The main aim of setting up a family trust is to protect the ownership of assets. This is a simple and easy-to-digest detail of how a trust works.
A family transfers legal ownership of accumulated assets to trustees while simultaneously enjoying the benefits under provisions featured in the trust deed. A family whose home is included in a trust are technically not its sole owners, but they can still live in it, especially if the trustees agree on this provision or is a permitted condition as stated in the trust deed.
What are the Benefits of a Family Trust?
A family trust is designed to safeguard assets of its current members and future generations. When assets are included in a family trust, the assets will be owned by the assigned trustees, but the benefits will still be enjoyed by all existing members.
Individuals set up a family trust to gain benefits from assets that are no longer under their complete ownership. A family trust is useful in the following instances:
- Protecting select assets against claims and creditors. For instance, putting your home in a family trust will protect it from future claims as a result of business failures
- Saving up money and other assets for future use, such as enough money to fund a child’s education
- Ensure that only children included in the trust, not their spouses, can gain access to inheritance in the future
- Efficiently handle unwanted claims on estates before trust members pass away, such as claims made by former spouses or partners
Who are the Important Members of a Trust?
-
Settlor
The person or company that created the trust. There can be more than one settlor in a family trust.
-
Trustees
The individuals who are responsible for trust management. A settlor may also assume a trustee position. It is also an excellent practice to include a non-relative as an independent trustee. You may also appoint professionals such as lawyers and accountants (or their practice) as independent trustees.
-
Beneficiaries
People who use or benefit from the trust are called beneficiaries.
The trust deed will clearly state who holds the power to appoint and dismiss trustees. The settlor or anyone who is explicitly states as the decision maker in the trust deed shall have this power. This significant role may be transferred to another person in their will during at any point in their lifetime.
A family trust does not cease to exist upon a settlor’s death. Typically, a trust can last up to 80 years from its inception and is less likely to be extended in the future.
How does a Family Trust Work?
A trust deed is a legal, written document that signifies the establishment of a trust. It will state the names of trustees, beneficiaries, and enumerate all conditions and rules in trust administration and management. Ideally, a trust should be written with the professional guidance of a lawyer.
Settlor, trustees, and beneficiaries may decide on what personal assets should be be placed under the family trust. In most cases, family trusts include family homes, cash, bank deposits, artwork, shares, and other valuable assets into the family trust.
Once the family trust is formed, assets can be sold into the trust at market value. Despite the willingness of a trust to buy an asset, for instance, a house, it may not have the financial capability to purchase it. In this case, beneficiaries and the family trust will create a written transaction wherein the a beneficiary will sell the house to the trust, with the condition that the latter owes the former a house-sized debt. The debt that the trust owes a beneficiary is still considered as personal asset. In this way, beneficiaries can fully get rid of the debt under their names. This entire process is called “gifting.”
Where is the Best Place to Establish a Family Trust?
There are many countries across the globe that have established attractive legislations for foreigners looking to build a family trust. When choosing the best jurisdiction, it’s crucial to determine the following factors:
- A sterling reputation for trust business
- Modern legislation that features contemporary trust concepts
- A long-standing tradition of enforcing trusts
- Low or no taxation for trusts
There are some jurisdictions that are not recommended due to legal and political volatility or because their courts or professionals simply do not have extensive experience in dealing with trusts. On the other hand, there are also jurisdictions that are known for their expertise on trusts and are updated with modern trust laws and legislation, offering extra benefits, adequate protection to trust assets, and low tax regimes.
Additionally, when deciding which jurisdiction to choose for your trust deed, it’s also important take a closer look at the following factors:
- The place of administration of the trust
- The place where majority of assets of the trust are located
- The place of business or country of residence of the trustees
- The objectives of the trust and places where they must be fulfilled
As there is no specific judicial guidance on which of these factors are most important, each of them must be given equal weight when deciding a jurisdiction. To expedite the process, you may also seek the expertise of wealth management experts to determine the best place to your family trust should be cited.
How Much Does it Cost to Manage a Trust?
Running a family trust can be costly and sophisticated at times, so make sure to take your time on deciding whether to set up one or otherwise. It is a huge investment managing them since you must pay for legal and accounting fees. You will need to conduct a thorough research on which company to partner with in managing your family trust.
If you need to decide who to trust with the power of appointing and removing trustees, make sure to think things through or seek the help of professionals to make a smarter decision. Bear in mind that whoever has the power to appoint and manage trustees should follow up by appointing yet another trustworthy and credible person in their will after his or her passing
Are there Risks in Setting Up a Trust?
