What is a Trust?
A trust is a legal relationship in which a holder of rights
(settlor/trustor) assigns them to another person (trustee) to hold and use them
for another person’s benefit (beneficiary).
A trust is also a relationship where the property is held
and managed by a person for the benefit of the other.
A trust is created by a trustor who entrusts a trustee
to hold the property for the benefit of the beneficiaries.
Trustor/Settlor—One who creates a trust.
Trustee—One appointed to hold the property for
objects/beneficiaries. A trustee is also a legal owner of the trust property.
Beneficiary—A beneficial owner of the property. A
beneficiary also possesses equitable interests in the property.
Difference between a Trust and other relationships
Trusts and Gifts
A gift involves the transfer of property rights with no
consideration in return. At the same time, a trust involves transferring legal
title to a trustee to hold for beneficial interest.
Trusts and Contracts
Contracts are executed orally or in writing between parties
for a given consideration. Contracts are bound by the privity of a contract,
while in the arrangement of a trust, beneficiaries who are not privy to the
contract can enforce the trust (beneficiaries). A beneficiary doesn't need to
provide consideration to the trust.
Trust and Bailment
A bailee has no power to transfer ownership of property
A bailment relationship is restricted to one type of
property, i.e., chattels
Trusts extend to other forms of property like fixtures and
intangible property.
Trusts and Agency
Trustees are not under the beneficiary's control as opposed
to an agency in a principal-agent relationship.
Distinguishing a trust and an agency is challenging. Both
relationships have a lot in common, as shown below;
Similarities
- Both impose duties onto other parties, i.e., trustees and agents
- Trustees and agents are not allowed to benefit/profit from their positions except with authority.
- Similar remedies are available against the trustee and agent by the principal and beneficiary.
- Generally, trustees and agents may not delegate their duties.
Types of Trusts
Express Trusts
These are trusts created by a trust instrument (deed). Express
trusts are created following the express intention of the settlor.
Implied/Resulting Trusts
These are trusts that the court implies from the implied
intention of the settlor.
Resulting trusts arise in two scenarios;
Firstly, where a settlor transfers legal title to a trustee
but fails to identify the beneficiaries taking on the equitable interest, that
part of the equitable interest which has not been settled on trust for the
identified beneficiaries will be held by the trustee on resulting trust for the
settlor.
Secondly, where a person contributes to the property's
purchase price, they attain equitable interest in the property proportional to their contribution in respect of the property.
Constructive Trusts
These are trusts that arise by operation of law. They are
trusts created in the interest of justice. For example, where A
wrongfully accepts a payment meant for B. Court will consider A a
trustee for B. A will hold the payment on constructive trust for B.
Private Trusts
Private trusts are trusts executed for the benefit of a few
persons or a small section of the public.
Public Trusts
Public trusts are those executed for the benefit of the
public.
Fixed Trusts
A fixed trust is one where the beneficiaries have settled
and identifiable interests in the property they are entitled to benefit from.
Discretionary Trusts
A discretionary trust is one whereby the trustees are given the
discretion to identify beneficiaries and distribute property how they deem fit.
Creation of Trusts
Ø
A trust can be created by a trust instrument—a
settlor signs with the trustees indicating the property and how the
beneficiaries will benefit.
Ø Oral declaration
Ø Will of the deceased. (Testamentary trust)
Ø By court order
Ø By conduct
Characteristics of a Trust
Ø Trust property. Trust property can include fixtures, chattels, shares
Ø Separation of legal and equitable interest. Under a trust, a trustee holds legal title, and a beneficiary has equitable interests therein.
Ø Inter Vivos or death. A trust can be created during the settlor's lifetime (inter vivos) or upon the death of a settlor.
Ø Sub-trust. A beneficiary can assign their equitable interests to a new beneficiary.
Ø Obligatory. Trustees must fulfill the terms of the trust agreement.
Ø Settlors position. A settlor loses all interest upon the creation of a trust. In Re Bowden [1936] Ch 71, the settlor took on vows of poverty before becoming a nun. On reverting, she sought to reclaim the property she had disposed of under the trust. Court held that she could not recover the property. She had lost all interest in the property.
Ø Trustees position. The trustee controls and manages the property for the benefit of beneficiaries. A trustee can sue and be sued for mismanagement. A trustee is also required to perform duties on the trust.
Ø Beneficiaries position. The beneficiary is entitled to sue the trustees in case of mismanagement. The beneficiary has the right to trace property of the trust except where it has been sold to bona fide transferees without notice. Beneficiaries are given property interests and can assign such interests. They are entitled to terminate the trust by compelling the trustees to transfer legal title to them, provided that they have attained the age of majority and are of sound mind.
