The trust concept
What is a trust?
• A trust is an equitable duty relating to property.
• The person subject to the duty = trustee.
• The person to whom the duty is owed = beneficiary.
• The property to which the duty relates = trust property.
• The trustee is usually the legal owner of the trust property.
• The beneficiary has an equitable proprietary interest in that property
• The duty is equitable because it was created and developed by the Court of Chancery
(the court which administered the equitable jurisdiction).
• Duty = the trustee must hold or apply the trust property for the benefit of the beneficiary.
This description of a trust is not intended to be exhaustive.
E.g. it is possible in limited circumstances to create a trust for a purpose rather than a person.
It is also possible to hold equitable interests on trust.
There is no single definition of a trust, as evidenced by the following examples from case law:
• ‘equitable obligations to deal with property in a particular way.’
• ‘A trust is an equitable obligation, binding a person (who is called a trustee) to deal with property
over which he has control (which is called the trust property) for the benefit of persons….any one
of whom may enforce the obligation.’
• ‘a person who accepts property expressly (or impliedly) on the basis that he is to hold it for
the benefit of another.’
• ‘a person holding the legal title to property under an express or implied agreement to apply it,
and the income arising from it, to the use and for the benefit of another person.’
History of the trust
• Throughout the 18th and 19th centuries the typical trust was the family trust
– Enabled a person to make provision for successive generations of their family.
• A person would make a will giving property to trustees and instructing them how it should
be applied.
• In a standard case, trustees were instructed to distribute income to the deceased’s spouse
and (after the spouse’s death) to the deceased’s children and (after the children’s deaths)
to distribute the capital to the deceased’s grandchildren.
,Imagine that the trust property was land. How did the trust operate?
• Ordinarily trustees would be given legal title to the land by the deceased.
• They would enjoy all the powers of legal ownership.
• Trustees would create tenancies and receive rent from the tenants.
• The trustees would pay the rent (income) to the deceased’s spouse and then
(after the spouse’s death) the deceased’s children.
• After the children’s deaths the trustees would transfer the land (capital) to the
deceased’s grandchildren.
• Then the trust would cease to exist.
Expansion of trusts to other contexts
The family trust illustrates two important attributes of a trust:
1. A trust allows the separation of the powers of the legal owner (held by trustees) from the
benefits resulting from the exercise of those powers (enjoyed by beneficiaries).
2. A trust can confer different types of rights on different beneficiaries at different times.
The family trust is still in common use today but trusts have expanded beyond this model.
Today, trusts are used in many contexts and for various reasons.
shares, stocks bonds etc. traded on the public market
For example, the market in listed securities is underpinned by the trust.
• Most listed securities are in a ‘dematerialised’ or ‘uncertificated’ form.
• This means that legal ownership of UK-listed securities requires registration in an electronic register
called CREST.
• Securities are registered in the names of CREST members (usually banks or financial institutions)
• The members are the legal owners of securities registered in their names.
• But they generally acquire and hold the securities for the benefit of their clients.
• In other words, they hold them on trust.
The diagram illustrates the general structure of the CREST securities market.
Imagine that:
• The CREST member is registered as the holder (legal owner)
of 100,000 shares issued by Tesco plc.
Crest member
• The CREST member acquired 50,000 of those shares
on behalf of a broker.
• The broker acquired 10,000 of the 50,000 shares on behalf broker
of a private investor.
The legal analysis of this scenario is:
• The CREST member holds 50,000 of the 100,000 shares private investor
on trust for the broker.
• The broker holds its interest in 10,000 of the 50,000 shares
on trust (known as a ‘sub-trust’) for the investor.
,The legal and equitable rights of each of the parties in respect
Crest member
of the private investor’s 10,000 shares:
• The CREST member is the legal owner of the shares but has
no beneficial interest. Legal title is held on trust for the broker.
• The broker has an equitable interest in the shares. Like the broker
CREST member, it has no beneficial interest in the shares.
The equitable interest is held on trust for the private investor.
• The private investor has an equitable and beneficial interest private investor
in the shares.
There is a ‘waterfall or chain of equitable relationships’ – SL Claimants v Tesco Plc
Principal characteristics of trusts
The trusts discussed above demonstrate the importance and versatility of the trust.
• A trust can be used to distribute a modest estate across successive generations of a family
• It is also the structural foundation of a multi-billion-pound securities market which is essential
to the UK’s economic prosperity.
The principal characteristics of a trust:
• Trust property
• A trustee
• A duty
• Objects: Usually a beneficiary but sometimes a trust purpose
• An equitable proprietary interest
Trust property
• Property is an essential requirement for a trust.
Westdeutsche Landesbank Girozentrale v Islington London Borough Council
• Lord Browne-Wilkinson: it is a ‘fundamental’ proposition of trusts law that ‘there must
be identifiable trust property.’
• The proposition is ‘fundamental’ because a trust is an equitable duty relating to property.
• The trust property is known as the subject matter of the trust.
