Trust



CLASSIFICATION OF TRUSTS
Express Trusts
This is one intentionally declared by the creator of a trust who is known as the settler or if the trust is created by a will, the testator. It is one that has been created by the settler himself through the manifestation of an intention to create one.
The common ways of creation of an express trust are:
  •   By deed;
By will; or;
By word of mouth

Express trusts are sometimes subdivided into executed trusts and executor trusts.

An executed trust is one in which the testator or Settler has marked out in appropriate technical expressions what interests are to be taken by all the beneficiaries.

On the other hand, an executory trust is one where the settler has indicated to his trustees a scheme of settlement but the details are to be gathered from his general expressions. As such, the execution of some further instrument is required to set out the beneficial interest.  Once the property is indicated by the settler, the property becomes subject to a valid trust but it remains executory until a further instrument is duly executed.

Executed trusts are governed by the legal rules of construction; on the other hand, the language of executory trusts is construed more liberally. Re: Bostocks Settlement [1921]2 Ch. 469
Where in the case of an executed trust the settler has made use of technical expressions for which the law has laid down rules of interpretation, equity will follow the law and give effect to such interpretations.
However in case of executory trusts, equity will attach less importance to the use or omission of technical words but will seek to discover the settler’s true intention and order the preparation of a final deed which gives effect to such intention. Re: Flavell’s Will Trusts [1969]1 WLR 445

Express trusts may also be completely constituted and incompletely constituted trusts.

Implied Trusts

These are trusts which court deduces from the conduct of the parties and the circumstances of the transaction. For example, where a person in return for valuable consideration agrees to settle property for the benefit of another, that other person immediately becomes a trustee of the property.  Banister vs. Banister [1948] 2 ALLER 133

Resulting Trusts

Resulting trusts are trusts created where property is not properly disposed of. It comes from the Latin resultare, meaning to spring back, and was defined by Megarry VC as "essentially a property concept; any property that a man does not effectually dispose of remains his own". These trusts come in two forms: automatic resulting trusts, and presumed resulting trusts.

 Automatic resulting trusts arise from a "gap" in the equitable title of property. It is against principle for a piece of property to have no owner. As such, the courts assign the property to somebody in a resulting trust to avoid this becoming an issue. They occur in one of four situations: where there is no declaration of trust, where an express trust fails, where there is surplus property, or upon the dissolution of an unincorporated association. Rules differ depending on the situation and the type of original trust under dispute; failed charitable trusts, for example, have the property reapplied in a different way from other forms of trust

A presumed resulting trust occurs where the transfer fails, and there is no reason to assume it was intended as an outright gift. Presumed resulting trusts do arise, however, in one of three situations: where it is a voluntary gift, where there is a contribution to purchase price, and where the presumption that it was an outright gift can be rebutted


Resulting trusts work on a principle of "common intention". This is the idea that a resulting trust is a mix of the settler's intention, and the trustee's knowledge that he is not intended to be the beneficiary. In Carreras Rothmans Ltd v Freeman Mathews Treasure Ltd, [1985] Ch 207 Gibson J expressed the principle as: The principle in all these cases is that the equity fastens on the conscience of the person who receives from another property transferred for a specific purpose only and not, therefore, for the recipient's own purposes, so that such a person will not be permitted to treat the property as his own or to use it for other than the stated purpose...if the common intention is that property is transferred for a specific purpose and not so as to become the property of the transferee, the transferee cannot keep the property if for any reason that purpose cannot be fulfilled

