Introduction to the Law of Trust | Add
Comments Law - Trust Recommended Textbooks The Law of Trusts by JE Penner [2nd Edition] Butterworths Henry & Martin by Jill E Martin Law Reports at www.EWCA.com Articles ?V Commentaries by academicians
Summary What is a trust? Who is a settlor? Who is a trustee? A trust may be ?K What are the governing legislations? Definition of a trust Characteristics of a trust How many types of trusts are there? What are the differences between the roles and particularly between the powers of trustees and personal representatives? What is the purpose of a Settlor? What are the interests of beneficiaries? What are the 3 elements required for the validity of a trust? Comparison with other legal concepts Is it possible to maintain strict divisions between trust and agency; trust and bailment, trust and contract and trust and debt?
What is a trust? The law of trusts was originally developed in medieval times in one of the King?|s Courts known as the Court of Chancery. Matters appertaining to trusts will be dealt with by the Chancery Division of the High Court.
??¡ÓA Trust ?K is the relationship which arises ?K when a trustee ?K is compelled in Equity to hold property ?K for the benefit of some persons [of whom he may be one] or for some object permitted by law, in such a way that the real benefit of the property accrues, not to the trustee but to the beneficiaries [Cestui Que Trust] of other objects of the trust?AE? which introduces both the concept of a purpose trust and the right to enforce being divorced from the beneficial interest.
Who is a settlor? The person who creates a trust and usually gives property to it is known as a settlor. A written trust instrument defines the initial trustee[s] and sets out the rights and duties that the trust gives them. It is possible for a settlor to be the trustee. In such case, the settlor would by a declaration declare that henceforth he declares certain assets of his to be held on trust for a named beneficiary.
In general, a trust is a fiduciary relationship whereby one person [the Trustee] receives an asset from another person [the Settlor] to hold for use of benefit of a third person [the Beneficiary]. The legal ownership is vested in the Trustee but the Beneficiary has an ?¢FDequitable interest?|
Who is a trustee? A minor may not be a trustee as he is devoid of legal capacity. The initial trustee is appointed as part of the act of creating the trust. The Trustee will be a party to and execute the trust deed. Once appointed the trustee cannot be removed by the settlor unless the trust deed specifically so provides. Where the deed gives power to a third party to appoint a trustee, he is called the ?¢FDAppointor?|
Section 35 of the Trustee Act 1961 should be noted: ?¢FDWhere a trustee, either original or substituted ?K remains out of the British Islands for more than twelve months ?K then ?K
a) the person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust;
b) if there is no such person, or no such person able or willing to act, then the surviving or continuing trustees or trustee for the time being ?K may be in writing appoint one or more other persons ?K to be a trustee or trustees in the place of the trustee so ?K remaining out of the British Islands ?K as aforesaid?|
A trust may be: ?E Express or Non-Express An express trust is one created by the express and intentional declaration of a settl0r. The declaration is normally a written ?¢FDdeed?| but may in certain circumstances be manifest by the behaviour of the parties concerned. A non-express [implied] trust is one that is created without any express intention to do so by a settlor. ?E Private or Public The difference between private and public trust exists purely in relation to its purposes. Eg. A Charitable Trust for a public charitable purpose is a Public Trust. ?E Discretionary or Non-Discretionary A non-discretionary trust is where a trustee has no discretion as to which of a class of beneficiaries shall receive benefits nor the amounts or timing of such benefits. In a discretionary trust the trustee has such discretion to a greater or lesser extent as the trust may determine.
What are the governing legislations? ?E Trustee Act 1961 ?E Variations of Trust Act 1961 ?E Perpetuities and Accumulations Act 1968 ?E Powers of Attorney Act 1971 ?E Powers of Attorney Act 1983 ?E Trusts Act 1995 ?E Purpose Trusts Act 1996
Definition of a Trust Article 2 of The Hague Convention sets out to define trust as to the legal relationship created ?V inter vivos [between living persons] or on death by a person, the settl0r when assets have been placed under the control of a trustee for the benefit of a beneficiary or for a specified purpose.
