Handbook of Investment Administration

Chapter 12

TRUSTS

12.1 INTRODUCTION

Trusts are a fundamental part of the financial services landscape and an understanding of them is needed in investment administration.

They are widely used in estate and tax planning for high net worth individuals and are seen throughout retail investment firms from execution-only stockbrokers to private banks. They are also the underlying structure for many major investment vehicles, such as pension funds, charities and unit trusts.

All trusts contain financial assets of some kind and many contain extensive investment portfolios requiring the same full range of investment administration activities as any other portfolio.

In this chapter we will therefore consider how they have developed, the fundamentals underlying trusts and the special considerations that need to be applied when undertaking the investment administration of them.

12.2 DEVELOPMENT OF TRUSTS

Trusts have been a feature of the English legal system for over 1000 years; in fact, there are recorded instances of trusts being used from before the Norman Conquest.

To understand why they developed and why they became so widespread requires a brief review of their history, starting with a brief explanation of what a trust is.

Trusts were originally known as a ‘use’. The term aptly describes their purpose – land was given to one person for the ‘use’ of another. The reason why that was done lies in the political and economic environment of the time.

In the Middle Ages, ownership of land ...