Constructive Trusts
This refers to a relationship by which a person who has obtained title to property has an equitable duty to transfer it to another, to whom it rightfully belongs, on the basis that the acquisition or retention of it is wrongful and would unjustly enrich the person if he or she were allowed to retain it.
A constructive trust does not arise because of the expressed intent of a settlor. It is created by a court whenever title to property is held by a person who, in fairness, should not be permitted to retain it. It is frequently based on disloyalty or other breach of trust by an express trustee (the person appointed or required by law to execute a trust), and it is also created where no express trust is created but property is obtained or retained by other Unconscionable conduct. The court employs the constructive trust as a remedial device to compel the defendant to convey title to the property to the plaintiff. It treats the defendant as if he or she had been an express trustee from the date of the unlawful holding of the property in question. A constructive trust is not a trust, in the true meaning of the word, in which the trustee is to have duties of administration enduring for a substantial period of time, but rather it is a passive, temporary arrangement, in which the trustee's sole duty is to transfer the title and possession to the beneficiary.
The right to a constructive trust is generally an alternative remedy. The aggrieved party can choose between a trust and other relief at law, such as recovery of money wrongfully taken, but cannot obtain both types of relief.
A constructive trust, as with an express trust, must cover specific property. It cannot be predicated on mere possession of property, or on a breach of contract where no ownership of property is involved.
Statutory Trusts
This refers to trusts created by statute; for example under the succession Act cap 162, where a person dies intestate the personal representatives hold the estate on statutory trust for the children or certain classes of relatives.
Public and Private Trusts
A private trust is one which benefits specific individuals irrespective of whether they are immediately ascertainable and the interest therein defined will fail if they do not vest during the perpetuity period.
A public trust is one which benefits the public at large or a considerable portion of the public; for example a charitable trust.





History of equity and trusts

Introduction- The history of equity and trusts concerns the development of the body of rules known as equity, English trust law and its spread into a modern body of trust law around Commonwealth and the United States.The law of trusts was constructed as part of "equity", a body of principles made by the Courts of Chancery, which sought to correct the strictness of the common law. The trust was an addition to the law of property, in the situation where one person held legal title to property, but the courts decided it was fair, just or "equitable" that this person be compelled to use it for the benefit of another.
Ancestors to trust law-
Possible earliest concept of equity in land held in trust is the depiction of this ancient king ( trustor ) which grants property back to its previous owner ( beneficiary ) during her absence, supported by witness testimony ( trustee ). In essence and in this case, the king, in place of the later state ( trustor and holder of assets at highest position ) issues ownership along with past proceeds ( equity ) back to the beneficiary. Roman law had a well-developed concept of the trust (fideicommissum) created by wills. However, these testamentary trusts did not develop into the inter vivos (living) trusts which apply while the creator lives. This was created by later common law jurisdictions. The waqf is a similar institution in Islamic law, restricted to charitable trusts.
Middle Ages-
Main articles: Feudalism and Court of Chancery
The law of trusts first developed in the 12th century from the time of the crusades under the jurisdiction of the King of England. The "common law" regarded property as an indivisible entity, as it had been done through Roman law and the continental version of civil law. Where it seemed "inequitable" (i.e. unfair) to let someone with legal title hold onto it, the King's representative, the Lord Chancellor who established the Courts of Chancery, had the discretion to declare that the real owner "in equity" (i.e. in all fairness) was another person. When a landowner left England to fight in the Crusades, he conveyed ownership of his lands in his absence to manage the estate and pay and receive feudal dues, on the understanding that the ownership would be conveyed back on his return. However, Crusaders often encountered refusal to hand over the property upon their return. Unfortunately for the Crusader, English common law did not recognize his claim. As far as the King's courts were concerned, the land belonged to the trustee, who was under no obligation to return it. The Crusader had no legal claim. The disgruntled Crusader would then petition the king, who would refer the matter to his Lord Chancellor. The Lord Chancellor could decide a case according to his conscience. At this time, the principle of equity was born. The Lord Chancellor would consider it "unconscionable" that the legal owner could go back on his word and deny the claims of the Crusader (the "true" owner). Therefore, he would find in favour of the returning Crusader. Over time, it became known that the Lord Chancellor's court (the Court of Chancery) would continually recognize the claim of a returning Crusader. The legal owner would hold the land for the benefit of the original owner, and would be compelled to convey it back to him when requested. The Crusader was the "beneficiary" and the acquaintance the "trustee". The term "use of land" was coined, and in time developed into what we now know as a "trust".
Renaissance-

