What is a Trust?
A Trust is a simple contract between 2 or more parties. There are 4 parts to a trust:
- Grantor/Settlor – Creates the Trust and sets the terms
- Trustee – Controls the Trust according to the Grantors terms
- Beneficiary – Receives a benefit of some sort from the trust
- Res – This is the property that is put in the trust
A Trust usually describes the disposition of property – the property is the subject matter of the contract. A Trust splits the title to property into two different entities. One holds Legal Title and one holds Equitable Title.
The 1st party to the trust is the creator of the trust known as the Grantor or Settlor or Trustor and is the party that makes the offer to contract. The settlor furnishes the consideration for the creation of a trust. Funding the trust happens by the transfer of property into the trust. It could be a home, could be jewellery or precious gems, could be an automobile, could be computers, furniture, etc. The trustor can put his or her bank accounts and stocks or investments, and any other immediate assets into the name of the trust once created. The trustor specifies the terms of the trust contract (trust indenture), which governs the conduct of the trustee and the rights of the beneficiaries.
The 2nd party to the trust is the trustee. The trustee holds the legal title to the trust assets. He or she is the one to whom the offer is made. The trustee accepts the responsibility of carrying out the terms and conditions of the trust contract and is the protector for the property that is put into the trust which is the collateral.
The 3rd party is the beneficiary who is the equitable title holder. The beneficiary is the one that gets the use of and/or possession of the property in the trust. The beneficiary has equitable interest.
The Grantor has a Capital Interest in the trust. The Trustee has a Controlling Interest in the trust. The Beneficiary has an Equitable Interest in the trust.
To express the interest the trustee will issue two types of certificates, one is a certificate of beneficial interest showing equitable interest in the property which goes to the beneficiary. The trustee will also issue a certificate of capital interest which is the grantor’s certificate showing a controlling interest in the property and the trustee under the indentures of the trust (the trust contract). The trustee is serving as the legal title holder because the trustee controls the property and distributes any benefits or equity to the beneficiary.
Note: The same entity cannot hold both legal and equitable title. If the same entity holds both legal and equitable title then it is not a trust. For it to be a trust an entity must hold either one or the other.(for more information on Legal and Equitable titles see sperate post)
Everything is based on a Trust
Almost every aspect of your dealings and contracts have a trust structure. There will always be someone who creates the intention for a contract or a dealing, and there will always be someone who benefits from such contract and dealings.
For example: You want your child at home to clean his/her bedroom. so what do you do? You(Grantor as you are creating the agreement) tell your child, that if they clean their bedroom, you will take them (Beneficiary as they will receive a benefit from the agreement) out to the park and buy them ice cream.
So what has just happened? Well, a Trust between you and your child have been created!
- You (Grantor) created the initial agreement (Contract terms) which is clean the room and receive a benefit -Going to the park
- Child (Beneficiary) receives the benefit from your agreement – Going to the park and ice cream
- You (Trustee) ensures that the child is cleaning their room, therefore controlling the terms of the agreement and making sure the terms are being met.
“Everything in our dealings amounts to a Trust. We just need to understand our roles and what titles we have within the trust agreement”
Who do you think is the grantor of your birth Certificate trust?
Who do you think are the Trustees of your Birth Certificate trust?
Who do you think are the beneficiaries of your Birth Certificate Trust?