What is a trust? A flexible and safe succession tool

Far from a dry legal document, a trust is a powerful tool for wealth planning, capable of solving a wide range of problems with remarkable precision.

This guide explains the simple but powerful mechanics of a trust, explores the main types available, and outlines why the Isle of Man has become a world-leading jurisdiction for establishing and managing these structures.

How Does a Trust Work? The Principle of Separated Ownership

At its core, a trust is a simple arrangement. You (the “settlor”) hand over assets to a person or entity you trust (the “trustee”) with specific instructions to manage them for the benefit of people you care about (the “beneficiaries”).

The power of a trust comes from the “separation of legal and beneficial ownership.”

• The Trustee becomes the legal owner of the assets but cannot enjoy any of the benefits. They are bound by a strict “fiduciary duty” to act only in the best interests of the beneficiaries—a sacred legal obligation that is enforceable in court and backed by centuries of precedent.
• The Beneficiaries enjoy the benefits of the assets (such as income or capital distributions) but have no direct control over them.

This separation creates a legal “force field” around the assets. Because they are no longer legally yours, they are shielded from creditor claims, divorce settlements, and inheritance disputes.

Isle of Man law offers a variety of trust structures, each designed for a specific purpose:

The Discretionary Trust: Maximum Flexibility

This is the most powerful and adaptable type of trust. The trustees are given the discretion to decide when, how much, and to which of the beneficiaries distributions should be made. This allows the trust to adapt to changing family circumstances, such as providing support for a child facing health challenges while offering venture capital to another who becomes an entrepreneur.

The Life Interest Trust: Generational Balance

This structure is often used in second-marriage situations. It allows one person (e.g., a surviving spouse) to receive income from the trust assets for their lifetime, while ensuring the capital is preserved for other beneficiaries (e.g., children from a first marriage) upon their death.

The Purpose Trust: Commercial Innovation

Unlike traditional trusts, a purpose trust exists to fulfil a specific objective rather than to benefit individuals. In the Isle of Man, these are often used to hold controlling shares in a family business, ensuring continuity and preserving family ownership and values across generations.

The Charitable Trust: A Lasting Legacy

A charitable trust combines the flexibility of a trust with philanthropic goals. Properly registered charitable trusts in the Isle of Man can enjoy significant tax advantages, including exemptions from income and capital gains tax, allowing more wealth to reach its intended cause. They can also exist in perpetuity, making them ideal for creating a lasting legacy.

What are the three main roles in a trust?

The three key roles are the Settlor (who creates the trust and provides the assets), the Trustee (who legally owns and manages the assets), and the Beneficiary (who benefits from the assets).

What is a fiduciary duty?

A fiduciary duty is the highest legal duty of care. A trustee has a fiduciary duty to the beneficiaries, meaning they must act solely in the beneficiaries’ best interests, and can be held personally liable if they fail to do so.

How do I set up a trust?

Setting up a trust involves executing a legal document called a trust deed, which acts as the trust’s constitution, and formally transferring assets to the trustee. This is a precise process that requires expert professional guidance.

Why the Isle of Man?

The Isle of Man has an international reputation as a responsible and co-operative tax neutral jurisdiction. It is a safe haven for growth now and for future generations. Other benefits of structuring in the Isle of Man include:

• democratically elected and autonomous government with limited party politics which has led to a stable legal, economic and political environment;
• robust and highly regarded professional regulatory standards;
• modern flexible legal system based on English principles with a mature, sophisticated and well resourced Court system;
• internationally recognised and respected money laundering controls;
• exceedingly high service levels developed over years of practising as an international centre for offshore finance and company and trust administration;
• professional infrastructure: a well established, highly skilled and experienced trust and corporate service provider (“TCSP”) industry with administrators, lawyers and accountants whose day to day work is focused on the Island’s TCSP sector;
• conducting business in a jurisdiction whose infrastructure has been geared to support the finance and TCSP sectors thereby providing a very reliable and robust jurisdiction in which to conduct one’s business;
• comparatively low cost compared to other jurisdictions;
• established international banks familiar with complex global structures;
• creditor friendly enforcement and insolvency legislation;
• clear and simple tax system;
• close proximity to UK with accessible travel routes; and
• central time zone that works well for EMEA and is well placed for both North and South America and the Far East.

• Andco has been servicing clients for over 30 years with highly experienced and qualified staff offering you professional expertise across multiple types of entity, structure and asset class. Working with high-net worth individuals, institutional investors, international entrepreneurs and family offices, we understand the varied and unique needs of each of our clients.
• Our team’s considerable expertise combined with a thorough understanding of our client’s needs enables us to consistently provide the highest levels of service and support. We understand that, ultimately, it is the quality of our service offering that has enabled Andco to establish and sustain relationships with our clients that are for the long-term.
• Our directors have a hands-on approach and are ably supported by a team of highly qualified professionals. With our focus on delivering an exceptional and personal service, we are proud of the longstanding client and professional relationships we have built.
• As a result of these relationships, the combined gross value of UK real estate assets owned by our client entities now exceeds £7 billion, a testament to the confidence our clients place in our experience and expertise.
• We have significant experience in cross border tax management and accounting which helps us identify, plan and mitigate potential issues for our clients.
• Ultimately, as an independent and privately owned trust and corporate service provider, we are free to apply a bespoke approach to each situation – so, depending upon your own objectives, Andco is well placed to help you achieve it.