i-Asset Trust

WHERE YOUR FUTURE BEGINS

UNDERSTANDING
OF
TRUST
Reading Material

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UNDERSTANDING OF TRUST Reading Material

INDEX
1.0 Trust
1.1 Trust Revocation
1.2 Trust Termination
1.3 Trust decanting
1.3.1 Benefits of Decanting

2.0 Role of a Trustee

2.1 Operational Framework of a Trustee
2.2 Responsibilities and Duties
2.3 Types of Trustees

3.0 Trust Deeds

3.1 Composition of a Trust Deed
3.2 Roles within a Trust Deed
3.2.1 The Settlor
3.2.2 The Trustee(s)
3.3 Protection and Governance
3.4 Legal Requirements and Validity

4.0 Cash Trusts

4.1 Key Characteristics of Cash Trusts
4.1.1 Investment Strategies and Implications
4.1.2 Differentiation from Money Market Funds
4.1.3 Mitigating Risks and Enhancing Returns
4.1.4 Application in Estate Planning

4.2 Economic Environment

4.2.1 Cash Trusts vs. Savings Accounts
4.2.2 Strategies to Enhance Returns in Cash Trusts
4.2.3 Advantages of Cash Trusts in Estate Planning
4.2.4 Managing Counterparty Risk in Cash Trusts

Reference

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1.0 Trust
A trust is a legal arrangement that serves as a cornerstone in estate planning, wealth management, and
charitable endeavours. At its core, a trust involves three key parties: the settlor, the trustee, and the
beneficiaries. The settlor initiates the trust by transferring assets into it, thereby creating a separate legal
entity. The trustee, appointed by the settlor, holds legal title to the trust assets and is entrusted with
managing them for the benefit of the beneficiaries. Beneficiaries are the individuals or entities designated
to receive benefits from the trust, according to the terms set forth by the settlor in the trust document.

One of the defining characteristics of a trust is its flexibility and versatility. Trusts can be tailored to meet
various objectives, whether it's providing for family members, supporting charitable causes, or preserving
wealth for future generations. Additionally, trusts can be established during the settlor's lifetime or through
their will upon death.

Trusts offer several advantages, including asset protection, privacy, and probate avoidance. Assets held in a
trust are typically shielded from creditors' claims and may provide a level of confidentiality since trust
documents are not subject to public record like wills. Moreover, trusts can bypass the probate process,
which can be time-consuming and costly, allowing for more efficient asset distribution to beneficiaries.

Types of trusts vary widely, each serving specific purposes and offering distinct benefits. Revocable trusts
afford flexibility, allowing the settlor to amend or revoke the trust during their lifetime. Irrevocable trusts, on
the other hand, provide greater asset protection and may offer tax benefits, although they are typically
more rigid in terms of modification.

The management and administration of trusts are governed by fiduciary principles, imposing legal
obligations on trustees to act in the best interests of the beneficiaries. This duty encompasses managing
trust assets prudently, avoiding conflicts of interest, and maintaining transparent communication with
beneficiaries. Trust administration involves various processes, including trust creation, asset management,
distribution to beneficiaries, and termination of the trust upon fulfilment of its purpose.

1.1 Trust Revocation

The revocation of a trust refers to the legal process by which a trust is terminated or cancelled, effectively
bringing it to an end. This action effectively invalidates the trust and ceases its legal effect. Revocation can
occur for various reasons, including changes in circumstances, the fulfilment of the trust's purpose, or the
desire of the settlor to dissolve the trust arrangement. The process of revocation typically involves specific
legal steps outlined in the trust document or according to applicable laws. These steps may include
formally notifying all relevant parties, such as the trustee and beneficiaries, of the intent to revoke the trust,
followed by the completion of necessary legal documentation to confirm the revocation.

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1.2 Trust Termination

Review Trust Terms: The trustee reviews the terms of the trust document to determine the conditions
under which the trust may be terminated. This includes identifying any specific events or circumstances
outlined in the trust that trigger termination.

