WHAT IS A TRUST?
A trust is a relationship in which one or more persons hold another person’s assets or property for the benefit of others. The basic concept of a trust involves the person who creates the trust (called a settlor); the person who holds the property for those who benefit (called the trustee); those who ultimately receive the benefits of the trust (called the beneficiary).
In Labuan IBFC, a trust can be set up for a wide range of purposes ranging from discretionary, charity, spendthrift protection etc.
One special form is the Labuan Special Trust (LST). The benefit of a LST is that there is a distinct separation between the custodian role of the trustees and the management of the company, which is the responsibility of the directors only.
When it comes to dynastic succession, estate management or wealth preservation, investors look for financial structures that can help preserve their assets while ensuring its proper management. A trust helps provide that comfort.
A trust is a highly effective vehicle for asset preservation, protection and income distribution, making it one of the primary vehicles used to pass wealth from one generation to the next. It provides unparalleled financial control with exceptional fiscal advantages.
Assets in a trust are held in the trustee’s name and are dealt in accordance with the trust deed. The trustee has a fiduciary duty to ensure the trust assets are managed in the best interest of the beneficiaries.
A Trust structure can be used to hold assets of all types such as cash, portfolio of investments, property, family companies, quoted or unquoted shares, etc. It can also be used for certain international trading activities.
A TRUST IS AN EXCEPTIONAL WEALTH MANAGEMENT AND DYNASTIC SUCCESSION VEHICLE
A Trust is thus a legal tool of providing global asset protection to persons with confidentiality. It is one of the most effective means of protecting private wealth from unexpected worldwide economic and political developments. It could also reduce tax exposures.
In essence, a Trust is a legal mechanism through which a person / entity (called the Settlor) transfers the legal title of his assets to another third party person / entity (the Trustee) with guidance as to how the assets should be managed (through a Trust Deed) for the benefit and enjoyment of the designated persons / entities (the Beneficiaries). A properly structured Trust can provide flexibility to persons of different nationalities in their investment / financial management and estate planning.
WHAT IS THE DIFFERENCE BETWEEN:
Common law origins
Relationship amongst parties is fiduciary
Assets, upon being vested in the trust, are legally owned by the trustee
The person who establishes the trust is known as the settlor and the persons who benefit from the trust are known as beneficiaries.
The trust deed is the document that establishes the trust.
The appointed trustee is the person responsible to hold the trust assets and administer the trust.
Registration of the trust is not mandatory.
The settlor may have certain reserved powers after establishing the trust and vesting the legal title in the trust assets to the trustee.
A trust can be established for any lawful purpose but a trust that is set up for a purpose must appoint an enforcer.
There is no capital requirement for trusts.
Civil law origins
Relationship amongst parties is contractual
Assets are legally owned by the foundation. Upon registration of the foundation, the property endowed or to be endowed becomes an estate separate and apart from that of the founder by acquiring a separate legal entity status.
The person(s) who creates the endowment is known as the founder and the persons who benefit from the endowment are known as beneficiaries.
The charter is the main constituent document of a foundation. A foundation may also have articles which are a set of more detailed rules governing its administration matters.
An appointed body called the Council are required to act in accordance with the terms of the charter and articles.
Registration of the foundation is mandatory.
The foundation does not have a share capital, does not recognise shareholders and the founder does not retain or acquire any ownership rights in relation to the foundation’s property. The law does recognise the beneficiaries or the persons in whose benefit the foundation was created, which can include the founder.
A foundation can be established for any lawful purpose which shall be spelt out in the charter of the foundation.
There is no capital requirement for foundations.
Can take effect immediately
Includes only the assets in the trust
Usually avoids probate
Can be kept private
Cannot name caretakers for minor children
More expensive and time consuming to set up
Only takes effect after you die
Includes most assets in your name
Usually goes through probate
Becomes part of the public record
Can designate caretakers for minor children
Cheaper and easier to create
Both a trust and a will let you transfer assets to someone else.
However, there are important differences between these two estate planning tools.
A trust is a way to transfer assets to someone else after you die. The person who creates the trust, the Settlor, chooses a Trustee to hold the items in the trust for a Beneficiary who will receive the assets at a set point in time. People use trusts for many reasons, including to provide for their families, manage assets in case of disability, give money to charity, and avoid certain taxes. There are many types of trusts available, including those that the Settlor can use while living and those that lock up assets that only transfer to a beneficiary after death.
A trust differs from a will, which is also an estate planning tool, in various ways including cost, permissible uses, and whether probate is a factor.