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In law, a trust is a relationship in which the holder of property gives it to another person or entity who must keep and use it solely for the benefit of another person or group of persons. In the English common law tradition, the party who entrusts the property is known as the "settlor", the party to whom the property is entrusted is known as the "trustee", the party for whose benefit the property is entrusted is known as the "beneficiary", and the entrusted property itself is known as the "corpus" or "trust property". A testamentary trust is created by a will and arises after the death of the settlor. An inter vivos trust is created during the settlor's lifetime by a trust instrument. A trust may be revocable or irrevocable; an irrevocable trust can be "broken" (revoked) by a judicial proceeding or by consent of the settlor and the beneficiaries.
A will and testament is a legal document that expresses a person's (testator) wishes as to how their property (estate) is to be distributed after their death and as to which person (executor) is to manage the property until its final distribution. For the distribution (devolution) of property not determined by a will, see inheritance and intestacy.
Wills have a lengthy history.
Estate planning is the process of anticipating and arranging for the management and disposal of a person's estate during the person's life in preparation for a person's future incapacity or death. The planning includes the bequest of assets to heirs, loved ones, and/or charity, and may include minimizing gift, estate, and generation-skipping transfer taxes. Estate planning includes planning for incapacity, reducing or eliminating uncertainties over the administration of a probate, and maximizing the value of the estate by reducing taxes and other expenses. The ultimate goal of estate planning can only be determined by the specific goals of the estate owner, and may be as simple or complex as the owner's wishes and needs directs. Guardians are often designated for minor children and beneficiaries with incapacity.
Joint wills and mutual wills are closely related terms used in the law of wills to describe two types of testamentary writing that may be executed by a married couple to ensure that their property is disposed of identically. Neither should be confused with mirror wills which means two separate, identical wills, which may or may not also be mutual wills.
In trust law, 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 to a transferee, 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.
A purpose trust is a type of trust which has no beneficiaries, but instead exists for advancing some non-charitable purpose of some kind. In most jurisdictions, such trusts are not enforceable outside of certain limited and anomalous exceptions, but some countries have enacted legislation specifically to promote the use of non-charitable purpose trusts. Trusts for charitable purposes are also technically purpose trusts, but they are usually referred to simply as charitable trusts. People referring to purpose trusts are usually taken to be referring to non-charitable purpose trusts.
The Hague Convention on the Law Applicable to Trusts and on their Recognition, or Hague Trust Convention is a multilateral treaty developed by the Hague Conference on Private International Law on the Law Applicable to Trusts. It concluded on 1 July 1985, entered into force 1 January 1992, and is as of September 2017 ratified by 14 countries. The Convention uses a harmonised definition of a trust, which is the subject of the convention, and sets conflict rules for resolving problems in the choice of the applicable law. The key provisions of the Convention are:
McPhail v Doulton[1970] UKHL 1, also known as Re Baden's Deed Trusts is a leading English trusts law case by the House of Lords on the certainty of beneficiaries. It held that so long as any given claimant can clearly be determined to be a beneficiary, or not, a trust is valid. The Lords also remanded the case to the Court of Appeal to be decided on this new legal principle as Re Baden's Deed Trusts .
A testamentary trust is a trust which arises upon the death of the testator, and which is specified in their will. A will may contain more than one testamentary trust, and may address all or any portion of the estate.
In the trust law of England, Australia, Canada and other common law jurisdictions, a discretionary trust is a trust where the beneficiaries and/or their entitlements to the trust fund are not fixed, but are determined by the criteria set out in the trust instrument by the settlor. It is sometimes referred to as a family trust in Australia or New Zealand. Where the discretionary trust is a testamentary trust, it is common for the settlor to leave a letter of wishes for the trustees to guide them as to the settlor's wishes in the exercise of their discretion. Letters of wishes are not legally binding documents.
Australian trust law is the law of trusts as it is applied in Australia. It is derived from, and largely continues to follow English trust law, as modified by state and federal legislation. A number of unique features of Australian trust law arise from interactions with the Australian systems of company law, family law and taxation.
English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is a growing body of legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.
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.
The Wills Act 1837 is an Act of the Parliament of the United Kingdom that confirms the power of every adult to dispose of their real and personal property, whether they are the outright owner or a beneficiary under a trust, by will on their death (s.3). The act extends to all testamentary dispositions or gifts, where "a person makes a disposition of his property to take effect after his decease, and which is in its own nature ambulatory and revocable during his life." As of 2012, much of it remains in force in England and Wales.
The creation of express trusts in English law must involve four elements for the trust to be valid: capacity, certainty, constitution and formality. Capacity refers to the settlor's ability to create a trust in the first place; generally speaking, anyone capable of holding property can create a trust. There are exceptions for statutory bodies and corporations, and minors who usually cannot hold property can, in some circumstances, create trusts. Certainty refers to the three certainties required for a trust to be valid. The trust instrument must show certainty of intention to create a trust, certainty of what the subject matter of the trust is, and certainty of who the beneficiaries are. Where there is uncertainty for whatever reason, the trust will fail, although the courts have developed ways around this. Constitution means that for the trust to be valid, the property must have been transferred from the settlor to the trustees.
In English law, secret trusts are a class of trust defined as an arrangement between a testator and a trustee, made to come into force after death, that aims to benefit a person without having been written in a formal will. The property is given to the trustee in the will, and he would then be expected to pass it on to the real beneficiary. For these to be valid, the person seeking to enforce the trust must prove that the testator intended to form a trust, that this intention was communicated to the trustee, and that the trustee accepted his office. There are two types of secret trust — fully secret and half-secret. A fully secret trust is one with no mention in the will whatsoever. In the case of a half-secret trust, the face of the will names the trustee as trustee, but does not give the trust's terms, including the beneficiary. The most important difference lies in communication of the trust: the terms of a half-secret trust must be communicated to the trustee before the execution of the will, whereas in the case of a fully secret trust the terms may be communicated after the execution of the will, as long as this is before the testator's death.
Discretionary trusts and powers in English law are elements of the English law of trusts, specifically of express trusts. Express trusts are trusts expressly declared by the settlor; normally this is intended, although there are situations where the settlor's intentions create a trust accidentally. Normal express trusts are described as "fixed" trusts; the trustees are obliged to distribute property, with no discretion, to the fixed number of beneficiaries. Discretionary trusts, however, are where the trustee has discretion over his actions, although he is obliged to act. The advantages of discretionary trusts are that they provide flexibility, and that the beneficiaries hold no claim to the property; as such, they cannot seek to control it, and it cannot be claimed for their debts. A power, or "mere power", on the other hand, is where not only does the holder have discretion over his actions, he has discretion over whether to act in the first place.
Re Tuck's Settlement Trusts[1977] EWCA Civ 11 is a leading English trusts law case, concerning the certainty of trusts.
Testate succession exists under the law of succession in South Africa.
References
- ↑ T Choithram International SA and others v Pagarani and others [2001] 2 All ER 492
- ↑ Lassence v Tierney (1849) 1 Mac & Cr 551