Trusts Overview
Overview
The Legal owner of property is the person whose name is on the latest transfer deed, in the case of Registry of Deed title or the registered owner, in the case of Land Registry title. The beneficial or “equitable” owner is the person entitled to the use and economic benefit of the property. He is entitled to the price on sale and the rent on letting. He is taxed as the owner by the Revenue. In most cases, the same person will be both legal and beneficial owner.
In some cases, an arrangement may be made by which the legal owner will hold the property for one or more beneficial owners. In other cases, the law will deem that the legal owner holds the property for one or more beneficial owners (who might include the legal owner). Where the legal owner must hold the property for another or other beneficial owners, there is a trust.
There are a great variety of trusts. Some are created and some arise by law. Some may involve a temporary obligation to hold the property as nominee for another and transfer it on request to that person. In other cases, the trust may last generations and the legal owner (the trustee) may be entitled to decide who, when and to what extent another person may become the beneficial owner.
In another category of trusts, the beneficiaries do not have any rights or any definite rights. It is a matter for the trustee (sometimes with another person’s consent) to specify whether and what extent the named potential beneficiaries obtain rights of the property. This is a so-called discretionary trust. This can be useful in tax planning, although tax legislation has made this progressively more difficult.
Inception of Trusts
Many trusts arise automatically. For example, where a property has been sold and the buyer has not yet been registered, the seller holds the legal ownership on trust for the buyer. Where one person buys property with another person’s money, the former will become the legal owner, but because the property has been purchased with the other’s money, it will be presumed that holds it on trust for the person who provided the purchase monies.
There are a limited number of circumstances where a person is deemed a trustee in order to avoid an injustice. A court cannot simply deem someone to be a trustee just because this is fair and reasonable. There must be some economic or other good reason why a so-called constructive trust may be imposed. One example is where a person makes gains because of breach of a duty. He may be obliged to hold the gains on trust for the persons to whom he owed a duty.
Trusts may be created formally for a particular purpose. This may arise in a commercial setting such as where a pension trust is created so as to provide pensions and other benefits upon retirement. It may be created in a family context, where a person wishes to benefit his relatives or descendants in a flexible way. It may be a public trusts for a charitable purpose.
A trust arises when an asset is transferred to a trustee to hold on terms and conditions for named or ascertainable beneficiaries. There are many fundamentally different types of arrangement. Within the bounds of some rules, the person who creates the trust (the settlor) may create it on such terms as he sees fit.
In simple trusts, the trustee is legal owner and simply holds as little more than a nominee for the beneficial owner. The beneficial owner may be in occupation of the property and has its full benefit. The trustee’s principal obligation is in effect to transfer the legal ownership to the beneficial owner or his nominee when required. This type of arrangement may arise where the beneficiary is under 18 or may be undertaken for reasons of convenience.
The trustee may hold the legal ownership under a trust for a number of beneficial owners, each of whom may have a share now or in the future. For example, the property may be held by a trustee, on trust to allow someone to the benefits of ownership during life or for a certain period, and after that for the benefit of other named or classes of person. In this case, the trust may last for a period and the beneficiaries may not be entitled to call for the legal ownership, at all or until a future date.
Duties of Trustees I
Although there are a wide variety of trusts, the same broad duties and principles apply. The essence of the trust is that the legal owner/trustee has a personal obligation to deal with the property for the benefit of the beneficiaries. What they must do and the extent of their duties will be determined by the circumstances.
The legal owner of a property is generally free to deal with it as he sees fit, as regards third parties and outsiders. He may be able to sell the property free from the trust to a third party if the buyer does not become aware of the trust and or if he does, where there is a clear power of sale. The 2009 Law Reforms allow a power of sale where there are two trustees, which can operate even where the buyer is aware of the trust.
Trustees are in a position to abuse their position. They can undermine the rights of a beneficiary by failing to comply the terms of the trust. There may be no one to verify compliance. The beneficiary may be a minor or vulnerable person. He may not now he is a beneficiary or potential beneficiary. For these reasons, trustees have strict duties of good faith.
The trustee must not benefit from the trust. He must not take account of his personal interests. He must not buy trust property. He must avoid conflicts of interests. He must account for any benefits that come his way on account of being a trustee. It the trustee breaches the terms of the trust or his obligations as trustee, even innocently, he is personally liable to the trust and the beneficiaries. The trust deed may relax, these rules, allowing for example for remuneration and excusing liability where the trustee has not been at fault.
In certain circumstances, persons who do not hold properly for another, have duties similar to those of trustees. So-called fiduciary duties may arise where a person is in a position of influence over another person’s affairs. For example, directors and agents, owe fiduciary duties to their company and principal, designed to prevent advantage being taken of their position.
Duties of Trustees II
Trustees must secure the property they hold on trust. He must ascertain the extent of the property and assets. He must gather it in and if appropriate, register it in his name. He must safeguard and insure the property. He must keep accounts and manage the property. He must be in a position to account for the property to the beneficiaries.
There is a general duty on trustees to invest. There are limitations on the type of assets in which the trustees can invest. Commonly, trustees have detailed powers specifying the types of assets in which they may invest. Trustees of lands may allow beneficiaries (including themselves) to occupy the trust property.
