Trust

Trust, in law, relationship existing between two or more parties in which one party holds the legal title to real or personal property, subject to an obligation imposed by a court of equity, or expressly undertaken to keep or use the property for the benefit of the other party or parties. The party who thus gains control of the property, known as trust property, is called the trustee, and the party for whose benefit the property is held is known as the beneficiary of the trust, or the cestui que trust (Latin, “he for whom the trust”). The party who creates a trust is known as the settlor; the settlor may make herself or himself either trustee or beneficiary.

Trusts may be classified, according to the manner in which they are created, as express, resulting, or constructive. An express trust is one that is created by the settlor's conveyance of property by will or deed to a party, with the intention that the property is to be held in trust for others. No consideration is necessary to create a trust, and no writing or other formal document is generally required, although some countries do require that trusts of real property are in writing.

Trustees have a duty to handle the trust property with the utmost care. They must see that money is properly and safely invested, and must, where necessary, take professional advice on investment and on legal issues concerning the trust fund. Where they have discretion as to the expenditure of the trust fund or its income, they must consider the exercise of the discretion according to the terms in which the trust sets it out. They must account to the beneficiaries for their handling of the trust.

Trustees' liabilities are limited where they act in good faith, but they may still be liable for losses to the trust fund caused by their negligence. While there may be provision for a trustee to be remunerated, particularly if the trustee is part of a business, such as a bank, a trustee can derive no other profits from the position. This goes as far as forbidding trustees for profiting from a share transaction that was assisted by the involvement of the trust, to the trust's benefit.

A resulting trust is one that is created, not as a consequence of an actual statement of intention, but when the intention is inferred or presumed, by a court of equity, from the terms of the disposition of the property or from the circumstances accompanying such disposition. Thus, if a purchaser of land pays the purchase price but takes title to the property in the name of a third party, a court of equity would hold that a resulting trust is created in favour of the purchaser, who is held by the court to be the real owner of the property.

A constructive trust is one resulting from a conveyance of property in which no intention to create a trust can be inferred, but in which a court of equity will compel the person having legal title to hold it for the benefit of another. Thus, whenever the legal title to property has been fraudulently acquired, the person guilty of the fraud will be treated by the court as a trustee and will be compelled to turn the property over to the defrauded party. Neither resulting nor constructive trusts are created by intention of the interested parties.

Charities are trusts run not for the benefit of individual beneficiaries, but for charitable purposes. The trustees may be a collection of individuals or a corporation, but, if a corporation, the members retain the same liabilities as if they were individuals.