Introduction to the_law_of_trust-_law_of_equity_trusts_probate_i

INTRODUCTION TO THE
LAW OF TRUST
Introduction
Definitions of Trust
Terms Associated with Trusts
Legal and Equitable Ownership
Nature of Beneficiary’s Interests
Trusts Distinguished from other
Relationships/Concepts
Conclusion

INTRODUCTION TO THE
LAW OF TRUST
Introduction:
• Many attempts have been made to define the term “trust”, but none as
yet have been wholly successful. A trust is, therefore, easier to describe
than to define. Although trusts come in a variety of forms and cater for
different types of property and purpose, they all share the same essential
characteristics. At its heart, a trust involves the fragmentation of legal
title (legal ownership) and equitable title (beneficial ownership). The
legal title is vested in a character known as the “trustee” and the trustee
holds the trust property on behalf of the “beneficiary”. It is only on this
separation of title that equitable title assumes importance because the
general rule is that the legal title carries with it all rights.
• The existence of a trust is dependent upon identifiable property (whether
tangible or intangible) being transferred from its legal owner to one or
more trustees to hold and manage property for the benefit of
ascertainable beneficiaries. The trust may be created inter vivos (i.e.
during the lifetime of the settlor) or may be post-mortem/testamentary
(i.e. on the death of the settlor).

INTRODUCTION TO THE
LAW OF TRUST
Introduction: (Continuation)
• The trustee owes a “fiduciary” duty (i.e. a duty of utmost good faith) to
both the settlor and the beneficiary. The entitlement of the beneficiaries
will normally be set out in the document creating the trust (the “trust
instrument”), but where this is not the case the rights of the beneficiaries
can be implied by equity. Trusts can be of any sort of property: land,
money, chattels, cheques and debts, etc.
• In general terms, therefore, a trust is either a self-imposed obligation or
an obligation imposed on a third party (in whom legal title to the
property becomes vested) to act for the benefit of another which is
enforceable in equity. The equitable interest in the property thereby
becoming different and distinct from the nominal legal ownership vested
in the trustee. .

INTRODUCTION TO THE
LAW OF TRUST
Definitions of Trust:
(1) Halsbury’s Laws of Malaysia
• Meaning of “trust”. Where a person has property or rights which he
holds or is bound to exercise for or on behalf of another or others, or for
the accomplishment of some particular or particular purposes, he is said
to hold property or rights in trust for the other or those others, or for that
purpose or those purposes, and he is called a trustee. A trust is a purely
equitable obligation and is enforceable in the High Court.
(2) Maitland
• ‘I should define a trust in some way as the following- When a person
has rights which he is bound to exercise upon behalf of another or for
the accomplishment of some particular purpose he is said to have those
rights in trust for that other and for that purpose and he is called a
trustee’.

INTRODUCTION TO THE
LAW OF TRUST
(3)
•

(4)
•

Definitions of Trust: (Continuation)
Pettit
A trust is an equitable obligation, binding a person (who is called a
trustee) to deal with property over which he has control (which is
called the trust property) either for the benefit of persons (who is
called beneficiaries or cestui que trust) of whom he may himself be
one, and any one of whom may enforce the obligation, or for a
charitable purpose, which may be enforced at the instance of the
Attorney-General or for some other purpose permitted by law though
unenforceable.
Underhill
A trust is an equitable obligation binding a person (who is called a
trustee) to deal with property over which he has control (which is
called the trust property), for the benefit of persons (who are called
beneficiaries or cestui 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 authorised or excused by the
terms of the trust instrument, or by law, is called a breach of trust.

INTRODUCTION TO THE
LAW OF TRUST
(5)
•

Lewin
‘The word “trust” refers to the duty or aggregate accumulation of
obligations that rest upon a person described as trustee. The
responsibilities are in relation to property held by him, or under his
control. That property he will be compelled by a court in its equitable
jurisdiction to administer in the manner lawfully prescribed by the
trust instrument, or where there be no specific provision written or
oral, or to the extent that such provision is invalid or lacking, in
accordance with equitable principles. As a consequence the
administration will be in such a manner that the consequential
benefits and advantages accrue, not to the trustee, but to the persons
called cestui que trust, or beneficiaries, if there be any; if not, for
some purpose which the law will recognise and enforce. A trustee
may be a beneficiary, in which case advantages will accrue in his
favour to the extent of his beneficial interest’.

