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English trust law concerns the protection of assets, usually when they are held by one party for another's benefit.
Trusts A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "sett ...
were a creation of the
English law English law is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures. Principal elements of English law Although the common law has, historically, b ...
of
property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
and
obligations An obligation is a course of action that someone is required to take, whether legal or moral. Obligations are constraints; they limit freedom. People who are under obligations may choose to freely act under obligations. Obligation exists when ther ...
, and share a subsequent history with countries across the
Commonwealth A commonwealth is a traditional English term for a political community founded for the common good. Historically, it has been synonymous with "republic". The noun "commonwealth", meaning "public welfare, general good or advantage", dates from the ...
and the United States. Trusts developed when claimants in property disputes were dissatisfied with the
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...
courts and petitioned the King for a just and equitable result. On the King's behalf, the
Lord Chancellor The lord chancellor, formally the lord high chancellor of Great Britain, is the highest-ranking traditional minister among the Great Officers of State in Scotland and England in the United Kingdom, nominally outranking the prime minister. Th ...
developed a parallel justice system in the
Court of Chancery The Court of Chancery was a court of equity in England and Wales that followed a set of loose rules to avoid a slow pace of change and possible harshness (or "inequity") of the common law. The Chancery had jurisdiction over all matters of equ ...
, commonly referred as
equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...
. Historically, trusts have mostly been used where people have left money in a
will Will may refer to: Common meanings * Will and testament, instructions for the disposition of one's property after death * Will (philosophy), or willpower * Will (sociology) * Will, volition (psychology) * Will, a modal verb - see Shall and wi ...
, or created family settlements,
charities A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being (e.g. educational, religious or other activities serving the public interest or common good). The legal definition of a ch ...
, or some types of business venture. After the
Judicature Act 1873 The Supreme Court of Judicature Act 1873 (sometimes known as the Judicature Act 1873) was an Act of the Parliament of the United Kingdom in 1873. It reorganised the English court system to establish the High Court and the Court of Appeal, and ...
, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in
unit trust A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on ...
s and in pension trusts (where trustees and fund managers invest assets for people who wish to save for retirement). Although people are generally free to set the terms of trusts in any way they like, there is a growing body of legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925,
Trustee Investments Act 1961 The Trustee Investments Act 1961 (c 62) was an Act of the Parliament of the United Kingdom that covers where trustees can invest trust funds. Given the royal assent on 3 August 1961, it removed the "Statutory Lists" system and replaced it with s ...
, Recognition of Trusts Act 1987,
Financial Services and Markets Act 2000 The Financial Services and Markets Act 2000c 8 is an Act of the Parliament of the United Kingdom that created the Financial Services Authority (FSA) as a regulator for insurance, investment business and banking, and the Financial Ombudsman Serv ...
, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and
Charities Act 2011 The Charities Act 2011c 25 is a UK Act of Parliament. It consolidated the bulk of the Charities Act 2006, outstanding provisions of the Charities Act 1993, and various other enactments. Repeals Legislation repealed in its entirety by the 2011 A ...
. Trusts are usually created by a settlor, who gives assets to one or more
trustees Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to t ...
who undertake to use the assets for the benefit of beneficiaries. As in
contract law A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to t ...
no
formality A formality is an established procedure or set of specific behaviors and utterances, conceptually similar to a ritual although typically secular and less involved. A formality may be as simple as a handshake upon making new acquaintances in Weste ...
is required to make a trust, except where statute demands it (such as when there are transfers of land or
shares In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of ...
, or by means of wills). To protect the settlor, English law demands a reasonable degree of certainty that a trust was intended. To be able to enforce the trust's terms, the courts also require reasonable certainty about which assets were entrusted, and which people were meant to be the trust's beneficiaries. English law, unlike that of some offshore tax havens and of the United States, requires that a trust have at least one beneficiary unless it is a "charitable trust". The
Charity Commission , type = Non-ministerial government department , seal = , seal_caption = , logo = Charity Commission for England and Wales logo.svg , logo_caption = , formed = , preceding1 = , ...
monitors how charity trustees perform their duties, and ensures that charities serve the public interest. Pensions and investment trusts are closely regulated to protect people's savings and to ensure that trustees or fund managers are accountable. Beyond these expressly created trusts, English law recognises "resulting" and "constructive" trusts that arise by automatic operation of law to prevent
unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...
, to correct wrongdoing or to create property rights where intentions are unclear. Although the word "trust" is used, resulting and constructive trusts are different from express trusts because they mainly create
property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
-based remedies to protect people's rights, and do not merely flow (like a
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
or an express trust) from the consent of the parties. Generally speaking, however, trustees owe a range of duties to their beneficiaries. If a trust document is silent, trustees must avoid any possibility of a
conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations i ...
, manage the trust's affairs with reasonable care and skill, and only act for purposes consistent with the trust's terms. Some of these duties can be excluded, except where the statute makes duties compulsory, but all trustees must act in
good faith In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
in the best interests of the beneficiaries. If trustees breach their duties, the beneficiaries may make a claim for all property wrongfully paid away to be restored, and may trace and follow what was trust property and claim
restitution The law of restitution is the law of gains-based recovery, in which a court orders the defendant to ''give up'' their gains to the claimant. It should be contrasted with the law of compensation, the law of loss-based recovery, in which a court ...
from any third party who ought to have known of the breach of trust.


