What is a trust?
Imagery and the using of examples will often communicate more than any legal definition. The finest description of a trust has been given, not in a textbook, but in an advocate’s speech:
When one thinks of trust funds one thinks of widows and orphans and the wistful savings of a vanished hand. (Fearnley Whittingstall, cited in The Art of the Advocate, by Richard Du Cann, 1964.)
This fine phrase excels over any definition, but is it enough?
The essential idea behind a trust is a simple one. It is that a person can be the “legal owner” of property without, at the same time, necessarily being the “beneficial owner”. The expression “legal owner” means (in this context) that his ownership is recognised by the common law. “Common law ownership” would, therefore, be a more exact description of his position. But the phrase “legal owner” is inevitably used when it is desired to imply that the person in question has legal title to land (or other property) but he does not necessarily have any of the benefits which would normally go with that ownership. The beneficial ownership is said to lie elsewhere or to be shared with others. The beneficial ownership is often known as “equitable title”, because it was the Courts of Equity (rather than the Courts of Common Law) which developed the idea of the trust.
It must be remembered that, until November 1 1875, there was a divided legal system in England and Wales — the Common Law courts enforcing “legal rights” and “legal duties” (arising from Statute Law or, theoretically, dating back to “time immemorial” — 1189) and the Courts of Equity enforcing (at first) the requirements of good conscience in accordance with the discretion of the King’s Chancellor and (by the 17th century) developing and enforcing distinct “equitable” principles in accordance with the requirements of precedent and the rules of recorded discretion. Thus, in 1682, the Lord Chancellor (Lord Nottingham) distinctly disclaimed any right of the Court of Chancery to make arbitrary decisions in accordance with the personal conscience of the Chancellor of the day. He proclaimed this victory of precedent over abstract justice by saying:
Pray let us so resolve cases here that they may stand with the reason of mankind when they are debated abroad. (Duke of Norfolk’s Case)
However, by this time, Equity was a distinct body of principles, separate from the more rigid system known as the Common Law. According to the great legal historian, Sir Henry Maine, such a stage in the development of a legal system is indispensable if it is to grow to maturity. Thus, in his famous book Ancient Law, he defined Equity as follows:
…any body of rules existing by the side of the original civil law, founded on distinct principles and claiming incidentally to supersede the civil law in virtue of a superior sanctity inherent in those principles.
The greatest conceptual innovation brought about by the “Equity of the English Chancellors” was the law of trusts. Thus, for something like 500 years, it has now been well established that legal ownership may vest in one person, but that that ownership may be but labour and sorrow to him because all the benefits of ownership are vested elsewhere. Ownership becomes a duty, not a privilege, and the penalty for mismanagement of the property becomes an action for breach of trust. The title of the legal owner (prior to the unification of the Courts of Common Law and Equity in 1875) would have been protected against trespassers, and other third parties, in the Common Law Courts. The beneficial rights of the person (or persons) with equitable title would be protected and enforced in the Court of Chancery. However, to this simple analysis, it is necessary to add complications.
Trustee may also be a beneficiary
It is possible (indeed common) for a trustee also to be a beneficiary. Thus, if a house is bought by a married couple, each of them contributing to the deposit or to the mortgage repayments, the beneficial rights of each of them will be preserved, even if legal title is vested in one of them alone. For example, if the house is vested in the name of the husband, he will be a trustee of that house for his own benefit and also for the benefit of his wife, perhaps in equal shares.
It is not only marriage which can bring about this state of affairs. The principal difference between the break-up of a marriage and the break-up of any other relationship is that, in the case of a marriage, the Divorce Court will have power to alter the property rights of the parties. In the case of a “quasi-connubial” cohabitation (or, of course, any other joint venture) the courts can ascertain and enforce only the existing property rights of the parties, allowing each to take his or her own share, but no more. This is also the case if the property is in joint names.
This was graphically illustrated in Turton v Turton [7] 2 All ER 641, where an unmarried couple bought a shop with living accommodation over it for £8,500 in 1972. (The couple never did get married, but the lady in the relationship changed her name by deed poll so that they both bore the same surname.) The property was conveyed into the joint names of both parties, and Mr Turton consented to the conveyance stating that they both held the house on trust-for-sale as beneficial joint tenants. This seems to have been a considerable act of generosity on his part, because he had provided all of the deposit himself (£3,000) and paid all of the mortgage instalments alone. In 1975, Miss Turton left Mr Turton, and he continued to pay the mortgage instalments until the mortgage was finally redeemed in 1981.
In 1983, Miss Turton applied to Southampton County Court for a declaration that she was entitled to an equal share in the property and for an order for sale. The county court judge declared that the property was beneficially owned by the parties in equal shares, but she took the view that the trust came to an end when Miss Turton left the property in 1975. She therefore took the 1975 date as the appropriate date for valuing Miss Turton’s share. (The property had been worth about £10,000 in August 1975). Miss Turton appealed to the Court of Appeal, which held that the trust continued until the beneficial shares had been realised. This meant that Miss Turton’s share had to be valued at the date of the Court of Appeal hearing (January 1987). By this time, the property was worth £35,000. The only credit which Mr Turton was able to claim was for the capital element in the mortgage instalments which he paid after Miss Turton had left him (probably about £5,000). He was unable to argue that Miss Turton was merely a trustee, not a beneficiary, because the conveyance had expressly declared her to have a joint beneficial interest in the property. In the Court of Appeal, Nourse LJ recognised that the court’s decision meant that Miss Turton obtained the benefit of increased property values which had accrued after she left Mr Turton. However, his lordship stated:
the ability of the courts to meet the deserts of unmarried couples lies not within the powers which Parliament has given them.