INTRODUCTION TO THE
LAW OF TRUST
(6)
•

(7)
•

Keeton
‘All that can be said of a trust... is that it is the relationship which
arises whenever a person called trustee is compelled in Equity to hold
property, whether real or personal, and whether by legal or equitable
title, for the benefit of some persons (of whom he may be one and
who are termed as cestui que trust) or for some object permitted by
law, in such a way that the real benefit of the property accrues, not to
the trustees, but to the beneficiaries or other objects of the trust’.
The Hague Convention on the Recognition of Trust
For the purpose of this Convention, the term “trust” refers to the legal
relationship created- inter vivos or on death- by a person, the settlor,
when assets have been placed under the control of a trustee for the
benefit of a beneficiary or for a specified purpose.
Note: A trust is an equitable obligation imposed on the person who
has legal title to act for the benefit of others.

INTRODUCTION TO THE
LAW OF TRUST
•

•
•
•
•
•

Terms Associated with Trusts:
Trust Instrument: This is the document which creates a trust, vesting the
trust property in the trustees. It also describes the term of the trust. A trust
instrument is not always required to create a trust which is in appropriate
circumstances may be created orally.
Settlor: The person who actually creates a trust by donating property to be
managed and administered by a trustee but from which all profits would
go to a beneficiary.
Trustee: The person in whom the trust property is vested. He is concerned
with the administration and management of the trust for the benefit of the
beneficiaries.
Beneficiary or cestui que trust: The person who benefits from the trust
property
Trust Property: The subject matter of the trust which may include real
property (land) tangible property (cars, computers) and intangible
property (company shares, loans, intellectual property rights).
Note: A settlor can also be one of the trustees or one of the beneficiaries
and a trustee can also be one of the beneficiaries.

INTRODUCTION TO THE
LAW OF TRUST
•

•

•

Legal and Equitable Ownership:
Once the trust is created and completely constituted the settlor drops
out of the picture unless he has reserved for himself an interest in the
trust (he may be a trustee or a beneficiary or both). In the absence of
such reservation, the settlor is a stranger in respect to the trust.
The trustees who control and manage the trust property are treated as
legal owners whereas the beneficial or equitable ownership vests in
the beneficiaries. The separation of the legal and equitable title is
characteristic of the successful creation of a trust.
Legal title represents to the world that the legal owner has a right to
retain and control the property, for example, the registered owners of
share certificates or persons named in the register of title relating to a
parcel of land. On the other hand, equitable or beneficial title which is
enforceable in equity is the right to enjoy the trust property. As long
as the trustees are managing the trust property as prudent and
reasonable managers, the beneficiaries, as equitable owners have no
right to interfere with such management (see the case of Cowan v
Scargill [1985] Ch. 270)

INTRODUCTION TO THE
LAW OF TRUST
Nature of Beneficiary’s Interests:
• There is a controversy as to the nature of the equitable interest arising as the
result of the creation of a trust. Does it involve a right in rem (available against
‘the world at large’, i.e. persons generally) or a right in personam (that is,
against a specific person)? There are basically three views regarding this issue:
(a) The traditional view- It suggests that the beneficiary’s interest involves a right in
personam. Maitland argues that to hold a contrary view is to ignore the
important rule that an equitable interest does not prevail against a bona fide
purchaser for value of the legal estate without notice of the trust. See the case of
Pilcher v Rawlins (1872), where the court echoed the same sentiment.
(b) The realist view- It suggests that the right is in rem. Thus, a beneficiary who
follows trust property is a exercising a proprietary right allowing him to follow
the property into the hands of a trustee or any person receiving property from
the trustee other than by a purchaser for value without notice. See the case of Re
Hallett’s Estate (1880), where Jessel MR said: ‘the moment you establish the
fiduciary relation, the modern rules of equity, as regards following trust property
apply’.
(c) The hybrid view- Hanbury argues that the equitable interest of the beneficiary
might be in the nature of a hybrid, partaking of both the right in personam and
the right in rem.

