Trusts - Head 1

What is a trust

definition of trust

a classic trust describes a situation where ownership of property is transferred to a trutee i.e entrusted, creating a fiduciary duty to manage and ultimately distribute that vested property in accordance with the purposes of the trust

• not a legal entity, they are assets held by trustees

• conceptualised by private and trust patrimonies.

the truster

Person who owns the property and creates trust by trasnferring property to another for defined pruposes

• essentially falls off when property is tranferred, and trust is created

the trustee

The person who receives property that is to be used for certain purposes in favour of another person

Not for personal benefit, essentially agreeing to the truster that when vested with the property, they will carry out the tasks and directions outlined to them to carry out these defined purposes.

Has an obligation to manage and distribute trust assets according to purposes

the beneficiary

• Person for whose benefit trust is created and administered.

• Right to enforce trust:

• Demand distribution

• Supervise,

• Administer

Trusts and third parties - creditors

• Trustee ‘A’ might have taken a personal loan to build a conservatory (this is not attached to the trust) A now owes creditor £X

• The creditor to A cannot claim assets owned by the Trust as these are separate from the general patrimony. Even thoug they are owed by the trustee because they are imprinted with the purposes of a trust they are protected from a trustees private creditors.

• Why? - special patrimony theory

• Trustee essentially split into 2 each with their own patrimony

• Creditors to A can only be satisfied by the general patrimoy not trust assets.

• This is important, since trust assets are usually substantial.

rihgt to enforce the trust in cases where trustees are not doing as instructed by the trust

enforced against trust fund

beneficiary claim to private patrimony

• generally cannot claim against private patrimony of trustee

• except in special cases where the trustee breaches one of ther duties, the beneficiary may have a claim to private patrimony

Breach of trust by trustee A, not B

• Only the personal patrimony of A is able to be claimed, not the innocent party B. 

• If both have been involved, claim can be brought against both PP

Breach of trust through third party (embezzlement)

• Trustee decides to sell but holds onto the payment personally. 

• The law states that even if A holds money, the money is still a part of the trust patrimony 

  • Real subrogation, the money is substituted for the trust property automatically. 

  • Replaced asset (payment) takes its place in the trust, where the property sold was held.

Constructive trusts

• Involuntary, if one is a constructive trustee, they did not decide this, the law did 

• Reason: misbehaviour on trustees part 

  • E.g taking trust property knowingly, makes one a trustee subject to the rules of trust. 

• Becomes important in insolvency