Trust instrument


A trust instrument is an instrument in writing executed by a settlor used to constitute a trust. Trust instruments are generally only used in relation to an inter vivos trust; testamentary trusts are usually created under a will.

Formalities

Although in most legal systems there are certain formalities associated with settling a trust, most legal systems impose few, if any, structures on the trust instrument itself. Historically, the concept of a trust is the intervention of the courts of equity to prevent a legal owner treating the property as beneficially his own; provided that state of affairs exists, a trust arises notwithstanding any lack of formality in relation to the form of the trust instrument.
However, notwithstanding the flexible approach taken by the law, characteristically the legal profession has taken an extremely formalised approach to trust instruments. Not only are they invariably always executed under seal as a deed, but frequently the initial trust fund, will actually be physically affixed to the trust instrument itself to prove that the initial trust property was transferred.
Some slightly unusual practices have arisen in relation to the drafting of trust instruments which, again, are rigidly adhered to by professionals in many common-law countries. For example, trust deeds will generally avoid all punctuation - to avoid confusion, all new sentences commence with a new, numbered, paragraph. Dates, including years, are conventionally spelled out in words rather than using figures.
Part of the over-formalisation which attends the creation of trusts is justified by the significant tax implications which may follow if a trust were to be subsequently held to be void, as most professionally drafted trust instruments are prepared as a part of tax mitigation schemes.
Most jurisdictions do not require trust instruments to be publicly filed. But in many jurisdictions they are subject to stamp duty.

Provisions

The provisions of a trust instrument will vary according to the type of trust, and the nature of the trust property.
However, in general, most trust instruments will have provisions which address the following aspects of the administration of the trust:
  1. The name of the settlement and definitions and interpretation provisions
  2. The legal nature of the trust
  3. Powers to add and exclude beneficiaries
  4. Trusts over property added to the trust fund
  5. Power of appointment
  6. Trusts in default of appointment, and, sometimes, ultimate default trusts
  7. General administrative powers of the trustees
  8. Extended power of maintenance
  9. Extended power of advancement
  10. Usually, a trustee charging clause
  11. Regulation of the appointment of new trustees
  12. The proper law and forum and place of administration for the settlement
  13. Often, an exclusion of settlor from benefiting from the trust
  14. Usually, an indemnity for the trustees out of the trust fund
Most trust instruments will then also have two schedules:
  1. a schedule setting out the powers of the trustees
  2. a summary of the initial trust fund

    Footnotes