Discuss in detail the nature and classification of trusts.

The trust is both the most important part of Equity and the greatest and most distinctive
achievement performed by Englishmen in the Field of Jurisprudence according to the legal
historian and Equity specialist professor Maitland1. Whether or not that's true, the trust concept,
whether deliberately by ordinary people or used by a court to remedy unconscionable behaviour,
is one of the fundamental techniques with which lawyers analyze the world.

This discussion will mainly examine what trust is and its nature and will go ahead to elaborate on
the different types of trusts.

A trust is a relationship which exists when a person called the trustee holds property, whether
real or personal and whether by legal or equitable title for the benefit of some person(s) called
the beneficiary.

Justice Romer in the case of Green V Underhill2 had this to say about trust as, "an equitable
obligation binding a person (trustee) to deal with property over which he has control (which is
called the trust property) for the benefit of persons (beneficiaries or lestui que trust) of whom
he may himself be one, and any one of whom may enforce the obligation. Any act or neglect
on the part of a trustee which is not authorized or excused by the farms of the trust instrument
or by law is a breach of trust.’’

A key feature of a trust is “duality of ownership”3. The trustees are the legal owners but they
do not enjoy the benefit of the trust property. The beneficial interest is usually referred to as the
equitable interest because a trust is a product of Equity which has always protected the
beneficiary’s equitable interest.

Property that may be the subject of the trust is personal property which includes choses in
possession, for example, tangible property like paintings, antiques, jewellery and chose in action
which is the intangible property which includes shares, money and copyright.

Real property such as freehold land and least hold land or buildings may also be held in trust.

1
Alastair Hudson, Equity and Trusts (9 edition, Routledge 2016).
2
(1959) 2 QB 226.
3
Optimize Equity and Trusts (1 edition, Routledge 2014).
It is important to note that future property cannot be held in trust, for example, if Eve promised
to settle any property that she inherited from her brother, this would be an invalid trust because if
refers to the future property and is mere hope. But if Eve did inherit property from her brother,
the inheritance would then become an existing property and at that point, Eve would be expected
to carry out his promise and settle the property. Re Bowden4

A trust also has other key features from the perspective of the settlor, the trustees and the
beneficiary.

Settlor.

A trust comes into existence either by having been established expressly by a person (the settlor)
who was the absolute owner of the property before the creation of the trust (Express trust) or by
some action of the settlor which the court interprets to have been sufficient to create a trust but
which the settlor himself did not know was a trust (un implied trust) or by operation of Law
either to resolve some disputes as to the ownership of property where the creation of an express
trust has failed ( an automatic resulting trust) or to recognize the property rights to one who has
contributed to the purchase price of the property (purchase price resulting trust) or by operation
of law to prevent the legal owner of the property from seeking unconscionable to deny the rights
of more who have equitable interests in that property (constructive trust).

In the case of Paul V Constance5 illustrates that you can be the settlor, the trustee and a
beneficiary as Mr Constance was not only the settlor but also the trustee and a beneficiary.
However, once a trust is created, the settlor (In his capacity as the settlor) loses his control over
the property. In the case of Re Bowden6, then Nun who left the convent and sought to recover
the property she had settled on trust was unsuccessful because you cannot undo the trust.

Trustees hold legal title to the trust property but have no right to enjoy that property, the benefit
of which is for the beneficiary. Trustees are under a mandatory obligation to carry out the trust
and, if they fail to do so they will be in breach of trust and may be sued by the beneficiary. They
hold a fiduciary relationship as such, they must avoid any conflict of interest.

4
(1936) Ch 71.
5
[1977] 1 WLR 527.
6
(1936) Ch 71. (n 4).
The beneficiary.

Except for charitable purpose trusts and unenforceable trusts, trusts must have a beneficiary who
can enforce the trust against the trustees for example they can sue the trustees if they fail to carry
out their obligations. In the case of charitable purpose trusts, the Attorney general is charged
with enforcement.

The beneficiary has a proprietary interest in the subject matter of the trust which means that if
necessary he can recover it from anyone who might acquire it wrongly or innocently with the one
exception of a bonafide purchaser for value who acquires the property without notice of
beneficiary’s interest.

Important to note is the rule in Saunders vs Vautier7 which states that provided all
beneficiaries under a trust are together absolutely entitled and are of full age and mental
capacity, they may join together to terminate the trust and may order the trustees to
transfer the legal title to them.

Trusts can be classified in different ways according to context and these may include the
following8;

Classification according to the method of creation.

Express trusts:

These are trusts created by the settlor or testator as can be seen from the settlor or testator’s
intention. An express trust can be understood from the magic triangle of Settlor, Trustee and
Beneficiary.9 They can be created by deed, will or word of mouth. This trust is created by the
settlor or testator himself through the manifestation of an intention to create one.

Express trusts are further subdivided into executed and executory trusts.

An executed trust is one in which the testator or settlor has marked out in clear technical
expressions what interests are to be taken by all the beneficiaries.

7
[1841] EWHC J82.
8
Chris Turner and Judith Bray, Equity and Trusts (1 edition, Routledge 2013) bk 9.
9
Hudson (n 1) 51.
On the other hand, an executory trust is one where the settlor has indicated to his trustees a
scheme of a settlement but the details are to be gathered from his general expressions. In most
cases; the execution of some other instrument is required to set out beneficial interests. Once the
property is indicated by the settlor, the property becomes subject to a valid trust but remains
executory until a further instrument is duly executed.

