3 - TYPES OF TRUSTS - (need to learn these)

EXPRESS TRUSTS

An express trust is deliberately created by a settlor (the person who owns the property) who clearly intends to place property in trust for beneficiaries or for charitable purposes.

Express trusts- Creation?

a settlor can..

• Declare themselves as trustee for others, or

• Transfer property to others to hold as trustees.

• This act of intention is called a declaration of trust.

• Some trusts must follow legal formalities (e.g. written form for certain property types).

EXPRESS TRUSTS

• INTENTION REQUIRED ..

• There must be a clear intention to create a trust.

• Mere hopes or wishes (“precatory words”) are not enough to form a valid trust.

EXPRESS TRUSTS

• Freedom of trusts..

• Reflects the principle of freedom of disposition – similar to freedom of contract or will-making.

• The settlor can divide up property and create different interests for different beneficiaries or purposes, within legal limits.

FIXED TRUST - DEFINTION

• Trustees have no discretion – beneficiaries and their shares are set out in the trust instrument.

• Trustees must distribute the property exactly as specified.

• Example: “£10,000 to each of my three children.”

DISCRETIONARY TRUST

• DEFINITION

• Trustees have discretion over how and to whom trust property is distributed among a class of beneficiaries.

• They must exercise this discretion but can decide shares or even exclude some members.

• Example: “Trust for any of my children as the trustees decide.”

FIXED AND DISCRETIONARY

Practical Application

• The settlor decides whether to:

• Fix beneficiaries’ shares at the outset (fixed trust), or

• Allow trustees to decide later based on circumstances (discretionary trust).

• A trust can combine both: e.g. income (discretionary) and capital (fixed).

Fixed and discretionary-

Contingent interest:

arises only if an event occurs (e.g. “Samantha gets income if she completes her law degree”).

Fixed and discretionary-

Defeasible interest:

can end if an event occurs (e.g. “Samantha’s income stops if she wins £1 million”).
→ Both are still fixed, since the trustee has no discretion.

FIXED AND DISCRETIONARY- KEY POINTS

• Both types require trustees to distribute the property; the difference lies in how much discretion they have.

• A trust is still fixed even if the exact amount a beneficiary receives isn’t known (e.g. varying income from shares).

BARE TRUSTS - DEFINITION

• A bare trust (also called a simple trust) is the most basic type of fixed trust.

• Trustees hold the property “to the order” of the beneficiary – meaning they act only on the beneficiary’s instructionsand have no discretion.

• The beneficiary has full entitlement to both the trust property and its income.

BARE TRUSTS- FEATURES

• Minimal terms – trustees are essentially nominees who hold legal title in name only.

• No discretion: trustees cannot decide how to manage or distribute the property beyond following the beneficiary’s directions.

• Example: You transfer company shares to your stockbroker to hold on bare trust for you – the broker deals with transactions but must follow your instructions.

BARE TRUST- Relationship to Other Trusts

• A bare trust is the simplest form of an express trust (deliberately created by a settlor through a declaration of trust).

• More complex express trusts can include discretionary elements (where trustees choose how to distribute property) or contingent interests (depending on future events).

Trusts Arising by Operation of Law –

Overview

• Not all trusts are deliberately created by a settlor.

• Some arise automatically, through operation of law, rather than by express declaration.

• These trusts exist to impose equitable obligations where fairness or justice requires it.

• Beneficiaries still have enforceable equitable rights as if the trust were expressly created.

Types of Trusts Arising by Operation of Law

A. Statutory Trusts

• Created by legislation, not by intention.

• Used to solve specific legal issues (e.g. co-ownership of land).

• Example: Under ss. 34–36 Law of Property Act 1925, when land is transferred to co-owners, they automatically hold it as joint tenants on a statutory trust of land.

• Studied mainly in land law, not equity.

Types of Trusts Arising by Operation of Law

B. Constructive Trusts

• A constructive trust is “constructed by the law”, not declared by a person.

