the estate and therefore may squander it, the person may set up a trust for the estate to maintain control, to a certain extent, on the use of the money in the trust and protect the estate from the creditors of the heir. Couple with an appropriate insurance policy, the trust can provide a reasonable assurance to the settlor that his heirs will have adequate financial security for a long time at a modest cost.

So, are there any difficulties in forming a trust? The most obvious one is the finding of a trustee. A trustee is expected to manage the trust in the long run, and he or she must be trustworthy and reliable. Legally speaking, trustees are held to a very high standard of performance in terms of their fiduciary duties, which means that they must act, and seen to be acting, for the best interests of their beneficiaries and not for their own interest. A trustee being suspect of breaching this fiduciary duty may be sued by a beneficiary, and the trustee will need to justify that he has indeed performed their duties to the beneficiaries properly. If a trustee benefits from a trust at the expenses of the beneficiaries, a court of law will have no hesitation to order the trustee to pay all his profits from so doing into the trust. In this way, the interests of the beneficiaries are protected by law.

How does one prevent the trustee misusing the trust assets? Some trusts involve more than one trustee, and the co-trustees can only authorized payments of money on trust with more than one signature of the co- trustees so as to provide a check-and-balance between the co-trustees. The use of professional trustees, such as banks, is also an option, but their fees for acting as trustees are not negligible. Usually they will only act as trustees for trust created by their own trust creation documentations and most likely than not that they are not going to change them to suit the needs of a particular customer. Trusts created by the banks are normally what we called discretionary trust, that is the bank, as the trustee, has full discretion on how to utilize the trust assets. The settlor may be asked to give the bank a letter setting out his wishes, but there is no assurance that the wishes would be followed.

Given the power of a trust the relative lack of formality requirements in its set up is somewhat surprising. No registration is required and no specific form has to be completed. Trusts involving real properties have to be documented in writing but trusts for other assets can be created even without writing. An oral declaration will suffice for them, but of course it will be advisable to document a trust in writing in order to avoid any unnecessary dispute and misunderstanding in the future. Theoretically speaking, anyone is capable of creating his or her own trust, but in practice whoever is interested in setting up a trust is strongly advised to consult his legal advisor as there are technical rules in the setting up of trusts which must be abided for a trust to be validly created.