• The question of whether there is trust property can be contentious –
Mac-Jordan Construction Ltd v Brookmount Erostin Ltd(inreceivership)
• FACTS: The defendant employed the plaintiff to construct a building.
• They agreed that the defendant would:
– pay the plaintiff as the work progressed.
– retain 3% of each payment.
– establish a separate fund in respect of the retained sums.
– hold the fund on trust for the plaintiff until the work was completed.
, • The defendant retained 3% from each payment but failed to establish a fund representing
those sums.
• The defendant became insolvent.
• The issue was whether the defendant was a trustee for the plaintiff, giving the plaintiff
proprietary rights over the defendant’s bank account.
• If not, the plaintiff would merely rank as an unsecured creditor.
HELD: The defendant was not a trustee for the plaintiff.
• Scott LJ: the plaintiff was unable to establish a trust because the defendant had not
established a separate fund.
• He said that ‘there were, and are, no identifiable assets impressed with the trusts applicable
to the retention fund.’
• He rejected an argument that the defendant held the sum credited to its bank account
on trust for the plaintiff on the ground that the defendant had never agreed to create
a trust of its bank account.
• It had agreed to create a trust of a separate fund but the fund itself was never
actually established.
• There was no trust because there was no trust property.
• The defendant had breached its contractual obligation to create the fund.
• But this only gave rise to a personal right to sue the defendant for the money.
Almost every asset or right can be held on trust –
Lord Strathcona Steamship Co Ltd v Dominion Coal Company Ltd
• Lord Shaw: ‘The scope of the trusts recognised in equity is unlimited.
• There can be a trust of a chattel or of a chose in action, or of a right or obligation under
an ordinary legal contract, just as much as a trust of land.’
A chose in action is a right: it is intangible.
• E.g. £100 credited to a bank account is a chose in action (a debt).
• The account holder has a right to be paid £100 by the bank: the bank owes £100
to the account holder.
A chattel is a tangible item (other than land).
• Cars, computers, books, jewellery and clothes are obvious examples.
A company share is an example of a chose in action.
• The nature of a shareholder’s rights depends on the nature of their shares.
• The most common shareholder rights are rights to attend and vote at company meetings
and to be paid dividends by the company.
Changes to trust property
• A trust ceases to exist if, without any fault on the part of the trustee, the trust property
is destroyed or consumed.
• In the absence of any trust property, there is nothing to which a trust can attach.
• If the trustee is at fault, they will be personally liable to restore the trust property
(using their own funds).
What is a trust?
• A trust is an equitable duty relating to property.
• The person subject to the duty = trustee.
• The person to whom the duty is owed = beneficiary.
• The property to which the duty relates = trust property.
• The trustee is usually the legal owner of the trust property.
• The beneficiary has an equitable proprietary interest in that property
• The duty is equitable because it was created and developed by the Court of Chancery
(the court which administered the equitable jurisdiction).
• Duty = the trustee must hold or apply the trust property for the benefit of the beneficiary.
This description of a trust is not intended to be exhaustive.
E.g. it is possible in limited circumstances to create a trust for a purpose rather than a person.
It is also possible to hold equitable interests on trust.
There is no single definition of a trust, as evidenced by the following examples from case law:
• ‘equitable obligations to deal with property in a particular way.’
• ‘A trust is an equitable obligation, binding a person (who is called a trustee) to deal with property
over which he has control (which is called the trust property) for the benefit of persons….any one
of whom may enforce the obligation.’
• ‘a person who accepts property expressly (or impliedly) on the basis that he is to hold it for
the benefit of another.’
• ‘a person holding the legal title to property under an express or implied agreement to apply it,
and the income arising from it, to the use and for the benefit of another person.’
History of the trust
• Throughout the 18th and 19th centuries the typical trust was the family trust
– Enabled a person to make provision for successive generations of their family.
• A person would make a will giving property to trustees and instructing them how it should
be applied.
• In a standard case, trustees were instructed to distribute income to the deceased’s spouse
and (after the spouse’s death) to the deceased’s children and (after the children’s deaths)
to distribute the capital to the deceased’s grandchildren.
,Imagine that the trust property was land. How did the trust operate?
• Ordinarily trustees would be given legal title to the land by the deceased.
• They would enjoy all the powers of legal ownership.
• Trustees would create tenancies and receive rent from the tenants.
• The trustees would pay the rent (income) to the deceased’s spouse and then
(after the spouse’s death) the deceased’s children.
• After the children’s deaths the trustees would transfer the land (capital) to the
deceased’s grandchildren.
• Then the trust would cease to exist.
Expansion of trusts to other contexts
The family trust illustrates two important attributes of a trust:
1. A trust allows the separation of the powers of the legal owner (held by trustees) from the
benefits resulting from the exercise of those powers (enjoyed by beneficiaries).
2. A trust can confer different types of rights on different beneficiaries at different times.
The family trust is still in common use today but trusts have expanded beyond this model.
