A trust, like a corporation, is a legal entity with its own property distinct from the assets of the individuals behind it. A person (known as the Settlor or Grantor) creates a trust by transferring assets to an independent third party (known as the Trustee). The trustee then administers and manages the assets on behalf of other individuals (known as the Beneficiaries).

For estate and tax planning purposes, the trust will normally be evidenced by a written document called either a Trust Deed or Declaration of Trust. This document lays down the foundations of how the trustees are to administer and manage the trust assets and how they are to distribute and dispose of trust assets during the lifetime of the trust. Beneficiaries have recourse in Law to compel the Trustees to act in accordance with the terms set forth in the Trust Deed.

A Settlor can provide the Trustees with an informal and confidential Letter of Wishes which provides guidance as to how the Trustees might exercise their discretion. The Letter of Wishes does not form part of the Trust Deed and can, therefore, be amended at any time.

The principle goal of any trust is to create a legal barrier of separation between trust assets and both the original owner and the eventual beneficiaries. In simple terms, assets transferred to a trust no longer form part of the property owned by the settlor. If the settlor or beneficiaries experience financial problems - bankruptcy, dissolution of marriage or lawsuit - the trust assets cannot be claimed by creditors. Thus, although the settlor or beneficiary may be declared insolvent, a portion of his assets might be safeguarded by the trust structure.

Trustees have a fiduciary duty to act in accordance with a trust deed and for the benefit of the beneficiaries. It is important to understand that trustees not only should, but also are obliged to manage and control the trust property independently for the benefit of the beneficiaries in accordance with the trust deed. If a settlor retains de facto control of the assets through arm's length control of the trustee, it could be deemed that the trust is a sham, and thus invalid.