TRUST

The trust


It certainly is the symbol of the common law system.

I. The historical origins of the trust

Equity's and position of stringent personal obligations upon to a legal owner to hold property for the benefit of another. The consequence is that the legal owner is no longer able to treat the property as his own. He's acting for the benefit of another.

The trust is equity. The trust is a way of avoiding the common law rules. It lead to the emergence of the use that later became the trust.

Avoiding the common law to dispose of the land.
There are 2 main concepts : feudalism and tenure :
A tenant is somebody who has been vested with ownership interests by his lord. It's only interest is in the land. In exchange for the use of the land, you will have a set of duties in relation to the lord.
The land is held by the Crown. There are several tenants with different sets of right for one piece of land.
Each tenant has interests. In the feudal system, king → barons (tenants in chief) → lords (mesne lords).
The main feature for disposing the land between the highest lord and the other lords is that you could only transmit it to the oldest son.

The right of wardship was the right to manage the estate of the child until he reaches majority. The problem is that the manager took all the profit and was not obliged to give it to the child at his majority. This situation causes many problems. A person takes the benefit of a thing that does not belong to him. Common law was not protecting.
It was then decided to use equity, rather than changing the common law.


There was the emergence of the use.
To avoid all those trights and duties linked to the land, the tenant A will convey his property to people (X, Y and Z) as co-owners, for the benefit of use by B. It is a conditional conveyance. The condition is that X, Y and Z manage the land for somebody else. The people benefiting for the use could be other children, daughters... But for the common law, they don't exist. The common law only know the first transfer to X, Y and Z. If you have a problem, you must go to equity courts.
X, Y and Z are called the trustees or usees who hold legal ownership for B. At common law, exist but in equity, exist to the condition of.... This condition is to benefit B.
A is the settlor who gives legal ownership to the usees.
B has equitable interests/ownership but he does not exist at common law.


From the use to the trust :
Henry VIII needed money because of the war. But he could not obtain the money he owns as feudal lord because of his tenants resorting to uses. Some people were benefiting from the land he originally owned. He could not reached them because at common law they did not exist. He went to Parliament to enact the Statue of Uses in 1535 : the use was treated as a conveyance of land and B is treated as X, Y and Z. The statute didn't allow for B to remain unknown to common law. Therefore, B has to pay taxes and have duties. The statute in practice abolished the use. But people did not really appreciate this situation.
The Equity court said that the use was forbidden but they just had to create the same mechanism under another name. The responsa in Equity was the trust.



II. The structure of the trust

The parties at trust :
There are several possibilities. Trust gives right to equitble rights or interests (equitable title). It is still opposed to the legal title e.g the common law title.
- A (settlor) can become the trustee for some people who are the beneficiaires (B and C). B and C are the equitable owners.
- A (settlor) can leave to B (trustee) the legal title for B and C (beneficiaries) to hold equitable interest.
- A (settlor) can trust B (trustee) but instead of having other persons as beneficiaries, he is the beneficiary. The interest is that if A dies, B will manage the property for the heirs that won't have to pay taxes and will have no duties because they do not exist at common law.
The only thing that cannot exist is A cannot trust A for A being the beneficiary.


What the trust is not :
The trust is not a legal person. The trustee acts on his own name, not as an agent for the trust as if the trust were legal person. (le trust n'est pas une PM).
Beneficiaries have limited liability, like shareholders. If the trust goes bankrupt, creditors cannot recover the money by suing the beneficiaries. At common law, the beneficiaries do not exist.

The trust can be used for business transactions or personal transactions.

However, the trust relationship can run in parallel to an agency relationship (mandat). They are both fiduciary obligations.
It is not a will, or donation under condition.
It is not a stipulation pour autrui as the latter is a contract. Trust is not contractual because contracts fall under the common law.
It is not a bailment (dépôt) because the person who loans the good retains his property rights whereas the settlor loses all property rights. Moreover, the bailment falls also under the common law.

The trust is not something definite.


III. The legal rules : powers and duties

The trustee's duties :
General obligations :
Duty of care : « he must exercise such care and skill as is reasonable in the circumstances, having regard in particular ». Equity is about maintening care. This is a natural obligation.
The inflexible rule : the trustee cannot brech that rule, otherwise, he engages his responsability. He cannot receive any benefit from his position as a trustee. Duty not to purchase the trust property for himself.

Specific obligations :
Duty to invest : « trustees acting honeslty with ordinary prudence and within the limits of their trusts are not liable for mere errors of jugdments ».
Duty to distribute

Obligations toward the beneficiary : to guarantee equality between the beneficiaries and to present account of everything done.


The trustee's powers
Powers are discretionnary.
Power to delegate, to insure the goods and the property, power to sell (granted later on), power to manage, power to mortgage, power of maintenance, power of advancement.


The beneficiary's rights
He only exists at equity.
Right to control the trustee, to challenge the care and the way the trustee manages the property. Right to revoke or modify the trust terms.
Right to follow the trust's property. If the trustee was selling the land, the beneficiary can follow the land, and the new owner can be hold the property for the beneficiary.
But there is an exception : equity darling's : the new owner is in good faith. He did not know there was a trust. You cannot be found liable and the beneficiary loses everything. He may go against the trustee but no against the new owner.


IV. Consequences : the concept of property

A linear system, an accordionist system, the absence of concept of '' droit subjectif ''

The linear system :
The trustee has two ''patrimoines'' in terms of French law : the one he owns and the one he receive has the trustee.
Notion of tenure and title : even if you have a transmission to different persons, the beneficairy can use the trust to divide it.

An accordionist system :
It is a very flexible system : it can involves only 2 people or many people.
Legal ownership of the trustee is the fructus and the part of abusus (right to dispose but not to destroy).
Equitable ownership : usus

Legal and equitable titles are different normally. But the term '' equitable title '' does not cover a set range of duties and rights.
Equitable ownership can thus amount to legal ownership. The beneficiary can have so much powers. The aim is always the same : ginving to the beneficiary what he cannot get at common law.



V. Basic rules of Land law

The trust is at the basis of land law.
If gives co ownership : you got two forms of co ownership : joint tenancy or tenancy in common.

Joint tenancy :
Each co owner is entitled to the whole : there are no shares. There is only one title, jointly owned. It gives the right to survivorship. Title vests in survivors automatically, regardless of any will.

Tenancy in common :
There are individed shares : there are shares but they have not been divided up amongst those entitled. No right of survivorship. This means that such a share may be passed on by a will.

The rights are completely different in terms of inheritance.

Legal title :
The legal estate (owned by the trustee) can only be held on a joint tenancy. The legal estate may not be held by more than four persons (except for charities).

Equitable interests can be held either on a joint tenancy or a tenancy in common. A minor cannot hold legal title.
There may be any number of equitable owners. Even one trustee may hold on trust for several equitable co-owners.


Creation od co-ownership :
Express trust : the trust is intentionnally set up for a land and is in writing. But sometimes, people do not put in wrinting the trust : there is then an implied trust.
Implied trust, resulting trust : the court presumes that the person does not put money into a property without the intention to get a share. Presumption of advancement (gift) does not work. But it has limits. If you do not manage to prove you put more money than the others, you only get a share that correspond to the money you gave.
Implied trust as a contructive trust : arises where it would be unconscionable for a legal owner to deny the beneficial interest of another. The courts will not decide the share according to amount of money put into buying or improving the property but according to what the courts deem fair.