Earlier this summer, I published an Insight article about Gibraltar trusts, exploring the main structures available and how they support asset protection and succession planning. Interested readers may view the piece here.

‍

The feedback was encouraging but it surprised me how urban myths concerning trusts in general persist. This follow-up aims to bust the most common and clarify how to approach setting up a trust, including how they can be best employed in a wider structure. As ever, none of this is legal advice, which should always be obtained in advance by clients and their advisers. However, readers may be reassured at how Acquarius manages Gibraltar trusts.

‍

Myth 1: The Settlor Still Controls the Trust

‍

The elephant in the room is that trust clients often mistakenly believe they can continue to “control” the trust once established. In truth, they should not – and cannot – do so. That is why impartial, unambiguous advice is essential from the outset. 

‍

Advice should cover the nature of the assets, the residency and tax status of the settlor and potentially (though not always) the proposed beneficiaries. Once executed, the deed governing the trust should clearly set out the parties involved and outline its aims, considering various potential future scenarios. 

‍

Once established, the settlor of a trust should have little further influence. In the past, I have had settlors ask me for “money from my trust.” To avoid any risk of a court declaring that the trust is a “sham,” the answer must always be to refer to the trust deed. Even if the settlor is a named beneficiary, it is the trustees – guided by the deed – who control the assets and make all the decisions. 

‍

Myth 2: The Letter of Wishes Is Binding

‍

Another common misunderstanding relates to the “letter of wishes” which is a side document provided by the settlor to guide trustees. Commonly seen, they can be hugely useful for trustees, especially years later when original assumptions may no longer hold. However, trustees are not bound by such letters. If a particular clause is crucial to the settlor’s intentions, and is reasonable, it should be included in the original trust deed. 

‍

Myth 3: Trusts Are the Only Option

‍

In certain situations, particularly where clients and their advisers are more familiar with civil law, an alternative solution may be more appropriate. Just one example is to establish a Gibraltar Foundation instead. My colleague Paula Bullock authored an excellent article on this earlier this year.

‍

Myth 4: Beneficiaries Are Set in Stone

‍

Another misconception involves beneficiaries. The trust deed should be clear about the different classes included, that may comprise individuals, charities and other entities. However, life is unpredictable - common issues arising include divorce, second marriages and changing family dynamics that can alter intentions dramatically over time. A detailed trust deed is essential but I recommend that is not made so complex that it paralyses the trustees when faced with real-life situations. Balance is key: clarity without over-complication. 

‍

Myth 5: Trusts Can Never Be Changed

‍

Another myth is that a trust deed cannot be altered under any circumstances. The ability to amend depends on both the reason for change and the powers granted under the trust deed itself. Certain adjustments may be made using powers set out in the deed, or by applying to a court for a deed of variation or rectification. For wholesale change, a new deed may prove necessary. 

‍

Looking Beyond the Present

‍

The days where trustees focussed only on the settlor and the original terms of the trust are, I think, over. Of course, such responsibilities are key but, to me, where the trust may last for decades, they should be equally keen to develop relationships with the next generation, and the one after that. Put another way, professional trustees should alter their focus from the “who” is involved now to the “who” some years down the line.

‍

The world never stands still. What was appropriate in a trust, say forty years ago, may be unsuitable today. Only by being engaged with current and potential future beneficiaries can professional trustees manage trusts effectively for the long term. 

‍

This future-facing approach is central to the Acquarius Way and something all our trust clients should expect. It personalises the structure and, guided by the original trust deed, ensures that the trustees provide the appropriate level of transparency to the beneficiaries. Moreover, it is simply the right thing to do. 

‍

Why Gibraltar?

‍

Alongside company structures, Gibraltar trusts form the backbone of Acquarius’ business. Gibraltar is one of the world’s leading trust jurisdictions with legislation based on English common law. Its regulation and infrastructure (trustees, bankers, lawyers and accountants) are highly regarded and costs reasonable. But, like marriage, trusts should not be entered into lightly. They require a great deal of thought and careful planning. They cannot be undone easily without consequences. It is essential to obtain decent advice and avoid succumbing to the myths. 

‍

To find out more, please get in touch at any time for a no-obligation, myth-busting conversation.