What Is a Trust?
A trust is a legal relationship under which a settlor places assets under trustee control for beneficiaries or a purpose, subject to national law.
Also known as: Express Trust, Settlement.
How Trust works
A trust is a legal arrangement in which a settlor transfers assets to a trustee, who holds legal title and manages the assets under the trust terms for beneficiaries or a specified purpose, while the assets form a separate fund outside the trustee's own estate. The Hague Trusts Convention of 1985 sets out these characteristics for recognition across legal systems. Tax treatment varies widely: some countries tax the trust, others the settlor or beneficiaries, and civil-law systems may not recognise trusts domestically. Trustees and beneficiaries often face beneficial ownership registers and automatic exchange reporting.
Trust vs Foundation
Unlike a foundation, which is generally a legal entity with its own personality, a trust is a relationship in which the trustee holds legal title on behalf of others.
Example
Illustrative example: A founder in Country A settles shares into a trust with a professional trustee in Country B for family beneficiaries. Country A may still attribute trust income to the founder if the founder retains benefit, while beneficiaries resident in Country C may be taxed on distributions.
Common misconception
Myth: Moving assets into a trust removes them from all tax and reporting.
Reality: Trust income and assets generally remain subject to tax on the settlor, trustee or beneficiaries under national rules, and trust parties are commonly reportable under beneficial ownership and exchange regimes.
Frequently asked questions
Who owns assets held in a trust?
Assets held in a trust are legally titled to the trustee, but they form a separate fund managed for the beneficiaries, so legal ownership, control and economic benefit are split among different parties.
How are trusts taxed internationally?
Trust taxation depends on national law: countries may tax the trustee, attribute income to the settlor, or tax beneficiaries on distributions, and civil-law jurisdictions may characterise a foreign trust differently.
Related terms
- Foreign Trust — Trust classified as foreign under domestic rules
- Foreign Grantor Trust — US regime taxing trust income to settlor
- Non-Resident Trust
Related guides
- Tax management approaches: from compliance to aggressive strategies — Risk spectrum of structures such as trusts
- Why digital nomads are leaving the UK — UK context where trust rules recently changed
Sources
Last verified: 2026-10-09. This entry is general information, not tax or legal advice; rules vary by country and change over time.
