Definition of a Contractual Trust

What is exactly is a trust? To state it in the simplest terms: "A trust is a right of property, real or personal, held by one party for the benefit of another."

A trust, then, is a Contract in which an individual (variously called the Settlor, Creator, Trustor, or Grantor) transfers property, either real or personal, to one or more Trustees, to be held or managed for one or more Beneficiaries. There are many types of trusts in use today for a variety of purposes. The only trusts we are interested in and set up are the pure common law trusts as originally perfected under British Common Law in the nineteenth century and recognised under favourable international trust ordinances enacted by former British colonies now in the top tier of tax havens.

These Contractual Trusts had their modern day beginnings in 18th century England. The first recorded trusts originated from the time of the Crusades in the 12th century when knights leaving for the Holy Land would set up trusts and convey their properties into them. Their goal was to protect them from appropriation or seizure while absent or in case of their death to ensure their chosen heirs inherited their estates. Two famous early nineteenth century contractual Trusts in England were Lloyds of London (1811) and The London Stock Exchange (1802).

The trust has been employed in nearly every field of human activity. Recently it has been utilised in the field of commerce and trade in combination with the corporation or limited liability company.

Characteristics of a Contractual Trust

A Contractual Trust must be a non-grantor trust formed under the common-law right of contract. (This common law right was enshrined into the U.S. constitution). Most trusts formed by attorneys today are statutory in nature, mainly because most attorneys and accountants do not receive training in Common Law trusts and therefore do not understand or know that such a legal arrangement is possible.

A trust must avoid those corporate attributes, which could cause it to be treated and taxed like a corporation under statutory provisions regulating corporations. This assumes that the jurisdiction of domicile does not provide for exempt offshore trusts.

The four main corporation attributes are:

1. Centralised management

2. Continuity of life

3. Limited personal liability of trustees

4. Easy transferability of beneficial interest in the trust.

If the trust possesses any three of these attributes, it will be taxed as a corporation. However, since we are only interested in establishing the trust in countries with an English Common Law background, taxes are not an issue here. Again, these countries have specifically gone out of their way to create favourable laws that encourage and protect the inviolability of such trusts and exempt them from any registration and tax, as long as any income derived is from outside their borders. Such countries as Belize, Nevis and the Bahamas are excellent examples of secure offshore domiciles with a common law tradition, by virtue of their status as former colonies of Great Britain. Such countries also provide the same protection and favourable treatment for corporations.

A Contractual Trust of the type described herein is referred to by many names such as a "Pure Trust", "True Trust", "Contractual Company", "Common Law Trust", "Unincorporated Contractual Organisation (U.B.O.)". These are all one and the same, so long as they follow the description above and are truly irrevocable trusts.