Fulfilment of Trust Objectives: The trustee ensures that the objectives or purposes of the trust, as outlined
in the trust document, have been achieved or are no longer relevant. If the trust was established for a
specific purpose (such as funding education or supporting beneficiaries until a certain age), the trustee
confirms that these purposes have been fulfilled.

Consent of Beneficiaries: Depending on the terms of the trust and applicable laws, the consent of
beneficiaries may be required for trust termination. If beneficiaries are of legal age and capacity, their
consent may need to be obtained through formal documentation or legal processes.

Settlor's Instructions: If the trust document provides instructions from the settlor (the creator of the trust)
regarding termination, the trustee follows these instructions accordingly. This may include specific
directions for distributing assets or terminating the trust under certain conditions.

Notification of Parties: The trustee notifies all relevant parties, including beneficiaries and any other
interested parties, of the intent to terminate the trust. This notification may include details about the
proposed distribution of assets and any requirements or conditions associated with termination.

Asset Distribution: Once all necessary steps have been completed and any legal requirements have been
met, the trustee distributes the trust assets to the beneficiaries according to the terms of the trust
document. This distribution may involve transferring ownership of assets, making cash payments, or taking
other actions as specified in the trust terms.

Final Accounting: The trustee prepares a final accounting of the trust's financial transactions and activities,
documenting any income, expenses, distributions, or other relevant information. This accounting provides a
comprehensive record of the trust's administration and ensures transparency in the termination process.

Legal Documentation: Finally, the trustee completes any required legal documentation to formally
terminate the trust. This may include filing paperwork with the appropriate legal authorities, recording the
termination in official records, and obtaining any necessary approvals or confirmations.

Effective communication between trustees and beneficiaries is crucial in trust administration. Trust agents
are instrumental in facilitating communication and providing information to beneficiaries, ensuring
compliance with legal and administrative requirements. By acting in the best interests of beneficiaries, they
help maintain transparency and clarity throughout the trust's lifecycle.

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1.3 Trust decanting

A legal process by which the trustee of an existing trust can modify the terms of the trust by transfer the
assets of the original trust into a new trust. The new trust may have different terms and conditions from the
original trust, allowing the trustee to adjust the trust to better meet the needs and interests of the
beneficiaries, or to comply with changes in law or other circumstances.

Authority to Decant: The trustee must have the authority to decant the trust. This authority can come from
state laws that allow trust decanting or from specific provisions in the trust document.

Creating a New Trust: When decanting, the trustee creates a new trust with terms and conditions that are
different from the original trust. The new trust can have different distribution provisions, beneficiaries, or
other terms as needed.

Transfer of Assets: The trustee transfers the assets from the original trust to the new trust. This is often
referred to as "pouring over" the assets.

1.3.1 Benefits of Decanting

Flexibility: Trust decanting allows for greater flexibility in adjusting the terms of the trust to better suit
the current circumstances or the needs of the beneficiaries.

Addressing Unforeseen Circumstances: Trust decanting can help address unforeseen events such as
changes in tax laws, shifts in family dynamics, or evolving needs of beneficiaries.

Clarification and Simplification: Trust decanting can clarify ambiguous language in the original trust
document and simplify the trust's administration.

Tax Planning: Decanting may provide opportunities for tax planning to optimize the trust's tax
efficiency.

Limitations and Considerations: Trust decanting must comply with applicable state laws and the
terms of the original trust document. The trustee must act in the best interests of the beneficiaries
and exercise their fiduciary duties responsibly.

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2.0 Role of a Trustee

A trustee serves as a pivotal figure in the administration of trusts, entrusted with the responsibility of
holding and managing property or assets for the benefit of third parties. This multifaceted role
encompasses various scenarios, including overseeing bankruptcy proceedings, managing retirement plans
or pensions, and handling assets on behalf of individuals. Crucially, trustees operate under a fiduciary duty,
obligating them to act solely in the best interests of the beneficiaries, thereby managing their assets
prudently and responsibly.

