FORMALITIES OF CREATING A TRUST
,INTRODUCTION –
WHAT IS EQUITY?
1. What is Equity?
“… even the most experienced of lawyers finds it difficult to give a short, intelligible
answer to the question ‘what is Equity’” S. Worthington
We can have another kind of ownership – ‘equitable’ ownership – can have both legal
and equitable owner (beneficial)
Two layers of ownership – concept of the trust
2. THE TRUST
Our course focuses largely on “the Trust” (the most important creation of the law of
equity)
“A trust is a relationship recognised by equity which arises where property is vested in
(a person or) persons called the trustees, which those trustees are obliged to hold for
the benefit of other persons called beneficiaries” Hanbury & Martin, Modern Equity
21st Edition
Legal Owner (= Trustee)
Trustee holds the property for ‘the use’ of the beneficiaries
Holding the title to the asset. But underneath the legal owner is the:
Equitable Owner (= Beneficiary, or, in old cases “cestui que trust”)
The key point is always to remember the division into two ‘layers’ of ownership:
Legal title held by trustees.
Equitable title (or beneficial ownership) held by the beneficiary.
Panama papers and Paradise papers – corporations and individuals had offshore trusts
3. When can we encounter trusts?
Can be created in lifetime. Often called inter vivos.
2
, The person creating a lifetime trust is usually called the Settlor.
The document setting out the terms of the trust is often called the ‘Settlement’,
but can be called ‘The Trust Instrument’ or ‘The Declaration of Trust’
You will shortly encounter the formalities for creating inter vivos trusts. These differ
depending on the kind of trust property concerned.
Created by Will. By Testator – Called a will trust
Role of Executor – sorts things out when someone dies to ensure the trust goes to
the beneficiaries (Though not all wills necessarily contain ongoing trusts). Often
called Will Trusts, or Testamentary Trusts. (Also, sometimes, trusts can arise upon
an Intestacy).
If there are underage children, the executor becomes the trustee to look after the
‘trust fund’ until the children turn 18
you will encounter the formalities for creating a valid will – (s9. Wills Act 1837).
When someone dies – the executors must produce a will to a division of the court to get a
grant of probate – becomes a public document
E.g. Princess Diana will: one of the clauses mention the estate will only be given when her
children turn 25 (this is called a contingency) – only when that ‘contingency’ is fulfilled,
then the children get the estate
4. Key facts and terminology
For trust lawyers, there are two different kinds of money:
Capital
Income
What kind of money is income? Dividends/Interest/Rent from property)
EXPRESS TRUSTS
An EXPRESS trust is where someone is expressly setting out to achieve a trust. There
are different types of (express) trust, and also the nature of a beneficiary’s interest
varies depending on the words used in the creation of the trust. A key skill you will
need is the careful and precise analysis of the words used, to work out what kind of
express trust it is.
Different kinds of (express) trust:
- fixed trust
- discretionary trust
- bare trust
3
,INTRODUCTION –
WHAT IS EQUITY?
1. What is Equity?
“… even the most experienced of lawyers finds it difficult to give a short, intelligible
answer to the question ‘what is Equity’” S. Worthington
We can have another kind of ownership – ‘equitable’ ownership – can have both legal
and equitable owner (beneficial)
Two layers of ownership – concept of the trust
2. THE TRUST
Our course focuses largely on “the Trust” (the most important creation of the law of
equity)
“A trust is a relationship recognised by equity which arises where property is vested in
(a person or) persons called the trustees, which those trustees are obliged to hold for
the benefit of other persons called beneficiaries” Hanbury & Martin, Modern Equity
21st Edition
Legal Owner (= Trustee)
Trustee holds the property for ‘the use’ of the beneficiaries
Holding the title to the asset. But underneath the legal owner is the:
Equitable Owner (= Beneficiary, or, in old cases “cestui que trust”)
The key point is always to remember the division into two ‘layers’ of ownership:
Legal title held by trustees.
Equitable title (or beneficial ownership) held by the beneficiary.
Panama papers and Paradise papers – corporations and individuals had offshore trusts
3. When can we encounter trusts?
Can be created in lifetime. Often called inter vivos.
2
, The person creating a lifetime trust is usually called the Settlor.
The document setting out the terms of the trust is often called the ‘Settlement’,
but can be called ‘The Trust Instrument’ or ‘The Declaration of Trust’
You will shortly encounter the formalities for creating inter vivos trusts. These differ
depending on the kind of trust property concerned.
Created by Will. By Testator – Called a will trust
Role of Executor – sorts things out when someone dies to ensure the trust goes to
the beneficiaries (Though not all wills necessarily contain ongoing trusts). Often
called Will Trusts, or Testamentary Trusts. (Also, sometimes, trusts can arise upon
an Intestacy).
If there are underage children, the executor becomes the trustee to look after the
‘trust fund’ until the children turn 18
you will encounter the formalities for creating a valid will – (s9. Wills Act 1837).
When someone dies – the executors must produce a will to a division of the court to get a
grant of probate – becomes a public document
E.g. Princess Diana will: one of the clauses mention the estate will only be given when her
children turn 25 (this is called a contingency) – only when that ‘contingency’ is fulfilled,
then the children get the estate
4. Key facts and terminology
For trust lawyers, there are two different kinds of money:
Capital
Income
What kind of money is income? Dividends/Interest/Rent from property)
EXPRESS TRUSTS
An EXPRESS trust is where someone is expressly setting out to achieve a trust. There
are different types of (express) trust, and also the nature of a beneficiary’s interest
varies depending on the words used in the creation of the trust. A key skill you will
need is the careful and precise analysis of the words used, to work out what kind of
express trust it is.
Different kinds of (express) trust:
- fixed trust
- discretionary trust
- bare trust
3
