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 Trusts: an historical introduction |
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Author: Howard K Insall and Gino Dal PontThis is an extract from Lawbook Company's Nutshell: Trusts by Howard K Insall & Gino E Dal Pont (Sydney: LBC, 1999, 3rd ed). LBC Nutshells are the essential revision tool: they provide a concise outline of the principles for each of the major subject areas within undergraduate law. Written in clear, straightforward language, the authors clearly explain the principles, and highlight key cases and legislative provisions for each subject.
Historical introduction
The concept of a trust is one of the great inventions of English law. It was developed over the centuries to become a vital part of the modern legal system. Hence, it is important to have some knowledge of its historical background.
The trust arose out of the development in England of a system of separate but co-existent courts, the courts of law and equity. The common law courts administered the "common law" which became an established but in a sense limited set of legal principles. If a party did not have a claim which came within the limited jurisdiction of the common law, that party had no relief. Accordingly, it became the custom to petition the King for relief. This practice eventually became organised under the control of the Court of Chancery, which developed more flexible principles known as the principles of equity.
The trust was a concept developed by the Court of Chancery, but not recognised by the common law courts. For various reasons, it was often desirable that property be owned by a person other than the person who had the real interest in the property. For instance, an early statute, the Statute of Mortmain, prohibited the granting of land to religious houses without the payment of a fee. In order to avoid payment of the fee, the land was granted to a person, A, on the basis that it would be held for the benefit of the religious house and not for A's benefit. The courts of law recognised only the fact that the land had been legally conveyed to A. Thus, at law (that is, in the common law courts) A could do what he or she liked with the land (such as sell it and retain the proceeds) without regard to the obligation to hold the house for the benefit of the religious house. The Court of Chancery, however, enforced the obligation. Whilst not denying that A had the legal title to the land, the Court acted in personam (against the person) in compelling A to act in accordance with the true basis on which the land was held. Thus the court would restrain A from selling the property if necessary. In simple terms this is how the trust concept arose.
Definition and terminology
From the foregoing historical introduction it can be seen that a trust is an obligation enforceable in equity which rests on a person (known as a trustee) who is the legal owner of property, to deal with the property for the benefit of another person (known as a beneficiary) or for a specified purpose. From this definition it follows that the essential elements of any trust are fourfold. There must be an equitable obligation , one or more trustees, trust property and one or more beneficiaries . The equitable obligation is in the nature of what is known as a fiduciary ("trust") obligation, stemming from the fiduciary relationship between the trustee and beneficiary. Pursuant to this obligation the trustee must hold and manage and trust property for the exclusive benefit of the beneficiaries.
Trusts may be created by a person to operate while he or she is alive, or they may be included in a will to take effect on the person's death. The former type of trust is known as a trust inter vivos (between living persons) or a settlement , and the creator of the trust is known as the settlor. The latter type of trust is termed a testamentary trust , and its creator is generally known as the testator.
The person for whose benefit the trust is created is known as the beneficiary, the cestui que trust or the object of the trust. Although the trustee is the legal owner of the trust property, the beneficiary is recognised in equity as the person for whose benefit the property is really held. Thus the beneficiary is also described as the equitable or beneficial owner of the trust property. This form of ownership carries with it an equitable interest in the property (a proprietary interest ),which the beneficiary can deal with as an item of property (except in the case of a beneficiary of a discretionary trust ? see below).
Howard K Insall
LLM (Hons)
Barrister
Blackstone Chambers
Gino E Dal Pont
BCom LLB (Hons), LLM, CPA
Senior Lecturer in Law
University of Tasmania
1999
March, 2001
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