An expertly managed trust does not carry any drawback, inconvenience, or financial loss. There are instances wherein a trust may be considered “fake” if the assets are not really under the ownership of trustees but are still in fact under a member’s ownership. If a trust is declared a “sham”, members will lose all of its benefits while the trustees may be penalised due to mismanagement and fraudulent activity.
Once assets are placed under a trust, beneficiaries are no longer considered personal owners; hence does not have any control over them. Ownership is automatically passed on to the trustees, who must act in accordance with terms included in the trust deed.
There are instances wherein family members sue other family members for breaking the conditions stated in a trust deed. These cases will be claimed in court- most of which can be complicated and costly to resolve.
Forming a trust is inarguably a huge decision. When you are looking to set up one, make sure all steps that pertain to its establishment and management are done properly. Keep a clear record of everything that affects the overall condition and strength of the trust.
Managing the sophisticated wealth management and estate planning processes can be a challenge. This is especially true if family members or beneficiaries reside in different parts of the globe. Setting up a family trust in the right jurisdiction is an excellent and creative solution that meets the need of each member’s needs.
Family trusts can be complicated and overly technical, so it’s best to seek the services of professionals. Damalion have accumulated years of experience and expertise in assisting clients in the set up and management of trusts. For more information, let our Damalion experts help you in making the right decisions for your trust.
The benefits and disadvantages of setting up a family trust — legal structures, fiduciary duties, reserved powers, tax reporting, creditor exposure, forced-heirship, and dispute management.
For entrepreneurs, family offices, HNWIs, private equity principals and cross-border families • Damalion facilitates scoping and coordination with qualified trustees, banks and counsel. This content is legal-information, not legal advice.
Last updated:
Executive view — what’s legally at stake?
A family trust is a fiduciary arrangement separating legal and beneficial ownership. Selecting a suitable governing law, defining trustee powers and beneficiary rights, and aligning tax reporting and banking KYC are core legal workstreams. Advantages include succession planning, governance continuity and confidentiality; disadvantages arise from mis-drafted reserved powers, inadequate funding formalities, or conflicts with matrimonial and forced-heirship regimes.
Legal snapshot — typical trust parties & instruments
| Element | Legal role | Key risks / controls |
|---|---|---|
| Settlor | Creates and funds the trust | Excessive reserved powers may jeopardize validity or tax separation |
| Trustee | Holds legal title; fiduciary duties | Duty of care, loyalty, prudence; conflicts policy; licensing where applicable |
| Protector | Supervisory powers over trustee | Scope must avoid de-facto control by settlor; clear appointment/removal mechanics |
| Beneficiaries | Discretionary or fixed interests | Clear class definitions; minors & incapacity rules; information rights |
| Trust Deed | Constituting instrument | Governing law, duration, addition/exclusion powers, investment & distribution policies |
| Letter of Wishes | Non-binding guidance | Keep separate, dated, consistent with deed; avoid mandatory language |
Legal process — from structuring to operation
- Choose governing law & forum. Select a reputable trust jurisdiction; decide court or arbitration.
- Draft the deed. Define powers, purpose, classes of beneficiaries, protector mechanics, variation & migration.
- Regulatory & licensing checks. Confirm trustee authorization and any registration/public filings.
- Fund the trust lawfully. Execute transfer instruments; perfect title; record valuations and basis.
- Banking & KYC. Trustee opens accounts; provide deed extracts, controllers, CRS/FATCA classification.
- Tax filings & reporting. Align with domestic and cross-border rules (CRS/FATCA/CFC/GAAR).
- Governance in life. Minuted decisions, conflict handling, investment policy, annual accounts where required.
- Dispute prevention. Clear information rights, protector oversight, escalation protocol.
Benefits vs disadvantages (legal lens)
| Benefits | Disadvantages / pitfalls |
|---|---|
| Succession certainty; continuity across generations | Risk of sham/invalidity if settlor retains excessive control |
| Fiduciary oversight and asset segregation | Creditor and matrimonial claims may penetrate if transfers are voidable |
| Confidentiality (subject to reporting regimes) | Regulatory registration and disclosure in some jurisdictions |
| Flexible distributions, class management | Tax complexity; multi-jurisdiction conflicts of law |
| Migration and variation mechanisms | Bank onboarding friction if governance unclear |