History

Statements of equitable principle stretch back to the Ancient Greeks in the work of
Aristotle Aristotle (; grc-gre, Ἀριστοτέλης ''Aristotélēs'', ; 384–322 BC) was a Greek philosopher and polymath during the Classical period in Ancient Greece. Taught by Plato, he was the founder of the Peripatetic school of ...
, while examples of rules analogous to trusts were found in the
Roman law Roman law is the legal system of ancient Rome, including the legal developments spanning over a thousand years of jurisprudence, from the Twelve Tables (c. 449 BC), to the '' Corpus Juris Civilis'' (AD 529) ordered by Eastern Roman emperor J ...
testamentary institution of the '' fideicommissum'', and the
Islamic Islam (; ar, ۘالِإسلَام, , ) is an Abrahamic monotheistic religion centred primarily around the Quran, a religious text considered by Muslims to be the direct word of God (or '' Allah'') as it was revealed to Muhammad, the ma ...
proprietary institution of the ''
Waqf A waqf ( ar, وَقْف; ), also known as hubous () or '' mortmain'' property is an inalienable charitable endowment under Islamic law. It typically involves donating a building, plot of land or other assets for Muslim religious or charitab ...
''. However, English trusts law is a largely indigenous development that began in the Middle Ages, from the time of the 11th and 12th century
crusades The Crusades were a series of religious wars initiated, supported, and sometimes directed by the Latin Church in the medieval period. The best known of these Crusades are those to the Holy Land in the period between 1095 and 1291 that were ...
. After
William the Conqueror William I; ang, WillelmI (Bates ''William the Conqueror'' p. 33– 9 September 1087), usually known as William the Conqueror and sometimes William the Bastard, was the first Norman king of England, reigning from 1066 until his death in 10 ...
became King in 1066, one "
common law In law, common law (also known as judicial precedent, judge-made law, or case law) is the body of law created by judges and similar quasi-judicial tribunals by virtue of being stated in written opinions."The common law is not a brooding omniprese ...
" of England was created. Common law courts regarded property as an indivisible entity, as it had been under
Roman law Roman law is the legal system of ancient Rome, including the legal developments spanning over a thousand years of jurisprudence, from the Twelve Tables (c. 449 BC), to the '' Corpus Juris Civilis'' (AD 529) ordered by Eastern Roman emperor J ...
and continental versions of civil law. During the
crusades The Crusades were a series of religious wars initiated, supported, and sometimes directed by the Latin Church in the medieval period. The best known of these Crusades are those to the Holy Land in the period between 1095 and 1291 that were ...
, landowners who went to fight would transfer title to their land to a person they trusted so that feudal services could be performed and received. But many who returned found that the people they entrusted refused to transfer their title deed back. Sometimes, common law courts would not acknowledge that anybody had rights in the property except the holder of the legal title deeds. So claimants petitioned the King to sidestep the common law courts. The King delegated hearing of petitions to his
Lord Chancellor The lord chancellor, formally the lord high chancellor of Great Britain, is the highest-ranking traditional minister among the Great Officers of State in Scotland and England in the United Kingdom, nominally outranking the prime minister. Th ...
, who established the
Court of Chancery The Court of Chancery was a court of equity in England and Wales that followed a set of loose rules to avoid a slow pace of change and possible harshness (or "inequity") of the common law. The Chancery had jurisdiction over all matters of equ ...
as more cases were heard. Where it appeared "inequitable" (i.e. unfair) to let someone with legal title hold onto land, the
Lord Chancellor The lord chancellor, formally the lord high chancellor of Great Britain, is the highest-ranking traditional minister among the Great Officers of State in Scotland and England in the United Kingdom, nominally outranking the prime minister. Th ...
could declare that the real owner "in equity" (i.e. in all fairness) was another person, if this is what good conscience dictated. The
Court of Chancery The Court of Chancery was a court of equity in England and Wales that followed a set of loose rules to avoid a slow pace of change and possible harshness (or "inequity") of the common law. The Chancery had jurisdiction over all matters of equ ...
determined that the true "use" or "benefit" of property did not belong to the person on the title (or the
feoffee Under the feudal system in England, a feoffee () is a trustee who holds a fief (or "fee"), that is to say an estate in land, for the use of a beneficial owner. The term is more fully stated as a feoffee to uses of the beneficial owner. The use ...
who held
seisin Seisin (or seizin) denotes the legal possession of a feudal fiefdom or fee, that is to say an estate in land. It was used in the form of "the son and heir of X has obtained seisin of his inheritance", and thus is effectively a term concerned with co ...
). The '' cestui que use'', the owner in
equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...
, could be a different person. So English law recognised a split between legal and equitable owner, between someone who controlled title and another for whose benefit the land would be used. It was the beginning of
trust law A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the " sett ...
. The same logic was useful for
Franciscan , image = FrancescoCoA PioM.svg , image_size = 200px , caption = A cross, Christ's arm and Saint Francis's arm, a universal symbol of the Franciscans , abbreviation = OFM , predecessor = , ...
friars, who would transfer title of land to others as they were precluded from holding property by their vows of poverty. When the courts said that one person's legal title to property was subject to an obligation to use that property for another person, there was a trust. During the 15th century and 16th century, "uses" or "trusts" were also employed to avoid the payment of feudal taxation. If a person died, the law stated a landlord was entitled to money before the land passed to an heir, and the landlord got all of the property under the doctrine of
escheat Escheat is a common law doctrine that transfers the real property of a person who has died without heirs to the crown or state. It serves to ensure that property is not left in "limbo" without recognized ownership. It originally applied to a ...
if there were no heirs. Transferring title to a group of people for common
use Use may refer to: * Use (law), an obligation on a person to whom property has been conveyed * Use (liturgy), a special form of Roman Catholic ritual adopted for use in a particular diocese * Use–mention distinction, the distinction between using ...
could ensure this never happened, because if one person died he could be replaced, and it was unlikely for all to die at the same time.
King Henry VIII Henry VIII (28 June 149128 January 1547) was King of England from 22 April 1509 until his death in 1547. Henry is best known for his six marriages, and for his efforts to have his first marriage (to Catherine of Aragon) annulled. His disa ...
saw that this deprived the Crown of revenue, and so in the
Statute of Uses 1535 The Statute of Uses (27 Hen 8 c 10 — enacted in 1536) was an Act of the Parliament of England that restricted the application of uses in English property law. The Statute ended the practice of creating uses in real property by changing th ...
he attempted to prohibit uses, stipulating all land belonged in fact to the '' cestui que use''. Henry VIII also increased the role of the
Court of Star Chamber The Star Chamber (Latin: ''Camera stellata'') was an English court that sat at the royal Palace of Westminster, from the late to the mid-17th century (c. 1641), and was composed of Privy Counsellors and common-law judges, to supplement the judic ...
, a court with criminal jurisdiction that invented new rules as it thought fit, and often this was employed against political dissidents. However, when Henry VIII was gone, the Court of Chancery held that the
Statute of Uses 1535 The Statute of Uses (27 Hen 8 c 10 — enacted in 1536) was an Act of the Parliament of England that restricted the application of uses in English property law. The Statute ended the practice of creating uses in real property by changing th ...
had no application where land was leased. People started entrusting property again for family legacies. Moreover, the primacy of equity over the common law soon was reasserted, and this time supported by King James I in 1615, in the '' Earl of Oxford's case''. Due to its deep unpopularity the "criminal equity" jurisdiction was abolished by the Habeas Corpus Act 1640. Trusts grew more popular, and were tolerated by the Crown, as new sources of revenue from the mercantile exploits in the
New World The term ''New World'' is often used to mean the majority of Earth's Western Hemisphere, specifically the Americas."America." ''The Oxford Companion to the English Language'' (). McArthur, Tom, ed., 1992. New York: Oxford University Press, p. ...
decreased the Crown's reliance on feudal dues. By the early 18th century, the use had formalised into a trust: where land was settled to be held by a trustee, for the benefit of another, the Courts of Chancery recognised the beneficiary as the true owner in
equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...
. By the late 17th century, it had become an ever more widely held view that equitable rules and the law of trusts varied unpredictably, as the jurist
John Selden John Selden (16 December 1584 – 30 November 1654) was an English jurist, a scholar of England's ancient laws and constitution and scholar of Jewish law. He was known as a polymath; John Milton hailed Selden in 1644 as "the chief of learned ...
remarked, according to the size of the "Chancellor's foot". Over the 18th century English property law, and trusts with it, mostly came to a standstill in legislation, but the Court of Chancery continued to develop equitable principles notably under Lord Nottingham (from 1673–1682), Lord King (1725–1733),
Lord Hardwicke Philip Yorke, 1st Earl of Hardwicke, (1 December 16906 March 1764) was an English lawyer and politician who served as Lord High Chancellor of Great Britain. He was a close confidant of the Duke of Newcastle, Prime Minister between 1754 and 1 ...
(1737–1756), and Lord Henley (1757–1766). In 1765, the first Professor of English law,
William Blackstone Sir William Blackstone (10 July 1723 – 14 February 1780) was an English jurist, judge and Tory politician of the eighteenth century. He is most noted for writing the ''Commentaries on the Laws of England''. Born into a middle-class family ...
wrote in his ''
Commentaries on the Laws of England The ''Commentaries on the Laws of England'' are an influential 18th-century treatise on the common law of England by Sir William Blackstone, originally published by the Clarendon Press at Oxford, 1765–1770. The work is divided into four volum ...
'' that equity should not be seen as a distinct body of rules, separate from the other laws of England. For example, although it was "said that a court of equity determines according to the spirit of the rule and not according to the strictness of the letter," wrote Blackstone, "so also does a court of law" and the result was that each system of courts was attempting to reach "the same principles of justice and positive law". Blackstone's influence reached far. Chancellors became more concerned to standardise and harmonise equitable principles. At the start of the 19th century in '' Gee v Pritchard'', referring to
John Selden John Selden (16 December 1584 – 30 November 1654) was an English jurist, a scholar of England's ancient laws and constitution and scholar of Jewish law. He was known as a polymath; John Milton hailed Selden in 1644 as "the chief of learned ...
's quip, Lord Eldon (1801–1827) said 'Nothing would inflict upon me greater pain in quitting this place than the recollection that I had done anything to justify the reproach that the equity of this court varies like the Chancellor's foot.' The
Court of Chancery The Court of Chancery was a court of equity in England and Wales that followed a set of loose rules to avoid a slow pace of change and possible harshness (or "inequity") of the common law. The Chancery had jurisdiction over all matters of equ ...
was meant to have mitigated the petty strictnesses of the common law of property. But instead, came to be seen as cumbersome and arcane. This was partly because until 1813, there was only the
Lord Chancellor The lord chancellor, formally the lord high chancellor of Great Britain, is the highest-ranking traditional minister among the Great Officers of State in Scotland and England in the United Kingdom, nominally outranking the prime minister. Th ...
and the
Master of the Rolls The Keeper or Master of the Rolls and Records of the Chancery of England, known as the Master of the Rolls, is the President of the Civil Division of the Court of Appeal of England and Wales and Head of Civil Justice. As a judge, the Master of ...
working as judges. Work was slow. In 1813, a Vice-Chancellor was appointed, in 1841 two more, and in 1851 two Lord Justices of Appeal in Chancery (making seven). But this did not save it from ridicule. In particular,
Charles Dickens Charles John Huffam Dickens (; 7 February 1812 – 9 June 1870) was an English writer and social critic. He created some of the world's best-known fictional characters and is regarded by many as the greatest novelist of the Victorian er ...
(1812–1870), who himself worked as a clerk near
Chancery Lane Chancery Lane is a one-way street situated in the ward of Farringdon Without in the City of London. It has formed the western boundary of the City since 1994, having previously been divided between the City of Westminster and the London Boro ...
, wrote ''
Bleak House ''Bleak House'' is a novel by Charles Dickens, first published as a 20-episode serial between March 1852 and September 1853. The novel has many characters and several sub-plots, and is told partly by the novel's heroine, Esther Summerson, and ...
'' in 1853, depicting a fictional case of ''
Jarndyce v Jarndyce ''Jarndyce and Jarndyce'' (or ''Jarndyce v Jarndyce'') is a fictional probate case in ''Bleak House'' (1852–53) by Charles Dickens, progressing in the English Court of Chancery. The case is a central plot device in the novel and has become a ...
'', a Chancery matter about wills that nobody understood and dragged on for years and years. Within twenty years, separate courts of equity were abolished. Parliament merged the common law and equity courts into one system with the Supreme Court of Judicature Act 1873. Equitable principles would prevail over common law rules in case of conflict, but the separate identity of equity had ended. The separate identity of the trust, however, continued as strongly as before. In other parts of the
Commonwealth A commonwealth is a traditional English term for a political community founded for the common good. Historically, it has been synonymous with "republic". The noun "commonwealth", meaning "public welfare, general good or advantage", dates from the ...
(or the
British Empire The British Empire was composed of the dominions, colonies, protectorates, mandates, and other territories ruled or administered by the United Kingdom and its predecessor states. It began with the overseas possessions and trading posts e ...
at the time) trust law principles, as then understood, were codified for the purpose of easy administration. The best example is the Indian Trusts Act 1882, which described a trust as meaning "an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the bearer". Over the 20th century, trusts came to be used for multiple purposes beyond the classical role of parcelling out wealthy families' estates, wills, or charities. First, as more working-class people became more affluent, they began to be able to save for retirement through occupational pensions. After the
Old Age Pensions Act 1908 The Old-Age Pensions Act 1908 is an Act of Parliament of the United Kingdom of Great Britain and Ireland, passed in 1908. The Act is often regarded as one of the foundations of modern social welfare in both the present-day United Kingdom and the ...
, everyone who worked and paid
National Insurance National Insurance (NI) is a fundamental component of the welfare state in the United Kingdom. It acts as a form of social security, since payment of NI contributions establishes entitlement to certain state benefits for workers and their fami ...
would probably have access to the minimal state pension, but if people wanted to maintain their living standards, they would need more. Occupational pensions would typically be constituted through a trust deed, after being bargained for by a trade union under a collective agreement. After World War Two, the number of people with occupational pensions rose further, and gradually regulation was introduced to ensure that people's "pension promise" was protected. The settlor would usually be the employer and employee jointly, and the savings would be transferred to a trustee for the benefit of the employee. Most regulation, especially after the
Robert Maxwell Ian Robert Maxwell (born Ján Ludvík Hyman Binyamin Hoch; 10 June 1923 – 5 November 1991) was a Czechoslovak-born British media proprietor, Parliament of the United Kingdom, member of parliament (MP), suspected spy, and fraudster. Early i ...
scandals and the Goode Report, was directed at ensuring that the employer cannot dominate, or abuse its position through undue influence over the trustee or the trust fund. The second main use of the trust came to be in other financial investments, though not necessarily for retirement. The
unit trust A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on ...
, since their launch in 1931, became a popular vehicle for holding "units" in a fund that would invest in various assets, such as company shares,
gilts Gilt-edged securities are bonds issued by the UK Government. The term is of British origin, and then referred to the debt securities issued by the Bank of England on behalf of His Majesty's Treasury, whose paper certificates had a gilt (or gilde ...
or
government bonds A government bond or sovereign bond is a form of bond issued by a government to support public spending. It generally includes a commitment to pay periodic interest, called coupon payments'','' and to repay the face value on the maturity dat ...
or
corporate bonds A corporate bond is a bond issued by a corporation in order to raise financing for a variety of reasons such as to ongoing operations, M&A, or to expand business. The term is usually applied to longer-term debt instruments, with maturity of ...
. One person investing alone might not have much money to spread the risk of his or her investments, and so the unit trust offered an attractive way to pool many investors wealth, and share the profits (or losses). Nowadays, unit trusts have been mostly superseded by Open-ended investment companies, which do much the same thing, but are companies selling shares, rather than trusts. Nevertheless, trusts are widely used, and notorious in offshore trusts in "
tax havens A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, o ...
", where people hire an accountant or lawyer to make an argument that shifting assets in some new way will avoid tax. The third main contemporary use of the trust has been in the family home, though not as an expressly declared trust. As gender inequality began to narrow, both partners to a marriage would often be contributing money, or work, to pay the mortgage, make their home, or raise children together. A number of members of the judiciary became active from the late 1960s in declaring that even if one partner was not on the legal title deeds, she or he would still have an equitable property interest in the home under a "
resulting trust A resulting trust is an implied trust that comes into existence by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to have held the property for benefit of another person. The trust property ...
" or (more normally today) a "
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 enr ...
". In essence the courts would acknowledge the existence of a property right, without the trust being expressly declared. Some courts said it reflected an implicit common intention, while others said the use of the trust reflected the need to do justice. In this way, trusts continued to fulfill their historical function of mitigating strict legal rules in the interests of
equity Equity may refer to: Finance, accounting and ownership *Equity (finance), ownership of assets that have liabilities attached to them ** Stock, equity based on original contributions of cash or other value to a business ** Home equity, the diff ...
.


Formation of express trusts

In its essence the word "trust" applies to any situation where one person holds
property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of property may have the right to consume, alter, share, r ...
on behalf of another, and the law recognises obligations to use the property for the other's benefit. The primary situation in which a trust is formed is through the express intentions of a person who "settles" property. The "settlor" will give property to someone he trusts (a "trustee") to use it for someone he cares about (a "beneficiary"). The law's basic requirement is that a trust was truly "intended", and that a gift,
bailment Bailment is a legal relationship in common law, where the owner transfers physical possession of personal property ("chattel") for a time, but retains ownership. The owner who surrenders custody to a property is called the "bailor" and the ind ...
or agency relationship was not. In addition to requiring
certainty Certainty (also known as epistemic certainty or objective certainty) is the epistemic property of beliefs which a person has no rational grounds for doubting. One standard way of defining epistemic certainty is that a belief is certain if and o ...
about the settlor's intention, the courts suggest the terms of the trust should be sufficiently certain particularly regarding the property and who is to benefit. The courts also have a rule that a trust must ultimately be for people, and not for a purpose, so that if all beneficiaries are in agreement and of full age they may decide how to use the property themselves. The historical trend of construction of trusts is to find a way to enforce them. If, however, the trust is construed as being for a
charitable The practice of charity is the voluntary giving of help to those in need, as a humanitarian act, unmotivated by self-interest. There are a number of philosophies about charity, often associated with religion. Etymology The word ''charity'' or ...
purpose, then public policy is to ensure it is always enforced. Charitable trusts are one of a number of specific trust types, which are regulated by the
Charities Act 2006 The Charities Act 2006 (c 50) is an Act of the Parliament of the United Kingdom intended to alter the regulatory framework in which charities operate, partly by amending the Charities Act 1993. The Act was mostly superseded by the Charities Act ...
. Very detailed rules also exist for pension trusts, for instance under the Pensions Act 1995, particularly to set out the legal duties of pension trustees, and to require a minimum level of funding.