Executed trusts are governed by the legal rules of construction, on the other hand, the language
of executory trusts are construed more liberally (Re Bostocks Settlement10

Equity will follow the law in cases where an executed trust has made use of technical words
(expressions) for which the law has laid down rules of interpretation thus giving effect to such
interpretation.

However, in case of executory trusts, equity will attach less importance to the use or omission of
technical words but will seek to discover the settlor's true intention and order the preparation of a
final deed which gives effect to such intention. (Re Flavell’s will trust 11

Implied trusts:

This trust is created by court and arises where the intention of the settlor to set up a trust is
inferred from his word or actions. Court deduce from the conduct of the parties and
circumstances of the transaction, the intention to create a trust, for example where a person in
return for a valuable consideration agrees to settle property for the benefit of another, that person
immediately becomes a trustee of the property. Bannister vs Banistar12

Statutory trust:

These are created by statute; for example under the succession Act13, where a person dies
intestate, the personal representative holds the estate on statutory trust for the children or certain
classes of relatives.

Resulting Trusts are trusts created where the property is not properly disposed of. It comes
from the Latin "resultare” meaning to spring back and was defined by Margery VC as

10
(1992) 2 Ch 469).
11
(1969) WLR 445).
12
(1948) 2 ALLER 133.
13
Cap 162, Laws of Uganda.
essentially a property concept; any property that a man does not effectually dispose of remains
his own.(Vandervell’s trust (No.2)14

These trusts came into two forms; automatic and presumed resulting trusts.

Automatic resulting trusts arise from a gap in the equitable title of the property. It is against
principle for a piece of property to have no owner.

As such, courts assign the property to somebody in a resulting trust to avoid this becoming an
issue. Megarry J suggested that these arise automatically when an express trust fails, for example
when an express trust fails for the uncertainty of objects, the trust property results back to the
settlor.

In Boyce V Boyce15 in which the express trust of two trustees failed for the uncertainty of
beneficial interest. The property resulted back to the settlor's estate.

Presumed resulting trusts.

This is very similar to purchasing a property in the name of another except that the transferor
transfers his property gratuitously to the transferee. In the case of Hodgson V Mark16, it was
held that upon a voluntary transfer of land, a resulting trust may still arise per the intention of the
transferor.

Constructive trust

Unlike express trusts, constructive trusts are not created expressly but come about by the
operation of the Law. In West Deutsche Landes bank17 , Lord Browne Wilkinson described a
constructive trust as a trust “which the law imposes on the trustee because of his
unconscionable conduct’’. A constructive trust is imposed by the law as an equitable remedy to
prevent unjust enrichment by the defendant. The imposition of a constructive trust is a
proprietary remedy. The court recognized that the claimant has a pre-existing proprietary interest
which the defendant holds on constructive trust and if no property has been vested in the

14
[1974]EWCA Civ 7.
15
(1849) 60 ER 959.
16
(1971) Ch 892.
17
[1996] UKHL 12.
defendant, then the remedy against the defendant is personal for example fiduciary will be liable
to account for any unauthorized profit which he made from his position.

Classification according to the “type of beneficiary”

A private trust is one which benefits specific individuals irrespective of whether they are
immediately ascertainable and the interest therein defined will fail if they do not vest during the
perpetuity period.

Public trust is one which benefits the public at large or a considerable portion of the public, for
example, a charitable trust.

Classification according to the character of the interest.

Fixed trust:

This is one where the settlor has initially quantified the precise interest that has been acquired by
the beneficiary such as an absolute interest, a life interest or an interest for several years.18

Discretionary trust:

This is where the interest and exact distribution of the property is identified by the trustee. The
trust interest amounts of beneficiaries are not set by the settlor in a discretionary trust, whereby
the trustee makes decisions as to whom the beneficiaries will be and the much they will get.
However, the beneficiary must be a member of a class of objects in whose favour the trustee is
required to exercise their discretion.

Conclusion

Trusts originated to protect the family interests of absent knights in England but now it is an
importantly recognized arrangement by equity where property owners would pass the legal rights
in the property to a trusted person (or trustee) so that the trustee could control the use of the
property but on the understanding that the ultimate rights to the property remained with the
property owner as of the beneficiary. This simple mechanism of splitting legal and beneficial
interests in property has allowed trusts to expand and gain a context in the modern world as a
means of responding flexibly to most problems thrown up by property owners.

18
Chris Turner and Judith Bray, Equity and Trusts (Taylor & Francis 2013) 10.
BIBLIOGRAPHY

BOOKS

Hudson A, Equity and Trusts (9 edition, Routledge 2016)

Optimize Equity and Trusts (1 edition, Routledge 2014)

Turner C and Bray J, Equity and Trusts (1 edition, Routledge 2013)

Equity and Trusts (Taylor & Francis 2013)

[1841] EWHC J82

(1849) 60 ER 959

(1936) Ch 71

(1948) 2 ALLER 133

(1959) 2 QB 226

(1969) WLR 445)

(1971) Ch 892

[1974]EWCA Civ 7

[1977] 1 WLR 527

(1992) 2 Ch 469)

[1996] UKHL 12

Cap 162, Laws of Uganda