Trusts for causes, not persons
The second complication to any definition of a trust is that the beneficial interest may not be vested in any particular person or persons, but may be vested, as it were, in a charitable object (such as the relief of poverty, the furtherance of religion or the advancement of education). The person establishing the trust (known as the “settlor”) may not have named any particular charitable organisation or may, in fact, have named a charitable organisation which has ceased to exist. A charitable trust will not be void because of this. If need be, the Attorney-General, acting on behalf of the public at large, will have the right to enforce a charitable trust. It was this aspect of the law of trusts that Sir Arthur Underhill evidently forgot when he propounded his famous definition of a trust:
A trust is an equitable obligation, binding 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 persons (who are called beneficiaries…), of whom he may himself be one, and any one of whom may enforce the obligation.
The hallmark of a charity is its element of public benefit. Thus a trust fund set up for the repair of a church (a place of public worship) will be a valid charitable trust, but a gift to a closed order of contemplative nuns will not be. In Gilmour v Coats [9] AC 426 the House of Lords held that a gift of £500 to be held in trust for the purposes of a Carmelite Priory in Notting Hill, London, was not a valid charitable trust because the nuns were strictly cloistered in their priory and engaged in no works outside the convent. Lord Simonds gave great respect to their argument that their prayers were sincerely believed to bring about public benefit, but held: “The faithful must embrace their faith believing where they cannot prove; the court can only act on proof.”
For much the same reason, gifts to political parties or for political agitation against particular laws have all been held not to be charitable. By contrast, however, gifts for the general purposes of law reform, or law reporting, or for proving (if possible) that Shakespeare’s plays were written by Bacon, or for the prevention of cruelty to animals have all been held to be valid.
The law also recognises “as a concession to human sentiment” two particular trusts for purposes which are not charitable: (1) trusts for the upkeep of a particular animal, eg the testator’s own cat; and (2) trusts for the upkeep of a memorial or tomb. These are sometimes known as “trusts of imperfect obligation” because there is no person to enforce the trust against the trustees. However, the settlor (usually a testator) invariably makes provision for a gift over to a particular person or a particular charitable body, so that that person or body can bring proceedings to obtain the capital sum if the purpose is not being carried out.
Trusts and other concepts
Most textbook writers make the point that it is almost impossible to give a satisfactory definition of a trust. For example, Scott on Trusts states:
Even if it were possible to frame an exact definition of a legal concept, the definition would not be of great practical value. A definition cannot properly be used as though it were a major premise so that rules governing conduct can be deduced from it. Our law, at least, has not grown in that way. When the rules have been arrived at from other sources, it may be possible to attempt to frame a definition. But the definition results from the rules, and not the rules from the definition.
A trust differs from bailment (the borrowing and lending of property) because, in a bailment, the borrower does not obtain any legal title to the property and cannot (as a general rule) transfer title to any third person. A trustee, however, is (at common law) the owner of the trust property and, provided he obtains the concurrence of at least one co-trustee, he can give a valid receipt for selling trust property, even land.
A trust is not like agency. It is true that, like a trustee, an agent is in a fiduciary position (a position where he must show the utmost good faith), but, unlike a trustee, he does not (necessarily) have any title to property and, if he misconducts himself, the remedies against him are personal remedies, not proprietary ones. (He may be sued for the amount of any bribe which he receives or for the amount of damage he causes to his employer, but not for both.)
A trust is not the same thing as a contract. Many trusts begin because the trustee has agreed to assume this duty, but this is not essentially the case. Many people are made trustees, whether they like it or not, by operation of general equitable principles (to defeat fraud or to prevent unjust enrichment). Moreover, third parties cannot obtain contractual rights, whereas the purpose of a trust is to bestow rights on beneficiaries which they can enforce against trustees.
It is obviously the case that a trust is not the same thing as a gift (except in the sense that it is not wrong to refer to a “gift on trust for” A, B or C). A gift is an outright delivery of legal and beneficial title to another person, free of all conditions. However, it is also clear that a trust is not only a different thing from an unconditional gift but it is also a different thing from a conditional gift, as is shown by an interesting case which related to property values: Attorney-General v Cordwainers Company (1833) 3 My & K 534.
In that case, a testator left the Falcon Inn, and adjoining buildings, in Fleet Street to the Cordwainers Company “for the only interest, use, and performance of this my last will and testament”. The testator died in 1547, when the annual rents from the inn, and other property, was £12.6s.8d. The will required the Cordwainers Company to pay certain sums of money to certain named individuals and also to charity. In the fullness of time the named individuals died. By 1833, the annual rents were £358, and the Attorney-General claimed that the increased profits from the property were held by the Cordwainers Company on trust for charity. It was held, however, that the will had not created a trust. It had created only a conditional gift. The Cordwainers Company were obliged only to continue to pay the originally specified sums to charity and were entitled to retain the excess. (Had the will created a trust, it would have been one which was exempt from the rule against perpetuities, because charitable trusts are allowed to continue indefinitely.)
More difficult distinctions can be drawn between a trust and the administration of estates, and also between trusts and “powers of appointment” (although this distinction becomes blurred in the case of discretionary trusts). A “power of appointment” is a power (usually bestowed by will) to dispose of property to others even if (as is often the case) the donee of the power has no right to take the capital himself. There is usually a gift over to a third party if the donee of the power fails to exercise that power, and equity treats the beneficial ownership as being in that third party, not in the donee of the power, until the power is exercised.