thorough knowledge of the investment management industry.

Equally challenging is the responsibility that comes with significant wealth -- that is the primary objective and obligation of preserving wealth for family members or others intended to benefit from wealth creation.

Whilst the trust concept has been around for centuries, it is probable today that trusts are more important than ever as flexible financial planning tools and are an integral part of the wealth management and wealth transfer process.

In simple terms, trusts create a very important personal relationship involving individuals who, directly or through their financial institutions, provide a professional service as trustee requiring integrity, innovation, flexibility and responsiveness and those individuals, families and individual family members, who will benefit from the expertise of trusted advisers -- these are the best in class asset managers, trustees and legal and tax managers and advisers. Whilst it is true that wealth management is traditionally a dominating priority, wealth transfer (particularly succession planning) has reached an equal priority primarily because of the explosion in wealth generation in recent years around the world and particularly in Europe.

Apart from private investments, wealthy individuals may wish to preserve a successful family business, so that its operations may continue long into the future and are kept out of the hands of unwanted or undesirable heirs, who might either be incapable of running the business themselves, or who might simply realise the business assets for immediate benefit.

Apart from business protection, wealthy individuals may well have strong preferences about who should receive their wealth in the event of their death.

There may also be concerns about political and economic instability, or adverse changes such as significant exchange controls or taxation which would impact the free transfer or movement and distribution of assets or which might even result in the loss or confiscation of assets which were not held in a trust.

The success of trusts in addressing many of these key issues is reflected in the ongoing acceptance of trusts worldwide and by legal systems based on civil law concepts which increasingly are recognising their potential. Article 2 of the Hague Convention on the recognition of trusts defines a trust as a legal relationship created, inter vivos or on death by a person, the settlor, when assets have been placed under the control of the trustee for the benefit of a beneficiary or for a specified purpose. The increasing recognition and acceptance of trusts in countries which have never recognised the trust concept is indicative of the importance of trusts in international financial planning. The Convention has already been signed by the United Kingdom, Italy, Luxembourg, Malta, the Netherlands, United States, Canada, Australia, Hong Kong and France, while Italy, the United Kingdom, the Netherlands, Malta, Australia and Canada have so far gone on to ratify it, and so implement it within their jurisdictions.

The key word in the Article 2 definition is relationship, because as stated at the beginning of this article, a trust is a relationship which is a critical feature of trust formation and hence families and individuals establishing trusts need to be satisfied about the quality and competence of the trustee.

Just as the expectations regarding wealth management services have risen, so have the expectations regarding the quality and level of activity of the trustee, particularly with regard to regular reporting on assets, for example.

Whilst trusts provide succession planning, asset preservation and growth for wealthy individuals and families, increasingly they are being utilised as investment vehicles for collective investment schemes and modernised to give them a wider European appeal. Investment trusts (or more commonly titled Investment Trust Companies) provide a structure which although similar to unit trusts, provide greater flexibility on gearing and the creation of shares with different entitlements. Split capital trusts for example split the different forms of investment return of income and capital. All such trusts have a predetermined winding up date on which, in the simplest case, the capital shares will receive all the surplus assets. During the life of the trust all income will be paid to the holders of the income shares. Different investment trusts are established with varying objectives and carry certain risks which unit trusts do not. The legal structure of unit trusts, whilst popular in the UK because of their trust stylefor collective investment purposes, are difficult for marketing in other countries because of the differing legal systems which do not incorporate trusts into their laws. Open Ended Investment Companies (OEICs) can now be created as an alternative to unit trusts and will be made easier to market in Europe. Venture Capital Trusts invest in unquoted companies and can be very tax advantageous. The trust itself must be quoted on the Stock Exchange in London and must invest in unquoted companies.

Trusts are also used as vehicles for pension schemes, employee share option and share purchase schemes, charitable and other non charitable purposes.

Trusts also feature amongst structures and services of the modern Private Family Office which are being established across Europe for the benefit of the new rich who are bringing more demanding family attitudes to wealth and wealth management from a dedicated Family Office service provider.

Although trusts may have a modern look, whether for planning or for investment purposes, the role of the trustee has become significantly more demanding.

Trustees are required not only to preserve wealth, but also to ensure that wealth is wisely invested and grows. Does this mean that there will inevitably be disputes leading to litigation? It is fair to say that there have been and will continue to be disgruntled beneficiaries, although a growing area of greater trust harmonyis through the early introduction of mediation as an increasingly popular form of dispute resolution. Mediation has no fixed form or rules and is a non-binding procedure.

Already a popular means of dispute resolution in the United States, it has been endorsed by the International Trust Companies Association in international trust administration and is also gaining popularity in Europe with a number of international law firms establishing trust litigation departments incorporating the mediation process.

Few would have predicted that trusts would continue to be as relevant and useful as they are.

For further information on Bank of Bermuda's Private Client Services, please contact Michael Dionne on 299-5525 or e-mail: dionnemg ybankofbermuda.com.

Peter Hodson is senior vice president, Private Client Services, Europe, at the Bank of Bermuda.