A trustee who has breached the terms of his trust may be sued personally. A trustee is accountable for monies actually received by him. He is liable for his own acts and default unless there has been willful default on his part. Where a trustee transfers an asset in breach of trust, for less than full value or where the breach is apparent to a buyer, the transferee may be required to reimburse the trust.
Trustees must act impartially in the best interests of the beneficiaries. They must act in good faith and must not benefit themselves. He must not purchase trust property unless permitted by the terms of the trust deed. If he receives any such benefit, they must hold it under the trust.
A trustee is entitled to be reimbursed for his expenses from the trust in relation to the proper exercise of his powers. He is not entitled to remuneration unless the trust deed specifically allows it.
Trustees may be guilty of a crime if they deliberately or intentionally defraud or appropriate trust asset.
Creation by Deed
A trustee can arise or be created by the original owner (the “settler”) transferring property to one or more trustees on terms that the hold it on behalf of named or ascertainable beneficiaries. The beneficiaries’ rights may arise immediately or at some time in the future. They may depend on the discretion of the trustee or another.
Trusts may be created or may arise in relation to any class of asset. A trust in relation to real property (land and buildings) must be proved in writing. Trusts arising on death must comply with the strict requirements for wills; they must be in writing and signed by the maker in the presence of two witnesses who also sign.
Trusts in relation to other classes of asset do not necessarily require writing unless the transfer of the asset concerned must be written. It is, however, desirable that the terms of the trust are written, from the perspective of certainty. Writing is not required for trusts that arise by law,
Where an asset is transferred with a hope, wish or desire that the person holding the legal title deals with it for another’s benefit, there may not be enough for a trust. This may create a moral obligation, but not necessarily a legal obligation. In order that there is a legally binding trust, there must be a direction or requirement that the property is to be held for the benefit of another person. The distinction can be a matter of interpretation in some cases.
Trust of Land
The 2009 Land law reforms create a new category, the trust of land. The rules apply to any trust of land. They also apply and there is a deemed to be a trust when the ownership of property is divided over time between different persons, with present and future interests. There is also deemed to be a trust of land when the property is held by a person under 18 years old.
Formerly, prior 2009 property law reforms, it used to be possible to create a wide range of legal rights or interests in land. It was possible to have a number of people with different legal interests in a single property. There could be present interests, future interests, conditional and contingent interests, annuities and others. All these people would have to come together to sell the full ownership.
After the 2009 reforms, most of these interest are converted into equitable interests and certain persons are deemed to be the trustees. This simplifies ownership and conveyancing. The person deemed trustee may sell the property and give clear title to a buyer. The deemed trustee must hold the proceeds of sale for the benefit of the various persons with rights to the property (including the deemed trustees) who is usually the principal owner.
Under the new legislation, certain existing legal interests in land are converted into beneficial interests under a deemed trust. Formerly, the existence of multiple could, in theory, complicated the transfer of property. Where there is a deemed trust of land, certain persons generally, the current legal owner or the owner of the current interest is deemed a trustee and must hold the lands under the deemed trust. Wide powers are granted to the trustees.
New interests in property, other than the category of legal interests permitted to exist after the legislation, must be created by way of a trust of land. They are therefore equitable interests. The trust deed creating the interest can define them as is desired. The trustee may be named and the default powers in the legislation may be varied.
Powers and Duties; Trust of Land
The new rules also apply generally to existing or future trusts of land. This includes trusts which are specifically created as well as those arising from the circumstances. (e.g. where one person buys land with another’s money). Trustees are given to sell the land or permit a beneficiary to occupy it. They are presumed to have the powers of full owners. The trustee’ strict duties, which are designed to protect the beneficial owner remain.
There is special power for trustees to sell the trust property free from equitable rights which would be discovered by a buyer. In some cases, the power is only available where there are two trustees. The power overrides most rights but not certain registered interests and interests of persons in occupation, which may be discovered by enquiry.
There special procedures by which an application can be made to the court to resolve disputes relating to the trust. This applies to disputes between the trustees, the beneficiaries or between each other. It may relate to the performance of functions, the extent of the beneficiaries interests and the operation of the trust. The court may make such order as it sees fit, having regard to the purposes of the trust, the interests of the beneficiaries and other relevant matters.
It is possible to apply to trust to vary the terms of a trust. The application may be made by a trustee or beneficiaries. Certain parties must be notified. The court may approve or reject the proposed arrangement. It takes account of the interest of the relevant persons and be satisfied that is for the benefit of the persons concerned. .
Various
The trust is binding on successors. If the trustee dies the legal ownership passes to his successor, but he must equally hold it on the same trust, for the beneficiaries.
There are special rules which apply in relation to the replacement of trustees Certain persons are given powers to appoint replacement trustees. Trustees may how they have powers to sell the property or not . these may be granted by the deed in certain circumstances, by law
Trustees have certain powers under the law, but these are nd not as wide as it would generally be desirable . The recent 2009 reforms have a greatly increased the powers of certain type of these trustees
In the case of partnerships title may be in the name of one partner but must be held for the benefit must only be held under the partnership ded for That may be held under the partnership leave for the benefit of all depending on the circumstances .
There used to be rules in relation to how long an asset could be kept with within a trust without being vested in a beneficial owner. These rules had been removed by the 2009 law reforms, which allows applications to court to vary the trusts and limit the indefinite suspension of ownership.