Professional Documents
Culture Documents
Trust
Trust
When we talk about trust, there is what we call a Three persons involved in trust:
“FIDUCIARY RELATIONSHIP” that’s why it is termed as a 1. Trustor - a person who establishes the trust.
trust because the legal title of the property is placed in the 2. Trustee - on in whom confidence is reposed as regards
name of one person but it is for the benefit of another. property for the benefit of another
3. Beneficiary - a person for whose benefit has been created
In fact, for purposes of taxation, a trust is one of the Art. 1443. No express trusts concerning an immovable or any
taxable entities. That is why for income tax purposes, if you are interest therein may be proved by parol evidence.
to classify income tax payers, we have individuals,
corporations, estates and trust. In the case of an express trust involving an immovable
property, this may not be proved by parol evidence. You can
So the estate is also a taxable entity because while the relate this to unenforceable contracts under the statute of
properties are not yet distributed to the heirs and the frauds. The law requires that these contracts have to be put in
properties left behind by the decedent earns income, their writing in order for it to be enforceable. No oral evidence may
income tax will also be paid out of the income earned out of be accepted to prove that particular agreement. That rule is
the estate. And so, income tax is paid. also applicable in proving express trust involving an
immovable property or any interest there in.
In the case of trust, income can also be earned by the
trustor for the trustee for the property that was entitled to him. So, if you are claiming that this particular parcel of land is held
And so, the taxable entity there is the TRUST. in trust by X in favor of Y, then the only evidence acceptable to
prove that express trust is a written instrument. If the object is
Income tax can also be paid. In fact, under the old an immovable property, the law requires that the evidence
law, trust is also entitled to a personal exemption. Which is acceptable be written evidence.
also the reason why there can be income tax savings if a trust is
created by the parents in favor of the minor children. Why? If
you are the parent and you hold onto all the properties in your Art. 1444. No particular words are required for the creation of
name. All of these properties earn income. There will only be an express trust, it being sufficient that a trust is clearly
one taxable entity which is the parent. Our income tax system intended.
is progressive: the bigger is the income, the higher is the rate.
How do we know whether a trust has been created? You will
If you are individual tax paper, you will only enjoy just look into the substance of the agreement. If the agreement
one personal exemption. Now, if you create a trust which is to the affect that a legal title of a property is placed in one
means to say that you now distribute your properties, let us person for the benefit of another even without using the exact
say you have 5 children, you create a trust in favor of each of words trust, trustor, trustee or beneficiary, then a trust is to be
your five children. Instead of concentrating all the income in considered to have been created. and for which the provisions
one taxpayer, you will now have 5 more tax payers in addition under trust will govern.
to the parent. So you spread now the income of your properties
to the different trusts which are taxable entities. Now how will
you be able to save on taxes there? Each trust is entitled to a
personal exemption. Art. 1445. No trust shall fail because the trustee appointed
declines the designation, unless the contrary should appear
Whereas, if you are the only taxpayer, you are only in the instrument constituting the trust.
entitled to one personal exemption. And further to that since
now the income has now been spread over the five trust that Simply because a person who was claimed as a trustee
are created plus the trustor, there are now 6 income tax payers. declined his appointment or designation as a trustee, it does
So that will now lower the income tax bracket. So that is also not mean that a trust has already failed. Because, what the
one way of saving on income taxes in addition to the real trustor will just have to do is to appoint another trustee.
objective of trust which is for the trustee to take charge of the
property for the benefit of the beneficiary.
Art. 1446. Acceptance by the beneficiary is necessary. Art. 1447. The enumeration of the following cases of implied
Nevertheless, if the trust imposes no onerous condition upon trust does not exclude others established by the general law
the beneficiary, his acceptance shall be presumed, if there is of trust, but the limitation laid down in article 1442 shall be
no proof to the contrary. applicable.
