Jargon Buster

Glossary of Terms

At Fiduchi we realise that not everyone is going to understand some of the terminologies which are used in the financial service or legal industries. Fiduchi's ethos of being a 'Trusted' partner of choice means that we aim to explain what specific terms mean used in trusts and estates.

Below is a glossary of the most commonly used terminology.

'Ademption'

When an item in a will no longer forms part of the estate at the time of death.

'Administrator'

The person(s) appointed to distribute the estate if someone dies without a valid will or without appointing executors, or if the appointed executor is unable or unwilling to act.

'Appointor'

A person who has the power to remove a trustee and appoint a new one. Although you have a choice whether to appoint an appointor to your trust, you should consider the benefit of having one to cater for situations such as the death or insolvency of a trustee. The appointor may be the settlor, an existing trustee, a named beneficiary or any other third party.

'Arbiter'

The person appointed to judge or decide the result of a dispute.

'Asset'

An item, owned by an individual, which may make up part of an inheritance or be used to pay debts.

'Beneficiary' or 'Beneficiaries'

Person(s) for whose benefit the trust is created. They may be named and identified in the trust instrument or described by reference to a class of beneficiaries. The settlor may also be a beneficiary. A beneficiary has an equitable ownership interest in the trust property which allows him to enjoy the property, or its income, according to the terms of the trust.

'Capital'

Monies or assets that are used to generate income or held as an investment.

'Capital Gains Tax'

A tax on the profit made when you sell or give away something that has increased in value.

'Discretionary Trust'

This is the most commonly used trust, providing the trustees with complete discretion to manage the assets and income in accordance with the beneficiaries’ best interests.

'Eligible Beneficiaries'

Defined by their relationship to the named beneficiaries. The discretionary trust deed's schedule may contain a long and all-encompassing list of 'classes or eligible beneficiaries'. In a discretionary (family) trust, the trustee may distribute at its discretion trust income or other trust property either to named beneficiaries or eligible beneficiaries.

'Family Trust'

A trust, usually a discretionary trust, established for the benefit of a family group.

'Fiduciary'

A person who has responsibility to take care of someone else's money or assets in a suitable way.

'Gifting'

The transfer of asset without consideration.

'Interest in Possession Trust'

This type of trust may be used in circumstances where there is a desire by the settlor to preserve the capital of a fund for certain beneficiaries, but to permit other beneficiaries to receive the income arising from the assets. The trustees must distribute the income earned in the trust to those beneficiaries with a specified right to receive it, but retain discretion over the capital.

A typical example when this type of trust is used is when a settlor wants his spouse to take benefit from the use of the family house for the remainder of her life and for the children to take benefit after she dies.

'Memorandum of Wishes (also called Letter of Wishes)'

A non-binding document prepared by the Settlor establishing their wishes in respect of the administration of a trust. This document usually belongs to the trustees personally and not the trust.

'Minute'

A document recording the operation or administration of a trust.

'Minute Book'

The collection of minutes resolutions.

'Perpetuity Period'

This means the maximum term of the trust (the period for how long it exists). Under Jersey Law, unless its terms provide otherwise, a trust may continue in existence for an unlimited period. No rule against perpetuities or excessive accumulations shall apply to a trust or to any advancement, appointment, payment or application of assets from a trust. Unless stated in the terms of a trust with a perpetuity period, any advancement, appointment, payment or application of assets from that trust to another trust shall be valid even if that other trust may continue after the date by which the first trust must terminate.

‘Protector’

The role of the protector is to oversee the trustees to ensure that they are managing the trust fund appropriately and in accordance with the trust deed. The protector is usually nominated by the settlor and is often a relative, close friend or a trusted adviser.

Where a protector is appointed, the trust instrument will specify the type of transactions that cannot be carried out by the trustee without first receiving the protector’s consent. Typically, protector powers are limited to the approval of distributions, changes to the beneficiaries and changing of the trustees.

'Purpose Trusts'

These are trusts that are set up for a defined purpose as opposed to being set up to benefit specific beneficiaries or charities. These trusts can be used in any number of ways and can be applied to private family trusts as well as to international finance transactions or trusts used for social benefit projects. These trusts require the appointment of an ‘enforcer’, whose duty it is to enforce the trust in relation to the stated purpose but otherwise, they have essentially the same characteristics as all other Jersey trusts.

'Reserved Powers Trusts'

A reserved powers trust allows a third party to the trust (usually but not necessarily the settlor) to retain certain powers in respect of the trust. These powers may allow the power holder to give binding instructions to the trustee over particular aspects of the trust, such as how the trust’s assets are invested or who may benefit from the trust and in what circumstances. Trusts of this type offer flexibility and can be attractive to settlors from jurisdictions unfamiliar with the trust concept, but care must be taken to ensure that the reservation of any particular power does not give rise to any adverse tax or legal consequences.

'Resettlement'

A process pursuant to the trust deed where the trustees establish a new trust for the benefit of a beneficiary or beneficiaries of the existing trust.

'Resolution'

The record of a trustee decision.

'Settlement'

A trust in circumstances where a person known as a settlor transfers his property to a trustee to be held on trust in accordance with the arrangements set out in the settlement. 

'Settlor'

The person who gives the assets to the trustee to hold them for the benefit of the trust's beneficiaries on the terms and conditions set out in the trust deed. The settlor executes the trust deed and then, generally, has no further involvement in the trust.

It is advisable that the settlor of a discretionary trust be an independent person. A settlor will often be a family friend or a solicitor or an accountant who will not be a beneficiary or a trustee.

'Spouse'

A person living with the second person as his or her spouse on a permanent and bona fide domestic basis even though they are not legally married.

'Trust'

A legal relationship that exists where a person (known as the trustee) holds property (of which he is not the absolute owner) for the benefit of any person(s) (known as a beneficiary or beneficiaries) or permissible purpose(s) which not solely for the benefit of the trustee. A settlement is a form of trust. 

'Trust Deed'

A legal document or documents that set and establish the terms of the trust.

'Trust Property'

Property or assets for the time being held in trust.

'Trustee'

A trustee(s) is a person(s) who holds trust property for beneficiaries of a trust or for permissible purposes. The initial trustee(s) are appointed by the settlor. They receive legal title to the trust property when the settlor creates and constitutes the trust.

In managing and disposing the assets of the trust, the trustee(s) have a fiduciary duty to always act in the best interests of the beneficiaries and a legal obligation to act within the terms of the trust instrument and trust law.

It is common for the settlor to express his wishes to the trustees regarding the management and/or the disposal of the assets, usually in a letter of wishes. The trustees can refer to the settlor’s wishes for guidance when making decisions regarding the trust assets.

When using offshore trusts, the trustee will usually reside and carry on trust business from within the offshore jurisdiction. The trustee will typically be a corporate vehicle (a “trust company”), which is associated with a professional organisation such as a bank, legal firm or accountancy practice.

'Unit'

A unit in the unit trust. Rights to income, rules and restrictions attach to units and are described in the unit trust deed.

'Unit Holder'

A person who is registered as a unit holder of an ordinary unit or an income unit at the relevant time, either separately or jointly.

'Unit Trust'

In the UK, a fund in which you buy units (= shares). This money is then put into a range of investments, etc., and profits are paid in relation to the number of unitsthat you own. Collective investments such as unit trusts are ideal products for investment on behalf of a child.

'Vesting'

The transfer of the trust assets to a beneficiary or beneficiaries in accordance with the trust deed.

'Vesting Date'

The date defined in the trust deed when the trust ends. The standard vesting date is 80 years from the commencement of a trust.