Formal trusts are beneficial because they clarify who can manage the funds and there is little confusion in how trust should be managed. However, when it comes to small amounts of money, most people do not want to come to the expense of setting up a formal trust and are trying to show confidence in the policy or in the application of the treaty. If a «trust account» is opened by a parent for their children, the certainty of creating a trust corporation would be difficult to prove without a formal trust document. Since the children concerned are most likely minors, the scheme often seeks to take into account the fact that minors do not have the legal capacity to enter into legally binding contracts and, therefore, to acquire financial instruments in their own name. 3. Control DistributionsIf you do not trust your beneficiaries to directly own the assets they are supposed to have (perhaps because they are minors or because they save money), you can, over time, distribute assets to them through a trust. A trust is a means of supporting a minor recipient with a marginal or mental disability, which can affect his or her ability to manage finances. As soon as the beneficiary is deemed capable of managing his assets, he or she obtains ownership of the trust. Because information is often insufficient, informal trusts can create difficulties for both the agent and the trusted person in the event of a dispute over the management or distribution of the trust`s assets or income. Take, for example, a parent who establishes informal trust in their minor child. When the child turns 18, he or she will want to receive the money in person to spend it as he wishes. The parent disagrees and thinks he will waste the funds and, as an agent, decides not to distribute the funds. Since there is no fiduciary document indicating anything else, the child would have the right, at the age of majority, to ask the Court of Justice to pay the funds to him.
Disposal of 21 years: under tax law, a trust is generally considered sold after 21 years after the creation of the trust. As a result, unrealized profits are taxed in the trust. In order to avoid tax on unrealized earnings, fiduciary assets can be distributed tax-free to the beneficiaries of the trust.