If it is purely gratuitous, no conditions are imposed, Articles under implied trust are just examples. It is not
the law presumes that there was an acceptance on the part of exclusive.
the beneficiary. That is in consonance with human nature. If it
is something that will benefit you, it is unlikely that you will
not accept it. If it is not onerous, it does not impose any burden
on the part of the beneficiary, it is presumed that he accepted Art. 1448. There is an implied trust when property is sold,
the trust in his favor. and the legal estate is granted to one party but the price is
paid by another for the purpose of having the beneficial
But if is shown that the beneficiary did not accept, interest of the property. The former is the trustee, while the
then the person claiming such has the burden of proving that latter is the beneficiary. However, if the person to whom the
there was really no acceptance at all. title is conveyed is a child, legitimate or illegitimate, of the
one paying the price of the sale, no trust is implied by law, it
being disputably presumed that there is a gift in favor of the
child.
IMPLIED TRUST
When a property is bought and the title is placed in
This come into being by operation of law. place of another, you are the one who provided the purchase
Two kinds: price because under normal situations, if you are the one who
paid for the price and property, then you would but that
1. Resulting trust - there is an intention on the party or the property under your name because you are the buyer.
persons involved to create that trust but it was not
expressed. Based on the circumstances, there was But what happens is, you are the buyer of the
really that intention to create that trust. property but you placed the title of the property in the name of
X. Under this provision, there is an impled trust when
Example: property is sold and the legal estate is granted to one property
but the price is paid by another for the purpose of having the
There is one provision there that states that in the case where beneficial interest of the property. This means that the person
persons succeed to the estate of another and they are co-heirs. who provided the money to buy the property is now the
One has placed the title to the property in the name of only one trustor-beneficiary.
of them. Example: there are 2 brothers (A and B) who are the
only heirs to the property of their parents. So when the parents The intention there is to just place the title of the
died, A agreed with B that the title to the property would just property in the name of X, for example, but the one who
be placed in the name of B. It is clear that the intention there provided the purchase price intended to get back the property.
that A still remains to be the owner of the property. But in the This is because when he provided that property, his intention
mean time, it was just placed in the name of brother B. The was not to give the property to the person in whose name the
trust there was not expressed but it can be claimed that there title was placed. If this happens, which is a common situation,
was really an intention on the part of A that he remains to be could be a scheme of the parents in relation to estate planning.
the owner of the property the legal title was just placed in the
name of B but B is holding the property in trust for A, as far as There are some parents who, during their lifetime,
the share of A is concerned. Trust can also be claimed from Co- would buy a property and place the title of the property in the
ownership. The brothers here are an example of co-ownership, name of their children. There are many cases where it is really
only that it was placed here in the name of one. So there was clear that the child in whose name the property was placed is
really an intention to create a trust although not expressed. not the real buyer because he/she is incapacitated to do so. So
under this provision, it says that if the situation where it’s the
parents who bought the property and placed the title in the
name of the child whether the child is legitimate or
2. Constructive trust - based on the principle: “no one shall illegitimate, then it is presumed to be a donation or a gift. A
unjustly enrich himself at the expense of another”. It trust is not created but a donation was made. The word
is based on equity. disputable means there that you can still present evidence to
Example: prove the contrary.
In the case where a property was transferred to the name of X This becomes really relevant in relation to succession.
by mistake. The title to the property was placed in the name of There will be no problem if the children will be accorded the
X when that property should have been given to Y. So what is same benefit. The problem arises if such a privilege was only
the obligation on the part of X? He now becomes a trustee of given to a favorite child. Upon the death of the parents, that
that property. He is holding that property in trust for Y who is child in whose favor, a property was already transferred will
the real owner of that property. So based on equity, can Y again inherit from the estate. So “doble” na siya. That is why
demand from X the conveyance of the property to him because the children who were not given the same favor will now
that is the basis of Y’s right to have that property conveyed to question the transaction. The problem there is that if that child
him is implied trust in whose favor the transfer was made, has the capacity to buy
the property, he can now claim that he was the one who paid This way he can recover the property.
for the property. If he can claim this, it will no longer be
considered a donation of the parent. It is all on the matter of The beneficiary is the borrower and the trustee is the
proof. lender or the creditor. The borrower can redeem the property
and allow the conveyance to him.
If the borrower has now fully paid the loan, he will now ask
the creditor to reconvey the land back to him. If the creditor
refuses to do so, this is the legal basis of an action to recover
the property. There is an implied trust.