Intention and formality

Much like a contract, express trusts are usually formed based on the expressed intentions of a person who owns some property to in future have it managed by a trustee, and used for another person's benefit. Often the courts see cases where people have recently died, and expressed a wish to use property for another person, but have not used legal terminology. In principle, this does not matter. In ''
Paul v Constance / 9771 W.L.R. 527 is an English trust law case. It sets out what will be sufficient to establish that someone has intended to create a trust, the first of the "three certainties". It is necessary that a settlor's "words and actions ... show a c ...
'', Mr Constance had recently split up with his wife, and began to live with Ms Paul, who he played bingo with. Because of their close relationship, Mr Constance had often repeated that the money in his bank account, partly from bingo winnings and from a workplace accident, was "as much yours as mine". When Mr Constance died, his old wife claimed the money still belonged to her, but the Court of Appeal held that despite the lack of formal wording, and though Mr Constance had retained the legal title to the money, it was held on trust for him and Ms Paul. As
Scarman LJ Leslie George Scarman, Baron Scarman, (29 July 1911 – 8 December 2004) was an English judge and barrister, who served as a Law Lord until his retirement in 1986. Early life and education Scarman was born in Streatham but grew up on the b ...
put it, they understood "very well indeed their own domestic situation", and even though legal terms were not used in substance this did "convey clearly a present declaration that the existing fund was as much" belonging to Ms Paul. As
Lord Millett Peter Julian Millett, Baron Millett, , (23 June 1932 – 27 May 2021) was a British barrister and judge. He was a Lord of Appeal in Ordinary from 1998 to 2004. Biography Early life The son of Denis and Adele Millett, he was educated at Har ...
later put it, if someone "enters into arrangements which have the effect of creating a trust, it is not necessary that
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he should appreciate that they do so." The only thing that needs to be done further is that, if the settlor is not declaring herself or himself as the trustee, the property should be physically transferred to the new trustee for the trust to be properly "constituted". The traditional reason for requiring a transfer of property to the trustee was that the doctrine of
consideration Consideration is a concept of English common law and is a necessity for simple contracts but not for special contracts (contracts by deed). The concept has been adopted by other common law jurisdictions. The court in '' Currie v Misa'' declar ...
demanded that property should be passed, and not just promised at some future date, unless something of value was given in return. The general trend in more recent cases, though is to be flexible in these requirements, because as
Lord Browne-Wilkinson Nicolas Christopher Henry Browne-Wilkinson, Baron Browne-Wilkinson, PC (30 March 1930 – 25 July 2018) was a British judge who served as a Lord of Appeal in Ordinary from 1991 to 2000, and Senior Lord of Appeal in Ordinary from 1998 to 2000. ...
said, equity "will not strive officiously to defeat a gift". Although trusts do not, generally, require any formality to be established, formality may be required in order to transfer property the settlor wishes to entrust. There are six particular situations which have returned to the cases: (1) transfers of company shares require registration, (2) trusts and transfers of
land Land, also known as dry land, ground, or earth, is the solid terrestrial surface of the planet Earth that is not submerged by the ocean or other bodies of water. It makes up 29% of Earth's surface and includes the continents and various isla ...
require writing and
registration Register or registration may refer to: Arts entertainment, and media Music * Register (music), the relative "height" or range of a note, melody, part, instrument, etc. * ''Register'', a 2017 album by Travis Miller * Registration (organ), th ...
, (3) transfers (or "dispositions") of an equitable interest require writing, (4) wills require writing and witnesses, (5) gifts that are only to be transferred in the future require deeds,
Law of Property (Miscellaneous Provisions) Act 1989 The Law of Property (Miscellaneous Provisions) Act 1989 (c 34) is a United Kingdom Act of Parliament, which laid down a number of significant revisions to English property law. Nature of reforms The Act introduced several distinct reforms: :* ...
s 1
and (6) bank cheques usually need to be endorsed with a signature. The modern view of formal requirements is that their purpose is to ensure the transferring party has genuinely intended to carry out the transaction. As the American lawyer, Lon Fuller, put it the purpose is to provide "channels for the legally effective expression of intention", particularly where there's a common danger in large transactions that people could rush into it without thinking. However, older case law saw the courts interpreting the requirements of form very rigidly. In an 1862 case, '' Milroy v Lord'', a man named Thomas Medley signed a
deed In common law, a deed is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferrin ...
for Samuel Lord to hold 50 Bank of Louisiana shares on trust for his niece, Eleanor Milroy. But the
Court of Appeal in Chancery The Court of Appeal in Chancery was created in 1851 to hear appeals of decisions and decrees made in the Chancery Court. The appeals in the court were heard by the Lord Chancellor alone, or as a tripartite panel (supplemented by two Lords Justic ...
held that this did not create a trust (and nor was any gift effective) because the shares had not finally been registered. Similarly, in an 1865 case, '' Jones v Lock'', Lord Cottenham LC held that because a £900 cheque was not endorsed, it could not be counted as being held on trust for his son. This was so even though the father had said "I give this to baby... I am going to put it away for him... he may do what he likes with it" and locked it in a safe. However, the more modern view, starting with '' Re Rose'' was that if the transferor had taken sufficient steps to demonstrate their intention for property to be entrusted, then this was enough. Here, Eric Rose had filled out forms to transfer company shares to his wife, and three months later this was entered into the company share register. The Court of Appeal held, however, that in equity the transfer took place when the forms were completed. In '' Mascall v Mascall'' (1984) the Court of Appeal held that, when a father filled out a deed and certificate for the transfer of land, although the transfer had not actually been lodged with
HM Land Registry His Majesty's Land Registry is a non-ministerial department of His Majesty's Government, created in 1862 to register the ownership of land and property in England and Wales. It reports to the Department for Business, Energy and Industrial Strate ...
, in equity it the transfer was irrevocable. The trend was confirmed by the Privy Council in '' T Choithram International SA v Pagarani'' (2000), where a wealthy man publicly declared he would donate a large sum of money to a charitable foundation he had set up, but died before any transfer of the money took place. Although a gift, which is not transferred, was traditionally thought to require a
deed In common law, a deed is any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferrin ...
to be enforced, the
Privy Council A privy council is a body that advises the head of state of a state, typically, but not always, in the context of a monarchic government. The word "privy" means "private" or "secret"; thus, a privy council was originally a committee of the mo ...
advised this was not necessary as the property was already vested in him as a trustee, and his intentions were clear. In the case of " secret trusts", where someone has written a will but also privately told the executor that they wished to donate their some part of their property in other ways, this has long been held to not contravene the Wills Act 1837 requirements for writing, because it simply works as a declaration of trust before the will. The modern trend, then, has been that so long as the purpose of the formality rules will not be undermined, the courts will not hold trusts invalid.


Certainty of subject and beneficiaries

Beyond the requirement for a settlor to have truly intended to create a trust, it has been said since at least 1832 that the subject matter of the property, and the people who are to benefit must also be certain. Together, certainty of intention, the certainty of subject matter and beneficiaries have been called the " three certainties" required to form a trust, although the purposes of each "certainty" are different in kind. While certainty of intention (and the formality rules) seek to ensure that the settlor truly intended to benefit another person with his or her property, the requirements of certain subject matter and beneficiaries focus on whether a court will have a reasonable ability to know on what terms the trust should be enforced. As a point of general principle, most courts do not strive to defeat trusts on the basis of uncertainty. In the case of '' In re Roberts'' a lady named Miss Roberts wrote in her
will Will may refer to: Common meanings * Will and testament, instructions for the disposition of one's property after death * Will (philosophy), or willpower * Will (sociology) * Will, volition (psychology) * Will, a modal verb - see Shall and wi ...
that she wanted to leave £8753 and 5 shillings worth of bank annuities to her brother and his children who had the surname of "Roberts-Gawen". Miss Roberts' brother had a daughter who changed her name on marriage, but her son later changed his name back to Roberts-Gawen. At first instance, Hall VC held that, because the grand-nephew's mother had changed the name it was too uncertain that Miss Roberts had wished him to benefit. But on appeal, Lord Jessel MR held that Although in the 19th century a number of courts were overly tentative, the modern trend, much like in the
law of contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
, became as
Lord Denning Alfred Thompson "Tom" Denning, Baron Denning (23 January 1899 – 5 March 1999) was an English lawyer and judge. He was called to the bar of England and Wales in 1923 and became a King's Counsel in 1938. Denning became a judge in 1944 whe ...
put it: that "in cases of contract, as of wills, the courts do not hold the terms void for uncertainty unless it is utterly impossible to put a meaning upon them." For example, in the High Court case of ''
Re Golay's Will Trusts ''Re Golay’s Will Trusts'' 9651 WLR 969 is an English trusts law case, concerning the requirement of subject matter to be sufficiently certain. Facts Adrian Golay wrote a will saying that he wanted Mrs Bridgewater ‘to enjoy one of my flats d ...
'', Ungoed-Thomas J held that a
will Will may refer to: Common meanings * Will and testament, instructions for the disposition of one's property after death * Will (philosophy), or willpower * Will (sociology) * Will, volition (psychology) * Will, a modal verb - see Shall and wi ...
stipulating that a "reasonable income" should be paid to the beneficiaries, although the amount was not anywhere specified, could be given a clear meaning and enforced by the court. Courts were, he said, "constantly involved in making such objective assessments of what is reasonable" and would ensure "the direction in the will is not ... defeated by uncertainty." However, the courts have had difficulty in defining appropriate principles for cases where trusts are declared over property that many people have an interest in. This is especially true where the person who possesses that property has gone
insolvent In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet in ...
. In ''
Re Kayford Ltd ''Re Kayford Ltd (in liquidation)'' 9751 WLR 279 is a UK insolvency law and English trusts law case, concerning the creation of a trust over payments made by consumers, in an insolvent company. Facts The directors of Kayford Ltd, a mail order ...
'' a mail order business went insolvent and customers who had paid for goods wanted their money back. Megarry J held that because Kayford Ltd had put its money in a separate account the money was held on trust, and so the customers were not unsecured creditors. By contrast in '' Re London Wine Co (Shippers) Ltd'' Oliver J held that customers who had bought wine bottles were not entitled to take their wine because no particular bottles had been identified for a trust to arise. A similar view was expressed by the Privy Council in ''
Re Goldcorp Exchange Ltd ''Re Goldcorp Exchange Ltd'' 994UKPC 3is an English trusts law case by the Judicial Committee of the Privy Council decision on appeal from the Court of Appeal of New Zealand. It considers when there is sufficient certainty of subject matter to ...
'', where the customers of an insolvent
gold bullion A gold bar, also called gold bullion or gold ingot, is a quantity of refined metallic gold of any shape that is made by a bar producer meeting standard conditions of manufacture, labeling, and record keeping. Larger gold bars that are produce ...
reserve business were told that they never had been given particular gold bars, and so were unsecured creditors. These decisions were said to be motivated by the desire to not undermine the statutory priority system in insolvency, although it is not entirely clear why those policy reasons extended to consumers who are usually seen as "non-adjusting" creditors. However, in the leading Court of Appeal decision, '' Hunter v Moss'', there was no insolvency issue. There, Moss had declared himself to be a trustee of 50 out of 950 shares he held in a company, and Hunter sought to enforce this declaration. Dillon LJ held that it did not matter that the 50 particular shares had not been identified or isolated, and they were held on trust. The same result was reached, however, in an insolvency decision by Neuberger J in the High Court, called '' Re Harvard Securities Ltd'', where clients of a brokerage company were held to have had an equitable property interest in share capital held for them as a nominee. The view that appears to have been adopted is that if assets are " fungible" (i.e. swapping them with other will not make much difference) a declaration of trust can be made, so long as the purpose of the statutory priority rules in insolvency are not compromised. The final "certainty" the courts require is to know to some reasonable degree who the beneficiaries are to be. Again, the courts have become increasingly flexible, and intend to uphold the trust if at all possible. In '' Re Gulbenkian's Settlements'' (1970) a wealthy Ottoman oil businessman and co-founder of the Iraq Petroleum Company,
Calouste Gulbenkian Calouste Sarkis Gulbenkian (, Western hy, Գալուստ Կիւլպէնկեան; 23 March 1869 – 20 July 1955), nicknamed "Mr Five Per Cent", was a British-Armenian businessman and philanthropist. He played a major role in making the petrole ...
, had left a will giving his trustees "absolute discretion" to pay money to his son
Nubar Gulbenkian Nubar Sarkis Gulbenkian ( hy, Նուպար Սարգիս Կիւլպէնկեան; 2 June 1896 – 10 January 1972) was an Armenian-British business magnate and socialite born in the Ottoman empire. During World War II, he helped organize the ...
, and family, but then also anyone with whom Nubar had "from time to time
een Een ːnis a village in the Netherlands. It is part of the Noordenveld municipality in Drenthe. History Een is an ''esdorp'' which developed in the middle ages on the higher grounds. The communal pasture is triangular. The village developed dur ...
employed or residing". This provision of the will was challenged (by the other potential beneficiaries, who wanted more themselves) as being too uncertain in regard to who the beneficiaries were meant to be. The House of Lords held that the will was still entirely valid, because even though one might not be able to draw up a definite list of everybody, the trustees and a court could be sufficiently certain, with evidence of anyone who "did or did not" employ or house Nubar. Similarly, this "is or is not test" was applied in '' McPhail v Doulton''. Mr Betram Baden created a trust for the employees, relatives and dependants of his company, but also giving the trustees "absolute discretion" to determine who this was. The settlement was challenged (by the local council that would receive the remainder) on the ground that the idea of "relatives" and "dependants" was too uncertain. The House of Lords held the trust was clearly valid because a court could exercise the relevant power, and would do so "to give effect to the settlor's or testator's intentions." Unfortunately, when the case was remitted to the lower courts to determine what in fact the settlor's intentions were, in '' Re Baden's Deed Trusts'', the judges in the Court of Appeal could not agree. All agreed the trust was sufficiently certain, but Sachs LJ thought it was only necessary to show that there was a "conceptually certain" class of beneficiaries, however small, and Megaw LJ thought a class of beneficiaries had to have "at least a substantial number of objects", while Stamp LJ believed that the court should restrict the definition of "relative" or "dependant" to something clear, such as "next of kin". The Court of Appeal in '' Re Tuck's Settlement Trusts'' was more clear. An art publisher who had Jewish background, Baronet
Adolph Tuck Sir Adolph Tuck, 1st Baronet (1854–1926), for most of his life known as Adolph Tuck, was a Prussian-British fine art publisher and chairman of Raphael Tuck & Sons. He was created a baronet in 1910. It was due to the efforts of Adolph Tuck that ...
, wished to create a trust for people who were "of Jewish blood". Because of mixing of faiths and ancestors over generations, this could have meant a very large number of people, but in the view of
Lord Denning MR Alfred Thompson "Tom" Denning, Baron Denning (23 January 1899 – 5 March 1999) was an English lawyer and judge. He was called to the bar of England and Wales in 1923 and became a King's Counsel in 1938. Denning became a judge in 1944 when ...
the trustees could simply decide. Also the will had stated that the Chief Rabbi of London could resolve any doubts, and so it was valid for a second reason. Lord Russell agreed, although on this point Eveleigh LJ dissented, and stated that the trust was only valid with Rabbi clause. Divergent views in some cases continued. In ''
Re Barlow's Will Trusts ''Re Barlow's Will Trusts'' 9791 WLR 278 is an English trusts law case, concerning certainty of the words "family" and "friends" in a will. Facts Miss Helen Alice Dorothy Barlow, the testatrix had a large collection of pictures. She specifi ...
'', Browne-Wilkinson J held that concepts (like "friend") could always be restricted, as a last resort, to prevent a trust failing. By contrast in one highly political case, a High Court judge found that the
West Yorkshire County Council West Yorkshire County Council (WYCC) – also known as West Yorkshire Metropolitan County Council (WYMCC) – was the top-tier local government administrative body for West Yorkshire from 1974 to 1986. A strategic authority, with responsibilitie ...
's plan to make a discretionary trust to distribute £400,000 "for the benefit of any or all of the inhabitants" of West Yorkshire, with the aim to inform people about the effects of the council's impending abolition by
Margaret Thatcher Margaret Hilda Thatcher, Baroness Thatcher (; 13 October 19258 April 2013) was Prime Minister of the United Kingdom from 1979 to 1990 and Leader of the Conservative Party from 1975 to 1990. She was the first female British prime ...
's government, failed because it was (apparently) "unworkable". It remained unclear whether some courts' attachment to strict certainty requirements was consistent with the principles of equitable flexibility.