2.1 Operational Framework of a Trustee

The role of a trustee involves holding the legal title of assets or property for the benefit of another individual,
known as the grantor. This legal arrangement is formalized through a trust, whereby the trustee holds title
to the assets on behalf of the beneficiaries. Beneficiaries, those who benefit from the trust, are the
designated recipients of the trust's assets as outlined by the grantor.

Within this framework, a trustee assumes the responsibility of managing all properties and assets within
the trust, ensuring they are properly maintained and utilized for the beneficiaries' benefit.

2.2 Responsibilities and Duties

Irrespective of the specifics outlined in the trust agreement, trustees are bound by general guidelines and
responsibilities. These duties include:
Fiduciary Duty: Acting as a fiduciary, trustees are entrusted with administering the trust in accordance with
the grantor's intentions, prioritizing the interests of the beneficiaries over their own.
Asset Protection: Safeguarding trust assets by maintaining accurate records, accounting for funds, and
protecting assets from potential risks or misuse.
Trust Administration: Executing the terms of the trust, which entails recording transactions, distributing
assets, and ensuring compliance with legal and regulatory requirements.
Reporting and Communication: Providing regular updates to beneficiaries, keeping them informed about
the trust's performance, transactions, and any relevant developments.
Decision Making: Empowered to make decisions regarding trust assets, trustees ensure they align with the
grantor's intentions and the best interests of the beneficiaries.
Investment Management: Prudently managing and overseeing investments within the trust to optimize
returns and mitigate risks.

2.3 Types of Trustees

Trustees can take various forms, each offering distinct advantages and expertise:
Individual Trustees: Often friends or family members trusted by the grantor to administer the trust
according to their wishes.
Independent Trustees: Specialized businesses separate from financial institutions, dedicated to trust fund
management and comprising investment advisors, accountants, and administrators.
Institutional Trustees: Large financial institutions employing trust fund professionals who specialize in
administering, investing, and managing trusts for their clients.

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3.0 Trust Deeds

A trust deed represents a crucial legal document that establishes the foundation for the administration and
management of a trust. It serves as the blueprint that outlines the terms, conditions, and objectives
governing the trust's operations. The primary purpose of a trust deed is to provide clarity and guidance on
how the trust assets are to be managed, distributed, and protected for the benefit of the beneficiaries,
laying out the blueprint for the trustee's actions and responsibilities in managing the trust on behalf of the
beneficiaries.

3.1 Composition of a Trust Deed

Within a trust deed, several key elements are typically included to ensure comprehensive coverage of the
trust's framework. These elements commonly encompass the identification of the parties involved,
including the settlor, trustee(s), and beneficiaries. Additionally, the trust deed delineates the trust's
objectives, specifying the intended purposes and goals for the trust assets. It also details the assets
contributed to the trust, which can range from cash and property to various investments.

Furthermore, distribution provisions and trustee powers are crucial components of a trust deed.
Distribution provisions specify how and when trust assets are to be distributed to beneficiaries, ensuring
adherence to the grantor's intentions. Trustee powers delineate the authority granted to the trustee(s) to
manage and administer the trust assets effectively.
A trust deed typically includes provisions to address conflicts of interest among trustees or beneficiaries,
ensuring fair and equitable resolution of disputes. These provisions often involve the appointment of
independent trustees who can impartially navigate conflicts and make decisions in the best interests of the
trust and its beneficiaries. Additionally, the trust deed may outline mediation procedures or alternative
dispute resolution mechanisms to facilitate constructive dialogue and find mutually agreeable solutions.

3.2 Roles within a Trust Deed

In a trust deed, each party's roles and responsibilities are clearly defined to maintain accountability and
ensure the proper execution of the trust's objectives. These well-defined roles establish a clear framework
for managing the trust's assets and acting in the best interests of the beneficiaries.

