What is A Trust?

Much of the law relating to trust is concerned with the question as to whether a valid trust has been created. Trusts are commonly created by a testator (TOR) in his will which takes effect upon the testator’s death or it can also be created inter vivos ie created and takes effect during the settlor’s lifetime. It is thus upon the death of a testator that questions regarding the validity of a trust often arise. Where else, in relation to the latter we are required to consider the creation and also the validity of it. Due to this, principles of law relating to trust are much inter linked with principles of law that govern the devolution of a person’s property on his death ie the principles of law relating to succession. Because of the inter-relation of the law of trust and the law of succession, a student of the law of trust may in some instances not be able to grasp the 3 reason for the outcome of a particular court decision unless he has knowledge of the elements of the law relating to succession.



WHAT IS A TRUST?


A trust is not a legal person, like an individual or a company capable of owning property. For there to be a trust, the property must be subject to a trust so that the property will be vested in a trustee or trustees (who may be individual or companies) or is a nominee on behalf of the trust.

Many attempts have been made to define a trust but none of these definitions are entirely satisfactory. Trust is probably the most important invention made by equity and it calls for the distinction between legal interest or legal estate and the equitable interest in property.

Under the trust, the legal title will be vested in the trustees and the equitable title in the beneficiaries (B).This might arise when the settlor (SOR) transfers land to the trustee to hold the land on trust for the benefit of A, B and C (beneficiaries)-See diagram below.

SOR --------------- T 1 T2 (Trustee are holders of legal title in land)


(Transfer land to)

A, B and C (Beneficiaries who have equitable title in land)



WHAT IS THE DEFINITION OF A TRUST?


A trust is an equitable obligation binding on a person (who is called a trustee) to deal with property over which he has control (which is called the trust property) for the benefit of person or persons (who are called beneficiaries) of whom he may himself be one.

It is an agreement between a settlor / testator and a trustee whereby the trustee agrees to hold the property settled upon himself by the settlor / testator for the benefit of a third party called the beneficiary.

Trust is an equitable concept because the common law does not recognise it when property is settled on the trustee, the strict rules of common law are not concerned with the reason why the property was given.

So long as the formalities to transfer the property are complied with, the trustee becomes the owner at common law because common law only recognise tangible interests as opposed to intangible interests. Therefore if the trustee now decides not to give any of the benefit of the property to the beneficiary ( being the owner in equity ), there is no remedy at common law for such an action as the trustee is the owner at law of the property and can do anything with it. The strict rules of common law causes severe hardship. Equity therefore intervenes to compel the trustee to hold the property for the benefit of the beneficiaries. Equity cannot say that the beneficiary is the owner, as the trustee owns the property. However all the beneficial interest in the property can be given to the beneficiary by compelling the trustee to keep the legal title only, and to give all the benefit of the property to the beneficiary. The consequence of this is that the trustee is the owner at law, where else the beneficiary is the owner in equity.



A TRUST MUST BE DISTINGUISHED FROM CERTAIN OTHER CONCEPTS.


1. TRUST AND BAILMENT

A bailment is a delivery of personal chattels upon a condition, express or implied that they shall be redelivered to the bailor (one who entrust goods to bailee - bailor has the general ownership of the goods) or according to his direction, when the purpose of the bailment has been carried out.

Bailment is recognised at common law where else a trust is recognised at equity. The bailee (A person to whom the possession of goods is entrusted by the owner but not with the intention of transfering the ownership) has only possession in the goods bailed, the general property or general ownership remains in the bailor.


2 TRUST AND AGENCY

Trustees and agents both hold a fiduciary position which imposes upon them certain obligations. Thus both agent and the trustee are under a duty not to let their personal interest conflict with their duties, also not to make any unauthorised profits and to keep
proper accounts.

The difference lies in the relationship between principal and agent which is created by agreement but this is not so in the case of trustees and beneficiaries. Furthermore the trustee does not bring the beneficiary into any contractual relationship with third parties which is the normal procedure of the agent. An agent is subject to the control of his principal but on the other hand, a trustee is not subject to control by the beneficiaries except in the sense that the beneficiaries can take steps to compel the trustee to carry out the terms of the trust.


3. TRUST AND POWER

A power can basically be defined as an authority vested in a person to deal with or dispose off property which is not his own. The most important distinction between these two concepts is that a power is discretionary where else a Trust is imperative in nature.

However this distinction may be blurred in the sense that a power may be given to a trustee and the trustee in exercising his duties may be given considerable discretion which amounts to power.