Today, trusts are used in many contexts and for various reasons.
shares, stocks bonds etc. traded on the public market
For example, the market in listed securities is underpinned by the trust.
• Most listed securities are in a ‘dematerialised’ or ‘uncertificated’ form.
• This means that legal ownership of UK-listed securities requires registration in an electronic register
called CREST.
• Securities are registered in the names of CREST members (usually banks or financial institutions)
• The members are the legal owners of securities registered in their names.
• But they generally acquire and hold the securities for the benefit of their clients.
• In other words, they hold them on trust.
The diagram illustrates the general structure of the CREST securities market.
Imagine that:
• The CREST member is registered as the holder (legal owner)
of 100,000 shares issued by Tesco plc.
Crest member
• The CREST member acquired 50,000 of those shares
on behalf of a broker.
• The broker acquired 10,000 of the 50,000 shares on behalf broker
of a private investor.
The legal analysis of this scenario is:
• The CREST member holds 50,000 of the 100,000 shares private investor
on trust for the broker.
• The broker holds its interest in 10,000 of the 50,000 shares
on trust (known as a ‘sub-trust’) for the investor.
,The legal and equitable rights of each of the parties in respect
Crest member
of the private investor’s 10,000 shares:
• The CREST member is the legal owner of the shares but has
no beneficial interest. Legal title is held on trust for the broker.
• The broker has an equitable interest in the shares. Like the broker
CREST member, it has no beneficial interest in the shares.
The equitable interest is held on trust for the private investor.
• The private investor has an equitable and beneficial interest private investor
in the shares.
There is a ‘waterfall or chain of equitable relationships’ – SL Claimants v Tesco Plc
Principal characteristics of trusts
The trusts discussed above demonstrate the importance and versatility of the trust.
• A trust can be used to distribute a modest estate across successive generations of a family
• It is also the structural foundation of a multi-billion-pound securities market which is essential
to the UK’s economic prosperity.
The principal characteristics of a trust:
• Trust property
• A trustee
• A duty
• Objects: Usually a beneficiary but sometimes a trust purpose
• An equitable proprietary interest
Trust property
• Property is an essential requirement for a trust.
Westdeutsche Landesbank Girozentrale v Islington London Borough Council
• Lord Browne-Wilkinson: it is a ‘fundamental’ proposition of trusts law that ‘there must
be identifiable trust property.’
• The proposition is ‘fundamental’ because a trust is an equitable duty relating to property.
• The trust property is known as the subject matter of the trust.
• The question of whether there is trust property can be contentious –
Mac-Jordan Construction Ltd v Brookmount Erostin Ltd(inreceivership)
• FACTS: The defendant employed the plaintiff to construct a building.
• They agreed that the defendant would:
– pay the plaintiff as the work progressed.
– retain 3% of each payment.
– establish a separate fund in respect of the retained sums.
– hold the fund on trust for the plaintiff until the work was completed.
, • The defendant retained 3% from each payment but failed to establish a fund representing
those sums.
• The defendant became insolvent.
• The issue was whether the defendant was a trustee for the plaintiff, giving the plaintiff
proprietary rights over the defendant’s bank account.
• If not, the plaintiff would merely rank as an unsecured creditor.
HELD: The defendant was not a trustee for the plaintiff.
• Scott LJ: the plaintiff was unable to establish a trust because the defendant had not
established a separate fund.
• He said that ‘there were, and are, no identifiable assets impressed with the trusts applicable
to the retention fund.’
• He rejected an argument that the defendant held the sum credited to its bank account
on trust for the plaintiff on the ground that the defendant had never agreed to create
a trust of its bank account.
• It had agreed to create a trust of a separate fund but the fund itself was never
actually established.
• There was no trust because there was no trust property.
• The defendant had breached its contractual obligation to create the fund.
• But this only gave rise to a personal right to sue the defendant for the money.
Almost every asset or right can be held on trust –
Lord Strathcona Steamship Co Ltd v Dominion Coal Company Ltd
• Lord Shaw: ‘The scope of the trusts recognised in equity is unlimited.
• There can be a trust of a chattel or of a chose in action, or of a right or obligation under
an ordinary legal contract, just as much as a trust of land.’
A chose in action is a right: it is intangible.
• E.g. £100 credited to a bank account is a chose in action (a debt).
• The account holder has a right to be paid £100 by the bank: the bank owes £100
to the account holder.
A chattel is a tangible item (other than land).
• Cars, computers, books, jewellery and clothes are obvious examples.
A company share is an example of a chose in action.
• The nature of a shareholder’s rights depends on the nature of their shares.
• The most common shareholder rights are rights to attend and vote at company meetings
and to be paid dividends by the company.
Changes to trust property
• A trust ceases to exist if, without any fault on the part of the trustee, the trust property
is destroyed or consumed.
• In the absence of any trust property, there is nothing to which a trust can attach.
• If the trustee is at fault, they will be personally liable to restore the trust property
(using their own funds).
