A trust is an interesting concept especially for those who come from a civil law jurisdiction.
The concept of a Trust originates from the 12th Century, when land owners who were fighting for the King (Crusaders) placed the ownership of their estates into the hands of their close associates to manage in their absence, on the understanding that the ownership would be transferred back to the Crusader on his return.
However, often those close associates refused to hand back the property to the Crusader. Unfortunately in this period, English Common Law did not recognise a claim from the Crusader, the legal ownership was with the close associate and therefore he was under no obligation to return it. The Crusader could petition the King who would then refer the issue to the Lord Chancellor. At this time, the principle of equity emerged, via the Court of Chancery.
In common law, the legal owner (the Trustee) has the title to the property and has rights in rem. The equitable owner (the Beneficiary) has rights in personam. For example the Trustee can bring action against third parties to defend the Trust assets but the beneficiaries would bring an action against the Trustee if appropriate. A trust has no legal personality of its own, meaning any action is brought by the Trustees and not the Trust itself.
The three certainties
A settlor (like our Crusader, or in a modern context a high net worth individual) establishes a Trust when he satisfies what are known as the ‘three certainties’. These are:
• Certainty of object (who are the beneficiaries)
• Certainty of intention (it is clear who is the settlor and they in turn intend to create a Trust)
• Certainty of subject matter (what is the trust actually to own )
In reality, the easiest way to cover off all of these points is to create a settlement via a deed. The deed is essentially then a binding agreement between the Settlor and the Trustees to hold property on behalf of the beneficiaries.
The Trustee’s duties
What are a Trustee’s fiduciary duties? The word fiduciary is one that can be confusing as it means ‘involving trust’ which for those looking in a dictionary does not help when trying to understand a Trustee’s duties. A fiduciary is really simply somebody that holds property not for their own profit or interests, but for their benefit of another.
Boston have a great deal of experience with Trusts: for more information, click here.