3.2.1 The Settlor

The settlor is the individual who initiates the trust and contributes assets to it. The settlor plays a
foundational role in establishing the trust's parameters, such as the trust's purpose, beneficiaries, and
terms of asset management and distribution. The settlor's decisions at the outset determine the
trust's overall structure and objectives, which guide its operations throughout its lifespan.

3.2.2 The Trustee(s)

The trustee(s) are appointed by the settlor to manage the trust assets and administer the trust
according to the terms outlined in the trust deed. Trustees have a fiduciary duty to act in the best
interests of the beneficiaries and must carry out their responsibilities with loyalty, impartiality, and
prudence. Their key tasks include investing trust assets, making distributions to beneficiaries, and
maintaining accurate records of trust transactions.

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3.3 Protection and Governance

A trust deed serves as a vital tool for protecting the interests of beneficiaries and governing the
administration of the trust. It sets forth the terms under which beneficiaries are entitled to receive benefits
from the trust, ensuring their interests are safeguarded. Moreover, the trust deed acts as the governing
document that trustees must adhere to, guiding their actions and decisions in managing the trust assets
prudently. The trust deed may include provisions addressing contingencies such as the incapacity or death
of a trustee, thereby safeguarding the continuity and integrity of the trust's administration.

3.4 Legal Requirements and Validity

For a trust deed to be valid and enforceable, it must meet certain legal requirements to uphold its integrity
and efficacy. Proper execution of the trust deed, clear expression of the parties' intentions, and compliance
with relevant laws are essential for its validity. By adhering to these legal standards, the trust deed ensures
the trust's legitimacy and provides a solid legal framework for its operation.

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4.0 Cash Trusts

A cash trust represents a specialized form of investment vehicle primarily focused on cash or cash
equivalents. These trusts allocate a significant portion of their portfolio to liquid assets such as cash
deposits, short-term government securities, or high-quality commercial paper. The overarching objective of
a cash trust is to provide investors with stability and low risk compared to other investment options,
making them particularly attractive for those seeking capital preservation and liquidity.

4.1 Key Characteristics of Cash Trusts

Cash trusts typically invest in assets characterized by their high liquidity and low risk profile, making them
well-suited for investors with a conservative risk appetite or those seeking a temporary safe haven for their
funds. Unlike more aggressive investment strategies aimed at rapid asset accumulation, the primary goal
of a cash trust is to safeguard capital and provide steady, albeit modest, returns over time.

4.1.1 Investment Strategies and Implications

Returns in a cash trust are primarily generated through interest income and dividends earned on the
underlying cash and cash equivalent assets. However, in environments characterized by negative
interest rates, cash trusts may face challenges in generating positive returns, thereby necessitating a
heightened focus on capital preservation and liquidity management. Despite the potential for
reduced income potential in such circumstances, cash trusts remain attractive due to their stability
and low correlation with broader market fluctuations.

4.1.2 Differentiation from Money Market Funds

While cash trusts share similarities with money market funds in their emphasis on liquidity and low
risk, they may differ in terms of investment horizon and asset allocation. Cash trusts may have a
longer investment horizon and may invest in a broader range of assets beyond traditional money
market instruments. This flexibility allows cash trusts to adapt to changing market conditions while
still maintaining a conservative investment approach.

4.1.3 Mitigating Risks and Enhancing Returns

Cash trusts employ various strategies to mitigate risks and enhance returns for investors, taking into
account their risk tolerance and investment objectives. These may include rigorous credit analysis to
address credit risk in fixed-income investments, diversification across issuers and sectors, and active
management of liquidity to address potential liquidity constraints. Additionally, investors can utilize
dividend reinvestment plans, take advantage of compounding, and monitor fund performance
regularly to optimize returns within a cash trust, aligning with their risk tolerance and investment
objectives. By tailoring investment strategies to meet the specific needs and preferences of investors,
cash trusts strive to strike a balance between risk management and return optimization, ultimately
aiming to achieve the desired investment outcomes for their stakeholders.

