What is an employee benefit trust?
Produced in partnership with Jeremy Glover of Fenwick Elliott
What is an employee benefit trust?

The following Share Incentives practice note produced in partnership with Jeremy Glover of Fenwick Elliott provides comprehensive and up to date legal information covering:

  • What is an employee benefit trust?
  • The EBT as a trust
  • The EBT as a discretionary trust
  • Why establish an EBT?
  • Satisfaction of awards where employees pay nothing for their shares
  • Easing dilution concerns
  • Shareholder approval considerations
  • The trust deed
  • EBTs and tax
  • Inheritance tax
  • More...

The EBT as a trust

An employee benefit trust (EBT) is a form of trust. A trust refers to the legal relationship created by a person, the settlor, when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.

A trust (including an EBT) generally has the following characteristics:

  1. the assets constitute a separate fund and are not a part of the trustee’s own estate

  2. title to the trust assets stands in the name of the trustee, and

  3. the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law

As a general rule, a trust (including an EBT) must have certainty of objects, and in the case of non-charitable trusts such as an EBT, there must be someone in whose favour the court can enforce the trust. It is settled law that a trust for the benefit of employees generally is valid provided that it does not infringe against the rule against perpetuities.

The EBT as a discretionary trust

An EBT is a discretionary trust which means that it is a trust for a class of beneficiaries as opposed to individuals. As a discretionary trust, the trustee (usually following

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