Establishing a trust, whether it be a family, charitable, commercial or other type of trust, calls for care and prudence in the selection of trustees. Often the appointed trustee or trustees will be in charge of substantial assets and it is important to ensure that this responsibility rests with competent, trustworthy and dependable individuals.

A trust is established when assets are transferred by a settlor (often known as a grantor), to trustees to hold on the terms of a trust instrument for the benefit of beneficiaries or for defined purposes. Once the trust has been created and the initial trust fund transferred to the trustees, the settlor, who has funded the trust, no longer has any control over the assets which, in the case of a discretionary trust, could comprise the family's wealth.

Consequently, it is extremely important to choose respected and trusted individuals, such as relatives, friends or advisors, to be trustees. Alternatively a professional, such as a trust company, could be appointed to fill this role.

Some people prefer to appoint individuals because of the personal involvement this will bring to the administration of the trust.

They might also do so in order to avoid the fees that a professional will charge, since a lay trustee is generally not entitled to compensation.

But even if such a choice is based upon a personal friendship, you as settlor must consider whether the person you appoint as a trustee is competent to properly administer a trust.

Whether you appoint an individual, a company or a partnership, the law now requires that all trustees be licensed unless otherwise exempted.

The licensing regime applies to any trustee acting as such in the ordinary course of their business, trade or profession. In other words if a trustee is receiving any form of compensation or benefit from their role, except in limited circumstances, they may need a trust licence and will be subject to regulation by the Bermuda Monetary Authority.

The position as, and responsibility of, trustees should not be taken lightly. Once they are appointed, the law places trustees in a "fiduciary" position. This means that in relation to the trust they must act in good faith for the sole benefit of the beneficiaries, or to carry out the purposes of the trust.

In the case of discretionary trusts, trustees acting in their own interest at the expense of that of the beneficiaries will be guilty of an abuse of power and consequently be personally liable to account to the beneficiaries for such acts.

The trustees will generally be required to maintain trust accounts and accurate records of all transactions affecting the trust. This will include documenting all additions to and distributions from the trust. Trustees will often delegate some of their responsibilities by appointing an investment advisor or an accountant. Although such appointment will remove some of the immediate pressure, the law requires trustees to exercise reasonable care, skill and caution in any such delegation. A failure to do so results in personal liability for the trustee.

For all of the reasons outlined above, many settlors appoint a professional trustee.

A trust company that is appointed as a trustee will provide an impartial service and, being a corporate entity, will not suffer from death, illness or mental incapacity.

You may decide to exercise some influence over the trustees through the use of a letter of wishes addressed to the trustees. This document does not affect the absolute discretion of the trustees. However, by setting out your wishes regarding the administration of the trust, including the distribution of the trust assets both during your lifetime and after your death, your hope is that the trustees will have some regard to those intentions.

A further comfort factor is achieved through the appointment of a protector. This individual or company has a duty to ensure that the trustees act in the best interests of the beneficiaries and may be required to give their consent to certain actions of the trustees. The protector is often empowered with the ability to replace the trustees should the need arise.

Appointing a professional person or trust company to be a trustee together with a trusted individual may be a sensible approach. Another popular option is to have a private trust company act as trustee where there are a number of connected or family trusts. Family members or trusted advisors can then serve on the board of directors giving an added level of comfort to the settlor.

Deciding to relinquish immediate control over your assets by placing them in trust is in itself a daunting task.

The choice of individuals and/or a corporate entity to properly manage and administer property can be equally as formidable. However you decide to proceed, the key to a successful choice is to seek proper legal guidance and to consider all available options.

Attorney Vanessa Lovell is a member of the Trusts and Financial Structures Team of Appleby Spurling & Kempe. Copies of Ms Lovell's columns can be obtained on the Appleby Spurling & Kempe website at www.ask.bm. This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.