Trusts are among the most challenging structures to navigate in beneficial ownership verification. When a trust holds ownership interest in a company, the question "who owns this business?" becomes considerably more complex. The trustee holds legal title, but the beneficiaries benefit from the assets. The settlor created the trust and may retain influence. And in some trusts, beneficiaries aren't even named—they're defined as a class.
This article explains how trusts intersect with KYB, what FATF requires, and practical approaches to trust-related due diligence.
Understanding Trusts
What Is a Trust?
A trust is a legal arrangement where a person (the settlor) places assets under the control of another person (the trustee) for the benefit of third parties (the beneficiaries). Trusts are created through a trust deed or will and can be revocable (the settlor can dissolve it) or irrevocable (the settlor cannot).
Unlike corporations and LLCs, trusts are not registered with a Secretary of State. In most jurisdictions, there's no public registry of trusts. This opacity is by design—trusts are often used precisely because they provide privacy.
Key Parties in a Trust
Settlor (also called Grantor or Trustor)
- Creates the trust
- Transfers assets into the trust
- Defines the trust's terms
- May retain powers (revocation, amendment, direction to trustee)
Trustee
- Holds legal title to trust assets
- Manages assets according to trust terms
- Has fiduciary duty to beneficiaries
- May be an individual, professional trustee, or trust company
Beneficiary
- Receives benefit from trust assets (income, distributions, or eventual ownership)
- May be specifically named or defined as a class
- May have current or future interests
Protector (optional)
- Oversees trustee
- May have veto power over certain decisions
- Common in offshore and complex trusts
Types of Trusts
Express Trusts
- Deliberately created by the settlor
- Most common type in KYB contexts
- Include family trusts, business trusts, charitable trusts
Discretionary Trusts
- Trustee decides which beneficiaries receive what
- Beneficiaries have no fixed entitlement
- Complicates beneficial ownership determination
Fixed Trusts
- Beneficiaries have defined, fixed interests
- Easier to identify beneficial ownership
Similar Arrangements by Jurisdiction
- Fiducie (France)
- Treuhand (Germany)
- Fideicomiso (Latin America)
- Waqf (Islamic law)
Why Trusts Matter for KYB
Trusts as Business Owners
Trusts frequently appear in corporate ownership structures:
- Estate planning: Trust holds ownership to facilitate generational transfer
- Asset protection: Trust shields business ownership from personal liability
- Tax planning: Trust structures optimize tax treatment
- Privacy: Trust obscures beneficial ownership from public view
- Control: Founders retain control through trust arrangements
When verifying beneficial ownership and a trust appears in the ownership chain, you can't stop at the trust—you must identify the natural persons who ultimately benefit from or control the trust.
The Ownership Chain Problem
Consider this structure:
ABC Operating Company
└── Owned 100% by XYZ Holdings LLC
└── Owned 100% by Smith Family Trust
└── Settlor: John Smith
└── Trustee: First National Trust Company
└── Beneficiaries: "Descendants of John Smith"
Who is the beneficial owner of ABC Operating Company?
- Not XYZ Holdings LLC (that's just another entity)
- Not the trust itself (trusts aren't natural persons)
- Not First National Trust Company (they're a fiduciary, not an owner)
- Potentially John Smith (as settlor with possible control)
- Potentially multiple descendants (as beneficiaries)—but which ones?
This is why trusts complicate UBO verification.
FATF Recommendation 25
The Financial Action Task Force (FATF) addresses trust transparency through Recommendation 25, which complements Recommendation 24 (beneficial ownership of legal persons) by covering "legal arrangements"—trusts and similar structures.
Core Requirements
Countries must:
- Assess risks associated with trusts in their jurisdiction
- Require trustees to obtain and hold beneficial ownership information
- Ensure timely access to that information by competent authorities
- Prevent misuse of trusts for money laundering or terrorist financing
Trustees Must Know
Under FATF standards, trustees must hold adequate, accurate, and up-to-date information on:
- Identity of the settlor(s)
- Identity of the trustee(s)
- Identity of the protector(s) (if any)
- Identity of the beneficiaries or class of beneficiaries
- Any other natural person exercising effective control
For each relevant party:
- Full legal name
- Date of birth
- Nationality
- Residential address
- Nature of control or interest in the trust
Class of Beneficiaries
When beneficiaries are defined by class (e.g., "children of the settlor," "charitable organizations selected by trustee"), FATF requires sufficient information to identify individuals when they:
- Receive distributions
- Exercise vested rights
- Become entitled to fixed interests
This means beneficial ownership may be determined at the time of distribution rather than at verification.
