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Trust Law is one of the crucial branches in countries governed by common law. It makes asset management easy and allows for asset planning for their transfer during generations. This paper illustrates how trusts are used in estate planning, its relevance, and how the management of a trust for an asset has evolved with time in modern society.
What Is Trust?
The three main parties who are involved in a trust are known to include the beneficiary, the trustee, and the settlor. The person transferring his assets into the trust is known as the settlor. The beneficiary is the one who will enjoy the fruits of the property while the trustee mans it. The corpus refers to the assets held by the trust. Trusts can either provide the trustee the freedom to select how they divide the assets (free trust) or follow defined regulations that have been defined before (fixed trust).
While they were first created for the English legal system, trusts are today used in many other nations. For example, France has a system similar to a contract called fiducie. Protecting and managing assets for beneficiaries is the primary objective of a trust, with the specifics being different.
Using Trusts for Estate Planning:
The goal of estate planning is to decide how to divide what someone has, during their lifetime and after their passing. The trusts prove popular among people to minimize their taxes and ensure that their money goes to their loved ones.
Although they can help manage inheritance tax in the UK, trusts do not ensure avoidance. There may be specific tax benefits available, but the amount of inheritance tax mitigation is subject to strict criteria. If parents want to make sure that their grandchildren or children get money over time, then trusts come into play. That way, the money will be saved and not be paid out all at once.
In estate planning, a trust with flexibility is a popular choice. The trustee in this kind of trust determines when and how much cash or property that the recipient will receive. When a recipient is too young or unprepared to handle big quantities of money, this is useful.
Responsibilities of Trustees:
A trustee's role is highly important. They must administer the wealth with utmost care, keeping in mind the best interests of the recipients. We call this fiduciary duty. Trustees must always act in the best interests of the trust and never be in a conflict of interest.
A trustee would be liable and may even be penalized based on the inaction. A great example would be that of Armitage v. Nurse 1998 where the court ruled and stated that although there are times when a trustee could have some discretion, they always should act honestly and in good conscience.
Trusts in Wealth Management Today:
Trusts are no longer just for estate planning but rather today used by many to manage their wealth around the globe. With such low taxation in locales such as the Cayman Islands, offshore trusts have been applied widely to guard one's wealth, though it has been feared that such trusts could very well be applied for tax avoidance. Today, this international regulation effort is avoiding discriminatory taxation and ensuring tax transparency.
These problems make governments try to stop trusts from being used for questionable purposes. For example, to deter tax evasion, the OECD developed new regulations dubbed Common Reporting Standard (CRS) which obligate the member states to reach across borders and exchange information regarding such bank accounts and even trusts of non-resident citizens. This is now commonly referred to as the Common Reporting Standard (CRS).
Trusts and Digital Assets:
As technology develops further, digital assets like cryptocurrencies have created new problems for trust law that need for revisions to existing legal frameworks in order to properly handle and protect these assets. Because of their challenging technology, digital assets might be more difficult to manage than traditional assets. It might be challenging to set up digital assets in trusts as trustees might not be familiar with items like digital wallets.
The legislation related to trusts will need to adapt as technology does. Changes to trust rules are being considered by lawyers and specialists in order to handle these new kinds of assets while maintaining client protection.
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