Express trust: Difference between revisions
Content deleted Content added
No edit summary |
m links, numbered list Tags: Mobile edit Mobile app edit iOS app edit |
||
| (10 intermediate revisions by 7 users not shown) | |||
| Line 1: | Line 1: | ||
{{short description|Trust which is explicitly created and not inferred from the parties' conduct}} |
|||
{{Refimprove|date=August 2014}} |
{{Refimprove|date=August 2014}} |
||
{{Wills, trusts, estates}} |
{{Wills, trusts, estates}} |
||
In [[trust law]], an '''express trust''' is a trust created "in express terms, and usually [[Trust instrument|in writing]], as distinguished from one inferred by the law from the conduct or dealings of the [[Party (law)|parties]]."<ref>Black's Law Dictionary, p. 1354 (5th ed. 1979).</ref> [[Property]] is transferred by a person (called a trustor, [[settlor]], or grantor) to a transferee (called the [[trustee]]), who holds the property for the benefit of one or more persons, called [[Beneficiary|beneficiaries]]. The trustee may distribute the property, or the income from that property, to the beneficiaries. Express trusts are frequently used in [[common law]] jurisdictions as methods of [[Tax avoidance|wealth preservation]] or enhancement. |
|||
==Terms== |
==Terms== |
||
Law generally requires only a simple formality to create an express trust. In certain |
Law generally requires only a simple formality to create an express trust. In certain [[jurisdiction]]s, an express trust may even be established orally. Typically, a settlor would record the disposition, where [[real property]] is to be held in trust or the value of property in trust is large. Where [[legal title]] to property is being passed to a trustee, a "deed of settlement" or "[[trust instrument]]" (for jurisdictions that do not recognise [[deed]]s) may be used. Where property is to continue to be held by the person making the trust, a "declaration of trust" will be appropriate. |
||
Often, a trust corporation or more than one trustee is appointed to allow for uninterrupted administration of the trust in the event of a trustee's resignation, death, bankruptcy or incapacity. Additionally a [[protector (trust)|Protector]] may be appointed who, for example, is authorized to appoint new trustees and to review the trustees' annual accounts. |
Often, a trust corporation or more than one trustee is appointed to allow for uninterrupted administration of the trust in the event of a trustee's resignation, death, [[bankruptcy]] or incapacity. Additionally a [[protector (trust)|Protector]] may be appointed who, for example, is authorized to appoint new trustees and to review the trustees' annual accounts. |
||
To be valid at common law, a trust instrument must ascertain its beneficiaries, as well as the |
To be valid at common law, a trust instrument must ascertain its beneficiaries, as well as the {{lang|la|res}} (a [[Law Latin]] term meaning "thing") or subject matter of the trust, unless it is a charitable trust which does not provide specific beneficiaries. |
||
To be valid in equity, a trust must satisfy the following elements: |
To be valid in equity, a trust must satisfy the following elements: |
||
# Property or [[rights]] of a kind which can be the subject of a trust |
|||
# A declaration of trust or disposition on trust by a person [[Competence (law)|legally competent]] to create a trust |
|||
# Certainty of property and objects (trust must be administratively workable) |
|||
# Compliance with requirements regarding [[Evidence (law)|evidence]] |
|||
# Compliance with rules against remoteness of [[vesting]] ([[rule against perpetuities]] and rule against inalienability of income for longer than the [[perpetuity]] period) |
|||
==Common forms of express trust== |
==Common forms of express trust== |
||
; [[Bare trust]]: property transferred to another to hold e.g. for a third person absolutely. May be of use where property is to be held and invested on behalf of a minor child or mentally incapacitated person. |
; [[Bare trust]]: property transferred to another to hold e.g. for a third person absolutely. May be of use where property is to be held and invested on behalf of a minor child or mentally incapacitated person. |
||
; Life Interest trust: the income from property transferred is paid to one person "the life tenant" (e.g. a widow/er) during their lifetime and thereafter is transferred to another person (who may take absolutely or a second life interest according to the terms of the trust, in the second case a third beneficiary would come into play). The trustees may have power to pay capital as well as income to the life tenant |