    Charity and the British Museum
    Statute of Uses 1535
    Royal Exchange, London est 1565
    Earl of Oxford’s case (1615) 1 Ch Rep 1, (1615) 21 ER 485
    Dudley v. Dudley (1705) 24 ER 117
Modern trusts
  • Federal Commerce & Navigation Co Ltd v Molena Alpha Inc, The Nanfri [1978] 1 QB 927, Lord Denning MR, ‘During that time the streams of common law and equity have flown together and combined so as to be indistinguishable the one from the other. We have no longer to ask ourselves: what would the courts of common law or the courts of equity have done before the Judicature Act? We have to ask ourselves: what should we do now so as to ensure fair dealing between the parties?’








Subject matter of trust
The three certainties refer to a rule within English trusts law on the creation of express trusts that, to be valid, the trust instrument must show certainty of intention, subject matter and object. "Certainty of intention" means that it must be clear that the donor or testator wishes to create a trust; this is not dependent on any particular language used, and a trust can be created without the word "trust" being used, or even the donor knowing he is creating a trust. Since the 1950s, the courts have been more willing to conclude that there was intention to create a trust, rather than hold that the trust is void. "Certainty of subject matter" means that it must be clear what property is part of the trust. Historically the property must have been segregated from non-trust property; more recently, the courts have drawn a line between tangible and intangible assets, holding that with intangible assets there is not always a need for segregation. "Certainty of objects" means that it must be clear who the beneficiaries, or objects, are. The test for determining this differs depending on the type of trust; it can be that all beneficiaries must be individually identified, or that the trustees must be able to say with certainty, if a claimant comes before them, whether he is or is not a beneficiary.

