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Legal and beneficial ownership

The practical advantages of a trust are derived from the fact that a distinction is drawn between the formal or "legal" owner of property and the person who in reality has the use or benefit of the property - the "beneficial" owner. Thus for formal legal purposes the trustee is recognized as the owner whereas the person who has the use or benefit of the property (the beneficiaries) are protected by a body of legal rules which impose very strict duties on trustees and the way in which they administer the trust property. It is possible for the settler to retain an interest in the trust and, for example, to be an actual or potential beneficiary. However, in many jurisdictions this can have estate duty and tax disadvantages. Where the settler retains an interest directly or indirectly in trust property it is important that the trustees remain independent and exercise proper control over the trust property. If the person who sets up the trust continues to exercise control over the trust assets this may render the trust void.