Principles of Trust: Classification and Creation

Learning Outcome:
Students will :
-be informed about the major divisions among the concept of trust
-learn about the basic legal conditions a trust has to fulfill under Trusts Act, 1882

1. Preeti Kana Sikder Lecturer Department of Law & Justice Jahangirnagar University Principles of Trust

2. Relevant portions of The Trusts Act, 1882 for this course Creation of Trusts Classification of Trusts Rights of Beneficiaries and Trustees Duties of Trustees and Beneficiaries

3. Joseph Story - Associate Justice of the Supreme Court of the United States

4. Classification of Equitable Rights Equities to protect confidences , i.e. Trust Equities to prevent oppression , i.e. issues relating to mortgage and liens, protection of infants, lunatics. Equities to promote fair dealings , i.e. protection from fraud and undue influence, Accident, Set off.

5. Protection of Confidence A transfers his property to B for the ‘use’ of and in trust for X . A = owner/settlor B = trustee X = beneficiary

6. Why would anyone want to set up trusts in modern era? To provide for loved ones in a way one cannot do, or it would be unwise to do, simply by transferring legal title. A minor can not become a legal owner, therefore if someone wants the minor to have any land, it must be held on trust by someone else. One may be worried that his son is a spendthrift, and so give money for his expenses to a trustee to dispense.

7. Classification of Trust Page 225 of BM Gandhi

8. According to the N ature of the duties of the trustees Simple Trust Special Trust Property is vested in one person upon trust for another. Nature of the trust is not prescribed by the author. Beneficiary has the right to the possession, control and disposal of property. Also called ‘bare trust’ as trustee has no duty to perform The author points out the purpose of trust clearly. Can be divided into: a) Ministerial: ordinary trust where trustee has mechanical duties b) Discretionary: trustee has to exercise greater element of judgment and discretion

9. According to their Objects Private Trust Public or Charitable Confers the benefit of the trust on certain persons or class of persons. For the benefit of the public at large or some considerable portion of the public answering a particular description

10. According to their Mode of Creation

11. According to their Mode of Creation

12. 1. Express or Declared Trusts A trust clearly expressed or declared by the author thereof, verbally or in writing. Can be further classified as: a. Executed trust – A trust is said to be ‘executed’ when there is nothing left to be done in order to constitute it, the trust being fully declared by the instrument creating it.

13. 1. Express or Declared Trusts b. Executory trust – A trust is executory when something remains to be done in order to complete it. If the service has been imperfectly created at the outset, and the creator of the trust has merely devoted his ultimate object imposing on the trustee or on the court the duty of effectuating it in the most convenient way, the trust is called executory .

14. 2. Implied or Presumed Trust A trust which is not so clearly expressed but is indirectly gathered from the settlor’s “presumable intention”. It arises where property is not held by a person subject to any declared trust but vested in him under such circumstances that the court is held to presume that the property so vested is intended to be held in trust for his own benefit or for benefit of another.

15. 3. Constructive Trust A trust not created by words or circumstances importing an intention to create a trust, but is imposed by Courts of Equity in order to prevent the inequitable acquisition of another’s property. It arises in case of an unconscionable advantage gained by a fiduciary or by any other person.

16. Resulting Trust The beneficial interest in the property ‘results’ or comes back to the person who transferred the property to the trustee, or provided the means for obtaining it. A trust arising or resulting, in favour of either of the person who creates it, or his representatives . A species of implied trust.

17. Resulting Trust This trust arises in the following three ways– Where a purchase is made in another’s name or a transfer is made without consideration. Where the beneficial interest has been disposed of either wholly or partially Where the trusts declared are illegal.

18. Precatory Trust A trust declared and created not by express words, but by precatory words. No technical words are required to constitute such trust. Where a trust appears to be intended, but words of recommendation or entreaty are used, it’s called precatory trust.

19. Secret Trust This trust arises only in cases of transfer by will, when at the time of writing the will, the testator does not declare his intention to create trust, but he discloses his intention after writing the will. A trust not disclosed on the face of the will.

20. Secret Trust A secret trust is created when property is given to a person either absolutely or upon an indefinite trust, but there has been an understanding given by him or an understanding between him and the donor, that it shall be applied for the benefit of some other person or object.

21. Section 3: Trusts Act, 1882 A trust is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner

22. Legal Definition of Trust This definition covers only a specific field in the concept of trusts, which is private express trusts.. Firstly, it emphasises upon obligation, laying down that a trust is an obligation annexed to the ownership of property for the benefit of another. There is no trust where such obligation is absent. Secondly, the beneficiary has no interest in the trust property but has only a right against the trustee who is the owner of the property Lastly, the settlor himself can be a trustee.

23. Four Certainties of Trust

24. Creation of Trusts Parties to a Trust (Section 3) the person who reposes or declares the confidence is called the author of the trust : the person who accepts the confidence is called the trustee : the person for whose benefit the confidence is accepted is called the beneficiary :

25. Creation of Trusts Who may create Trust (Section 7) A trust may be created- (a) by every person competent to contract, and , (b) with the permission of a principal Civil Court of original jurisdiction, by or on behalf of a minor

26. Creation of Trusts Who may be beneficiary (Section 9 ) Every person capable of holding property may be a beneficiary .

27. Creation of Trusts Who may be Trustee (Section 10 ) Every person capable of holding property may be a trustee; but, where the trust involves the exercise of discretion, he cannot execute it unless he is competent to contract .

28. Creation of Trusts Right to proper trustees (Section 60) The beneficiary has a right (subject to the provisions of the instrument of trust) that the trust property shall be properly protected and held and administered by proper persons and by a proper number of such persons . Explanation I - The following are not proper persons within the meaning of this section :- A person domiciled abroad : an alien enemy: a person having an interest inconsistent with that of the beneficiary: a person in insolvent circumstances; and, unless the personal law of the beneficiary allows otherwise, a married woman and a minor.

29. Creation of Trusts When is a Trust Created (Section 6) Subject to the provisions of section 5, a trust is created when the author of the trust indicates with reasonable certainty by any words or acts an intention on his part to create thereby a trust , the purpose of the trust, the beneficiary, and the trust-property, and ( unless the trust is declared by will or the author of the trust is himself to be the trustee) transfers the trust property to the trustee.

30. Who are competent to contract? Section 11 of Contract Act, 1872 Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind , and is not disqualified from contracting by any law to which he is subject.

31. Sui Juris Section 11 of Contract Act, 1872 Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind , and is not disqualified from contracting by any law to which he is subject.

32. Majority Act, 1985 Every other person domiciled in Bangladesh shall be deemed to have attained his majority when he shall have completed his age of eighteen years and not before

33. Important to remember Beneficiary has no estate or interest in the subject matter of the trust. He has only right to proceed against the trustee