Part 1: What is a Trust? The Basics
At its core, a trust is a relationship, not a legal entity. It arises when a person (the Settlor) transfers property to another person (the Trustee) to hold for the benefit of a third person (the Beneficiary).
The Split of Ownership
The magic of a trust is the separation of ownership:
- Legal Title: Held by the Trustee. They have the power to manage the asset (sell it, invest it).
- Equitable (Beneficial) Title: Held by the Beneficiary. They have the right to enjoy the asset (receive income, live in the house).
Why do we use Trusts?
- Protection: To hold assets for minors or vulnerable people.
- Tax Planning: To manage Inheritance Tax liabilities.
- Collective Investment: Pension funds are essentially giant trusts.
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Part 2: The Three Certainties (Knight v Knight)
For a trust to be valid, it must satisfy the "Three Certainties" established in Knight v Knight (1840). This is the most common topic for problem questions.
1. Certainty of Intention
Did the settlor intend to create a trust, or was it just a gift with a moral hope?
- Key Case: Re Adams and the Kensington Vestry. ("In full confidence that she will do what is right" = No Trust. It was a gift.
- Key Case: Paul v Constance. ("The money is as much yours as mine" = Valid Trust).
2. Certainty of Subject Matter
What property is being held on trust?
- Key Case: Palmer v Simmonds. ("The bulk of my residuary estate" = Failed. "Bulk" is too vague.
- Key Case: Hunter v Moss. (50 shares out of 950 = Valid, because shares are intangible and identical).
3. Certainty of Objects
Who are the beneficiaries?
- Fixed Trust: You must be able to list every beneficiary (IRC v Broadway Cottages).
- Discretionary Trust: You must be able to say if a person is "in or out" of the class (McPhail v Doulton).
Part 3: Trustee Duties and Breach of Trust
Trustees have immense power, so the law imposes strict fiduciary duties to prevent abuse.
Key Duties
- Duty of Investment: Trustees must act as a "prudent business person" (Trustee Act 2000).
- Duty not to Profit: Trustees cannot make unauthorized profits (Boardman v Phipps). Even if they are honest and the trust benefits, they must disgorge their profit.
- Duty to Distribute: They must pay the right people.
Remedies for Breach
If a trustee steals the money or makes a negligent investment, the beneficiary can sue. This leads to the complex rules of Tracing.
- Common Law Tracing: Limited (asset must not be mixed).
- Equitable Tracing: Powerful (can trace into mixed funds).
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Part 4: Secret Trusts and "Half-Secret" Trusts
This is a fascinating niche where Equity intervenes to prevent fraud. A secret trust occurs when a testator leaves property to X in their will, but X has secretly agreed to hold it for Y.
Fully Secret Trust
- Will says: "To X."
- Reality: X promised to hold for Y.
- Communication: Must happen before death.
Half-Secret Trust
- Will says: "To X on trust" (but doesn't say for whom).
- Reality: X promised to hold for Y.
- Communication: Must happen before or at the time of the will's execution (Blackwell v Blackwell).
The Debate: Does this violate the Wills Act 1837? The "Dehors the Will" theory argues that the trust operates outside the will, so it is valid.
Legislation.gov.uk – Trustee Act 2000 – The statutory framework for trustee powers.
Part 5: Resulting and Constructive Trusts
Not all trusts are created expressly. Some arise by operation of law.
Resulting Trusts (Presumed Intention)
- Type A: Failure of an express trust (e.g., beneficiary dies). The property "results" back to the settlor.
- Type B: Voluntary transfer. If A pays for a house put in B's name, Equity presumes B holds it on trust for A (Dyer v Dyer).
Constructive Trusts (Common Intention)
Used heavily in family home disputes.
- Key Case: Stack v Dowden. The court looks for a "common intention" to share ownership, based on conduct and financial contribution.
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Conclusion
Equity and Trusts Law is a fascinating blend of history, morality, and rigorous logic. It challenges you to think about justice in a way that the Common Law does not. By mastering the Three Certainties, understanding the fiduciary duties of trustees, and navigating the complexities of equitable remedies, you equip yourself with one of the most powerful toolkits in the legal profession.
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Frequently Asked Questions
What is the difference between a Trust and a Contract?
A contract is a bargain between two parties (Consideration). A trust is a transfer of property (Equitable Title). You need "Consideration" to enforce a contract, but you do not need it to create a trust (unless it is a "covenant to settle"). Once a trust is constituted, the beneficiary has proprietary rights, whereas a contract usually gives only personal rights.
Why is McPhail v Doulton important?
This case changed the test for Discretionary Trusts. Before McPhail, you had to list every beneficiary (the "Complete List" test). McPhail introduced the "Is or Is Not" test, making it easier to create valid trusts for large groups of people (e.g., "my employees"). It made trusts more flexible for modern commercial use.
Can a trustee also be a beneficiary?
Yes, absolutely. A person can wear two hats. For example, in a family trust, a parent might be a trustee (manager) and also a beneficiary (receiving income). However, a sole trustee cannot be the sole beneficiary, because the legal and equitable titles would merge, extinguishing the trust.
What is the "Beneficiary Principle"?
This principle states that every trust (except charitable ones) must have a human beneficiary who can enforce it. A trust "for a purpose" (e.g., "to maintain my garden") is generally void because there is no one to sue the trustee if they fail. This is the Morice v Bishop of Durham rule.
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Yes. Equity and Land Law are deeply intertwined (especially regarding co-ownership and mortgages). Our law coursework help uk service covers all core modules, ensuring your understanding of equitable interests in land is consistent across both subjects.
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