In Saunders V Vautier [1841], V was entitled to trust property upon making 25. He was the sole beneficiary, and upon attaining the age of majority (21), he claimed for his interest. Court held that as V was of full age, he was entitled to terminate the trust; he would acquire an indefeasible interest in the trust upon attaining the age of 25.
Ø Bona fide transferee without notice. Trust rights are enforceable against everyone except a bona fide transferee without notice. See Pilcher V Rawlins.
The Three Certainties
According to Knight V Knight [1840] and Wright V
Atkyns
For a trust to be valid, there three certainties must be existent;
Ø Certainty of Intention
Ø Certainty of Subject matter
Ø Certainty of Objects
Certainty of Intention
It must be clear that the testator intends to create a
trust.
There must be clear language to evidence the intention to
create a trust.
NB: The trust need not mention the word 'trust.' The
language used need not be ambiguous or precatory.
In Re Adams and the Kensington Vestry (1884), the
testator gave his estate to the absolute use of his wife and assigned
“in full confidence that she would do what was right as to the disposal thereof
between his children either in her lifetime or by will after her decease.”
Court held that wording created no trust. He did not intend
a trust but placed a moral obligation upon the wife to use the property money
to provide for the children.
Although the general rule is that precatory words may not
create a trust, courts have been seen to interpret the instrument deed as a
whole to determine the settlor's intention. Generally, precatory words create
precatory trusts.
In Comiskey v Bowring-Hanbury [1905] AC 84, the
testator transferred his property by his will to his widow, subject to the
following terms;
“in full confidence that she will make such use of it as I
should have made myself and that at her death she will devise it to such one or
more of my nieces as she may think fit and in default of any disposition by her
thereof by her will. I hereby direct that all my estate and property ... shall
at her death be equally divided among the surviving said nieces.”
The widow asked the court to determine whether she took the
property absolutely or was subject to a trust in favor of the nieces.
The court concluded that on the construction of the facts of
the case, a trust was intended by the testator.
Certainty of Subject matter
It must be clear what property is part of a trust. The
property of the trust must be clearly indicated and ascertained. Property can
be tangible, intangible real, or personal.
In Sprange V Barnard [1789], the testatrix left the
property with the husband to use absolutely, but "the remaining part of
what is left that he does not want for his own wants and use was to be held on
defined trusts."
It was held that the statement was too uncertain for the
trust to be created. The property was not clearly ascertained and identified by
the statement, “remaining part of what is left.”
Certainty of Objects
It must be clear who the beneficiaries of the trust are. The
trust must be able to establish certainly who is not a beneficiary of a trust.
In McPhail V Doulton [1971], the court held that the
trust was valid as long as the claimant could be clearly determined to be a
beneficiary or not. (Any given postulant test)
Beneficiaries can include; people not born at the date of
making the trust, i.e., future grandchildren and future nieces.
Re Baden's Trust No.2
Mr. Baden settled a trust for employees, "relatives and
dependants" of his company. The trust fund was said to be the
"absolute discretion" of trustees and as they thought fit for the
employees, relatives, and dependents.
The judges, in this case, all gave their reasoning, which
acts as tests for ascertaining the validity/existence of a trust.
Stamp LJ—The trust was valid because it could always
determine who was a "dependent and relative," A relative could be
restricted to a workable definition of next of kin.
Sachs LJ—held that the test required clarity in the
concept. The court is never defeated by evidential uncertainty. Once the class
to be identified is conceptually certain, it becomes a question of fact to be
determined on the evidence whether any postulant has been proven to be within
it. If not so proven, then he is not in it.
Megaw LJ—held that the test is satisfied if, as
regards, at least a substantial number of objects can be said with certainty
that they fall within a trust even though, as regards a substantial number of
other persons, if they ever for some fanciful reason fell to be considered the
answer would have to be not "they are outside the trust" but it is
not proven whether "they are in or out." Requiring complete
conceptual would amount to returning to the list certainty test. (Re Gulbenkian)
Categories of Uncertainty that affect the Validity of a Trust
Conceptual Uncertainty
Where language is unclear, ambiguous, or vague.
Evidential Uncertainty
Arises where a question of fact on whether a claimant is a
beneficiary can’t be answered. Evidential uncertainty does not always lead to
invalidity.
Ascertainability
Where a beneficiary cannot be found
Administrative Unworkability
The nature of the trust is that it can't be carried out.