Common Law Trust

A common law trust, generally referred to simply as a trust, is a financial agreement by which a person or other entity (the trustor or settlor) transfers ownership of assets to another person or entity (the trustee) through the creation of a trust deed. The trustee is responsible to distribute benefits derived from the assets held in the trust (the trust fund) to at least one trust beneficiary when certain conditions are met.

While the trustor decides the terms and conditions of the trust deed, they have little or no influence on the trust once the agreement has been closed. The trustee is legally responsible to act on behalf of the beneficiary and not the trustor. After a trust has been set up, it becomes a contract between the trustee and the beneficiary.

A revocable living trust may be withdrawn by the trustor at any point during their lifetime. An irrevocable trust cannot be altered or withdrawn once it has been created.

Common law trusts were officially granted a defined legal status under Swiss law in 2007 with the adoption of the rules laid out in the Hague Trust Convention. This differs somewhat from the Swiss definition of trust (German: Treuhand, French: Fiduciaire). A Swiss trust is a contractual relationship which only takes effect if both the trustmaker and the trustee participate in the creation of the contract. A common law trust can be set up entirely by the trustmaker which can appoint a trustee of their choosing, thus the trustee takes on a role more similar to that of a will executor.

There are many different kinds of trusts, and aspects of these are often combined. These include living trusts, testamentary trusts, discretionary trusts, unit trusts, family trusts, revocable trusts and irrevocable trusts.

Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at