In common law legal systems, a trust is an arrangement whereby property (including real, tangible and intangible) is managed by one person (or persons, or organizations) for the benefit of another. A trust is created by a settlor (or feoffor to uses ), who entrusts some or all of their property to people of their choice (the trustees or feoffee to uses ). The trustees hold legal title to the trust property (or trust corpus ), but they are obliged to hold the property for the benefit of one or more individuals or organizations (the beneficiary, cestui que use , or cestui que trust ), usually specified by the settlor, who hold equitable title. The trustees owe a fiduciary duty to the beneficiaries, who are the "beneficial" owners of the trust property.
The trust is governed by the terms of the trust document, which is usually written and occasionally set out in deed form. It is also governed by local law. The trustee is obliged to administer the trust in accordance with both the terms of the trust document and the governing law.
In the United States, the settlor is also called the trustor, grantor, donor or creator.
History
Roman law recognised a fairly similar concept to the trust that it referred to as the fidei commissa , although this was a bequest in a law. Roman law never employed a concept equivalent of the inter vivos trust later seen in common law jurisdictions. Another major difference between the fidei commissa and the trust was "the former existing primarily to ensure proper passage of the property and the latter being a mechanism to increase the efficient management of property and to minimize the costs of ownership."
The waqf in Islamic law, which developed in the medieval Islamic world from the 7th to 9th centuries, bears a notable resemblance to the English trust. Every waqf was required to have a waqif (founder), mutawillis (trustee), qadi (judge) and beneficiaries. Under both a waqf and a trust, "property is reserved, and its usufruct appropriated, for the benefit of specific individuals, or for a general charitable purpose; the corpus becomes inalienable; estates for life in favor of successive beneficiaries can be created" and "without regard to the law of inheritance or the rights of the heirs; and continuity is secured by the successive appointment of trustees or mutawillis ."
The only significant distinction between the Islamic waqf and English trust was "the express or implied reversion of the waqf to charitable purposes when its specific object has ceased to exist", though this difference only applied to the waqf ahli (Islamic family trust) rather than the waqf khairi (devoted to a charitable purpose from its inception). Another difference was the English vesting of "legal estate" over the trust property in the trustee, though the "trustee was still bound to administer that property for the benefit of the beneficiaries." In this sense, the "role of the English trustee therefore does not differ significantly from that of the mutawalli ."
The trust law developed in England at the time of the Crusades, during the 12th and 13th centuries. The trust was introduced by Crusaders who may have been influenced by the waqf institutions they came across in the Middle East. At the time, land ownership in England was based on the feudal system. When a landowner left England to fight in the Crusades, he needed someone to run his estate in his absence, often to pay and receive feudal dues. To achieve this, he would convey ownership of his lands to a friend, on the understanding that the ownership would be conveyed back on his return. However, Crusaders would often return to find the legal owners' refusal to hand over the property.
Unfortunately for the Crusader, English law did not recognize his claim. As far as the courts were concerned, the land belonged to the trustee, who was under no obligation to return it. The crusader had no legal claim. The disgruntled Crusader would then petition the king, who would refer the matter to his Lord Chancellor. The Lord Chancellor could do what was "just" and "equitable", and had the power to decide a case according to his conscience. At this time, the principle of equity was born.
The Lord Chancellor would consider it unjust that the legal owner could deny the claims of the crusader (the "true" owner). Therefore, he would find in favour of the returning crusader. Over time, it became known that the Lord Chancellor's court (the Court of Chancery) would continually recognize the claim of a returning crusader. The legal owner would hold the land for the benefit of the original owner, and would be compelled to convey it back to him when requested. The crusader was the "beneficiary" and the friend the "trustee". The term use of land was coined, and in time developed into what we now know as a trust .
Also, the Primogeniture system could be considered as a form of trust. In Primogeniture system, the first born male inherited all the property and "usually assumes the responsibility of trusteeship of the property and of adjudicating attendant disputes."
Significance
The trust is widely considered to be the most innovative contribution to the English legal system. Today, trusts play a significant role in all common law systems, and their success has led some civil law jurisdictions to incorporate trusts into their civil codes, like France since 2007, amended in 2009. Trusts are recognized internationally under the Hague Convention on the Law Applicable to Trusts and on their Recognition which also regulates conflict of trusts.
Basic principles
Property of any sort can be held on trust. The uses of trusts are many and varied. Trusts can be created during a person's life (usually by a trust instrument) or after death in a will.
Creation
Trusts can be created by the expressed intentions of the settlor (express trusts) or they can be created by operation of law (resulting trusts).
Typically a trust is created by one of the following:
- a written trust document created by the settlor and signed by both the settlor and the trustees (often referred to as an inter vivos or "living trust");
- an oral declaration;
- the will of a decedent, usually called a testamentary trust; or
- a court order (for example in family proceedings).
In some jurisdictions certain types of assets cannot be the subject of a trust without a written document.
Formalities
Generally, a trust requires three certainties, as determined in Knight v Knight :
- Intention . There must be a clear intention to create a trust ( Re Adams and the Kensington Vestry )
- Subject Matter . The property subject to the trust must be clearly identified ( Palmer v Simmonds ). One cannot, for example, settle "the majority of my estate", as the precise extent cannot be ascertained. Trust property can be any form of specific property, be it real or personal, tangible or intangible. It is often, for example, real estate, shares or cash.
- Objects . The beneficiaries of the trust must be clearly identified, or at least be ascertainable ( Re Hain's Settlement ). In the case of discretionary trusts, where the trustees have power to decide who the beneficiaries will be, the settlor must have described a clear class of beneficiaries ( McPhail v Doulton ). Beneficiaries can include people not born at the date of the trust (for example, "my future grandchildren"). Alternatively, the object of a trust could be a charitable purpose rather than specific beneficiaries.
Trustees
The trustee can be either a person or a legal entity such as a company. A trust may have one or multiple trustees. A trustee has many rights and responsibilities; these vary from trust to trust depending on the type of the trust. A trust generally will not fail solely for want of a trustee. A court may appoint a trustee, or in Ireland the trustee may be any administrator of a charity to which the trust is related. Trustees are usually appointed in the document (instrument) which creates the trust.
A trustee may be held personally liable for certain problems which arise with the trust. For example, if a trustee does not properly invest trust monies to expand the trust fund, he or she may be liable for the difference. There are two main types of trustees, professional and non-professional. Liability is different for the two types.
The trustees are the legal owners of the trust's property. The trustees administer the affairs attendant to the trust. The trust's affairs may include investing the assets of the trust, ensuring trust property is preserved and productive for the beneficiaries, accounting for and reporting periodically to the beneficiaries concerning all transactions associated with trust property, filing any required tax returns on behalf of the trust, and other duties. In some cases, the trustees must make decisions as to whether beneficiaries should receive trust assets for their benefit. The circumstances in which this discretionary authority is exercised by trustees is usually provided for under the terms of the trust instrument. The trustee's duty is to determine in the specific instance of a beneficiary request whether to provide any funds and in what manner.
By default, being a trustee is an unpaid job. In modern times trustees are often lawyers or other pro
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