Beneficiary principle

People have a general freedom, subject to statutory requirements and basic fiduciary duties, to design the terms of a trust in the way a settlor deems fit. However English courts have long refused to enforce trusts that only serve an abstract purpose, and are not for the benefit of people. Only charitable trusts, defined by the
Charities Act 2011 The Charities Act 2011c 25 is a UK Act of Parliament. It consolidated the bulk of the Charities Act 2006, outstanding provisions of the Charities Act 1993, and various other enactments. Repeals Legislation repealed in its entirety by the 2011 A ...
, and about four other small exceptions will be enforced. The main reason for this judicial policy is to prevent, as Roxburgh J said in ''
Re Astor's Settlement Trusts ''Re Astor’s Settlement Trusts'' 952Ch 534 is an English trusts law case, concerning the principle that non-charitable trusts must be for beneficiaries and not abstract purposes. Facts Waldorf Astor, private secretary to David Lloyd George and ...
'', "the creation of large funds devoted to non-charitable purposes which no court and no department of state can control". This followed a similar policy to the
rule against perpetuities The rule against perpetuities is a legal rule in the American common law that prevents people from using legal instruments (usually a deed or a will) to exert control over the ownership of private property for a time long beyond the lives of p ...
, which rendered void any trust that would only be transferred to (or "
vest A waistcoat ( UK and Commonwealth, or ; colloquially called a weskit), or vest ( US and Canada), is a sleeveless upper-body garment. It is usually worn over a dress shirt and necktie and below a coat as a part of most men's formal wear. ...
") in someone in the distant future (currently 125 years under the Perpetuities and Accumulations Act 2009). In both ways, the view has remained strong that the wishes of the dead should not, so to speak, rule the living from the grave. It would mean that society's resources and wealth would be tied into uses that (because they were not charitable) failed to serve contemporary needs, and therefore made everyone poorer. '' Re Astor's ST'' itself concerned the wish of the Viscount
Waldorf Astor Waldorf Astor, 2nd Viscount Astor, DL (19 May 1879 – 30 September 1952) was an American-born English politician and newspaper proprietor. He was a member of the Astor family. He was active in minor political roles. He was devoted to charitab ...
, who had owned ''
The Observer ''The Observer'' is a British newspaper published on Sundays. It is a sister paper to ''The Guardian'' and '' The Guardian Weekly'', whose parent company Guardian Media Group Limited acquired it in 1993. First published in 1791, it is the ...
'' newspaper, to maintain "good understanding... between nations" and "the independence and integrity of newspapers". While perhaps laudable, it was not within the tightly defined categories of a charity, and so was not valid. An example of a much less laudable aim in '' Brown v Burdett'' was an old lady's demand in her will that her house be boarded up for 20 years with "good long nails to be bent down on the inside", but for some reason with her clock remaining inside. Bacon VC cancelled the trust altogether. But while there is a policy against enforcing trusts for abstract and non-charitable purposes, if possible the courts will construe a trust as being for people where they can. For example, in '' Re Bowes'' an aristocrat named John Bowes left £5000 in his will for "planting trees for shelter on the Wemmergill estate", in
County Durham County Durham ( ), officially simply Durham,UK General Acts 1997 c. 23Lieutenancies Act 1997 Schedule 1(3). From legislation.gov.uk, retrieved 6 April 2022. is a ceremonial county in North East England.North East Assembly �About North East E ...
. This was an extravagantly large sum of money for trees. But rather than holding it void (since planting trees on private land was a non-charitable purpose) North J construed the trust to mean that the money was really intended for the estate owners. Similarly in '' Re Osoba'', the Court of Appeal held that a trust of a Nigerian man, Patrick Osoba, said to be for the purpose of "training of my daughter" was not an invalid purpose trust. Instead it was in substance intended that the money be for the daughter. Buckley LJ said the court would treat "the reference to the purpose as merely a statement of the testator's motive in making the gift". There are commonly said to be three (or maybe four) small exceptions to the rule against enforcing non-charitable purpose trusts, and there is one certain and major loophole. First, trusts can be created for building and maintaining graves and funeral monuments. Second, trusts have been allowed for the saying of private masses. Third, it was (long before the
Hunting Act 2004 The Hunting Act 2004 (c 37) is an Act of the Parliament of the United Kingdom which bans the hunting of most wild mammals (notably foxes, deer, hares and mink) with dogs in England and Wales, subject to some strictly limited exemptions; ...
) said to be lawful to have a trust promoting
fox hunting Fox hunting is an activity involving the tracking, chase and, if caught, the killing of a fox, traditionally a red fox, by trained foxhounds or other scent hounds. A group of unarmed followers, led by a "master of foxhounds" (or "master of ho ...
. These "exceptions" were said to be fixed in ''
Re Endacott ''Re Endacott'' 959EWCA Civ 5 is an English trusts law case, concerning the policy of the "beneficiary principle". It held that outside of trusts for animals, graves and saying private masses (and hunting foxes, till the Hunting Act 2004) no trus ...
'', where a minor businessman in who lived in
Devon Devon ( , historically known as Devonshire , ) is a ceremonial and non-metropolitan county in South West England. The most populous settlement in Devon is the city of Plymouth, followed by Devon's county town, the city of Exeter. Devo ...
wanted to entrust money "for the purpose of providing some useful memorial to myself".
Lord Evershed MR Francis Raymond Evershed, 1st Baron Evershed, PC (8 August 1899 – 3 October 1966) was a British judge who served as Master of the Rolls, and subsequently became a Law Lord. Background and education Evershed was the son of Frank Evershed, a b ...
held this invalid because it was not a grave, let alone charitable. It has, however, been questioned whether the existing categories are in fact true exceptions given that graves and masses could be construed as trusts which ultimately benefit the landowner, or the relevant church. In any case the major exception to the no purpose trust rule is that in many other common law countries, particularly the United States and a number of
Caribbean The Caribbean (, ) ( es, El Caribe; french: la Caraïbe; ht, Karayib; nl, De Caraïben) is a region of the Americas that consists of the Caribbean Sea, its islands (some surrounded by the Caribbean Sea and some bordering both the Caribbean ...
states, they can be valid. If capital is entrusted under the rules of other jurisdictions the Recognition of Trusts Act 1987 Schedule 1, articles 6 and 18 requires that the trusts are recognised. This follows the Hague Trust Convention of 1985, which was ratified by 12 countries. The UK recognises any
offshore trust An offshore trust is a conventional trust that is formed under the laws of an offshore jurisdiction. Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settlor transferring (or 'settling') a ...
s unless they are "manifestly incompatible with public policy". Even trusts in countries that are " offshore financial centres" (typically described as "
tax havens A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, o ...
" because wealthy individuals or corporations shift their assets there to avoid paying taxes in the UK), purpose trusts can be created which serve no charitable function, or any function related to the good of society, so long as the trust document specifies someone to be an "enforcer" of the trust document. These include
Jersey Jersey ( , ; nrf, Jèrri, label= Jèrriais ), officially the Bailiwick of Jersey (french: Bailliage de Jersey, links=no; Jèrriais: ), is an island country and self-governing Crown Dependency near the coast of north-west France. It is the ...
, the
Isle of Man ) , anthem = " O Land of Our Birth" , image = Isle of Man by Sentinel-2.jpg , image_map = Europe-Isle_of_Man.svg , mapsize = , map_alt = Location of the Isle of Man in Europe , map_caption = Location of the Isle of Man (green) in Europ ...
, Bermuda, the
British Virgin Islands ) , anthem = "God Save the King" , song_type = Territorial song , song = "Oh, Beautiful Virgin Islands" , image_map = File:British Virgin Islands on the globe (Americas centered).svg , map_caption = , mapsize = 290px , image_map2 = Brit ...
and the
Cayman Islands The Cayman Islands () is a self-governing British Overseas Territory—the largest by population in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac and Little Cayman, which are located to the ...
. It is argued, for example by David Hayton, a former UK academic trust lawyer who was recruited to serve on the Caribbean Court of Justice, that having an enforcer resolves any problem of ensuring that the trust is run accountably. This substitutes for the oversight that beneficiaries would exercise. The result, it is argued, is that English law's continued prohibition on non-charitable purpose trusts is antiquated and ineffective, and is better removed so that money remains "onshore". This would also have the consequence, like in the US or the tax haven jurisdictions, that public money would be used to enforce trusts over vast sums of wealth which might never do anything for a living person.


Associations

While express trusts in a family, charity, pension or investment context are typically created with the intention of benefiting people, property held by associations, particularly those which are not incorporated, was historically problematic. Often associations did not express their property to be held in any particular way and courts had theorised that it was held on trust for the members. At common law, associations such as trade unions, political parties, or local sports clubs were formed through an express or implicit
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
, so long as "two or more persons rebound together for one or more common purposes". In '' Leahy v Attorney-General for New South Wales'' Viscount Simonds in the Privy Council, advised that if property is transferred, for example by gift, to an unincorporated association it is "nothing else than a gift to its members at the date of the gift as
joint tenants In property law, a concurrent estate or co-tenancy is any of various ways in which property is owned by more than one person at a time. If more than one person owns the same property, they are commonly referred to as co-owners. Legal terminolo ...
or
tenants in common In property law, a concurrent estate or co-tenancy is any of various ways in which property is owned by more than one person at a time. If more than one person owns the same property, they are commonly referred to as co-owners. Legal terminolo ...
." He said that if property were deemed to be held on trust for future members, this could be void for violating the
rule against perpetuities The rule against perpetuities is a legal rule in the American common law that prevents people from using legal instruments (usually a deed or a will) to exert control over the ownership of private property for a time long beyond the lives of p ...
, because an association could last long into the future, and so the courts would generally deem current members to be the appropriate beneficiaries who would take the property on trust for one another. In the
English property law English property law refers to the law of acquisition, sharing and protection of valuable assets in England and Wales. While part of the United Kingdom, many elements of Scots property law are different. In England, property law encompasses fou ...
concept, "joint tenancy" meant that people own the whole of a body of assets together, while "tenancy in common" meant that people could own specific fractions of the property in equity (though not law). If that was true, a consequence would have been that property was held on trust for members of an association, and those members were beneficiaries. It would have followed that when members left an association, their share could not be transferred to the other members without violating the requirement of writing in the
Law of Property Act 1925 The Law of Property Act 1925c 20 is a statute of the United Kingdom Parliament. It forms part of an interrelated programme of legislation introduced by Lord Chancellor Lord Birkenhead between 1922 and 1925. The programme was intended to modern ...
section 53(1) for the transfer of a beneficial interest: a requirement that was rarely fulfilled. Another way of thinking about associations' property, that came to be the dominant and practical view, was first stated by Brightman J in '' Re Recher's Will Trusts''. Here it was said that, if no words are used that indicate a trust is intended, a "gift takes effect in favour of the existing members of the association as an accretion to the funds which are the subject-matter of the contract". In other words, property will be held according to the members' contractual terms of their association. This matters for deciding whether a gift will succeed or be held to fail, although that possibility is unlikely on any contemporary view. It also matters where an association is being wound up, and there is a dispute over who should take the remaining property. In a recent decision, '' Hanchett‐Stamford v Attorney‐General'' Lewison J held that the final surviving member of the "Performing and Captive Animals Defence League" was entitled to the remaining property of the association, although while the association was running any money could not be used for the members' private purposes. On the other hand, if money is donated to an organisation, and specifically intended to be passed onto others, then the end of an association could mean that remaining assets will go back to the people the money came from (on "
resulting trust A resulting trust is an implied trust that comes into existence by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to have held the property for benefit of another person. The trust property ...
") or be ''
bona vacantia Unowned property includes tangible, physical things that are capable of being reduced to being property owned by a person but are not owned by anyone. ' (Latin for "ownerless goods") is a legal concept associated with the unowned property, which e ...
''. In '' Re West Sussex Constabulary's Widows, Children and Benevolent (1930) Fund Trusts'', Goff J held that a fund set up for the dependants of police staff, which was being wound up, which had been given money expressly for reason of benefiting dependants (and not to benefit the members of the trust) could not be taken by those members. The rules have also mattered, however for the purpose of taxation. In '' Conservative and Unionist Central Office v Burrell'' it was held that the
Conservative Party The Conservative Party is a name used by many political parties around the world. These political parties are generally right-wing though their exact ideologies can range from center-right to far-right. Political parties called The Conservative P ...
, and its various limbs and branches, was not all bound together by a contract, and so not subject to
corporation tax A corporate tax, also called corporation tax or company tax, is a direct tax imposed on the income or capital of corporations or analogous legal entities. Many countries impose such taxes at the national level, and a similar tax may be imposed a ...
.