INTRODUCTION TO THE
LAW OF TRUST
Trusts Distinguished from other Relationships/Concepts:
(a) Trust and Contract
• A contract is a common law, personal obligation resulting from a negotiated
agreement between the parties. In other words, contract developed under
common law. A trust arises from equity and confers property rights (rights in
rem) on the beneficiary that can be enforced against both the property itself and
third parties. Hence, trust is ‘a creature of equity’.
• A contract is valid only if supported by consideration or made by deed. In other
words, valuable consideration is generally necessary to a contract. On the other
hand, a beneficiary under a properly constituted trust, however, can enforce trust
even though he has not given any consideration. Thus, in a case of completely
constituted trust it need not have been given (i.e. consideration).
• A contract cannot usually be enforced by third parties (“privity of contract” is
necessary). This rule is, however, subject to certain statutory exceptions as, for
example, contained in the Contracts (Right of Third Parties) Act 1999 and sec
56 of the English LPA 1925. In contrast, a beneficiary can always enforce a trust
even if he is not a party to the agreement that created the trust. In other words,
beneficiaries who are strangers to the creation of the trust can nevertheless sue
to enforce it.

INTRODUCTION TO THE
LAW OF TRUST
(Continuation)
(a) Trust and Contract
• The terms of a contract can only be varied by the original contracting
parties. In a trust unless the settlor has reserved a power of revocation,
the trust can only be varied through the consent of all beneficiaries who
must be sui juris or by court order. See the case of Saunders v Vautier,
where the beneficiary wished to terminate an accumulation which was to
continue until he reached 25, he was able to claim the fund at 21. See
also sec 59 of the Trustee Act 1949 giving the courts the power to carry
out variation of trust.

INTRODUCTION TO THE
LAW OF TRUST
Trusts Distinguished from other Relationships/Concepts: (Continuation)
(b) Trust and Bailment
• Bailment is a common law relationship which arises when goods owned by A
are, with A’s permission, in the possession of B. This may be a contractual
relationship (e.g. if you leave your car in a secure airport car park while on
holiday or a gratuitous relationship (e.g. when you store furniture in a relative’s
attic). This is very different from a trust because there is no transfer of
ownership involved and the duties expected of the bailee are much less than
those expected from a trustee. In other words, in bailment goods are delivered to
a bailee to be held for a particular purpose upon an express/implied condition
that it will be redelivered to the bailor when the purpose of the bailment has
been carried out. Thus, the legal and equitable ownership of property is vested in
the bailor. On the other hand, in a trust, the legal ownership of property is vested
in the trustee and equitable ownership is vested in the beneficiary.
•
The subject matter of a bailment is limited to personal chattel whereas a trust
covers all kinds of property including future expectancies. See the example of
after acquired property or covenant to settle property.

INTRODUCTION TO THE
LAW OF TRUST
(b) Trust and Bailment
• The bailee is not a fiduciary whereas a trustee has fiduciary duties. Thus, duties
and responsibilities of bailee and trustee are in sharp contrast too with the trustee
bearing a heavy responsibility.
• A bailor can only lose his title to the goods in the same manner by which any
legal owner can be deprived (i.e. through estoppel) but the interest of a
beneficiary can be defeated when trust property is sold to a bona fide purchaser
for value without notice of the trust. Thus, an unauthorised sale by a bailee does
not convey a good title whereas a sale in breach of trust by the trustee to a bona
fide purchaser for value without notice prevails over the equitable rights of
beneficiaries.
• All in all, bailment involves a delivery of goods on the condition that they are to
be restored by the bailee to the bailor as soon as the object for which they were
bailed to the bailor is achieved. See the case of Coggs v Barnard (1703).

INTRODUCTION TO THE
LAW OF TRUST
(c) Trust and Agency
• An agency relationship comes into being “when one person, called the
principal, authorises another, called the agent, to act on his behalf, and the
other agrees to do so. Generally, the relationship between the principal and
agent arises as a result of the agreement entered into between the parties. In
contrast, this is not so in the case of trustee and beneficiary (cestui que
trust).
• An agent does not have title to the subject matter of the agency while a
trustee has the legal title of the trust property vested in him. In other words,
in contrast to a trusteeship, the title need not be with the agent. Hence, the
concept of trust necessarily involves the concept of trust property over
which the trustee has control, but an agent need not have any control over
property belonging to his principal.