; Life Interest trust: the income from property transferred is paid to one person, "the life tenant" (e.g. a widow/er), during their lifetime and thereafter is transferred to another person (who may take absolutely or a second life interest according to the terms of the trust, in the second case a third beneficiary would come into play). The trustees may have power to pay capital as well as income to the life tenant. Alternatively, they may have rights to transfer ("appoint") property to other beneficiaries ahead of their entitlement. |
||
; [[Discretionary trust]]: the trustees may pay out income to whichever of the beneficiaries they, in the reasonable exercise of their discretion, think fit. They will normally also have a power to pay out capital. They may have extensive powers, even to add new beneficiaries, but such powers may normally only be exercised bona fide in the interests of the beneficiaries as a whole.<ref> |
; [[Discretionary trust]]: the trustees may pay out income to whichever of the beneficiaries they, in the reasonable exercise of their discretion, think fit. They will normally also have a power to pay out capital. They may have extensive powers, even to add new beneficiaries, but such powers may normally only be exercised bona fide in the interests of the beneficiaries as a whole.<ref name="DKLR ">{{cite AustLII|HCA|14|1982|litigants=[[DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW)]] |parallelcite=(1982) 149 [[Commonwealth Law Reports|CLR]] 431 |date=21 April 1982 |courtname=auto}}.</ref><ref name="Baden">{{cite BAILII|court=UKHL |year=1970 |num=1 |litigants=Re Baden (No 1) McPhail v Doulton|courtname=auto |date=6 May 1970 |parallelcite=[1971] [[Appeal Cases Law Reports|AC]] 424}}.</ref> Discretionary trusts must not be indefinite and are subject to 'the rule against perpetuities'. In New South Wales, the time prescribed is a statutory period of 80 years from the date the disposition takes effect.<ref>{{cite Legislation AU |NSW|act|pa1984172|Perpetuities Act 1984|7}}(1).</ref> |
||
; [[Charitable trust]]s: this |
; [[Charitable trust]]s: this is also a form of discretionary trust; trusts for a purpose (as opposed to for individuals) are generally invalid at common law however [[charities]] are an exception. Persons wishing to pass money to causes not recognised as [[Charitable organization|charitable]] may instead make gifts to established [[companies]] or [[Voluntary association|associations]] or may establish trusts or trust-like structures in jurisdictions which do not restrict non-charitable purpose trusts (e.g. Jersey trusts, Danish and US foundations and Liechtenstein Anstallts). |
||
; [[Protective trust]]s and [[Spendthrift trust]]s: can be established to provide an income for persons who cannot be trusted with it. |
; [[Protective trust]]s and [[Spendthrift trust]]s: can be established to provide an income for persons who cannot be trusted with it. |
||
==Three Certainties of Express Trust== |
==Three Certainties of Express Trust== |
||
* Certainty of intention: Must be real intention by the settlor to dispose of property and create trust, not just make a gift – a trust also can't be created contrary to the intention of the settlor alleged to have created it: ''Commissioner of Stamp Duties (Qld) v Jolliffe''.<ref>{{cite AustLII|HCA|45|1920|litigants=Commissioner of Stamp Duties (Qld) v Jolliffe |parallelcite=[http://www.austlii.edu.au/au/cases/cth/HCA/1920/45.pdf (1920) 28 {{abbr|CLR|Commonwealth Law Reports}} 178] |date=14 August 1920 |courtname=auto}}.</ref> |
|||
* Certainty of subject:The property the subject of the trusts must be sufficiently ascertainable at the time the trust was created: ''Herdegen v Federal Commissioner of Taxation (1988)'' <ref>{{cite AustLII|FCA|419|1988|litigants=Herdegen v Federal Commissioner of Taxation |parallelcite=(1988) 84 [[Australian Law Reports|ALR]] 271 |date=2 December 1988 |courtname=auto}}</ref> |
|||
* Certainty of object:Beneficiaries must be ascertainable – |
|||
;Certainty of object:Beneficiaries must be ascertainable – |
|||
1. Fixed trust – ‘List certainty rule’ (Test): see e.g. West v Weston (1998) 44 NSWLR 657 |
|||
| ⚫ | |||
; Fixed trust – ‘List certainty rule’ (Test): see e.g. ''West v Weston'' (1998) <ref>{{cite AustLII|NSWSC|419|1998|litigants=West v Weston |parallelcite=(1998) 44 [[NSW Law Reports|NSWLR]] 657 |date=26 August 1998 |courtname=auto}}.</ref> |
|||
| ⚫ | |||
==Variation of Trusts in English Law== |
|||
The Variation of Trusts Act 1958 gave the courts the power to vary trusts in the following circumstances |
The [[Variation of Trusts Act 1958]] gave the courts the power to vary trusts in the following circumstances |
||