Duties and liabilities of trustees
The trustee of a trust is under a duty to exercise a high degree of care in administering the trust.  This is commonly known as fiduciary responsibility.  The following are duties, which exist under Washington law that a trustee must fulfill in administering a trust.  By the trust agreement, the creator of the trust can limit or expand the duties and responsibilities of the trustee.  If there is a disagreement between the law of the state of Washington and the terms of the trust agreement, the trust agreement must be followed.  However, in no event may a trustee rely upon the fact that the trust agreement grants the trustee discretion as relief from the duty to act in good faith and with honest judgment.
Trustee Duties
Duty of Loyalty.
While administering a trust, a trustee must refrain from placing himself or herself in a position where the trustee’s personal interests or those of third parties do or may conflict with the interests of the beneficiary.  In short, a trustee must avoid self-dealing.  The following are examples of breaches (violations) of the trustee’s duty of loyalty: 
  1. A trustee should not purchase or sell property from or to the trust.  The reason behind this rule is that a person in that position probably would have difficulty being impartial.  The rule applies regardless of whether the trustee stands to make a profit on the sale or purchase.  Similarly, the trustee may not sell trust property to a third party if there is an understanding between the third party and the trustee that the third party will hold the property for the trustee or sell it to him or her later. 
  2. A trustee may not accept a bonus or commission from a third party for any act that he or she performs in connection with the trust administration.  Again, this rule relates to the trustee’s duty to benefit only the trust beneficiary.
  3. A trustee cannot carry on a competing business with a business owned by the Trust. 
  4. A trustee should not place himself or herself in a position of conflict of interests with the trust to the detriment of the beneficiaries.  For instance, if a trustee is also a beneficiary of the trust that he or she is administering, and the trustee abuses the discretion provided under the trust agreement, there would be a conflict of interests. 
Duty Not to Delegate.
A trustee has a duty not to delegate to others the doing of acts, which the trustee can reasonably be required to perform.  For example, the trustee cannot delegate the entire administration of the trust, not even for a short period of time.  If the trustee delegates to someone else the power to administer the trust, known as discretionary functions, the trustee may be personally liable for any loss which results to the trust even if the agent of the trustee has not been negligent.  See below for exceptions relating to co-trustees. 
Certain functions may be delegated if they only involve carrying out the trustee’s directions.  These so-called ministerial functions may be properly delegated to an attorney, accountant, real estate agent or stockbroker.
You are entitled to hire professionals to assist you in administering the Trust.  You may hire your own attorney to assist in the administrator.  Although this may be the same attorney the Trustor used, it does not have to be.  The attorney will generally represent only the trustee, and not the beneficiaries.
You may also hire investment managers or brokers to assist with the investment of trust assets.  You have a duty to carefully select such investment mergers, and to monitor their performance.
Duty to Exercise Reasonable Care and Skill.
The level of skill required by a trustee is that which an individual of ordinary prudence would exercise in dealing with his or her own property.  However, in dealing with investments, the trustee must exercise extra caution (i.e. the caution of a person who was primarily interested in preserving his assets). 
Duty to Give Notices. 
Notices may concern legal rights of the trust beneficiaries, such as a power to make withdrawals, or they may cover such ministerial matters as designating a successor trustee or an agent to assist in trust administration.
Duty to Furnish Information and to Communicate. 
The Trustee must respond to requests from beneficiaries concerning the trust and its administration.
Duty to Keep Accounts.
A trustee has the duty to keep accounts showing in detail the nature and amount of the trust property and the administration of the trust. 
Duty to Furnish Annual Accounting.
A trustee must provide the beneficiary with complete and accurate information relating to the nature and amount of the trust property. The accounting generally must be given to all beneficiaries of the trust, but may only have to be given to those beneficiaries entitled to current income from the Trust.  The trustee must mail or deliver at least annually to each adult income trust beneficiary a written itemized statement of all current receipts and disbursements made by the trustee of the funds of the trust both principal and income.  Upon the request of an adult beneficiary, the trustee must also furnish the beneficiary an itemized statement of all property then held by the trustee.
Duty to Earmark Trust Property.
A trustee must take reasonable steps to see that the property is designated as trust property.  For example, deeds should be recorded showing the trustee as owner and stocks and bonds should be registered in the trustee’s name.  The purpose for this rule is to avoid a situation where the trustee might later claim that investments which were profitable were the trustee’s own personal investments and that those which were unprofitable were those made for the trust.
Duty to Keep Property Separate.
A trustee may not mix the trust property with his or her own property, even if the trustee does not use the trust funds or assets for his or her own personal benefit.
Duty to Protect Trust Property.
A trustee must use reasonable care and skill to preserve the trust property.  For instance, he or she is under a duty to use trust funds to keep any building owned by the trust in good repair.  He or she must also prevent the loss of property.  This duty includes the requirement of acquiring insurance, if necessary, paying taxes and guarding the property against theft.  In addition, the trustee is under a duty to sell or lease unproductive property, such as unimproved land.  The trustee must also use reasonable care to invest money so that it will produce income.
Duty to Invest.
Trust assets must not be left idle. In addition to making the trust investments, the trustee has a duty to diversify the investments and develop an asset allocation plan.  This is a job for professional investors or corporate fiduciaries.
Duty to Enforce Claims.
A trustee must take all reasonable steps to enforce claims of the trust.  For instance, if a third party owes the Trust money and refuses to pay, the trustee must initiate a collection action.
Duty to Defend Actions.
If a third party sues the trust, the trustee must defend the Trust.
Duty to Deal Impartially With Beneficiaries.
Unless the Trust agreement specifically provides otherwise, the trustee is under a duty to treat all beneficiaries similarly and not to benefit one over another.
Duty to Avoid Conflict of Interest. 
Generally, the trustee should not engage in transactions with the trust unless such activities are authorized by the trust.
Duty With Respect to Co-Trustees.
If there are two or more trustees, each of them is under a duty to the beneficiaries to participate in the administration of the trust and to take reasonable steps to prevent another co-trustee from committing a breach of trust.  Unless the trust agreement provides otherwise, any power given to three or more trustees jointly may be exercised by the majority of the trustees, but no trustee who has not joined in exercising a power is responsible the beneficiaries or to others for the consequences of the exercise of such power.  Also, if a trustee does not agree with the majority opinion of the trustees and tells them so in writing, that trustee will not be liable for the consequences of a subsequent act in which he or she joins at the direction of the majority of the trustees.  Unless prohibited by the trust agreement, an individual trustee, with the consent of the co-trustee, may delegate any power, duty or authority as trustee to the co-trustee by a written document which is signed by that trustee and the co-trustee.  This delegation of authority may be revoked at any time by a delivery of a signed delegation written document to the co-trustee to whom the powers were delegated.
Trustee’s Liability
Generally, a trustee is liable to beneficiaries if he or she intentionally or negligently breaches a duty owed to a beneficiary which results in some loss or damages.  As a rule, a trustee is not responsible for a loss or depreciation in value of the trust property.   However, a trustee may have to pay for any loss or depreciation in value of the trust property resulting from a breach of the duty of loyalty or certain other duties.  In carrying out the terms of the trust agreement, the trustee will be personally responsible for any violations of the trust terms unless he or she was acting in good faith and with reasonable care and prudence under the circumstances.  However, where a trustee’s act results in loss and the loss is a consequence of the trustee’s misunderstanding of the law relating to duties and powers, he or she will be held personally responsible even if he or she was acting in good faith with reasonable care.  Your public liability insurance probably will not cover any liability you might incur as trustee nor will it cover your attorney fees if you are found liable.  However, you may be able to secure insurance coverage for yourself by contacting your individual insurance agent.  This insurance is somewhat costly and it must be renewed every year. 
Compensation of Trustee
A trustee is entitled to a reasonable fee in administering the Trust.  Although many trustees decide not to take a fee, if you spend a significant time administering the Trust, a fee can be warranted.  If you decide to take a trustee fee, you should consult with your attorney as to a reasonable amount.  Such a fee must usually be taken annually and should not be deferred.

