Trusts Revision Document
Introduction and Key Concepts (1)
Trust= division of legal and equitable interests.
Truste: has legal title
o Owes obligations to beneficiary. Has legal rights to exercise for the benefit of
the beneficiary according to the trust terms.
Beneficiary: has equitable title
o Beneficiary has personal rights against trustee, can sue trustee to enforce the
trust
Obligation component: a trust must have a trustee. (trustee owns the trust property and has
all the rights and powers of legal ownership, but a trustee must exercise those rights and
powers for the benefit of the beneficiary)
Trustee has equitable obligations, for benefit of beneficiary. If they don’t act in
accordance, beneficiary has personal rights against the trustee (beneficiary can sue
trustee)
Role of trustee = voluntary, usually unpaid but can be if professional (remuneration)
Trust objects= beneficiaries or purposes of trusts (trust must have a beneficiary or be for a
permitted purpose)
If no trust property, then nothing to which a trust can attach, cease to exist.
Obligation component: must be a trustee for a trust
o Owns the trust property, and has all the rights and powers of leal ownership.
Must exercise for the benefit of the beneficiary.
o Functions and duties of trustees vary depending on nature of trust, will be in
trust instrument.
Note that a trustee can be one of the beneficiaries of a trust. They will still owe duties to the
other beneficiaries so cannot simply use the trust fund for their own benefit. This would be a
breach of trust.
Examples of trusts: family trusts , and commercially CREST broker and private investor
CREST member = trustee (usually bank or other financial institution)
o Legal ownership of UK-listed securities requires registration in a electronic
register called CREST
o But they generally acquire and hold securities for the benefit of clients, i.e. on
trust
Broker = sub-trustee
Private investor= beneficiary
,Benefits of trusts: separation of ownerships and management of property, expertise,
protection, flexibility(possible to create interests in equity that are not recognised at law),
control, ringfencing on insolvency (protected against the trustee’s insolvency, and can be set
up to protect against risk of insolvency of beneficiaries), tax benefits.
Key uses of trusts:
Commercial arrangements (share ownership, investment funds, pension funds, other
forms of tax-efficient employee remuneration, corporate tax avoidance)
Private arrangements: testamentary planning (wills), land ownership, tadx planning
Charitable purposes
Categories of trusts:
Express trusts and Trusts Arising by Operation in Law
o Express trust = one deliberately created. A trust which arises in response to a
persons intention to create it
o Unlike express trusts, resulting and constructive trusts arise by operation of
law. Imposed by the courts. AKA implied trusts. They are not intentionally
created but instead are a response to particular circumstances which the law
considers should give rise to a trust.
o Can include statutory trusts- trusts which are neither resulting nor
constructive but which arise as the result of the application of a specific
statutory rule
o Most common either express, resulting, or constructive
Testamentary and inter vivos trusts
o Testamentary trusts are created via a will
o Whereas inter vivos trusts are created in the lifetime of an individual
Fixed and discretionary trusts
o Fixed trusts involve the trustee knowing exactly what they need to give to
each beneficiary. The interests of the beneficiary are fixed.
o In contrast, a discretionary trust, the trustee knows who the potential
beneficiaries are but has the power to determine who benefits and in what
shares, making them very flexible.
Charitable and non-charitable purpose trusts
o Create a trust for charitable purposes (an exception to the general rule known
as beneficiary principle- that a trust must have a beneficiary)
o Is a much smaller, more limited class of exceptions- non-charitable purpose
trusts. These are private trusts set up for very specific purposes
Bare trusts
o Between bare trusts and trusts where the trustees have active management
functions.
, o A bare trust = involves the trustee simply holding legal title on trust for the
sole benefit of a beneficiary. Trustee has no discretion and no active
management duties. They are merely required to follow the instructions of
the beneficiary. This is most common when dealing with things like shares,
where a stockbroker may hold legal title to the shares on trust for the
beneficial owner.
Temporary nature of trusts: perpetuity rules- cannot last indefinitely.
The rule in Saunders v Vautier- the beneficiary or beneficiaries can ‘collapse’ the
trust.
Trust ceases to exist if without any fault of trustee, if the trust property is destroyed
or consumed.
o In absence of any trust property, there is nothing to which a trust can attach.
KEY TERM / DEFINITIONS:
Chattel definition: a tangible item (other than land). E.g. carss, computers, books, jewellery
and clothes
Chose in action: an intangible right such as a debt (an amount credited to a bank account),
company share (giving the shareholder rights such as voting rights and the right to receive
dividends)
Settlor: The person who creates the trust is called the ‘settlor’ of the trust.
Full legal owner: A ‘full legal owner’ of property owns it both legally and beneficially.
Note: It is also possible to declare a trust over an equitable interest, including a
beneficial interest under a trust (ie a sub-trust).
A self-declaration of trust requires the settlor to manifest an intention to hold one of their
assets on trust for the beneficiary. Once the trust has been created, the settlor remains the
legal owner of the asset but is divested of their beneficial interest in it. The settlor becomes
the trustee.