KYB Implications
When Trusts Trigger Additional Scrutiny
Trust involvement should typically trigger Enhanced Due Diligence (EDD):
Trust appears in ownership chain: Identify trust parties, don't stop at trust name
Corporate trustee: Verify the trustee entity AND identify individuals who control it
Offshore trust: Additional jurisdiction risk, harder to verify
Discretionary beneficiaries: Determination deferred until distribution
Settlor retains powers: Settlor may be beneficial owner despite no direct interest
Identifying the Relevant Beneficial Owners
When a trust owns a business, consider:
Settlor
- Especially if trust is revocable (settlor can reclaim assets)
- If settlor retains powers to direct trustee
- If settlor can change beneficiaries
Trustee
- If trustee has substantial discretion over distributions
- If trustee is also a beneficiary
- If individual trustee (vs. corporate trustee)
Beneficiaries
- Named beneficiaries with fixed interests
- Current beneficiaries receiving distributions
- For discretionary trusts: class description sufficient until distribution
Protector
- If protector can remove/appoint trustees
- If protector can veto distributions
- If protector can modify trust terms
Verification Challenges
No Public Registry
- Most trusts aren't registered anywhere
- Can't verify trust existence like a corporation
- Must rely on documentation (trust deed)
Privacy Expectations
- Trusts are often created for privacy
- Trustees may resist disclosure
- Beneficiaries may be unaware they're beneficiaries
Discretionary Beneficiaries
- Can't identify specific individuals
- "Children of the settlor" could be anyone
- Future beneficiaries don't exist yet
Offshore Trusts
- Jurisdictional complexity
- Different trust law frameworks
- Limited regulatory reach
Professional Trustees
- Trust companies manage thousands of trusts
- May have limited information about beneficial ownership
- Professional trustees are fiduciaries, not owners
Practical Approaches
Documentation Requests
When a trust appears in ownership, request:
- Certificate of Trust (confirms trust exists, identifies trustee, without full deed)
- Trust deed (full terms—may be resisted)
- Schedule of beneficiaries (if fixed)
- Trust registration (if jurisdiction requires)
- Trustee identification (corporate trustee: articles, individuals: ID)
Risk-Based Assessment
Apply a risk-based approach:
Lower Risk
- Domestic trust
- Professional, regulated trustee
- Simple structure
- Transparent purpose
Higher Risk
- Offshore trust
- Complex layered structure
- Discretionary beneficiaries
- Settlor-controlled
- Recent establishment
At minimum, capture:
- Trust name
- Date established
- Governing law/jurisdiction
- Trustee name and contact
- Nature of beneficiary interests (fixed/discretionary)
- For fixed interests: beneficiary names
- For discretionary: class description
- Settlor identity (if available)
When to Escalate
Route trust-related cases to senior review or EDD when:
- Unable to identify settlor
- Unable to identify any beneficiaries (even by class)
- Trustee is unresponsive or uncooperative
- Multiple layers of trusts
- Trust recently established in conjunction with business formation
- High-risk jurisdiction
- Adverse media on trust or related parties
Red Flags
Trust-related ownership structures may indicate elevated risk when:
- Opacity exceeds purpose: Simple business using complex trust structure
- Recent establishment: Trust created just before business ownership
- Nominee trustee: Professional trustee with no apparent connection
- Layered trusts: Trust owned by trust owned by trust
- Settlor disappears: Cannot identify who created the trust
- Circular structures: Business assets flow back to related parties through trust
- Jurisdiction mismatch: Offshore trust for domestic operating business
Regulatory Trends
Trust transparency is increasing globally:
- EU AMLD5/6: Requires beneficial ownership registers for trusts
- UK: Trust Registration Service mandatory for many trusts
- US: Trusts not yet covered by CTA, but regulatory discussion ongoing
- FATF: Strengthened Recommendation 25 guidance (March 2024)
Organizations should expect trust transparency requirements to expand.