5 Reasons to Remove a Trustee From Trust-

            When it comes to managing a trust for the benefit of you or your loved ones, removing a trustee is sometimes the only way to deal with problems that may arise.

This can be especially important when trusts are used to provide for relatives and dependents both in life and after death.

With the assets held in trust being so crucial, here are five common reasons to remove a trustee from a trust:

1. Failure to Comply With Trust Terms.

A trustee is a person who is endowed with the legal ownership and management of trust assets, which are held for the benefit of the beneficiaries. With this grant of power comes the obligation for the trustee to act in the best interest of the beneficiaries and fulfill the terms of the trust.

If the trustee ignores or fails to abide by those trust terms, the beneficiaries can petition the court to remove him or her.

2. Neglecting, Mismanaging Trust Assets.

The trustee has a fiduciary duty to manage the trust assets in such a way that does not waste or devalue a trust's funds. So when a trustee breaches that duty out of negligence or incompetence, the beneficiaries may petition for removal.

3. Self-Dealing.

Similar to neglecting or mismanaging trust assets, a trustee who uses his or her control over the funds in a trust to his or her own benefit breaches the trustee's fiduciary duty to the trust's beneficiaries. This can prompt removal by the probate court.

However, when trustees are large financial institutions and the beneficiaries sign conflict-of-interest waivers, self-dealing may legally occur.

4. Good Cause.

When beneficiaries and trustees butt heads on how to distribute trust funds, beneficiaries can make their case more generally to a probate court why there is good cause for trustee to be removed. These reasons must be rational and reasonable given the circumstances.

5. Hostility Toward Beneficiaries.

Even the paragon of peace, Nelson Mandela, had beneficiaries fighting with trustees over his trust. A significant breakdown of communication or hostility between trustee and beneficiary can lead to removal.

In any of these instances, beneficiaries must petition a probate court for a trustee's removal, and then attend a court hearing to make it official. Because removing a trustee can get complicated, it's often wise to consult with and employ an experienced trust attorney before you take this step.


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