Introduction to Trusts

In this video I introduce the legal concept of a trust by addressing the following questions:

1. What is a trust? Why is preferred over a contractual arrangement?
2. How can one create a trust?
3. What are the essential elements of a trust?
4. What is the moral basis of a trust? And is it still relevant today?

Please find written notes below.

Basics of trusts

What is a trust? Why is it preferred over contracts?

  • A trust is a form of ownership which whereby the legal rights are separate to the equitable rights.

There are significant advantages to utilizing a trust mechanism over say a contractual arrangement which it is often compared too:

  • If the property is sold by the trustee under a breach, the beneficiaries benefits would be overridden even though the third party knew all knew all along because of privity of contract. And the only way to solve this would be to make the beneficiary party to contracts between settlers and trustees.
  • In a contract, yes the settlor could bring action against trustee but in a trust, the beneficiary can and this actually makes more sense as the whole purpose of the contract would be for the beneficiaries to benefit.
  • There are situation such as ones where children are involved and those to benefit can’t enter contracts because they do not have the capacity to enter one.

What are the essential elements of a trust ?

  1. The three certainties:

(i) Certainty of intention, that the settlor intended to create a trust

(ii) Certainty of subject matter, what the trust property is and the quantum each beneficiary is to receive

(iii)Certainty of objects, who the beneficiaries are

2. Beneficiary principle – the trust must be designed for identifiable humans to benefit

3. Any formalities are complied with e.g. for the legal transfer of land a deed and registration is required

How do you create a trust?

  1. Either you transfer your property to a trustee
  2. You declare yourself as a trustee holding it for the benefit of another individual.

What is the moral basis of a trust and is it still relevant today?
The moral basis of a trust refers to a ‘confidence reposed in some other’ (Lord Chief Justify Coke), such a confidence gives rise to moral obligation and this has given rise to legal principles.

Essentially, the moral basis is still important today because it goes someway in explaining fiduciary duties which are imposed on trustees.

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