INTRODUCTION TO TRUSTS
‘A trust exists when a particular fund of property is held by a legal owner ‘on trust’ for a cestui que trust
or beneficiary, which means roughly the following: the legal owner has all the legal powers to deal with
the trust property, but he must do so entirely for the benefit of the cestui (beneficiary), who is said to
have the benefit or enjoyment of the property’
The constituent parts of an express trust are-
(1) Legal owner of the property (settlor (if intended to take effect when alive) or testator (dead))
who declares self as trustee/transfers legal title to property to another for the benefit of others
(2) Trust property
(3) Trustee (person who receives legal title to property to hold on trust and has personal obligations
to exercise duties for the benefit of beneficiaries)
a. If a trustee fails to manage property properly, this will constitute a breach of trust, under
which they will be liable to compensate the beneficiary for any loss suffered/disgorge any
benefits personally obtained
(4) Beneficiary (equitable owner)
a. A settlor, trustee and beneficiary are usually different people, although a settlor and
trustee may also be a beneficiary of the same trust
(5) Trust instrument (sets out provisions)
a. May be expressed verbally, although it is more practical to do so in writing via a trust
instrument
b. At a judicial level, the courts will seek to interpret the intentions of the legal owner of the
property
A trust may be created through-
(1) Declaration by transfer- settlor transfers property to trustee to hold on trust for beneficiaries
a. Trustee becomes legal owner of property and beneficiaries hold an equitable interest
(2) Self-declaration of trust- settlor declares themselves trustee of property to hold on trust for
beneficiaries
a. Allows the legal owner of the property to carve out proprietary rights in relation to the
property for the benefit of someone else
b. Separates legal and equitable ownership whilst retaining control and management of the
property
, One defining characteristic of a trust is that the legal owner of property does not have any equitable
interest but is its absolute legal owner, unless it can be construed that this was specifically intended to
be created
‘A person solely entitled to the full beneficial ownership of money or property, both at law and in
equity, does not enjoy an equitable interest in the property. The legal title carries with it all
rights. Unless and until there is a separation of the legal and equitable estates, there is no
separate equitable title’ (Westdeutsche Landesbank Girozentrale v Islington London Borough
Council [1996])
There is no equitable ownership created for any party unless a trust is created as a result of the
transfer of the legal title to the property, with the intention of declaring a trust, which leads to a
separation of the legal and equitable ownership titles
Trustee retains legal ownership but carves out an equitable title in the form of a
beneficial interest for the beneficiaries
A trust must be created for any party intending to transfer property to another party and create
rights in respect of that property that are not just the legal title
The second defining characteristic of a trust is the separation of the management and the benefit of
the property
‘The separation of control and benefit represented by the separation of legal title and equitable
interest allows for the benefit to be allocated in many different ways that an owner of property
could not achieve by a simple transfer. There is no doubting the enormous practical utility of this
arrangement’ (Jaffey)
In practice, the trust is therefore a useful instrument allowing a settlor placing a property on
trust to arrange for control of the property (under the trustee with legal title) to be separated
from the benefit (for the beneficiaries with an equitable interest, which emerges as a right to an
actual or possible benefit from the property in the way specified in the terms of the trust)
This separation of the legal title and equitable interest allows for the benefit to be allocated in
many different ways that an owner of property could not achieve through a simple transfer
In a commercial context, on insolvency, if a company wants to protect certain creditors, it may
put money in a designated client account to be held on trust for the benefit of certain creditors
and they will then rank higher than all other unsecured creditors (as they now hold proprietary
and equitable interests)
‘A trust exists when a particular fund of property is held by a legal owner ‘on trust’ for a cestui que trust
or beneficiary, which means roughly the following: the legal owner has all the legal powers to deal with
the trust property, but he must do so entirely for the benefit of the cestui (beneficiary), who is said to
have the benefit or enjoyment of the property’
The constituent parts of an express trust are-
(1) Legal owner of the property (settlor (if intended to take effect when alive) or testator (dead))
who declares self as trustee/transfers legal title to property to another for the benefit of others
(2) Trust property
(3) Trustee (person who receives legal title to property to hold on trust and has personal obligations
to exercise duties for the benefit of beneficiaries)
a. If a trustee fails to manage property properly, this will constitute a breach of trust, under
which they will be liable to compensate the beneficiary for any loss suffered/disgorge any
benefits personally obtained
(4) Beneficiary (equitable owner)
a. A settlor, trustee and beneficiary are usually different people, although a settlor and
trustee may also be a beneficiary of the same trust
(5) Trust instrument (sets out provisions)
a. May be expressed verbally, although it is more practical to do so in writing via a trust
instrument
b. At a judicial level, the courts will seek to interpret the intentions of the legal owner of the
property
A trust may be created through-
(1) Declaration by transfer- settlor transfers property to trustee to hold on trust for beneficiaries
a. Trustee becomes legal owner of property and beneficiaries hold an equitable interest
(2) Self-declaration of trust- settlor declares themselves trustee of property to hold on trust for
beneficiaries
a. Allows the legal owner of the property to carve out proprietary rights in relation to the
property for the benefit of someone else
b. Separates legal and equitable ownership whilst retaining control and management of the
property
, One defining characteristic of a trust is that the legal owner of property does not have any equitable
interest but is its absolute legal owner, unless it can be construed that this was specifically intended to
be created
‘A person solely entitled to the full beneficial ownership of money or property, both at law and in
equity, does not enjoy an equitable interest in the property. The legal title carries with it all
rights. Unless and until there is a separation of the legal and equitable estates, there is no
separate equitable title’ (Westdeutsche Landesbank Girozentrale v Islington London Borough
Council [1996])
There is no equitable ownership created for any party unless a trust is created as a result of the
transfer of the legal title to the property, with the intention of declaring a trust, which leads to a
separation of the legal and equitable ownership titles
Trustee retains legal ownership but carves out an equitable title in the form of a
beneficial interest for the beneficiaries
A trust must be created for any party intending to transfer property to another party and create
rights in respect of that property that are not just the legal title
The second defining characteristic of a trust is the separation of the management and the benefit of
the property
‘The separation of control and benefit represented by the separation of legal title and equitable
interest allows for the benefit to be allocated in many different ways that an owner of property
could not achieve by a simple transfer. There is no doubting the enormous practical utility of this
arrangement’ (Jaffey)
In practice, the trust is therefore a useful instrument allowing a settlor placing a property on
trust to arrange for control of the property (under the trustee with legal title) to be separated
from the benefit (for the beneficiaries with an equitable interest, which emerges as a right to an
actual or possible benefit from the property in the way specified in the terms of the trust)
This separation of the legal title and equitable interest allows for the benefit to be allocated in
many different ways that an owner of property could not achieve through a simple transfer
In a commercial context, on insolvency, if a company wants to protect certain creditors, it may
put money in a designated client account to be held on trust for the benefit of certain creditors
and they will then rank higher than all other unsecured creditors (as they now hold proprietary
and equitable interests)