A transfer on trust requires the settlor to transfer property to a third party and to manifest
an intention that the third party should hold the property on trust for the beneficiary. The
trustee becomes the legal owner of the property, and a new equitable interest is created for
the beneficiary, who becomes the equitable and beneficial owner.
Successive interest trust: A trust involving a series of consecutive interests in some trust
property.
, Life interest trust: A common type of successive interest trust, involving a beneficiary
receiving income during their lifetime, with another beneficiary or beneficiaries becoming
entitled to the capital after the income beneficiary’s death.
Income beneficiary: The beneficiary entitled to the income produced by a successive
interest trust. (Traditionally the income beneficiary of a life interest trust is known as the ‘life
tenant’).
Capital beneficiary: The beneficiary entitled to the capital held on a successive interest trust.
(Traditionally the capital beneficiary of a life interest trust is known as the ‘remainderman’).
Power of appointment: A right to choose who, from within a specified class of objects,
receives property.
Donor: The person who confers the power.
Donee: The person who receives the power.
Fiduciary power of appointment: A power of appointment given to a trustee. The trustee
does not need to exercise it but must periodically consider whether to do so.
Personal power of appointment: A power of appointment given to someone who is not a
trustee. They are not even required to consider exercising it.
Agency is a relationship in which the agent has authority to create legal relations between the
principal and third parties.
Both agents and (some) trustees subject to fiduciary duties. Difference = a trustee cannot
commit a beneficiary to a contract with a third party, a trustee acts as a principal in their
transaction with third parties
Agent does something on behalf of someone else. EG someone sells goods on behalf of
someone, agent enters into sale contract and receives payment from purchasers, they are
required to account for the proceeds to their principal. Ordinarily debtor-creditor
relationship.
In trust, the trustee is the principal!
Bailment is the transfer of possession of chattels from one person to another. The transferor is the
‘bailor’ and the transferee is the ‘bailee’. So a person who leaves their clothes with a dry cleaner is a
bailor and the dry cleaner is a bailee. (only tangible property / chattels). Involves transfer of
possession, doesn’t involve legal title to property.
Bailment is a legal relationship where the owner of personal property (the bailor)
temporarily transfers possession—but not ownership—of that property to another party
(the bailee) for a specific purpose.
Bailment NOT ownership, therefore legal title does not change!!!
Debt: merely an obligation to pay a sum of money and the debtor may use any of their
available resources to effect the payment. Unlike a beneficiary, a creditor cannot compel the
debtor to apply any specific asset or fund for their benefit. (loan most common example)
Introduction and Key Concepts (1)
Trust= division of legal and equitable interests.
Truste: has legal title
o Owes obligations to beneficiary. Has legal rights to exercise for the benefit of
the beneficiary according to the trust terms.
Beneficiary: has equitable title
o Beneficiary has personal rights against trustee, can sue trustee to enforce the
trust
Obligation component: a trust must have a trustee. (trustee owns the trust property and has
all the rights and powers of legal ownership, but a trustee must exercise those rights and
powers for the benefit of the beneficiary)
Trustee has equitable obligations, for benefit of beneficiary. If they don’t act in
accordance, beneficiary has personal rights against the trustee (beneficiary can sue
trustee)
Role of trustee = voluntary, usually unpaid but can be if professional (remuneration)
Trust objects= beneficiaries or purposes of trusts (trust must have a beneficiary or be for a
permitted purpose)
If no trust property, then nothing to which a trust can attach, cease to exist.
Obligation component: must be a trustee for a trust
o Owns the trust property, and has all the rights and powers of leal ownership.
Must exercise for the benefit of the beneficiary.
o Functions and duties of trustees vary depending on nature of trust, will be in
trust instrument.
Note that a trustee can be one of the beneficiaries of a trust. They will still owe duties to the
other beneficiaries so cannot simply use the trust fund for their own benefit. This would be a
breach of trust.
Examples of trusts: family trusts , and commercially CREST broker and private investor
CREST member = trustee (usually bank or other financial institution)
o Legal ownership of UK-listed securities requires registration in a electronic
register called CREST
o But they generally acquire and hold securities for the benefit of clients, i.e. on
trust
Broker = sub-trustee
Private investor= beneficiary
,Benefits of trusts: separation of ownerships and management of property, expertise,
protection, flexibility(possible to create interests in equity that are not recognised at law),
control, ringfencing on insolvency (protected against the trustee’s insolvency, and can be set
up to protect against risk of insolvency of beneficiaries), tax benefits.
