History of Trusts

In common law jurisdictions, a trust is a relationship whereby property is held by one person for the benefit of another. It’s origins lie in feudal times; the modern trust has developed from the medieval concept of ‘the use’. It developed during the crusades when the landowning knight or lord, 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. It is from these disputes that the legendary outlaw Robin Hood arose. In most versions of the tale, Robin Hood was a nobleman who after returning from the crusades found his land to be ruled by the tyrannical Sherriff of Nottingham, who refused to give it back. This is an example of the problem that was occurring. To fix this, the disgruntled nobleman would petition the king, who would leave the matter to the Courts of Chancery, which created the Use.

In a Use, the Settlor transferred his land to one person and his heirs, for the use of another person and his heirs. The Courts of Chancery recognised the second person to be the beneficial and thus the legal owner. The first person was known as Feoffee to uses, meaning that he holds a fief (land) for the use of another. The second person was referred to as Cestui que use, meaning that he was the person who would receive the benefit.

The Use became very popular, for a number of reasons. For a start as mentioned above, it was a way of transferring land for crusading Knights to ensure that it remained within the family. The Statute of Wills did not exist at this time and so this was the only way of transferring property upon death. It also allowed noblemen to avoid the payment of feudal dues or taxes.

The trust is widely considered to be the most innovative contribution of the English legal system. Today, trusts play a significant role in most common law systems, and their success has led some civil law jurisdictions to incorporate trusts into their civil codes

The Courts also recognised the presumed resulting use of the trust. This arose when there was a voluntary conveyance to a stranger- the courts would presume that the grantor did not intend the stranger to hold the beneficial interest. Such presumptions can be rebutted however.

Landlords, and in particular the king, were unhappy with the widespread use of the Uses, which was destroying their revenue that they would ordinarily receive from tax, and so introduced the Statute of Uses 1535. The eventual bills invalidated all uses that did not impose an active duty on trustees, with the beneficiaries of the use being held as the legal owners of the land, meaning they had to pay tax. This was introduced in Ireland in the Statute of Uses 1634. Section 1 of the act stated where any person or persons are seised of any land to the use, confidence or trust of any other person or persons or body politic, the latter person shall be deemed and adjudged to be in lawful seisin, estate and possession of the land for the same estate as he had for the use, confidence or trust. Where property was vested in Person 1 for the use of Person 2, Person 2 now had both the beneficial ownership and the legal ownership, and so would have to pay tax.

However, there were severe limitations upon the Statute, and many academics argue over its eventual effectiveness. Limitations of the Statute included

1.       Only applies where land is seised to uses

2.       Did not apply when a corporation was seised of the land to be held to uses

3.       Did not apply if the feoffee had active duties to perform

4.       Did not apply where a person was seised to his own use

5.       Did not apply to a ‘Use upon a Use

This last one is particularly important. It essentially allowed the Use to continue, so long as three words were added to the end of the document (Use upon a Use, rather than just Use). Prior to the statute it had been held by the common law courts that one could not have a second use in a conveyance of freehold land. Thus if land was conveyed unto Person 1 and his heirs for the use of Person 2and his heirs  for the use of Person 3 and his heirs, the common law simply ignored the use to Person 3. In Jane Tyrell’s case it was held that the enactment of the statute had not affected this principle; the second use was still ineffectual. However, the chancellor was prepared to enforce it if the requirements of Equity so demanded and thus the formula for creating a trust were created in its final form- a conveyance, unto and to the use of Person 1 and his heirs in trust for Person 2 and his heirs. Person 1 was the legal owner but equity enforced the second use of the trust. While this may seem old and archaic, the Statute of Uses was not repealed in England until 1924 and remained part of Irish law until 2009.

In Hopkins v Hopkins, Lord Harwicke stated that the effect of the Statute was to add no more than three words to a conveyance, changing it from to Person 1 to the use of Person 2, into unto the use of Person 1 in trust for Person 2. Maths was not his strong suit.

The recent Land Law act of 2009 has changed much of this. It repealed the Statute of uses, with the two major changes being in section 62. A deed is now fully effective to pass legal estate without any conveyance to uses and now no resulting use will be presumed in a voluntary conveyance merely because a conveyance to uses is not included.

Underhill has defined a strust as an equitable obligation, binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property) for the benefit of persons (who are called the beneficiaries or cestuis que trust) of whom he himself may be one and any one of whom may enforce the obligation.’  Trusts may be for the benefit of a charitable purpose or a purpose recognised by law.  Trusts are often compared to other legal concepts which have some similar characteristics such as agency or bailment. It is a fiduciary relationship that exists between the parties.

There are two main methods of classifying trusts. The first is to determine whether it is private or public (charitable). The former is far more common. The beneficiary principle applies to private trusts- there must be someone who clearly benefits from it. A private trust has one or more particular individuals as its beneficiary. By contrast, a public trust (also called a charitable trust) has some charitable end as its beneficiary. In order to qualify as a charitable trust, the trust must have as its object certain purposes such as alleviating poverty, providing education, carrying out some religious purpose, etc. The permissible objects are generally set out in legislation, but objects not explicitly set out may also be an object of a charitable trust, by analogy. Charitable trusts are entitled to special treatment under the law of trusts and also the law of taxation.

The second method of classification is to determine whether it is an express, resulting or constructive trust.  An express trust arises where a settlor deliberately and consciously decides to create a trust, over their assets, either now, or upon his or her later death. In these cases this will be achieved by signing a trust instrument, which will either be a will or a trust deed. Almost all trusts dealt with in the trust industry are of this type. They contrast with resulting and constructive trusts. The intention of the parties to create the trust must be shown clearly by their language or conduct. For an express trust to exist, there must be certainty to the objects of the trust and the trust property. They are created by the settlor either by deed inter vivos (during life) or by will

A resulting trust is a form of implied trust which occurs where (1) a trust fails, wholly or in part, as a result of which the settlor becomes entitled to the assets; or (2) a voluntary payment is made by A to B in circumstances which do not suggest gifting. B becomes the resulting trustee of A's payment. The beneficial interest reverts or results to the settlor, i.e. the person who transferred the property in the first place, or if he is dead, to his estate

Unlike an express trust, a constructive trust is not created by an agreement between a settlor and the trustee. A constructive trust is imposed by the law as an "equitable remedy." This generally occurs due to some wrongdoing, where the wrongdoer has acquired legal title to some property and cannot in good conscience be allowed to benefit from it. A constructive trust is, essentially, a legal fiction. For example, a court of equity recognizing a plaintiff's request for the equitable remedy of a constructive trust may decide that a constructive trust has been created and simply order the person holding the assets to deliver them to the person who rightfully should have them. The constructive trustee is not necessarily the person who is guilty of the wrongdoing, and in practice it is often a bank or similar organization. The distinction may be finer than the preceding exposition in that there are also said to be two forms of constructive trust, the institutional constructive trust and the remedial constructive trust. The latter is an "equitable remedy" imposed by law being truly remedial; the former arising due to some defect in the transfer of property.

Resulting trusts and Constructive trusts are not required to comply with the formalities necessary to create a valid express trust. 

The third method of classification applies to express trusts only; are they fixed or discretionary? n a fixed trust, the entitlement of the beneficiaries is fixed by the settlor. The trustee has little or no discretion.  In a discretionary trust the beneficiaries have no actual entitlement to any part of the trust property