* s1(1)(a) Any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting; or |
* s1(1)(a) Any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting; or |
||
| Line 48: | Line 45: | ||
* s1(1)(d) Any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined. |
* s1(1)(d) Any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined. |
||
The |
The Court does not have the power to consent to the variation of a trust on behalf of an ascertained individual who is sui juris.(Someone above the age of consent and of sound mind) |
||
==Forms of trust used by UK taxpayers== |
==Forms of trust used by UK taxpayers== |
||
| Line 60: | Line 57: | ||
==Forms of trust used by US persons== |
==Forms of trust used by US persons== |
||
Certain US jurisdictions and other jurisdictions have developed a radically different interpretation of the trust. |
Certain US jurisdictions and other jurisdictions have developed a radically different interpretation of the trust. Valid trusts can be established by persons who then continue to deal with property as if it were their own during their lifetime, the trust crystallising on death. Trust funds can be taxed as legal entities by election ("[[check-the-box|checking the box]]"). |
||
==References== |
==References== |
||
Latest revision as of 23:07, 22 August 2023
 | This article needs additional citations for verification. (August 2014) |
| Wills, trusts and estates |
|---|
 |
| Part of the common law series |
| Wills |
|
Sections Property disposition |
| Trusts |
|
Common types Other types
Governing doctrines |
| Estate administration |
| Related topics |
| Other common law areas |
In trust law, an express trust is a trust created "in express terms, and usually in writing, as distinguished from one inferred by the law from the conduct or dealings of the parties."[1] Property is transferred by a person (called a trustor, settlor, or grantor) to a transferee (called the trustee), who holds the property for the benefit of one or more persons, called beneficiaries. The trustee may distribute the property, or the income from that property, to the beneficiaries. Express trusts are frequently used in common law jurisdictions as methods of wealth preservation or enhancement.
Terms
[edit]Law generally requires only a simple formality to create an express trust. In certain jurisdictions, an express trust may even be established orally. Typically, a settlor would record the disposition, where real property is to be held in trust or the value of property in trust is large. Where legal title to property is being passed to a trustee, a "deed of settlement" or "trust instrument" (for jurisdictions that do not recognise deeds) may be used. Where property is to continue to be held by the person making the trust, a "declaration of trust" will be appropriate.
Often, a trust corporation or more than one trustee is appointed to allow for uninterrupted administration of the trust in the event of a trustee's resignation, death, bankruptcy or incapacity. Additionally a Protector may be appointed who, for example, is authorized to appoint new trustees and to review the trustees' annual accounts.
To be valid at common law, a trust instrument must ascertain its beneficiaries, as well as the res (a Law Latin term meaning "thing") or subject matter of the trust, unless it is a charitable trust which does not provide specific beneficiaries.
To be valid in equity, a trust must satisfy the following elements:
- Property or rights of a kind which can be the subject of a trust
- A declaration of trust or disposition on trust by a person legally competent to create a trust
- Certainty of property and objects (trust must be administratively workable)
- Compliance with requirements regarding evidence
- Compliance with rules against remoteness of vesting (rule against perpetuities and rule against inalienability of income for longer than the perpetuity period)
Common forms of express trust
[edit]- Bare trust
- property transferred to another to hold e.g. for a third person absolutely. May be of use where property is to be held and invested on behalf of a minor child or mentally incapacitated person.
- Life Interest trust
- the income from property transferred is paid to one person, "the life tenant" (e.g. a widow/er), during their lifetime and thereafter is transferred to another person (who may take absolutely or a second life interest according to the terms of the trust, in the second case a third beneficiary would come into play). The trustees may have power to pay capital as well as income to the life tenant. Alternatively, they may have rights to transfer ("appoint") property to other beneficiaries ahead of their entitlement.