Charitable trusts

Charitable trusts are a general exception to the rule in English law that trusts cannot be created for an abstract purpose. The meaning of a charity has been set in statute since the
Elizabethan The Elizabethan era is the epoch in the Tudor period of the history of England during the reign of Queen Elizabeth I (1558–1603). Historians often depict it as the golden age in English history. The symbol of Britannia (a female personific ...
Charitable Uses Act 1601 The Charitable Uses Act of 1601 (known as the ''Statute of Elizabeth'') is an Act (43 Eliz I, c.4) of the Parliament of England. It was repealed by section 13(1) of the Mortmain and Charitable Uses Act 1888 (c.42) (but see section 13(2) of that ...
, but the principles are now codified by the
Charities Act 2011 The Charities Act 2011c 25 is a UK Act of Parliament. It consolidated the bulk of the Charities Act 2006, outstanding provisions of the Charities Act 1993, and various other enactments. Repeals Legislation repealed in its entirety by the 2011 A ...
. Apart from being capable of not having any clear beneficiaries, charitable trusts usually enjoy exemption from taxation on its own capital or income, and people making gifts can deduct the gift from their taxes. Classically, a trust would be charitable if its purpose was promoting reduction of poverty, advancement of education, advancement of religion, or other purposes for the public benefit. The criterion of "public benefit" was the key to being a charity. Courts gradually added specific examples, today codified in the
CA 2011 The Charities Act 2011c 25 is a UK Act of Parliament. It consolidated the bulk of the Charities Act 2006, outstanding provisions of the Charities Act 1993, and various other enactments. Repeals Legislation repealed in its entirety by the 2011 A ...
section 3, section 4 emphasises that all purposes must be for the "public benefit". The meaning remains with the courts. In ''
Oppenheim v Tobacco Securities Trust Oppenheim () is a town in the Mainz-Bingen district of Rhineland-Palatinate, Germany. The town is a well-known wine center, being the home of the German Winegrowing Museum, and is particularly known for the wines from the Oppenheimer Krötenbr ...
'' the House of Lords held that an employer's trust for his employees and children was not for the public benefit because of the personal relationship between them. Generally, the trust must be for a "sufficient section of the public" and cannot exclude the poor. However it is often unclear how these principles are applicable in practice. Because beneficiaries can rarely enforce charitable trustee standards, the Charities Commission is a statutory body whose role is to promote good practice and pre-empt poor charitable management.


Pension trusts

Pension trusts are the most economically significant kind of trust, as they compose over £1 trillion worth of retirement savings in the UK. Partly because of this, and also because occupational pension savers pay for their retirement through their work, the regulation of pensions differs considerably from general trust law. The interpretation and construction of a pension trust deed must comply with the basic term of
mutual trust and confidence Mutual trust and confidence is a phrase used in English law, particularly with reference to contracts in UK labour law, to refer to the obligations owed in an employment relationship between the employer and the worker. This concept relates to a ...
in the employment relationship. Employees are entitled to be informed by their employer about how to make the best of their pension rights. Moreover, workers must be treated equally, on grounds of gender or otherwise, in their pension entitlements. The management of a pension trust must be partly codetermined by the pension beneficiaries, so that a minimum of one third of a trustee board are elected or " member nominated trustees". The Secretary of State has the power by regulation, as yet unused, to increase the minimum up to one half. Trustees are charged with the duty to manage the fund in the best interests of the beneficiaries, in a way that reflects their general preferences, by investing the savings in company shares,
bond Bond or bonds may refer to: Common meanings * Bond (finance), a type of debt security * Bail bond, a commercial third-party guarantor of surety bonds in the United States * Chemical bond, the attraction of atoms, ions or molecules to form chemical ...
s, real estate or other financial products. There is a strict prohibition on the misapplication of any assets. Unlike the general position for a trustee's duty of care, the Pensions Act 1995 section 33 stipulates that trustee investment duties may not be excluded by the trust deed. Because pension schemes save up significant amounts of money, which many people rely on in retirement, protection against an employer's
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...
, or dishonesty, or risks from the stock market were seen as necessary after the 1992
Robert Maxwell Ian Robert Maxwell (born Ján Ludvík Hyman Binyamin Hoch; 10 June 1923 – 5 November 1991) was a Czechoslovak-born British media proprietor, Parliament of the United Kingdom, member of parliament (MP), suspected spy, and fraudster. Early i ...
scandal.
Defined contribution A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Individual accounts are set up for participants and benefits are based on the amounts credited to these a ...
funds must be administered separately, not subject to an employer's undue influence. The
Insolvency Act 1986 The Insolvency Act 1986c 45 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication and ...
also requires that outstanding pension contributions are a preferential debt over creditors, except those with fixed security. However, defined benefit schemes are also meant to insure everyone has a stable income regardless of whether they live a shorter or longer period after retirement. The Pensions Act 2004 sections 222 to 229 require that pension schemes have a minimum "statutory funding objective", with a statement of "funding principles", whose compliance is periodically evaluated by actuaries, and shortfalls are made up. The Pensions Regulator is the non-departmental body which is meant to oversee these standards, and compliance with trustee duties, which cannot be excluded. However, in '' The Pensions Regulator v Lehman Brothers'' the Supreme Court concluded that if the Pensions Regulator issued a "Financial Support Direction" to pay up funding, and it was not paid when a company had gone insolvent, this ranked like any other unsecured debt in insolvency, and did not have priority over banks that hold
floating charge A floating charge is a security interest over a fund of changing assets of a company or other legal person. Unlike a fixed charge, which is created over ascertained and definite property, a floating charge is created over property of an ambulato ...
s. In addition, there exists a Pensions Ombudsman who may hear complaints and take informal action against employers who fall short of their statutory duties. If all else fails, the Pension Protection Fund guarantees a sum is ensured, up to a statutory maximum.


Investment and taxation

Despite the name, "
investment trust An investment trust is a form of investment fund found mostly in the United Kingdom and Japan. Investment trusts are constituted as public limited companies and are therefore closed ended since the fund managers cannot redeem or create shares. ...
s" are not actually trusts at all, rather than limited companies, registered with
Companies House Companies House is the executive agency of the company registrars of the United Kingdom, falling under the remit of the Department for Business, Energy and Industrial Strategy. All forms of companies (as permitted by the Companies Act) are in ...
. However, trusts are frequently used as investment vehicles. *
Unit trust A unit trust is a form of collective investment constituted under a trust deed. A unit trust pools investors' money into a single fund, which is managed by a fund manager. Unit trusts offer access to a wide range of investments, and depending on ...
*
Offshore trust An offshore trust is a conventional trust that is formed under the laws of an offshore jurisdiction. Generally offshore trusts are similar in nature and effect to their onshore counterparts; they involve a settlor transferring (or 'settling') a ...
*
Collective investment scheme An investment fund is a way of investing money alongside other investors in order to benefit from the inherent advantages of working as part of a group such as reducing the risks of the investment by a significant percentage. These advantages inc ...
*
Real estate investment trust A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, including office and apartment buildings, warehouses, hospitals, shopping cente ...
* Taxation of trusts (United Kingdom) *'' Inland Revenue Commissioners v Willoughby''
997 Year 997 ( CMXCVII) was a common year starting on Friday (link will display the full calendar) of the Julian calendar. Events By place Japan * 1 February: Empress Teishi gives birth to Princess Shushi - she is the first child of the ...
1 WLR 1071 *''
Inland Revenue Commissioners v Duke of Westminster Inland may refer to: Places Sweden * Inland Fräkne Hundred, a hundred of Bohuslän in Sweden * Inland Northern Hundred, a hundred of Bohuslän in Sweden * Inland Southern Hundred, a hundred of Bohuslän in Sweden * Inland Torpe Hundred, a hundred ...
''
936 Year 936 ( CMXXXVI) was a leap year starting on Friday (link will display the full calendar) of the Julian calendar. Events By place Europe * June 19 – At Laon, Louis IV, the 14-year old son of the late King Charles the Simp ...
AC 1, 19 *''
Furniss v Dawson ''Furniss v. Dawson'' is an important House of Lords case in the field of UK tax. Its full name is ''Furniss (Inspector of Taxes) v. Dawson D.E.R., Furniss (Inspector of Taxes) v. Dawson G.E., Murdoch (Inspector of Taxes) v. Dawson R.S.'', and ...
'' 9841 AC 474, 526 *'' MacNiven v Westmorelands Investments Ltd'' 001UKHL 6, 0031 AC 311, 327, Lord Hoffmann *Income tax, '' Williams v Singer''
921 __NOTOC__ Year 921 ( CMXXI) was a common year starting on Monday (link will display the full calendar) of the Julian calendar. Events By place Byzantine Empire * March – Battle of Pegae: Bulgarian forces under ''kavhan'' (first ...
1 AC 65 *Capital gains tax * Inheritance Tax Act 1984 and
Inheritance Tax (United Kingdom) In the United Kingdom, Inheritance Tax is a transfer tax. It was introduced with effect from 18 March 1986, replacing Capital Transfer Tax. History Prior to the introduction of Estate Duty by the Finance Act 1894, there was a complex system ...


Formation of imposed trusts

While express trusts arise primarily because of a conscious plan that settlors, trustees or beneficiaries
consent Consent occurs when one person voluntarily agrees to the proposal or desires of another. It is a term of common speech, with specific definitions as used in such fields as the law, medicine, research, and sexual relationships. Consent as und ...
to, courts also impose trusts to correct wrongs and reverse
unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...
. The two main types of imposed trusts, known as "resulting" and "constructive" trusts, do not necessarily respond to any intentional wishes. There is significant academic debate over why they arise. Traditionally, the explanation was this was to prevent people acting "unconscionably" (i.e. inequitably or unjustly). Modern authors increasingly prefer to categorise resulting and constructive trusts more precisely, as responding to wrongs, unjust enrichments, sometimes consent or contributions in family home cases. In these contexts, the word "trust" still denotes the proprietary remedy, but resulting and constructive trusts usually do not come from complete agreements. Having a property right is usually most important if a defendant is
insolvent In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-sheet in ...
, because then the "beneficiaries" under resulting or constructive rank in priority to the defendants' other creditors: they can take the property away first. Generally,
resulting trust A resulting trust is an implied trust that comes into existence by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to have held the property for benefit of another person. The trust property ...
s are imposed by courts when a person receives property, but the person who transferred it did not have the intention for them to benefit. English law establishes a presumption that people do not desire to give away property unless there is some objective manifestation of consent to do so. Without positive evidence of an intention to transfer property, a recipient holds property under a resulting trust.
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 enr ...
s arise in around ten different circumstances. Though the list is debated, potentially the courts will "construe" a person to hold property for another person, first, to complete a consent based obligations, particularly those lacking formality, second, to reflect a person's contribution to the value of property, especially in a family home, third, to effect a remedy for wrongdoing such as when a trustee makes a secret profit, and fourth, to reverse unjust enrichment.