Characteristics of a Trust A trust has the following characteristics: 1. The assets constitute a separate fund and not part of the trustee?|s own estate; 2. Title to the trust assets stands in the name of the trustee or his nominee; 3. Trustee has the power and the enforceable duty to manage and otherwise deal with the assets in accordance with the terms of the trust and other relevant law and 4. The reservation by the settlor of certain rights and powers is not necessarily inconsistent with the existence of a trust.
How many types of trusts are there? In Cook v. Fountain [1736] the Judge declared that all trusts are either: 1. Express Trusts which are raised and created by the act of the parties and declared either by word or writing and these declarations appear either by direct and manifest proof or violent and necessary presumption. 2. Implied Trusts which are raised or created by act or construction of law
What are the differences between the roles and particularly between the powers of trustees and personal representatives? Trustees Personal Representatives Must deal jointly with trust property Have joint and several authority over property Different limitation periods for actions to recover property Different limitation periods for actions to recover property Have power to appoint replacements Have no power to appoint replacements At least 2 trustees are needed to provide the valid receipt for the sale proceeds of the real property A sole personal representative may give good receipt for the sale proceeds of real property.
What is the purpose of a Settlor? His common aims include: 1. controlling the release of funds to children or others; 2. protection of capital for later generations 3. divorcing management from enjoyment so that assets may be professionally or expertly handled for the greater benefit of family members; 4. preventing family members from attack by creditors and others; 5. maintaining flexibility over devolution after having divested themselves of assets; 6. tax efficient estate planning 7. providing security for disabled or na?ve beneficiaries
What are the interests of beneficiaries? These interests may range from: 1. the absolute interest of the beneficiary of a bare trust, though the vested but 2. feasible interest enjoyed by a life tenant subject to a trustee?|s overriding power of appointment to 3. the contingent or discretionary interest enjoyed by beneficiaries of a wholly discretionary trust or 4. trusts where the trustees have power to accumulate income.
What are the 3 elements required for the validity of a trust? It is known as the Three Certainties namely: 1. Certainty of words or intention; 2. Certainty of subject matter; 3. Certainty of object matter
Comparison with other legal concepts Agency Bailment Contract Debt A trustee is not by virtue of his office an agent of the beneficiary. When he enters into contracts in his role as trustee, he alone incurs a liability to perform. If however he were the agent of the beneficiary, the beneficiary too would become liable under the contract. An agent may however be a trustee though everything will turn on the terms of the contract of agency. Suppose that you are going abroad for a year and you appoint an estate agent to let and manage your house during your absence. Whether the estate agent merely owes you the amount of rent received from your tenants or holds it for you on trust will depend on whether the agreement between you provided for the creation of a trust. Suppose again that you are going abroad for a year. You may eg have a piano which you do not want to leave in the house. You therefore give it to a friend to look after during your absence. This will probably amount to bailment, though it could be a trust. Everything will depend on the location of your right to the piano. If you vested it in your friend then they will be a trustee of that right for you. If, however you kept your right to yourself but simply handed over possession of the piano, the transaction will be one of bailment and not trust. There is no clean division between contract and trust though judges sometimes attempt to draw on. Indeed there can be no hard and fast line between contract and trust because contract is a source of rights while trust is a device for holding rights. Any many of the rights held in trust are born of contract. The distinction between trust and debt is more difficult. The traditional view is that the relationship between trustee and beneficiary is not one of debtor and creditor. In other words, the trustee does not owe the value of the rights he holds to the beneficiaries.
Is it possible to maintain strict divisions between trust and agency; trust and bailment, trust and contract and trust and debt? The trust is not the same thing as an agency, or a contract, or a debt, but that the trust can be used in combination with these other legal devices in particular to generate different legal arrangements. ? Trust and Contract; ? Trust and Agency and ? Trust and Debt
The strictest division is between bailment and trust for each is holding of one person?|s beneficiary property by another but with completely different legal bases.
Prepared by Norsurianna Teh Binti Abdullah [31st October 2003]