- Discretionary trust
- the trustees may pay out income to whichever of the beneficiaries they, in the reasonable exercise of their discretion, think fit. They will normally also have a power to pay out capital. They may have extensive powers, even to add new beneficiaries, but such powers may normally only be exercised bona fide in the interests of the beneficiaries as a whole.[2][3] Discretionary trusts must not be indefinite and are subject to 'the rule against perpetuities'. In New South Wales, the time prescribed is a statutory period of 80 years from the date the disposition takes effect.[4]
- Charitable trusts
- this is also a form of discretionary trust; trusts for a purpose (as opposed to for individuals) are generally invalid at common law however charities are an exception. Persons wishing to pass money to causes not recognised as charitable may instead make gifts to established companies or associations or may establish trusts or trust-like structures in jurisdictions which do not restrict non-charitable purpose trusts (e.g. Jersey trusts, Danish and US foundations and Liechtenstein Anstallts).
- Protective trusts and Spendthrift trusts
- can be established to provide an income for persons who cannot be trusted with it.
Three Certainties of Express Trust
[edit]- Certainty of intention: Must be real intention by the settlor to dispose of property and create trust, not just make a gift – a trust also can't be created contrary to the intention of the settlor alleged to have created it: Commissioner of Stamp Duties (Qld) v Jolliffe.[5]
- Certainty of subject:The property the subject of the trusts must be sufficiently ascertainable at the time the trust was created: Herdegen v Federal Commissioner of Taxation (1988) [6]
- Certainty of object:Beneficiaries must be ascertainable –
- Fixed trust – ‘List certainty rule’ (Test)
- see e.g. West v Weston (1998) [7]
- Discretionary trust -'criterion certainty test’
- is whether it can be said that a given individual is or is not a member of the range of objects (class): Re Baden’s Deed Trusts; McPhail v Doulton [3]
Variation of Trusts in English Law
[edit]The Variation of Trusts Act 1958 gave the courts the power to vary trusts in the following circumstances
- s1(1)(a) Any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting; or
- s1(1)(b) Any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class, as the case may be, if the said date had fallen or the said event had happened at the date of the application to the court; or
- s1(1)(c) Any person unborn; or
- s1(1)(d) Any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined.
The Court does not have the power to consent to the variation of a trust on behalf of an ascertained individual who is sui juris.(Someone above the age of consent and of sound mind)
Forms of trust used by UK taxpayers
[edit]- Accumulation and Maintenance trust
- A variation on the discretionary trust, the A&M does not carry the Inheritance tax disadvantages of a discretionary settlement but can only be established for persons under 25 who must be entitled to income at that age. Allows the accumulation of income within the trust until 25.
- Disabled Trust
- Similar to an A&M trust but established for a disabled person.
- Reverter to Settlor trust
- A trust where, on the death of the life tenant, the property reverts to the person making the gift.
- Nil Rate Band Discretionary trust
- UK inheritance tax is payable at 40% on estates worth over £325,000 for the 2009-2010 tax year. If assets up to that value are placed in a discretionary trust during a person's lifetime, the trust will not be taken into account for inheritance tax if the person survives for a further 7 years. Likewise in a will, many persons leave a legacy on discretionary trusts so as to take full advantage of their nil rate band (gifts to spouses and registered civil partners being wholly exempt).
Forms of trust used by US persons
[edit]Certain US jurisdictions and other jurisdictions have developed a radically different interpretation of the trust. Valid trusts can be established by persons who then continue to deal with property as if it were their own during their lifetime, the trust crystallising on death. Trust funds can be taxed as legal entities by election ("checking the box").
References
[edit]- ^ Black's Law Dictionary, p. 1354 (5th ed. 1979).
- ^ DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) [1982] HCA 14, (1982) 149 CLR 431 (21 April 1982), High Court (Australia).
- ^ a b Re Baden (No 1) McPhail v Doulton [1970] UKHL 1, [1971] AC 424 (6 May 1970), House of Lords (UK).
- ^ Perpetuities Act 1984 (NSW) s 7(1).
- ^ Commissioner of Stamp Duties (Qld) v Jolliffe [1920] HCA 45, (1920) 28 CLR 178 (14 August 1920), High Court (Australia).
- ^ Herdegen v Federal Commissioner of Taxation [1988] FCA 419, (1988) 84 ALR 271 (2 December 1988), Federal Court (Australia)
- ^ West v Weston [1998] NSWSC 419, (1998) 44 NSWLR 657 (26 August 1998), Supreme Court (NSW, Australia).