Key uses of trusts:
Commercial arrangements (share ownership, investment funds, pension funds, other
forms of tax-efficient employee remuneration, corporate tax avoidance)
Private arrangements: testamentary planning (wills), land ownership, tadx planning
Charitable purposes
Categories of trusts:
Express trusts and Trusts Arising by Operation in Law
o Express trust = one deliberately created. A trust which arises in response to a
persons intention to create it
o Unlike express trusts, resulting and constructive trusts arise by operation of
law. Imposed by the courts. AKA implied trusts. They are not intentionally
created but instead are a response to particular circumstances which the law
considers should give rise to a trust.
o Can include statutory trusts- trusts which are neither resulting nor
constructive but which arise as the result of the application of a specific
statutory rule
o Most common either express, resulting, or constructive
Testamentary and inter vivos trusts
o Testamentary trusts are created via a will
o Whereas inter vivos trusts are created in the lifetime of an individual
Fixed and discretionary trusts
o Fixed trusts involve the trustee knowing exactly what they need to give to
each beneficiary. The interests of the beneficiary are fixed.
o In contrast, a discretionary trust, the trustee knows who the potential
beneficiaries are but has the power to determine who benefits and in what
shares, making them very flexible.
Charitable and non-charitable purpose trusts
o Create a trust for charitable purposes (an exception to the general rule known
as beneficiary principle- that a trust must have a beneficiary)
o Is a much smaller, more limited class of exceptions- non-charitable purpose
trusts. These are private trusts set up for very specific purposes
Bare trusts
o Between bare trusts and trusts where the trustees have active management
functions.
, o A bare trust = involves the trustee simply holding legal title on trust for the
sole benefit of a beneficiary. Trustee has no discretion and no active
management duties. They are merely required to follow the instructions of
the beneficiary. This is most common when dealing with things like shares,
where a stockbroker may hold legal title to the shares on trust for the
beneficial owner.
Temporary nature of trusts: perpetuity rules- cannot last indefinitely.
The rule in Saunders v Vautier- the beneficiary or beneficiaries can ‘collapse’ the
trust.
Trust ceases to exist if without any fault of trustee, if the trust property is destroyed
or consumed.
o In absence of any trust property, there is nothing to which a trust can attach.
KEY TERM / DEFINITIONS:
Chattel definition: a tangible item (other than land). E.g. carss, computers, books, jewellery
and clothes
Chose in action: an intangible right such as a debt (an amount credited to a bank account),
company share (giving the shareholder rights such as voting rights and the right to receive
dividends)
Settlor: The person who creates the trust is called the ‘settlor’ of the trust.
Full legal owner: A ‘full legal owner’ of property owns it both legally and beneficially.
Note: It is also possible to declare a trust over an equitable interest, including a
beneficial interest under a trust (ie a sub-trust).
A self-declaration of trust requires the settlor to manifest an intention to hold one of their
assets on trust for the beneficiary. Once the trust has been created, the settlor remains the
legal owner of the asset but is divested of their beneficial interest in it. The settlor becomes
the trustee.
A transfer on trust requires the settlor to transfer property to a third party and to manifest
an intention that the third party should hold the property on trust for the beneficiary. The
trustee becomes the legal owner of the property, and a new equitable interest is created for
the beneficiary, who becomes the equitable and beneficial owner.
Successive interest trust: A trust involving a series of consecutive interests in some trust
property.
, Life interest trust: A common type of successive interest trust, involving a beneficiary
receiving income during their lifetime, with another beneficiary or beneficiaries becoming
entitled to the capital after the income beneficiary’s death.
Income beneficiary: The beneficiary entitled to the income produced by a successive
interest trust. (Traditionally the income beneficiary of a life interest trust is known as the ‘life
tenant’).
Capital beneficiary: The beneficiary entitled to the capital held on a successive interest trust.
(Traditionally the capital beneficiary of a life interest trust is known as the ‘remainderman’).
Power of appointment: A right to choose who, from within a specified class of objects,
receives property.
Donor: The person who confers the power.
Donee: The person who receives the power.
Fiduciary power of appointment: A power of appointment given to a trustee. The trustee
does not need to exercise it but must periodically consider whether to do so.
Personal power of appointment: A power of appointment given to someone who is not a
trustee. They are not even required to consider exercising it.
Agency is a relationship in which the agent has authority to create legal relations between the
principal and third parties.
Both agents and (some) trustees subject to fiduciary duties. Difference = a trustee cannot
commit a beneficiary to a contract with a third party, a trustee acts as a principal in their
transaction with third parties
Agent does something on behalf of someone else. EG someone sells goods on behalf of
someone, agent enters into sale contract and receives payment from purchasers, they are
required to account for the proceeds to their principal. Ordinarily debtor-creditor
relationship.
In trust, the trustee is the principal!
Bailment is the transfer of possession of chattels from one person to another. The transferor is the
‘bailor’ and the transferee is the ‘bailee’. So a person who leaves their clothes with a dry cleaner is a
bailor and the dry cleaner is a bailee. (only tangible property / chattels). Involves transfer of
possession, doesn’t involve legal title to property.
Bailment is a legal relationship where the owner of personal property (the bailor)
temporarily transfers possession—but not ownership—of that property to another party
(the bailee) for a specific purpose.
Bailment NOT ownership, therefore legal title does not change!!!
Debt: merely an obligation to pay a sum of money and the debtor may use any of their
available resources to effect the payment. Unlike a beneficiary, a creditor cannot compel the
debtor to apply any specific asset or fund for their benefit. (loan most common example)