Resulting trusts

A resulting trust is usually recognised when one person has given property to another person without the intention to benefit them. The recipient will be declared by the court to be a "resulting trustee" so that the equitable property right returns to the person it came from. For some time, the courts of equity required proof of a positive intention before they would acknowledge the passing of a gift, primarily as a way to prevent fraud. If one person transferred property to another, unless there was positive evidence that it was meant to be a gift, it would be presumed that the recipient held the property on trust for the transferee. It was also recognised that if money was transferred as part of the purchase of land or a house, the transferee would acquire an equitable interest in the land under a resulting trust. On the other hand, if evidence clearly showed a gift was intended, then a gift would be acknowledged. In '' Fowkes v Pascoe'', an old lady named Mrs Baker had bought Mr Pascoe some company stocks, because she had become endeared to him and treated him like a grandson. When she died, the executor, Mr Fowkes, argued that Mr Pascoe held the stocks on resulting trust for the estate, but the Court of Appeal said the fact that the lady had put the stocks in Mr Pascoe's name was absolutely conclusive. The presumption of a resulting trust was rebutted. If there is no evidence either way of intention to benefit someone with a property transfer, the presumption of a resulting trust is transferred is not absolute. The
Law of Property Act 1925 The Law of Property Act 1925c 20 is a statute of the United Kingdom Parliament. It forms part of an interrelated programme of legislation introduced by Lord Chancellor Lord Birkenhead between 1922 and 1925. The programme was intended to modern ...
section 60(3) states that a resulting trust does not arise simply with absence of an express intention. However, the presumption is strong. This has a consequence when property is transferred in connection with an illegal purpose. Ordinarily, English law takes the view that one cannot rely in civil claims on actions done that are tainted with illegality (or in the Latin saying '' ex turpi causa non oritur actio''). However, in '' Tinsley v Milligan'', it was still possible for a claimant, Ms Milligan, to show she had an equitable interest in the house where she and her partner, Ms Tinsley, lived because she had contributed to the purchase price. Ms Tinsley was the sole registered owner, and both had intended to keep things this way because with one person on the title, they could fraudulently claim more in social security benefits. The House of Lords held, however, that because a resulting trust was presumed by the law, Ms Milligan did not need to prove an intention to not benefit Ms Tinsley, and therefore rely on her intention that was tainted with an illegal purpose. By contrast, the law has historically stated that when a husband transfers property to his wife (but not vice versa) or when parents make transfers to their children, a gift is presumed (or there is a "
presumption of advancement The presumption of advancement is a legal presumption which arises in various common law jurisdictions in relation to the transfers of money or other property. Broadly, the presumption states that where a husband transfers property to his wife, o ...
"). This presumption has been criticised on the ground that it is essentially sexist, or at least "belonging to the propertied classes of a different social era." It could be thought to follow that if Milligan had been a man and married to Tinsley, then the case's outcome would be the opposite. One limitation, however, came in '' Tribe v Tribe''. Here a father transferred company shares to his son with a view to putting them out of reach of his creditors. This created a presumption of advancement. His son then refused to give the shares back, and the father argued in court that he had plainly not intended the son should benefit. Millett LJ held that because the illegal plan (to defraud creditors) had not been put into effect, the father could prove he had not intended to benefit his son by referring to the plan. Depending on what an appellate court would now decide, the presumption of advancement may remain a part of the law. The
Equality Act 2010 The Equality Act 2010 is an Act of Parliament of the United Kingdom passed during the Brown ministry with the primary purpose of consolidating, updating and supplementing the numerous prior Acts and Regulations, that formed the basis of anti-d ...
section 199 would abolish the presumption of advancement, but the section's implementation was delayed indefinitely by the Conservative led coalition government when it was elected in 2010. As well as resulting trusts, where the courts have presumed that the transferor would have intended the property return, there are resulting trusts which arise by automatic operation of the law. A key example is where property is transferred to a trustee, but too much is handed over. The surplus will be held by the recipient on a resulting trust. For example, in the Privy Council case of '' Air Jamaica Ltd v Charlton'' an airline's pension plan was overfunded, so that all employees could be paid the benefits that they were due under their
employment contract An employment contract or contract of employment is a kind of contract used in labour law to attribute rights and responsibilities between parties to a bargain. The contract is between an "employee" and an "employer". It has arisen out of the old ...
s, but a surplus remained. The company argued that it should receive the money, because it had attempted to amend the scheme's terms, and the Jamaican government argued that it should receive the money, as ''
bona vacantia Unowned property includes tangible, physical things that are capable of being reduced to being property owned by a person but are not owned by anyone. ' (Latin for "ownerless goods") is a legal concept associated with the unowned property, which e ...
'' because the scheme's original terms had stated money was not to return to the company, and the employees had all received their entitlements. However, the Privy Council advised both were wrong and the money should return to those who had made contributions to the fund: half the company and half the employees, on resulting trust. This was in response, according to
Lord Millett Peter Julian Millett, Baron Millett, , (23 June 1932 – 27 May 2021) was a British barrister and judge. He was a Lord of Appeal in Ordinary from 1998 to 2004. Biography Early life The son of Denis and Adele Millett, he was educated at Har ...
, "to the absence of any intention on his part to pass a beneficial interest to the recipient." In a similar pattern, it was held in '' Vandervell v Inland Revenue Commissioners'' that an option to repurchase shares in a company was held on resulting trust for Mr Vandervell when he declared the option to be held by his family trustees, but did not say who he meant the option to be held on trust for. Mr Vandervell had been trying to make a gift of £250,000 to the Royal College of Surgeons without paying any transfer tax, and thought that he could do it if he transferred the College some shares in his company, let the company pay out enough dividends, and then bought the shares back. However, the
Income Tax Act 1952 The Income Tax Act 1952 ( 15 & 16 Geo. 6 & 1 Eliz. 2. c. 10) was an Act of the Parliament of the United Kingdom, concerning income tax. The whole Act was repealed by section 538(1) of, and Schedule 16 to, the Income and Corporation Taxes Act 197 ...
section 415(2), applied a tax to a settlor of a trust for any income made out of trusts, if the settlor retained any interest whatsoever. Because Mr Vandervell did not say who the option was meant to be for, the House of Lords concluded the option was held on trust for him, and therefore he was taxed. It has also been said, that trusts which arise when one person gives property to another for a reason, but then the reason fails, as in ''
Barclays Bank Ltd v Quistclose Investments Ltd (sub nom ''Quistclose Investments Ltd v Rolls Razor Ltd'') is a leading property, unjust enrichment and trusts case, which invented a new species of proprietary interest in English law. A "Quistclose trust" arises when an asset is given to some ...
'' are resulting in nature. However,
Lord Millett Peter Julian Millett, Baron Millett, , (23 June 1932 – 27 May 2021) was a British barrister and judge. He was a Lord of Appeal in Ordinary from 1998 to 2004. Biography Early life The son of Denis and Adele Millett, he was educated at Har ...
in his judgment in '' Twinsectra Ltd v Yardley' ', 0022 AC 164(dissenting on the knowing receipt point, leading on the Quistclose point) recategorised the trust which arises as an immediate express trust for the benefit of the transferor, albeit with a mandate upon the recipient to apply the assets for a purpose stated in the contract. Considerable disagreement exists about why resulting trusts arise, and also the circumstances in which they ought to, since it carries property rights rather than simply a personal remedy. The most prominent academic view is that resulting trust respond to
unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...
. However, this analysis was rejected in the controversial speech of Lord Browne-Wilkinson in '' Westdeutsche Landesbank Girozentrale v Islington LBC''.
996 Year 996 ( CMXCVI) was a leap year starting on Wednesday (link will display the full calendar) of the Julian calendar. Events By place Japan * February - Chotoku Incident: Fujiwara no Korechika and Takaie shoot an arrow at Retired Emp ...
AC 669
This case involved a claim by the Westdeutsche bank for its money back from
Islington council Islington London Borough Council is the local authority for the London Borough of Islington in Greater London, England. The council was created by the London Government Act 1963 and replaced two local authorities: Finsbury Metropolitan Borough Co ...
with compound interest. The bank gave the council money under an
interest rate swap In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations with ...
agreement, but these agreements were found to be unlawful and ''
ultra vires ('beyond the powers') is a Latin phrase used in law to describe an act which requires legal authority but is done without it. Its opposite, an act done under proper authority, is ('within the powers'). Acts that are may equivalently be termed ...
'' for councils to enter into by the House of Lords in 1992 in ''
Hazell v Hammersmith and Fulham LBC O ''Hazell v Hammersmith and Fulham LBC'' 9922 AC 1 is an English administrative law case, which declared that local authorities had no power to engage in interest rate swap agreements because they were beyond the council's borrowing powers, an ...
'' partly because the transactions were speculative, and partly because councils were effectively exceeding their borrowing powers under the
Local Government Act 1972 The Local Government Act 1972 (c. 70) is an Act of the Parliament of the United Kingdom that reformed local government in England and Wales on 1 April 1974. It was one of the most significant Acts of Parliament to be passed by the Heath Gov ...
. There was no question about whether the bank could recover the principal sum of its money, now that these agreements were void, but at the time the courts did not have jurisdiction to award compound interest (rather than simple interest) unless a claimant showed they were making a claim for property that they owned. So, to get more interest back, the bank contended that when money was transferred under the ''ultra vires'' agreement, a
resulting trust A resulting trust is an implied trust that comes into existence by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to have held the property for benefit of another person. The trust property ...
arose immediately in its favour, giving it a property right, and therefore a right to compound interest. The minority of the House of Lords, Lord Goff of Chieveley and
Lord Woolf Harry Kenneth Woolf, Baron Woolf, (born 2 May 1933) is a British life peer and retired barrister and judge. He was Master of the Rolls from 1996 until 2000 and Lord Chief Justice of England and Wales from 2000 until 2005. The Constitutional ...
, held that the bank should have no proprietary claim, but they should nevertheless be awarded compound interest. This view was actually endorsed 12 years later by the House of Lords in ''
Sempra Metals Ltd v IRC ''Sempra Metals Ltd v Inland Revenue Commissioners'' [2007UKHL 34is a UK tax law case, concerning the availability of compound interest upon personal claims. The effect of the case, decided by a majority, was to reverse the outcome of ''Westdeuts ...
'' so that the courts can award compound interest on debts that are purely personal claims. However, the majority in ''Westdeutsche'' held that the bank was not entitled to compound interest at all, particularly because there was no resulting trust.
Lord Browne-Wilkinson Nicolas Christopher Henry Browne-Wilkinson, Baron Browne-Wilkinson, PC (30 March 1930 – 25 July 2018) was a British judge who served as a Lord of Appeal in Ordinary from 1991 to 2000, and Senior Lord of Appeal in Ordinary from 1998 to 2000. ...
's reasoning was that only if a recipient's conscience were affected, could a resulting trust arise. It followed that because the council could not have known that its transactions were ''ultra vires'' until the 1992 decision in ''Hazell'', its "conscience" could not be affected. Theoretically this was controversial because it was unnecessary to reject that resulting trusts respond to unjust enrichment in order to deny that a proprietary remedy should be given. Not all unjust enrichment claims necessarily require proprietary remedies, while it does appear that explaining resulting trusts as a response to whatever good "conscience" requires is not especially enlightening.


