General information about trusts by Eugene Duhovnikoff BA/LLB

Trusts general information The predecessor of the trust was the medieval “Use”. From medieval times land could have been conveyed to another for the use of a third party. This may have been a temporary arrangement. But by the 13th C. it may have been conveyed permanently.


Generally trusts can be divided into trusts which are created as an act of the parties and trusts which are created by operation of law. The later ones may be imposed by the Courts irrespective of express intention as a remedy. Where the Court imposes a trust it can be done as either a constructive trust or a resulting trust. There are three essential elements of a trust:

  1. Trust property which is identifiable and certain;
  2. A trustee with an equitable obligation which binds the trustee to administer the trust in the interest of the beneficiary; and
  3. A beneficiary with rights corresponding to the duties on the trustee.

There must exist one or more trustees in whom control of the trust property is vested. In the circumstance of a traditional trust a trustee has control of the trust property as legal owner of the trust property. In other cases the trust property may consist of an equitable interest that is vested in, and controlled by, the trustee. A trust obligation does not only concern personal obligations but there must exist some identifiable property that is subject to the trust obligations. Generally, all property, real or personal, legal or equitable, may be subject of a trust. A trust cannot be established without one or more beneficiaries for whom the trust property is held. A person can be both a beneficiary and trustee of the same trust property, although that person cannot be the sole beneficiary as the trust property is not held for the benefit of other persons. The precise nature of a beneficiary’s interest in the property the subject of trust as explained below is dependent on whether the trust is fixed or discretionary. But in a more general sense all beneficiaries of a trust possess a proprietary interest in the trust property as they are entitled to recover the trust property from any person other than a bona fide purchaser for value who purchased without notice of the beneficiaries’ interest.


Fiduciary Principle

The relationship of trustee and beneficiary is characterized as a fiduciary relationship. The concept of trustee’s loyalty to the beneficiary or the beneficiaries of the trust is an essential part of a fiduciary relationship. There is a degree of strictness to the fiduciary principle. That is why its extension is plaintiff driven. Equity is prescriptive insofar as it lays down rules. A trusty must not only refrain from doing harm (negative duty as in tort) but positively pursue the best interest of the beneficiary (positive duties). Equitable remedies are very flexible and can be proprietary. This is strong because if you have a proprietary interest in equity it will beat the legal interests of general creditors. The classic fiduciary relationship is trustee/ beneficiary relationship. Also a solicitor/client relationship and others such as some employees (e.g. senior officers and confidential employees). The common elements to all these relationships are vulnerability, reliance, dependence of one party on another.


Trustees Duties

Trustees are under an equitable obligation to administer the trust property for the benefit of the beneficiaries of the trust. This equitable obligation is reflected in the various duties imposed on trustees. A great majority of these duties are personal in nature, a breach of which renders a trustee personally liable both to the trust estate and to the beneficiaries. Some of these duties are fiduciary in nature, for example, a trustee’s duty not to act in conflict of his personal interests and his duty to act in utmost good faith and the best interests of the beneficiaries.


Charitable Trusts

The words “charitable” and “charity” have a legal meaning. The definition of what trust constitutes a charitable trust differs across the common law jurisdictions. In practical terms a Charitable trust can be distinguished from express private trust for two main reasons. Firstly it enjoys several fiscal benefits such as tax exemption and rating obligations such as certain exemptions from tax under the relevant tax legislation most relevant being a general exemption from income tax any amount derived directly or indirectly from any business carried on, or on behalf of or for the benefit of, trustees in trust for charitable purposes within the jurisdiction, or from any business carried on by or on behalf of, any society or institution established exclusively for charitable purposes in the relevant jurisdiction. Another advantage is that most charities would fall within the meaning of a “non-profit body” as defined under the relevant tax laws which means that they are exempt from Goods and Services Tax (GST). Any gift made to a charitable trust or to a society, made exclusively for charitable purposes, is usually exempt from the GST. Secondly a charitable trust would enjoy more lenient interpretation of rules governing establishment and administration as oppose to a private trust. Charitable trusts must satisfy certainty of intention and subject matter but do not have to satisfy certainty of object. Charitable Trusts can be varied by Court order where impossible, impracticable or inexpedient to carry out a particular charitable purpose for which the gift was made. However no similar power for private trusts.


Commercial Transactions

The trust law today is closely related to commercial transactions. It is used in such areas asset protection, confidential ownership and transfer of real and personal property as well as the tax optimization.


Commercial Transactions

The trust law today is closely related to commercial transactions. It is used in such areas asset protection, confidential ownership and transfer of real and personal property as well as the tax optimization.



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Reeves/Duhovnikoff & Associates Ltd. 2017