Law of Trusts

Trusts are versatile - they come in a variety of forms, and are characterized by their malleability and diversity. There is a 'multiplicity' of trusts formulations.

1 - Defining the trust

1.1 Property and trusts:

The legal claim or entitlement to various 'things' (tangible or otherwise). I have a 'legal title' in relation to my belongings - meaning that under the common law rules of property I am entitled to the free use and possession of them, subject to the exceptions imposed by law. Therefore there is legal beneficial ownership.

The holder of legal title is sometimes subject to 'fiduciary obligations' - 'which require him to hold and deal with the property not for his own benefit and in pursuance of his own interests, but rather for the benefit and in the interests of some other person'.  This person is called the 'beneficiary' 

- The property remains in the hands of the holder of the legal title - He is sometimes referred to as the 'trustee' - He retains the legal power to deal with the property - However when doing so he must always act in the sole objective of furthering the interests of the beneficiary ; this is the beneficiary's right over the trustee. - The beneficiary also has an interest protecting them against third parties - Because of this right, the beneficiary is regarded as having a proprietary interest known as an 'equitable title' - The trustee is said to hold the property on trust for the beneficiary

The two central characteristics defining the trust are (1) the separate legal and equitable titles to the property, and (2) fiduciary obligations owed by the trustee to the beneficiary.  There may be more than one trustee or beneficiary who therefore share interests in equitable or legal titles. The same person can be both a trustee and beneficiary.  However one person cannot be the sole trustee and sole beneficiary in the same instance. 

1.2 Variations of trusts

Discretionary Trusts: Here, the trustee with the legal title is subject to fiduciary obligations, regarding a class of potential beneficiaries from which he must choose who will receive the benefit of the trust property - none of these beneficiaries have any fixed or guaranteed entitlement to benefit and as such we consider that there is no separate title in equity.

Purpose trusts: Here, the trustee is required to execute his legal title regarding the property in the interests of attaining a certain goal, object or purpose. Once again, there is no nobody with a fixed entitlement to benefit from the property and therefore no separate equitable title.

Another variation of the trust exists where the trustee holds the property for the beneficiary but the trustee himself has only an equitable property title, either because he himself is a beneficiary of a trust in the property (in which case, a sub-trust) or because the property is of the kind which is only recognized by equitable property rules (this is the case for The Law of Property Act 1925, s1(3)). Here, both the trustee and the beneficiary have distinct equitable titles.

Another variation exists where the trustee holds a legal title over property in relation to which the beneficiary has an equitable title, but the trustee owes the beneficiary no fiduciary obligations other than the duty to hand over the asset should the beneficiary demand it.

Another type of trust is found where the trustee (or "fiduciary") owes fiduciary obligations to another party (often called the "principal") but does not hold any legal title, either because the situation does not concern property (such as a solicitor giving advice to a client) or because the principal himself holds the legal title to the property concerned by the obligations (such as the situation in which an agent handles the principal's goods).

When studying and examining trusts we are faced with a number of important considerations: - When a trust arises - The rights and duties, powers and liabilities resulting from each trust - The rules of the formation of the trust - The rules concerning the duties as well as the rights of the parties under the trust - The consequences and recourse in the result of breach of trust

Trusts arise in a number of situations and are generally characterized by the traditional divide between the classes of trusts which arise from the intention of the property owner or for some other reason. Trusts which arise from the intentions of the parties are usually known as 'express trusts' although we can identify intended trusts which do not fall into this category. Other trusts are recognized by the law regardless of the intention of the parties, and are often therefore 'imposed' by the law for various 'equitable' reasons.  Traditionally these 'imposed' trusts are divided into two categories : resulting and constructive trusts.</li>  The rules of formation, the duties and rights of the parties differ depending upon the type of trust. </li>  Trusts can be used by property owners to organize and arrange their affairs for the benefit of others where intended, but they can also be employed by the courts "to redirect property where they consider that the current allocation of entitlements is unjust". </li></ul>

Intended Trusts

The trust arises because the property owner has intended it. He can do this whilst alive - inter vivos (amongst the living) - or alternatively he may decide that the trust will take effect after his death - therefore, a 'testamentary trust'.  Where the trust is 'inter vivos' we refer to its creator as the 'settlor', and the trust is sometimes referred to as the 'settlement'. </li>  Alternatively, where the trust is to take effect on the death of the creator he is known either as the 'testator' (male) or 'testatrix' (female). </li></ul>

Who is the trustee?

If the creator (settlor) of the trust names himself the trustee, there is a 'self-declaration of trust'. The settlor also has the choice to appoint someone else, or a number of people or even a company to take on the role of trustee, and he can also choose a number of people, including himself, as beneficiaries of the trust.

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