Module V·Article II·~2 min read
Trust: Legal Nature and Application
Asset Protection and Legal Structures
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What is a trust
A trust is a legal construct of common law, in which one person (settlor) transfers property to another person (trustee) for management in the interests of third parties (beneficiaries). Legally, the property belongs to the trustee, but economically—to the beneficiaries.
A trust is not a legal entity—it is a legal relationship. This is precisely what makes it a unique instrument: assets leave the settlor’s ownership, but are managed according to their wishes.
Types of trusts
Discretionary trust—the trustee has the right of discretion: which of the beneficiaries and in what amount to distribute the assets. Maximum protection from the settlor’s creditors.
Fixed trust—the shares of beneficiaries are predetermined.
Revocable trust—the settlor can revoke the property. Less protection, more control.
Irrevocable trust—the settlor cannot revoke the property. Maximum protection, minimal control.
Protective properties of a trust
After assets are transferred to an irrevocable discretionary trust, they are, as a rule, inaccessible to the settlor’s creditors (provided that the transfer was not fraudulent and enough time has passed). This makes the trust an instrument for protecting wealth from future claims.
Leading trust jurisdictions: Jersey and Guernsey islands (English law, political stability), Cook Islands (very high protection), Liechtenstein (Stiftung—an analogue of the foundation).
Trust in Russia
Russian law does not recognize the institution of trust. To achieve similar goals, a contract of fiduciary management (DU) is used—but these are only obligatory, not proprietary relations: the property remains with the management settlor.
The Russian personal foundation (since 2022)—a new instrument, analogue to a foreign trust. The settlor transfers property to the foundation, which manages it in accordance with its charter.
Practical assignment
A wealthy entrepreneur wants to protect family wealth (1) from possible divorce, (2) from future business risks, (3) to transfer it to children after death. Compare two options: (1) Discretionary trust in Jersey, (2) Russian personal foundation. Specify the advantages and disadvantages of each.
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