A trust is basically a contract between an individual (Settler) who transfers certain assets owned by him (the trust fund) to one or more persons (the trustees) with instructions, which are legally binding on the trustees, that the trustees should hold the trust fund upon prescribed terms (the beneficiaries).

The "trust instrument", governs all future dealings by the trustees of the trust fund. Trusts are either revocable, or are irrevocable.

The trust instrument is usually signed and sealed by the settler and the trustees. If the settler does not wish to be named personally in the trust instrument, the trust can be formed by a "Declaration of Trust" which is signed and executed under seal by the Creator and the Trustees alone. The trustees are under a legal obligation to carry out the precise terms of the trust. Trustees can either be individuals or companies, or a combination of the two. Trust funds can consist of a variety of assets including cash, company stocks and bonds, businesses, investments, property, homes, insurance policies or interests in other trusts.

A discretionary Trust is a common form of trust established in an offshore jurisdiction and is flexible with a high level of confidentiality. Usually, no requirements are needed to file the trust instrument with any government agency, so privacy of the settler, the trust's activities and identity of beneficiaries are totally protected. The trust is created in a country which imposes no tax of any kind on the settler, the beneficiaries or in the income or capital tax gains earned by the trust. Depending upon the residence for tax purposes of the settler and the beneficiaries, it is often possible to make distributions of capital or income from the trust completely free of tax.

Frequently, international businessmen employ offshore discretionary trusts to hold their various investments. In this matter, many reporting requirements are either eliminated or are vested in the trustees.

Specially designed trusts can effectively protect the assets of the settler from attack by creditors, therefore preserves the assets of the settler for enjoyment of his or her selected beneficiaries.

Discretionary trusts are often used by wealthy individuals to divest themselves of certain assets, by expatriates working abroad who wish to accumulate funds offshore prior to returning to a high tax country or by businessmen engaged in international trade and investments who require anonymity as to the ownership of offshore companies with certainty and security as to the passing of the trust fund to their chosen beneficiaries at the time selected by them.