Updated
GL-P-06
01 / In 30 seconds
The short answer
- What it is
- A trust created for a particular purpose rather than for the benefit of specific people
- How it differs
- A classic trust has beneficiaries; a purpose trust has a purpose
- Who oversees it
- The enforcer — a person obliged to ensure that the purpose is carried out
- Where it applies
- Holding company shares, maintaining assets, charitable and corporate tasks
- An important nuance
- This form is not recognised in every jurisdiction
02 / In plain words
What Purpose trust means
A purpose trust is a structure created to achieve a particular purpose rather than for the benefit of specific people. This is its fundamental difference from a classic trust: there, beneficiaries receive the benefit; here, there is a task that must be carried out.
Since there are no beneficiaries able to demand performance, a separate figure is introduced — the enforcer. Their duty is to ensure that the trustee acts in accordance with the stated purpose and, where necessary, to demand this. Without such a mechanism the structure would be unworkable.
Purpose trusts are used for corporate and special tasks: holding company shares so that the structure does not depend on changes of owners, maintaining particular assets, supporting long-term projects, charitable purposes. It is a highly specialised instrument: it is not recognised in every jurisdiction and is created for a specific task with specialist lawyers.
A case from practice
In a client’s structure, a purpose trust was used to hold the shares of a holding company. The check required an explanation of the structure’s purpose and confirmation of who actually controls the group. The documents were prepared in advance — the matter was closed without delays.
Where purpose trusts are used
- Holding the shares of a holding structure
- Maintaining particular assets
- Long-term projects and funds
- Charitable tasks
- Separating an asset from changes of owners
- Special corporate structures
03 / What it covers
How the structure works
Purpose
- Clearly formulated
- Lawful and certain
- The basis of the whole structure
Enforcer
- Ensures performance
- May demand action
- Takes the place of beneficiaries
Manager
- Acts within the purpose
- Fiduciary duties
- Reporting
Jurisdiction
- Not recognised everywhere
- Requirements on duration
- Tax regime
04 / How it works
How it is created
Formulate the purpose of the structure
Choose a jurisdiction that recognises it
Appoint the trustee and enforcer
Transferring assets
Monitoring performance of the purpose
05 / Key facts
What you need to know
01
The trust is created for a purpose, not for the benefit of people
02
The enforcer must ensure the purpose is carried out
03
The form is not recognised in every jurisdiction
04
The purpose must be lawful and certain
05
It is a specialised instrument, not a universal one
Common mistakes
- Using the structure without a clear special task
- Formulating the purpose vaguely
- Not appointing an enforcer with legal capacity
- Choosing a jurisdiction where the form is not recognised
- Copying someone else’s structure without analysing your own situation
06 / Expert advice
How to prepare in advance
Such structures are created only for a specific task and only with lawyers specialising in trust law. Recognition of the form in the relevant jurisdictions and the tax consequences for all parties involved are checked. The purpose is formulated as clearly as possible — the workability of the whole structure depends on its certainty.
What we do for you. Non-standard structures always require explanation in due diligence: reviewers want to understand why the structure was created and who stands behind it. We prepare such explanations in advance and with documents.
Dmitry NagyTax consultant, international taxation and compliance (ex-Big4)
07 / Questions
Frequently asked questions
A trust created to achieve a particular purpose rather than for the benefit of specific beneficiaries.
The enforcer — a specially appointed person obliged to oversee the trustee and demand performance of the purpose.
In an ordinary trust, beneficiaries receive the benefit. In a purpose trust there are no beneficiaries — there is a task that must be carried out.
In corporate and special tasks: holding shares, maintaining assets, long-term projects, charity.
No. Purpose trusts are not recognised in every jurisdiction, so the choice of country is fundamental here.
Other structures are usually used for those tasks. A purpose trust is a specialised instrument for a specific task.
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