INTRODUCTION TO THE
LAW OF TRUST
• Since agency is based on an agreement, the terms can be varied by further agreement.
Normally a trust is created without an agreement and once it is completely
constituted the settlor cannot vary it unless he has reserved an express power to do
so. In other words, trust can arise without an agreement. See for example, the
operation of constructive trust, which comes into picture by operation of the law or
even the concept of unjust enrichment.
•
An agent acts on behalf of and under the control of his principal. In other words, the
agent usually acts on behalf of the principal. In contrast, beneficiaries cannot interfere
with the administration of a trust although they can compel the due performance of
the trust. Also, a trustee does not represent the beneficiaries, though he performs his
duties for their benefit.
• An agent can subject his principal to liabilities with other whereas a trustee cannot
involve the beneficiaries with third party liabilities. In other words, the trustee does
bring the cestui que trust into any contractual relationship with third parties while it is
the normal function of an agent to do so.

INTRODUCTION TO THE
LAW OF TRUST
• An agency can be terminated by mutual agreement or by death but equity will not
allow a trust to fail for want of a trustee. See sec 40 of the Trustee Act 1949 on
subsequent appointment of a trustee by the court. See also sec 45 of the same Act.
• The importance of the legal consequence between trust and agent becomes critical on
the insolvency of an agent. The principal ranks as a general creditor in the absence of
an agreement to keep his property separate from the agent’s. On the other hand, a
beneficiary under a trust has the right to trace the trust property or its proceeds and
would rank in priority to other creditors. See the example of tracing in equity. See the
case of Chase Manhattan Bank v Israel-British Bank [1981] CH 105, where the
court held that if the trustee has applied the money in breach of trust the beneficiary
may ‘trace’ in equity to recover it.
• Note: To some extent, there is a similarity between the two concepts i.e. there are
times when both the trustee and the agent are fiduciaries and stand in a fiduciary
relationship.

INTRODUCTION TO THE
LAW OF TRUST
(d) Trust and Power of Appointment
• A power of appointment is a power (usually conferred under a trust or settlement)
given to a person which enables him to dispose of real or personal property which is
not his. Powers fall into three main categories: (i) a general power (e.g. ‘to X for life,
remainder as he may appoint’) enables X, the appointer (or donee of the power) to
appoint in favour of any person including himself. In other words, the donee of the
power is not subject to any restrictions as to who he shall exercise the power in
favour of. For example, a will or trust may contain a devise ‘to A for life with
remainder to whomsoever he shall appoint’. (ii) a special power (e.g. ‘… as he may
appoint among the children of Z’) allows him to appoint only with reference of a
particular class (the ‘objects of the power’). In other words, the donee of the power is
restricted to exercising it among a class or description of persons designated by the
terms of the power. For example, ‘£10,000 to such of A’s children as he (A) shall
appoint’. (iii) a hybrid power- these are powers under which the donee may appoint
to anyone except a certain class or certain description of persons (e.g. ‘£50,000 to X
to whomsoever he shall appoint except my brothers and sisters and their

INTRODUCTION TO THE
LAW OF TRUST
• A power is discretionary and permissive i.e. the donee may or may not
exercise the power and until the donee exercises power of appointment in
favour of the relevant objects, all they can hope for is that the appointment
will be in their favour. In contrast, a trust is imperative and mandatory i.e. he
or she must act and beneficiaries own the beneficial ownership in the
relevant property. An example of a power of appointment is where a trust is
set up and the trustee is given the power to donate up to £500 to charity. If
this power was not given, any donation would be unauthorised and in breach
of trust. This power, therefore, allows the trustee lawfully to siphon some of
the trust fund away from the beneficiaries. It is, however, purely up to the
trustee to decide whether or not to give any money to charity. The trustee
must, however, address his mind to whether or not to exercise the power.

INTRODUCTION TO THE
LAW OF TRUST
• A power can be legal (as with power of attorney) or equitable. Trusts are always
equitable.
• Unlike the beneficiary under a trust, a potential beneficiary under a power has no
interest in the property before the power is exercised. In other words, until the donee
exercises power of appointment in favour of the relevant objects, all they can hope
for is that the appointment will be in their favour.
• The rule of certainty of objects was once different for powers than for trusts. Prior to
the case of McPhail v Doulton (1971), all trustees would need a full list of potential
beneficiaries before they could carry out their duties. This was unnecessary where
someone had only a power. It was sufficient if it could be said of any given
individual that he or she was or was not within the class of objects specified by the
donor of the power. The rule for powers has now been extended to discretionary
trusts. The old complete list rule still applies to fixed trusts.
• If a donee of a power makes no appointments the property reverts, as appropriate,
either to the settlor or stays in the trust fund.