Constructive trusts

Although resulting trusts are generally thought to respond to an absence of an intention to benefit another person when property is transferred, and the growing view is that underlying this is a desire to prevent
unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...
, there is less agreement about "constructive trusts". At least since 1677, constructive trusts have been recognised in English courts in about seven to twelve circumstances (depending on how the counting and categorisation is done). Because constructive trusts were developed by the
Court of Chancery The Court of Chancery was a court of equity in England and Wales that followed a set of loose rules to avoid a slow pace of change and possible harshness (or "inequity") of the common law. The Chancery had jurisdiction over all matters of equ ...
, it was historically said that a trust was "construed" or imposed by the court on someone who acquired property, whenever good conscience required it. In the US case, ''Beatty v Guggenheim Exploration Co'', Cardozo J remarked that the "constructive trust is the formula through which the conscience of equity finds expression. When property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee." However, this did not say what underlay the seemingly different situations where constructive trusts were found. In Canada, the Supreme Court at one point held that all constructive trusts responded to someone being "unjustly enriched" by coming to hold another person's property, but it later changed its mind, given that property could come to be held when it was unfair to keep through other means, particularly a wrong or through an incomplete consensual obligation. It is generally accepted that constructive trusts have been created for reasons, and so the more recent debate has therefore turned on which constructive trusts should be considered as arising to perfect a consent based obligation (like a
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
), which ones arise in response to wrongdoing (like a
tort A tort is a civil wrong that causes a claimant to suffer loss or harm, resulting in legal liability for the person who commits the tortious act. Tort law can be contrasted with criminal law, which deals with criminal wrongs that are punishable ...
) and which ones (if any) arise in response to
unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...
, or some other reasons. Consents, wrongs, unjust enrichments, and miscellaneous other reasons are usually seen as being at least three of the main categories of "event" that give rise to obligations in English law, and constructive trusts may straddle all of them. The constructive trusts that are usually seen as responding to consent (for instance, like a commercial
contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...
), or "intention" are, first, agreements to convey property where all the formalities have not yet been completed. Under the doctrine of anticipation, if an agreement could be specifically enforced, before formalities are completed the agreement to transfer a property is regarded as effective in equity, and the property will be held on trust (unless this is expressly excluded by the agreement's terms). Second, when someone agrees to use property for another's benefit, or divide a property after purchase, but then goes back on the agreement, the courts will impose a constructive trust. In ''
Binions v Evans is an English land law and English trusts law case, concerning a constructive trust of land (a home) which will often be irrevocable whilst the occupier is in occupation as opposed to a licence to occupy — and/or a tenancy at will which i ...
'' when Mr and Mrs Binions bought a large property they promised the sellers that Mrs Evans could remain for life in her cottage. They subsequently tried to evict Mrs Evans, but
Lord Denning MR Alfred Thompson "Tom" Denning, Baron Denning (23 January 1899 – 5 March 1999) was an English lawyer and judge. He was called to the bar of England and Wales in 1923 and became a King's Counsel in 1938. Denning became a judge in 1944 when ...
held that their agreement had created a constructive trust, and so the property was not theirs to deal with. Third, gifts or trusts that are made without completing all formalities will be enforced under a constructive trust if it is clear that the person making the gift or trust manifested a true intention to do so. In the leading case, '' Pennington v Waine'' a lady named Ada Crampton had wished to transfer 400 shares to her nephew, Harold, had filled in a share transfer form and given it to Mr Pennington, the company's auditors, and had died before Mr Pennington had registered it. Ada's other family members claimed the shares still belonged to them, but the Court of Appeal held that even though not formally complete, the estate held the shares on constructive trust for Harold. Similarly, in '' T Choithram International SA v Pagarani'' the Privy Council held that Mr Pagarani's estate held money on constructive trust after he died for a new foundation, even though Mr Pagarani had not completed the trust deeds, because he had publicly announced his intention to hold the money on trust. Fourth, if a person who is about to die secretly declares that he wishes property to go to someone not named in a will, the executor holds that property on constructive trust. Similarly, fifth, if a person writes a "mutual will" with their partner, agreeing that their property will go to a particular beneficiary when they both die, the surviving person cannot simply change their mind and will hold the property on constructive trust for the party who was agreed. It is more controversial whether "constructive trusts" in the family home respond to consent or intention, or really respond to contributions to property, which are usually found in the "miscellaneous" category of events that generate obligations. In a sixth situation, constructive trusts have been acknowledged to arise since the late 1960s, where two people are living together in a family home, but are not married, and both are making financial or other contributions to the house, but only one is registered on the legal title. The law had settled in ''
Lloyds Bank plc v Rosset is an English land law, trusts law and matrimonial law case. It specifically deals with the translation into money of physical contributions from a cohabitee or spouse (as regards each other), under which its principles have been largely supersed ...
'' as requiring saying that (1) if an agreement had been made for both to share in the property, then a constructive trust would be imposed in favour of the person who was not registered, or (2) they had nevertheless made direct contributions to the purchase of the home or mortgage repayments, then they would have a share of the property under a constructive trust. However, in ''
Stack v Dowden ''Stack v Dowden'' 007UKHL 17is a leading English property law case from the House of Lords case concerning the division of interests in family property after the breakdown of a cohabitation relationship. Facts Mr Stack, a self-employed builder ...
'', and then ''
Jones v Kernott ''Jones v Kernott'' 011UKSC 53is a decision by the UK Supreme Court concerning the beneficial entitlement to a co-owned family home under a constructive trust. The court ruled there was a 90:10 split of ownership in favour of the main child-car ...
'' the Law Lords held by a majority that ''Rosset'' probably no longer represented the law (if it ever did) and that a "common intention" to share in the property could be inferred from a wide array of circumstances (including potentially simply having children together), and also perhaps "imputed" without any evidence. However, if a constructive trust, and a property right binding third parties, arises in this situation based on imputed intentions, or simply on the basis that it was fair, it would mean that constructive trusts did not merely respond to consent, but also to the fact of valuable contributions being made. There remains significant debate both about the proper manner of characterising constructive trusts in this field, and also about how far the case law should match the statutory regime that applies for married couples under the
Matrimonial Causes Act 1973 The Matrimonial Causes Act 1973 (c 18) is an Act of Parliament of the United Kingdom governing divorce law and marriage in England and Wales. Contents The act contains four parts: # Divorce, Nullity and Other Matrimonial Suits # Financial Reli ...
. Constructive trusts arise in a number of situations that are generally classified as "wrongs", in the sense that they mirror a breach of duty by a trustee, by someone who owes fiduciary obligations, or anyone. In a seventh group of constructive trust cases (which also seems uncontroversial), a person who murders their wife or husband cannot inherit their property, and are said by the courts to hold any property on constructive trust for another next of kin. Eighth, it was held in ''
Attorney General v Guardian Newspapers Ltd ''Attorney General v Observer Ltd'' 990 is an English tort law case on breach of confidentiality. It also raised questions of the interests of public policy and freedom of expression under the European Convention on Human Rights because it inv ...
'' that information, or intellectual property, taken in
breach of confidence The tort of breach of confidence is, in United States law, a common law tort that protects private information that is conveyed in confidence. A claim for breach of confidence typically requires the information to be of a confidential nature, wh ...
would be held on constructive trust. Ninth, a trustee or another person in a fiduciary position, who breaches a duty and makes a profit out of it, has been held to hold all profits on constructive trust. For instance in '' Boardman v Phipps'',
967 Year 967 ( CMLXVII) was a common year starting on Tuesday (link will display the full calendar) of the Julian calendar. Events By place Europe * Spring – Emperor Otto I (the Great) calls for a council at Rome, to present the ne ...
2 AC 46
a solicitor for a family trust and one of the trust's beneficiaries, took the opportunity to invest in a company in Australia, partly on the trust's behalf, but also making a profit themselves. They both stood in a "
fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exa ...
" position of trust because as a solicitor, or someone managing the trust's affairs, the law requires they act solely in the trust's interest. Crucially, they failed to gain the fully informed consent of the beneficiaries to invest in the opportunity and make a profit themselves. This opened up a possibility that their interests could conflict with the interests of the trust. So, the House of Lords held they were in breach of duty, and that all profits they made were held on constructive trust, though they could claim '' quantum meruit'' (a salary fixed by the court) for the work they did. More straightforwardly, in '' Reading v Attorney-General'' the House of Lords held that an army sergeant (a fiduciary for the UK government) who took bribes while stationed in Egypt held his bribes on constructive trust for the Crown. However, more recently it has become more controversial to classify these constructive trusts along with wrongs on the basis that the remedies that are available should differ from (and usually go further than)
compensatory damages At common law, damages are a remedy in the form of a monetary award to be paid to a claimant as compensation for loss or injury. To warrant the award, the claimant must show that a breach of duty has caused foreseeable loss. To be recognised at ...
in tort. Also, it has been doubted that a constructive trust should be imposed that would bind third parties in an
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...
situation. In ''
Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd is an English trusts law case, concerning constructive trusts. ''Sinclair'' ( nsofaras it relied on or followed ''Heiron'' and ''Lister'') was partially overruled in July 2014 by the UK Supreme Court in ''FHR European Ventures LLP v Cedar Capita ...
'',
Lord Neuberger MR David Edmond Neuberger, Baron Neuberger of Abbotsbury (; born 10 January 1948) is an English judge. He served as President of the Supreme Court of the United Kingdom from 2012 to 2017. He was a Lord of Appeal in Ordinary until the House of Lo ...
held that company's liquidators could not claim a proprietary interest in the fraudulent profits its former director had made if this would prejudice the director's other creditors in insolvency. The effect of a constructive trust would accordingly be limited so that it did not bind third party creditors of an insolvent defendant. The United Kingdom Supreme Court, however, has subsequently overruled ''Sinclair'' in ''
FHR European Ventures LLP v Cedar Capital Partners LLC is a landmark decision of the United Kingdom Supreme Court which holds that a bribe or secret commission accepted by an agent is held on trust for his principal. In so ruling, the Court partially overruled ''Sinclair Investments (UK) Ltd v Versai ...
'', holding that a bribe or secret commission accepted by an agent is held on trust for his principal..
Unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make re ...
is seen to underlie a final group of constructive trust cases, although this remains controversial. In ''
Chase Manhattan Bank NA v Israel-British Bank (London) Ltd ''Chase Manhattan Bank NA v Israel-British Bank (London) Ltd'' 981Ch 105 is an English trusts law case, concerning constructive trusts. It held that a trust arose to protect a payment made under a mistake, with the benefit of a proprietary rem ...
'' Goulding J held that a bank that mistakenly paid money to another bank had a claim to the money back under a constructive trust. Mistake would typically be seen as an unjust enrichment claim today, and there is no debate over whether the money could be claimed back in principle. It was, however, questioned whether the claim for the money back should be proprietary in nature, and so whether a constructive trust should arise, particularly if this would bind third parties (for instance, if the recipient bank had gone insolvent). In '' Westdeutsche Landesbank Girozentrale v Islington LBC'' Lord Browne-Wilkinson held that a constructive trust could only arise if the recipient's conscience would have been affected at the time of the receipt or before any third party's rights had intervened. In this way, it is controversial whether unjust enrichment underlies any constructive trusts at all, although it remains unclear why someone's conscience being affected should make any difference.


Content

Once a trust has been validly formed, the trust's terms guide its operation. While professionally drafted trust instruments often contain a full description of how trustees are appointed, how they should manage the property, and their rights and obligations, the law supplies a comprehensive set of default rules. Some were codified in the Trustee Act 2000 but others are construed by the courts. In many instances, English law follows a ''
laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups ...
'' philosophy of "freedom of trust". In general, it will be left to the choice of the settlor to follow the law or to draft alternative rules. Where a trust instrument runs out or is silent, the law will fill the gaps. In contrast, in specific trusts, particularly pensions within the Pensions Act 1995,
charities A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being (e.g. educational, religious or other activities serving the public interest or common good). The legal definition of a ch ...
under the
Charities Act 2011 The Charities Act 2011c 25 is a UK Act of Parliament. It consolidated the bulk of the Charities Act 2006, outstanding provisions of the Charities Act 1993, and various other enactments. Repeals Legislation repealed in its entirety by the 2011 A ...
, and investment trusts regulated by the
Financial Services and Markets Act 2000 The Financial Services and Markets Act 2000c 8 is an Act of the Parliament of the United Kingdom that created the Financial Services Authority (FSA) as a regulator for insurance, investment business and banking, and the Financial Ombudsman Serv ...
, many rules regarding trusts' administration, and the duties of trustees are made mandatory by statute. This reflects the view of Parliament that beneficiaries in those cases lack bargaining power and need protection, especially through enhanced disclosure rights. For family trusts, or private unmarketed trusts, the law can usually be contracted around, subject to an irreducible core of trust obligations. The scope of compulsory terms may be subject of debate, but Millett LJ in '' Armitage v Nurse'' 998Ch 241, 253 viewed that every trustee must always act "honestly and in good faith for the benefit of the beneficiaries". In addition to general principles of good administration, trustees' primary duties include fulfilling a duty of "undivided loyalty" by avoiding any possibility of a conflict of interest, exercising proper care, and following the terms of the trust to fulfil their purpose.


Administration

Possibly the most important aspect of good trust management is to have good trustees. In virtually all cases, a settlor will have identified who trustees will be, but even if not or the chosen trustees refuse a court will, in the last resort appoint one under the
Public Trustee Act 1906 The Public Trustee Act 1906 ( 6 Edw. 7. c. 55) is an Act of the Parliament of the United Kingdom, which provides for the appointment of a public trustee, and which amended the law relating to the administration of trusts. This Act has been desc ...
. A court may also replace trustees who are acting detrimentally to the trusts. Once a trust is running,
Trusts of Land and Appointment of Trustees Act 1996 The Trusts of Land and Appointment of Trustees Act 1996c 47, usually called "TLATA" or "TOLATA", is an Act of Parliament of the United Kingdom, which altered the law in relation to trusts of land in England, Wales, Scotland and Northern Ireland. B ...
section 19 allow beneficiaries of full capacity to determine who the new trustees are, if other replacement procedures are not in the trust document. This is, however, simply an articulation of the general principle from ''
Saunders v Vautier Saunders is a surname of English and Scottish patronymic origin derived from Sander, a mediaeval form of Alexander.See also: Sander (name) People * Ab Saunders (1851–1883), American cowboy and gunman * Al Saunders (born 1947), American foot ...
'' that beneficiaries of full age and sound mind may by consensus dissolve the trust, or do with the property as they wish. According to the Trustee Act 2000 sections 11 and 15, a trustee may not delegate their power to distribute trust property without liability, but they may delegate administrative functions, and the power to manage assets if accompanied with a policy statement. If they do, they can be exempt from negligence claims. For the trust terms, these may be varied in any unforeseen emergency, but only in relation to the trustee's management powers, not a beneficiary's rights. The
Variation of Trusts Act 1958 The Variation of Trusts Act 1958c 62 is an Act of the Parliament of the United Kingdom that governs the courts' ability to vary the terms of trust documents. Prior to the 1950s, the courts were willing to approve "compromise" agreements as to wh ...
allows courts to vary trust terms, particularly on behalf of minors, people not yet entitled, or with remoter interests under a discretionary trust. For the latter group of people, who may have highly restricted rights, or know very little about a trust terms, the Privy Council affirmed in '' Schmidt v Rosewood Trust Ltd'' that courts have an inherent jurisdiction to administer trusts, and this goes especially to a requirement for information about a trust to be disclosed. Trustees, especially in family trusts, may often be expected to perform their services for free, although more commonly a trust will make provision for some payment. In absence of terms in the trust instrument, the Trustee Act 2000 sections 28–32 stipulate that professional trustees are entitled to a "reasonable remuneration", that all trustees may be reimbursed for expenses from the trust fund, and so may agents, nominees and custodians. The courts have said additionally, in '' Re Duke of Norfolk's Settlement Trusts'' there is a power to pay a trustee more for unforeseen but necessary work. Otherwise, all payments must be authorised explicitly to avoid the strict rule against any possibility of conflicts of interest.