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4.1.4 Application in Estate Planning

Cash trusts also find utility in estate planning, offering advantages such as providing liquidity for
estate expenses and ensuring the preservation of capital for beneficiaries. By incorporating cash
trusts into their estate planning strategy, individuals can effectively manage their assets and
safeguard their wealth for future generations.

4.2 Economic Environment

The performance of cash trusts is heavily influenced by the prevailing economic environment, with factors
such as interest rate movements, inflation expectations, and central bank policies playing crucial roles.
Changes in interest rates directly affect the returns on cash investments held within the trust, as higher
interest rates typically result in higher returns and vice versa. Inflation expectations influence the
purchasing power of cash holdings, with higher inflation eroding the real value of cash over time. Central
bank policies, such as monetary easing or tightening, can impact market liquidity and the availability of
investment opportunities for cash trusts, thus influencing portfolio composition and investment decisions.
Therefore, a dynamic understanding of the economic landscape is essential for managing cash trusts
effectively and optimizing returns for investors.

4.2.1 Cash Trusts vs. Savings Accounts

Cash trusts and savings accounts serve as vehicles for holding cash and cash-equivalent assets, yet
they differ in several key aspects. While both offer a secure place to store cash, cash trusts may
potentially yield higher returns compared to savings accounts. However, unlike savings accounts,
cash trusts are subject to market fluctuations and are not typically guaranteed by deposit insurance.
This means that while investors may have the opportunity for greater returns with cash trusts, they
also face the risk of loss due to market volatility.

4.2.2 Strategies to Enhance Returns in Cash Trusts

To enhance returns in a cash trust, investors can employ various strategies. One approach is to utilize
dividend reinvestment plans, which allow dividends earned from investments within the trust to be
reinvested, potentially increasing the overall return over time. Additionally, investors can take
advantage of compounding by allowing returns to be reinvested, leading to exponential growth of
their investment. Regular monitoring of fund performance is also crucial, as it enables investors to
make informed decisions and adjust their strategies as needed to optimize returns.

4.2.3 Advantages of Cash Trusts in Estate Planning

Cash trusts offer several advantages in estate planning. One significant benefit is their ability to
provide liquidity for estate expenses. In the event of a person's passing, cash trusts can be readily
accessed to cover costs such as taxes, legal fees, and outstanding debts without the need to sell off
other assets. Furthermore, cash trusts help ensure the preservation of capital for beneficiaries,
providing them with a stable financial foundation upon the distribution of the estate.

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4.2.4 Managing Counterparty Risk in Cash Trusts

Regarding the management of counterparty risk in money market transactions within cash trusts,
concentrating investments with a single counterparty is an incorrect approach. Diversification is a
fundamental principle in risk management, and concentrating investments with a single
counterparty increases the vulnerability of the trust to the financial health and stability of that
counterparty. Instead, cash trusts typically manage counterparty risk by diversifying their investments
across multiple counterparties, reducing the impact of any single counterparty's financial instability
on the overall trust portfolio. This approach helps safeguard the trust against potential losses
associated with the default or insolvency of a single counterparty.

Reference
What is trust? definition of trust, Trust meaning. The Economic Times. (n.d.-a).
https://economictimes.indiatimes.com/definition/trust

Arrasmith, L. O. O. J. L., & Arrasmith, L. O. O. J. L. (2024, April 16). Understanding the revocation of trust in
estate planning. jlegal.org.
https://www.jlegal.org/blog/understanding-the-revocation-of-trust-in-estate-planning/

What is trust decanting? - SmartAsset | SmartAsset. (2023, September 7). https://smartasset.com/estate-

planning/what-is-trust-decanting

Team, T. I. T. I. (Ed.). (2024, February 29). What is a trustee? definition, role, and duties. Investopedia.
https://www.investopedia.com/terms/t/trustee.asp

Bond, C. (2023, August 9). Deed of trust: What it is and how it works. Forbes.
https://www.forbes.com/advisor/mortgages/deed-of-trust/

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