Thursday, April 16, 2020

Nature and classification of Trusts.


Nature and classification of Trusts; the requirements of Trust; Express Private Trusts; Constructive Trusts and termination of trusts" under property law.

Introduction (property law)
Property law is the area of law that governs the various forms of ownership and tenancy in real property (land as distinct from personal or movable possessions) and in personal property, within the common law legal system.
 In the civil law system, there is a division between movable and immovable property. Movable property roughly corresponds to personal property, while immovable property corresponds to real estate or real property, and the associated rights, and obligations thereon.

What is Trust
 A trust is a relationship where property is held by one party for the benefit of another party. A trust must be created by the owner of the property who is called a "settlor", “Trustor” “Grantor”, who transfers  the property to another party called a “Trustee”. The trustee holds the property in trust for and on behalf of a third party called a “Beneficiary(ies)”.

Nature of the law of trust.
A trust is a three-party fiduciary relationship in which the first party, the trustor or settlor, transfers ("settles") a property (often but not necessarily a sum of money) upon the second party (the trustee) for the benefit of the third party, the beneficiary.

Meanwhile, Law of Trust created a tripartite relationship between 3 parties:
1. The Settlor (Owner of the property)
2. Trustee(s) (Holder of the property in trust)
3. Beneficiary(ies).

Classification of Trust
Trust can be classified into three categories: They are;
1. By the Act of the parties
a. Express Trust
b. Implied Trust
c. Written Trust
d. Oral Trust
e. Public Trust
f. Private Trust
g. Executed Trust
h. Executory Trust

2. By Operation of Law:
a. Resulting Trust
b. Constructive Trust

3. Further:
a. Religious trust
b. Charitable trust

The basic requirements of trust
The creation of trusts in English law must involve four elements for the trust to be valid:
1. Capacity
2. Certainty
3. Constitution
4. Formality.
1. 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.
2. 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 (or objects) are. Where there is uncertainty for whatever reason, the trust will fail.
3. Constitution means that for the trust to be valid, the property must have been transferred from the settlor to the trustees.
If property has not been transferred, the potential trustees and beneficiaries are volunteers, and an equitable maxim is that "equity will not assist a volunteer"; the courts will not look at the case. To get around this, the courts have developed exceptions to this rule for situations when the settlor has done "all that he could do", the trustees or beneficiaries have acquired the property in a different way, or where the gift was made donatio mortis causa "A gift of personal property in prospect of death".
4. Formality refers to the specific language or forms used when transferring property. For chattels, no formal language or documentation is needed, unless it is made as a will. For land, the transfer must be drafted in line with the Law of Property Act 1925 and the Law of Property (Miscellaneous Provisions) Act 1989. When disposing of an equitable interest, the Law of Property Act 1925 must also be followed.

Note: whenever a settlor made an offer to entrust his property to the trustee, acceptance is mandatory unless the trustee can prove otherwise. Trust is imperative unlike contract, agency and others; they are all discretionary.

Express Private Trusts
As the name implies, it is an express trust created when the settlor expresses an intention either orally or in writing to establish the trust and complies with the required formalities. An express trust is what people usually mean when they refer to a trust.
Every private trust consists of four distinct elements:
1. Intention of the settlor to create the trust,
2. A res or subject matter,
3. trustee, and
4. Beneficiary.
 Unless these elements are present, a court cannot enforce an arrangement as a trust.

Creation of Express Trusts.
To create an express trust, the settlor must own or have Power of Attorney over the property that is to become the trust property or must have the power to create such property. The settlor must be legally competent to create a trust.
A trust cannot be created for an illegal purpose, such as to defraud creditors or to deprive a spouse of her rightful elective share. The purpose of a trust is considered illegal when it is aimed at accomplishing objectives contrary to public policy. For example, a trust provision that encourages Divorce, prevents a marriage, or violates the rule against perpetuities generally will not be enforced.
If the illegal provision pertains to the whole trust, the trust fails in its entirety. If, however, it does not affect the entire trust, only the illegal provision is stricken, and the trust is given effect without it.

Some methods of Creating trust.
A trust may be created by:
1. Express declaration
2. Oral declaration
3. Spendthrift trust
4. Discretionary Trusts

Constructive Trust
A constructive trust is an equitable remedy imposed by a court to benefit a party that has been wrongfully deprived of its rights due to either a person obtaining or holding a legal property right which they should not possess due to unjust enrichment or interference, or due to a breach of fiduciary duty, which is intercausative with unjust enrichment and/or property interference. It is a type of implied trust, i.e., it is created by conduct, not explicitly by a settlor.

The primary factor generating constructive trust is the breach of fiduciary duty.
In a constructive trust the defendant breaches a duty owed to the plaintiff. The most common such breach is a breach of fiduciary duty, such as when an agent wrongfully obtains or holds property owned by a principal. A controversial example is the case of Attorney-General for Hong Kong v Reid, in which a senior prosecutor took bribes not to prosecute certain offenders. With the bribe money, he purchased property in New Zealand. His employer, the Attorney-General, sought a declaration that the property was held on constructive trust for it, on the basis of breach of fiduciary duty. The Privy Council awarded a constructive trust.

Termination of the trust
The period of time for which a trust is to operate is usually expressly prescribed in the trust instrument. A settlor can state that the trust shall last until the beneficiary reaches a particular age or until the beneficiary marries. When this period expires, the trust ends.
When the duration of a trust is not expressly fixed, the basic rule is that a trust will last no longer than necessary for the accomplishment of its purpose. A trust to educate a person's grandchildren would terminate when their education is completed. A trust also concludes when its purposes become impossible or illegal.
When all the beneficiaries and the settlor join in applying to the court to have the trust terminated, it will be ended even though the purposes that the settlor originally contemplated have not been accomplished.
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