INTRODUCTION TO THE
LAW OF TRUST
• It is important to note that when a power of appointment is given to a trustee under
the terms of a trust instrument two issues may arise: (i) Whether what appears to be a
power also involves a trust, i.e. a power in the nature of a trust and (ii) What criteria
the trustee should apply in deciding who are the objects of the power in whose favour
it may be exercised, i.e. certainty of objects. It is worth noting that trustees who hold
a power of appointment or any other power are under a fiduciary duty to consider
whether it is appropriate to exercise it even though they are under no obligation to do
so. See the case of Re Gulbenkian [1970] AC 508, where Lord Reid said: ‘It may be
true that when a mere power is given to an individual he is under no duty to exercise
it or even to consider whether he should exercise it. But, when a power is given to
trustees as such, it appears to me that the situation must be different. A settlor or
testator who entrusts a power to his trustees must be relying on them in their
fiduciary capacity so they cannot simply push aside the power and refuse to consider
whether it ought in their judgment to be exercised.

INTRODUCTION TO THE
LAW OF TRUST
• In addition to the above, the reference to ‘mere power’ is one that covers a
power given to the donee which need not be exercised; indeed there is in fact no
obligation or fiduciary duty on the donee to exercise the power at all. An
example would be a general power of appointment. See the case of Re Combe
[1925] Ch 210, statement used ‘in trust for such person or persons as my son …
shall by will appoint’.
•

It has to be acknowledged that the problem of deciding if a power involves a trust is
really a matter of construction of the words used. Sometimes a provision in a will or
settlement may be referred to as a power when on construction it is in fact a trust i.e.
a power in the nature of trust. This difficulty has frequently arisen in cases where
there is a fund to such members of a class as A shall select. As already state, A would
have no obligation to make a selection and the objects of the power could not force
him to do so. But if A fails to make a selection, the issue arises whether the objects
are entitled to the fund in any event in equal shares on the basis that there is a trust.

INTRODUCTION TO THE
LAW OF TRUST
(Continuation)
• Still on the issue raised above, reference could be made to the leading
case of Burrough v Philcox (1840), where a testator gave his surviving
child a power ‘to dispose of all of my real and personal estates amongst
my nephews and nieces or their children, either all to one of them, or to
as many of them as my surviving child shall think proper’. The
surviving child failed to make any appointment but it was held that the
fund should be divided equally among the objects because there was in
fact a trust in favour of them subject to the power of appointment.

INTRODUCTION TO THE
LAW OF TRUST
• Furthermore, it would appear that or in other words the rule of construction
to be applied is whether the settlor intended the objects to benefit in any
event, and merely gave a power of appointment to enable the beneficial
interests to be altered if circumstances required this. Much will depend on
the words used in the instrument. Cases in which the court refused to
construe a power in the nature of a trust arising include: Re Weekes’
Settlement [1897] 1 Ch 289 where a testatrix gave her husband ‘power to
dispose of all such property by will amongst our children’; Re Combe
[1925] Ch 210 ‘in trust for such person or persons as my said son… shall by
will appoint’; and Re Perowne [1951] ‘Knowing that he will make
arrangements for the disposal of my estate, according to my wishes, for the
benefit of my family’.

INTRODUCTION TO THE
LAW OF TRUST
Conclusion:
• Although a precise definition of trust has not been entirely successful, the
concept of trust has contributed significantly in our understanding of the
general application and operation of the law in a legal discourse. For
example, a trust concept enables property to be given to a person who in law
does not have the capacity to hold property i.e. infants, mentally unsound
person and minors as in Wan Naimah v Wan Mohamad Nawawi [1974] 1
MLJ 41. It enables property to be given to persons in succession.
Unincorporated associations which lack a legal personality and so cannot
hold property can do so by way of trusts. Also, a variety of charitable trusts
may be used to create trusts for the public or for the section of the public or
for relief of poverty.

Introduction to the_law_of_trust-_law_of_equity_trusts_probate_i

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