Legal Definitions - Self-declared trust

A self-declared trust occurs when an individual who fully owns an asset (meaning they hold both the formal legal title and the right to enjoy all its benefits) formally states that they will now hold that asset for the benefit of another person or entity. In this arrangement, the original owner becomes the trustee, retaining legal ownership, but is legally obligated to manage the asset and its benefits solely for the designated beneficiary.

Here are some examples to illustrate this concept:

• Example 1: Real Estate for a Child's Future

  A parent, Ms. Chen, owns a rental property outright. She wants to ensure that the property's income and eventual value benefit her young daughter, Lily, in the future, but Ms. Chen wants to manage the property herself for the time being. Ms. Chen executes a legal document declaring that she now holds the legal title to the rental property as trustee for Lily. Ms. Chen continues to be listed on the deed (legal owner), but she is now legally bound to manage the property and use its rental income for Lily's benefit, such as saving for her education or future needs.

  This illustrates a self-declared trust because Ms. Chen, who previously had full ownership, has now declared that she holds the legal title for the benefit of Lily, making herself the trustee and Lily the beneficiary.

• Example 2: Investment Portfolio for a Sibling with Special Needs

  Mr. Davies has a substantial investment portfolio that he fully owns. His sister, Sarah, has special needs and receives government benefits, which could be jeopardized if she directly owned significant assets. Mr. Davies wants to use his portfolio to supplement Sarah's care without disrupting her benefits. He formally declares that he holds his investment portfolio in trust for Sarah's supplemental needs. Mr. Davies remains the legal owner of the stocks and bonds, managing them as before, but he is now legally obligated to use the portfolio's income and principal only for Sarah's benefit, such as paying for therapies or special equipment not covered by her government aid.

  This demonstrates a self-declared trust because Mr. Davies, the original full owner of the investments, has declared that he holds them legally for the benefit of Sarah, thereby creating a trust where he is the trustee and Sarah is the beneficiary.

• Example 3: Savings Account for a Grandchild's Education

  Mrs. Rodriguez has a significant sum of money in a personal savings account. She wants to ensure these funds are used exclusively for her grandson Leo's college education, but she wants to retain control and manage the account until Leo is ready for university. Mrs. Rodriguez signs a declaration stating that she holds the funds in her savings account as trustee for Leo's educational expenses. While the bank account remains in her name, she is now legally bound to use those specific funds only for Leo's tuition, books, and other approved educational costs.

  This is an example of a self-declared trust because Mrs. Rodriguez, who had full ownership of the savings, has formally declared that she holds the legal title to those funds for the specific benefit of her grandson, making herself the trustee and Leo the beneficiary.