Trust (law)
A legal device separating legal ownership from equitable benefit.
A trust is a legal relationship in which the owner of property or any transferable right gives it to another to manage and use solely for the benefit of a designated person. In English common law, the party who entrusts the property is the settlor, the party to whom it is entrusted is the trustee, the party for whose benefit the property is entrusted is the beneficiary, and the entrusted property is the corpus or trust property. Trusts have existed since the common law era and became one of the most important innovations in property law.
- field
- Property law
- jurisdiction
- English common law
- key_parties
- Settlor, trustee, beneficiary
- types
- Testamentary trust, inter vivos trust
- governing_document
- Trust agreement or deed
- key_principle
- Separation of legal and equitable ownership
Lore & Background
Legal historians believe that inter vivos trusts were first developed for the benefit of Franciscan friars, who were forbidden to own property. Benefactors would convey land for the use of the friars to a suitable local person (the feoffee) to hold legal fee simple title, while promising to allow the friars to live on and receive the profits of the land. However, the feoffee had no legal obligations to the beneficiary in English common law, so after the death of the feoffor, there was no one to enforce the promises. Disgruntled beneficiaries could petition the King's Lord Chancellor, who could decide a case as 'keeper of the king's conscience' (the principle of equity). After the chancellor began to consistently enforce the promises of feoffees, uses developed into a popular means for circumventing primogeniture and feudal death taxes.
Reader's Guide
The trust is widely considered the most innovative contribution of the English legal system. Today, trusts play a significant role in most common law systems, and their success has led some civil law jurisdictions to incorporate trusts into their civil codes. Although trusts are often associated with intrafamily wealth transfers, they have become very important in American capital markets, particularly through pension funds and mutual funds. An owner placing property into trust turns over part of their bundle of rights to the trustee, separating the property's legal ownership and control from its equitable ownership and benefits. This may be done for tax reasons or to control the property if the settlor is absent, incapacitated, or deceased. Trustees have a fiduciary duty to manage the trust for the benefit of the equitable owners, and courts can remove a trustee who breaches their duty. Specific aspects of trust law vary in different jurisdictions; some U.S. states are adapting the Uniform Trust Code to codify and harmonize their trust laws, but state-specific variations still remain.
Did You Know?
- A testamentary trust is an irrevocable trust established and funded pursuant to the terms of a deceased person's will.
- In a living trust it is common for the grantor to be both a trustee and a lifetime beneficiary while naming other contingent beneficiaries.
- The Hague Convention on the Law Applicable to Trusts and on their Recognition regulates conflict of trusts.
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