Duty of loyalty

The core duty of a trustee is to pursue the interests of the beneficiaries, or anyone else the trust permits, except the interests of the trustee himself. Put positively, this is described as the "fiduciary duty of loyalty". The term "
fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exa ...
" simply means someone in a position of trust and confidence, and because a trustee is the core example of this, English law has for three centuries consistently reaffirmed that trustees, put negatively, may have no possibility of a conflict of interest. Shortly after the United Kingdom was formed, it had its first stock market crash in the
South Sea Bubble South is one of the cardinal directions or compass points. The direction is the opposite of north and is perpendicular to both east and west. Etymology The word ''south'' comes from Old English ''sūþ'', from earlier Proto-Germanic ''*sunþa ...
, a crash where corrupt directors, trustees or politicians ruined the economy. Soon after, the Chancery Court decided '' Keech v Sandford''. On a much smaller scale than the recent economic collapse, Keech claimed he was entitled to the profits his trustee, Sandford, had made by buying the lease on a market in
Romford Romford is a large town in east London and the administrative centre of the London Borough of Havering. It is located northeast of Charing Cross and is one of the major metropolitan centres identified in the London Plan. Historically, Romfo ...
, now in East London. While Keech was still an infant, Sandford alleged he had been told by the market landlord that there would be no renewal for a child beneficiary. Only then, alleged Sandford, did he inquire and contract to purchase the lease in his own name.
Lord King LC Peter King, 1st Baron King, (c. 1669 – 22 July 1734), commonly referred to as Lord King, was an English lawyer and politician, who became Lord High Chancellor of Great Britain. Life King was born in Exeter in 1669, and educated at Exeter Gra ...
held this was irrelevant, because no matter how honest, the consequences of allowing a relaxed approach to trustee duties would be worse. The remedy for beneficiaries is
restitution The law of restitution is the law of gains-based recovery, in which a court orders the defendant to ''give up'' their gains to the claimant. It should be contrasted with the law of compensation, the law of loss-based recovery, in which a court ...
of all gains, and theoretically all profits are held on
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 enr ...
for the trust fund. The same rule of seeking approval applies for conflicted transactions known as "self-dealing", where a trustee contracts on the trust's behalf with himself or a related party. While strict at its core, a trustee may at any time simply seek approval of beneficiaries, or the court, before taking an opportunity that the trust could be interested in. The scope of the duty, and authorised transactions of specific types, may also be defined in the trust deed to exclude liability. This is so, according to Millett LJ in '' Armitage v Nurse'' up to the point that the trustee still acts "honestly and in good faith for the benefit of the beneficiaries". Lastly, if a trustee has in fact acted honestly, while a court may formally confirm the trustee must give up his profits, the court can award the trustee a generous '' quantum meruit''. In '' Boardman v Phipps'' the solicitor, Mr Boardman, and a beneficiary, Tom Phipps, of the Phipps family trust saw an opportunity in one of the trust's investment companies and asked the managing trustee if the company could be bought out and restructured. The trustee said it was out of the question, but without seeking consent from the beneficiaries, Mr Boardman and Tom Phipps invested their own money. They made a profit for themselves, and the trust (which retained its investment) until another beneficiary, John, found out and sued to have the profits back. However, while almost every judge from Wilberforce J in the High Court, to the House of Lords (Lord Upjohn dissenting) agreed that no conflict of interest was allowable, they all approved generous '' quantum meruit'' to be deducted from any damages to reflect the effort of the defendants. While the duty of loyalty, as well as all other duties, will certainly apply to formally appointed trustees, people who assume the responsibility of trustees will also be bound by the same duties. In old French, such a person is called a " trustee de son tort". According to '' Dubai Aluminium Co Ltd v Salaam'' to have fiduciary duties it is required that a person has assumed the function of a person in a position of trust and confidence. The assumption of such a position also opens such a fiduciary to claims for breaching a duty of care.


Duty of care

The duty of care owed by trustees and fiduciaries has its partner in the common law of
negligence Negligence (Lat. ''negligentia'') is a failure to exercise appropriate and/or ethical ruled care expected to be exercised amongst specified circumstances. The area of tort law known as ''negligence'' involves harm caused by failing to act as ...
, and was also long recognised by courts of equity. Millett LJ, however, in ''
Bristol and West Building Society v Mothew ''Bristol and West Building Society v Mothew'' professional_negligence_case,_concerning_a_solicitor's_duty_of_care_and_skill,_and_the_nature_of_fiduciary_duties._The_case_is_globally_cited_for_its_definition_of_a_fiduciary_and_the_circumstances_i ...
'' emphasised that although recognised in equity, and applicable to fiduciaries, the duty of care is not itself a fiduciary duty, like the rule against conflicts of interest. This means that like ordinary negligence actions, the common law requirements for proving causation of loss apply, and the remedy for breach of duty is of compensation for losses rather than restitution of gains. In ''Mothew'' this meant that a solicitor (who occupies a fiduciary position, like a trustee) who negligently told a building society that its client had no second mortgage was not liable for the loss in the property's value after the client defaulted. Mr Mothew successfully argued that Bristol & West would have granted the loan in any case, and so his advice did not cause their loss. The duty of care was codified in the Trustee Act 2000 section 1, as the "care and skill that is reasonable" to expect, regarding any special skills of the trustee. In practice this means that a trustee must be judged by what should be reasonably expected from another person in such a position of responsibility, being mindful not to judge decisions with the benefit of hindsight, and mindful of the inherent risk involved in any property management venture. As long ago as 1678, in ''
Morley v Morley ''Morley v Morley'' (1678) 22 ER 817 is an English trusts law case, concerning the duty of care owed by a trustee. Facts A trust fund was the victim of a robbery, and £40 of gold was taken. Judgment Lord Nottingham LC held that a trustee co ...
''
Lord Nottingham LC Heneage Finch, 1st Earl of Nottingham, PC (23 December 162018 December 1682), Lord Chancellor of England, was descended from the old family of Finch, many of whose members had attained high legal eminence, and was the eldest son of Sir Heneage ...
held that a trustee would not be liable if £40 of the trust fund's gold was robbed, so long as he otherwise performed his duties. Probably one of the main parts of the duty of care, in managing trust property, will relate to a trustee's investment choices. In ''
Learoyd v Whiteley is an English trusts law case, concerning the duty of care owed by a trustee when exercising the power of investment. Facts Elizabeth Whiteley and her children sued the executors of Benjamin Whiteley's will (of 19 March 1874). The will containe ...
'', Lindley LJ elaborated the general prudent person rule, that in investments one must 'take such care as an ordinary prudent man would take if he were minded to make an investment for the benefit of other people for whom he felt morally bound to provide'. This meant a trustee who invested £5000 in
mortgages A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any ...
of a brick field and four houses with a shop, and lost the lot when the businesses went insolvent, was liable for the losses on the brick field, whose value must have known to be bound to depreciate as bricks were taken out. ''
Bartlett v Barclays Bank Trust Co Ltd ''Bartlett v Barclays Bank Trust Co Ltd (No. 2)'' 9801 Ch 515 in an English trusts law case. In it Brightman J gave a comprehensive discussion of the duties of trustees in connection with companies whose shares are part of the trust property. A ...
'' suggests investments must be actively monitored, particularly by professional trustees. This duty was broken when the Barclays corporate trustee department, where trust assets held 99 per cent of a company's shares, failed to get any information or board representation before a disastrous property speculation. In making investments,
TA 2000 The Trustee Act 2000c 29 is an Act of the Parliament of the United Kingdom that regulates the duties of trustees in English trust law. Reform in these areas had been advised as early as 1982, and finally came about through the Trustee Bill 200 ...
section 4 requires that "standard investment criteria" must be observed, essentially along the lines of
modern portfolio theory Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversificati ...
about
diversification Diversification may refer to: Biology and agriculture * Genetic divergence, emergence of subpopulations that have accumulated independent genetic changes * Agricultural diversification involves the re-allocation of some of a farm's resources to n ...
of investments to reduce risk. Section 5 suggests advice be sought on such matters if needed, but otherwise may invest anything that an ordinary property owner would. Additional restrictions, however, may be imposed depending on the how courts view the purpose of the trust, and the scope of a trustee's discretion.


Purposes and discretion

Beyond the essential duty of loyalty and duty of care, the primary task occupying trustees will be to follow the terms of a trust document. Beyond the rules set out to be followed in the trust document, trustees will ordinarily have some measure of discretionary power, such as in making investment choices on the beneficiaries' behalf, or in managing and distributing trust funds. The courts have sought to control the exercise of discretion so it is used only for purposes consistent with the object of the trust settlement. In general it is said that decisions will be overturned if they are irrational, or perverse to the settlor's expectations, but also in two further particular ways. First, the courts have said that in choosing investments, trustees may not disregard the financial implications of the investment choice. In ''
Cowan v Scargill ''Cowan v Scargill'' 985Ch 270 is an English trusts law case, concerning the scope of discretion of trustees to make investments for the benefit of their members. It held that trustees cannot ignore the financial interests of the beneficiaries. ...
'' the trustees of pensions represented by Arthur Scargill and the National Union of Mineworkers wished the pension fund to invest more in the troubled UK mining industry, by excluding investments, for instance, in competing industries, while the trustees appointed by the employer did not. Megarry J held the action would violate a trustee's duty if this action was taken. Drawing a parallel of refusing to invest in South African companies (during
Apartheid Apartheid (, especially South African English: , ; , "aparthood") was a system of institutionalised racial segregation that existed in South Africa and South West Africa (now Namibia) from 1948 to the early 1990s. Apartheid was ...
) he warned that "the best interests of the beneficiaries are normally their best financial interests." Although this was thought in some quarters to preclude
ethical investment Socially responsible investing (SRI), social investment, sustainable socially conscious, "green" or ethical investing, is any investment strategy which seeks to consider both financial return and social/environmental good to bring about socia ...
, it was made clear in '' Harries v Church Commissioners for England'' that the terms of a trust deed may explicitly authorise or prohibit certain investments, that if the object of a trust is, for example, Christian charity then a trustee could plainly invest in "Christian" things. In ''Harries'', Donald Nicholls VC held that unless financial performance could be proven to be harmed, a trustee for church clergy retirement could take ethical considerations into account when investing money, and so avoid investments contrary to the religion's principles. By analogy, a trade union pension trustee could refuse to invest in
apartheid Apartheid (, especially South African English: , ; , "aparthood") was a system of institutionalised racial segregation that existed in South Africa and South West Africa (now Namibia) from 1948 to the early 1990s. Apartheid was ...
South Africa, while the government there suppressed unions. The government commissioned report by Roy Goode on '' Pension Law Reform'' confirmed the view that trustees may have an ethical investment policy and use their discretion in following it. The modern approach in trust law is consistent with the
UK company law The United Kingdom company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directives and court cases, the company is the primary lega ...
duty of directors to pay regard to all stakeholders, not merely shareholders, in a company's management. Trustees must simply invest according to general principles of the duty of care, and diversification. The second primary area where courts have sought to constrain trustee discretion, but recently have retreated, is in the rule that trustees' decisions may be interfered with if irrelevant issues are taken into account, or relevant issues are ignored. There had been suggestions that a decision could be wholly void, which led to a flood of claims where trustees had failed to get advice on taxation of trust transactions and were sometimes successful in having the transaction annulled and escaping payments to the Revenue. However, in the leading case, '' Pitt v Holt'' the Supreme Court reaffirmed that poorly considered decisions may only become voidable (and so cannot be cancelled if a third party, like the Revenue, is affected) and only if mistakes are "fundamental" can a transaction be wholly void. In one appeal, a trustee for her husband's worker compensation got poor advice and was liable for more
inheritance tax An inheritance tax is a tax paid by a person who inherits money or property of a person who has died, whereas an estate tax is a levy on the estate (money and property) of a person who has died. International tax law distinguishes between an e ...
, and in the second, a trustee for his children got poor advice and was liable for more
capital gains tax A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. Not all countries impose a c ...
. The UK Supreme Court found that both transactions were valid. If a trustee had acted in breach of duty, but within its powers, then a transaction was voidable. However, on the facts, the trustees seeking advice had fulfilled their duty (and so the advisers could be liable for negligence instead).


Breach and remedies

When trustees fail in their main duties, the law imposes remedies according to the nature of the breach. In general, breaches of rules surrounding performance of the trust's terms can be remedied through an award of
specific performance Specific performance is an equitable remedy in the law of contract, whereby a court issues an order requiring a party to perform a specific act, such as to complete performance of the contract. It is typically available in the sale of land law, ...
, or compensation. Breaches of the duty of care will trigger a right to compensation. Breaches of the duty to avoid
conflicts of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple wikt:interest#Noun, interests, finance, financial or otherwise, and serving one interest could involve working against another. Typically, t ...
, and misapplications of property will give rise to a restitutionary claim, to restore the property taken away. In these last two situations, the courts of equity developed further principles of liability that could be applied even when a trustee had gone bankrupt. Some recipients of property that came from a breach of trust, as well as people who had assisted in a breach of trust, might incur liability. Equity recognised not merely a personal, but also a
proprietary {{Short pages monitor