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Trust (2023): Trust: Express trust + Constructive trust (Part One)
An express trust is a trust created "in express terms, and usually in writing, as distinguished from one inferred by the law from the conduct or dealings of the parties." Property is transferred by a person (called a trustor, settlor, or grantor) to a transferee (called the trustee), who holds the property for the benefit of one or more persons, called beneficiaries. The trustee may distribute the property, or the income from that property, to the beneficiaries. Express trusts are frequently used in common law jurisdictions as methods of wealth preservation or enhancement.
Terms.
Law generally requires only a simple formality to create an express trust. In certain jurisdictions, an express trust may even be established orally. Typically, a settlor would record the disposition, where real property is to be held in trust or the value of property in trust is large. Where legal title to property is being passed to a trustee, a "deed of settlement" or "Trust Instrument" (for jurisdictions that do not recognise Deeds) may be used. Where property is to continue to be held by the person making the trust, a "declaration of trust" will be appropriate.
Often, a trust corporation or more than one trustee is appointed to allow for uninterrupted administration of the trust in the event of a trustee's resignation, death, bankruptcy or incapacity. Additionally a Protector may be appointed who, for example, is authorized to appoint new trustees and to review the trustees' annual accounts.
To be valid at common law, a trust instrument must ascertain its beneficiaries, as well as the res (a Latin term meaning "thing") or subject matter of the trust, unless it is a charitable trust which does not provide specific beneficiaries.
To be valid in equity, a trust must satisfy the following elements: 1. Property or rights of a kind which can be the subject of a trust 2. A declaration of trust or disposition on trust by a person legally competent to create a trust 3. Certainty of property and objects (trust must be administratively workable 4. Compliance with requirements regarding evidence 5. Compliance with rule against remoteness of vesting (rule against perpetuities and rule against inalienability of income for longer than the perpetuity period)
Common forms of express trust.
Bare trust.
property transferred to another to hold for example for a third person absolutely. May be of use where property is to be held and invested on behalf of a minor child or mentally incapacitated person.
Life Interest trust.
the income from property transferred is paid to one person, "the life tenant" (for example a widower), during their lifetime and thereafter is transferred to another person (who may take absolutely or a second life interest according to the terms of the trust, in the second case a third beneficiary would come into play). The trustees may have power to pay capital as well as income to the life tenant. Alternatively, they may have rights to transfer ("appoint") property to other beneficiaries ahead of their entitlement.
Discretionary trust.
the trustees may pay out income to whichever of the beneficiaries they, in the reasonable exercise of their discretion, think fit. They will normally also have the power to pay out capital. They may have extensive powers, even to add new beneficiaries, but such powers may normally only be exercised bona fide in the interests of the beneficiaries as a whole. Discretionary trusts must not be indefinite and are subject to 'the rule against perpetuities'. In New South Wales, the time prescribed is a statutory period of 80 years from the date the disposition takes effect.
Published on 2 years, 6 months ago