The three roles in a trust are as follows:
- The settlor – This is the person (i.e. the business owner and life assured) who sets up the trust and transfers ownership of the property (in this case, the life assurance policy). They will also choose and appoint the trustees and beneficiaries, or a list of potential beneficiaries from which the trustees can select when it is time to distribute the trust funds. A settlor needs to be over 18 and have full mental capacity.
- The trustees – They become the legal owners of the trust property and administer the trust for the sole benefit of the beneficiaries, in accordance with the trust document and trust law. The settlor will usually be one of the trustees, so they retain some control, along with all of the other business owners. A trustee needs to be over 18 and have full mental capacity. In the unfortunate event of the life assured’s death, the insurance company will pay the claim proceeds directly to the trustees, who will then pass it to the beneficiaries. In the case of business trusts, this is likely to be the same group of people, i.e. the remaining business owners. They will then have the necessary funds with which to purchase the deceased’s share of the business.
- The beneficiaries – These are the people the settlor wants to benefit from the property that is being passed to the trustees. In general, a settlor can list specific beneficiaries, or a group of potential beneficiaries that the trustees can then choose from, for example “my children and future grandchildren”. In the case of business trusts, the beneficiaries will be the other business owners, so that they will have funds available to purchase the deceased’s share of the business, to enable them to carry on running it smoothly without endangering its future profitability or causing the deceased’s family any financial hardship.