• Arises automatically in certain situations where it would be unjust for the legal owner to keep the property.

• Used to prevent unjust enrichment or remedy wrongdoing.

Resulting Trusts –

1. Overview

• The term “resulting” comes from resalire (Latin) – meaning “to jump back”.

• A resulting trust arises when property or its benefit “jumps back” to the person who transferred it (the settlor or contributor).

• It is not expressly declared but arises automatically to reflect that the transferor did not intend the recipient to benefit absolutely.

• There is academic debate about whether resulting trusts are distinct from constructive or express trusts, but courts consistently recognise them.

Two Types of Resulting Trusts (per Re Vandervell (No. 2) [1974] Ch 269)

A. Presumed Resulting Trusts

• Arise where A transfers property to B without receiving payment (a gratuitous transfer) and there is no evidence of intention to make a gift.

• The law presumes A did not intend to give the property, so B holds it on trust for A.

• Example:

  • A pays for property but registers it in B’s name — unless evidence shows a gift was intended, B holds it on resulting trust for A.

• Often described as arising from “apparent gifts”.

Two Types of Resulting Trusts (per Re Vandervell (No. 2) [1974] Ch 269)

B. Automatic Resulting Trusts

• Arise where a trust fails wholly or in part, leaving undisposed property.

• Example:

  • A gives property to B to hold on trust for C for life but says nothing about what happens after C’s death.

  • The trust fails as to the remainder, so the property “results back” to A.

• Often described as arising from “failed trusts”.

Key Principles of presumed trusts-

• Both types ensure that property does not remain with someone who was not meant to benefit.

• Presumed trusts → based on lack of intention to gift.

• Automatic trusts → based on failure of trust purposes.

• There is ongoing debate over classification, especially in cases like Chase Manhattan v Israel-British Bank (mistaken payment) — sometimes seen as constructive or resulting.

Implied Trusts (and Why the Term Is Problematic)

• The term “implied trust” is ambiguous and largely obsolete.

• It may mean:

  1. Implied by law → equivalent to a constructive trust, or

  2. Implied in fact → equivalent to an express trust.

• Therefore, “implied trust” is a redundant category and should generally be avoided in modern trust law.

Testamentary Trusts

• Created by will and take effect only after the testator’s death.

• The person making the will is the testator.

• If someone dies without a valid will (or without disposing of all property), they die intestate.

• A testamentary trust is usually an express trust set out in the will.

• It becomes operative when the estate is administered by the executors (who are often also the first trustees).

Inter Vivos Trusts

• An inter vivos trust means “between the living.”

• It takes effect during the settlor’s lifetime.

• It is also an express trust, created by declaration or transfer of property to trustees while the settlor is alive.

• Commonly used for family wealth management, charitable giving, or tax planning.

PURPOSE TRUSTS-

DEFINITION

• A purpose trust is a trust set up to achieve a purpose rather than to benefit specific individuals.

• The trust property is devoted to carrying out a particular goal (e.g. developing a new alphabet – Re Shaw [1957]).

• No human beneficiaries have enforceable rights under the trust.

Validity of Purpose Trusts

• General rule:

• non-charitable and charitable purpose trusts

• Non-charitable purpose trusts (also called private purpose trusts) are usually void because there are no beneficiaries to enforce them.

• The principle is: “A trust must have a beneficiary.”

• Charitable purpose trusts, however, are valid because they serve public benefit and have statutory enforcementmechanisms.

PURPOSE TRUSTS- EXCEPTIONS

A few limited exceptions exist, mainly testamentary trusts (arising under wills) that courts have allowed despite being non-charitable.

PURPOSE TRUSTS-

Enforcement

• Problem:

• No beneficiaries = no one to enforce the trustee’s duties.

• Solution (for charitable trusts):

  • The Charity Commission for England and Wales and the Attorney-General (on behalf of the Crown) have power to enforce charitable purpose trusts under Charities Act 2011, ss. 13–15.