The Origin of the Trust Law - Essay Example

? THE TRUST LAW The Trust is considered to be a peculiar system of law that finds its origin in the English law. Trust is found in USA, New Zealand, Australia, Canada, India and other Commonwealth countries. It is not an indigenous part of the civil code jurisdiction of Europe or any other place that falls under the Napoleonic Civil Code or the German Civil Code. The modern form of Trust law originates from Anglo centric legal system because it is the product of English History. If the idea of the trust law is developed in the Middle East then quasi charitable purpose will be provided within the family in the form of “waqf”. If it is developed in the country where monarchy system is followed, then monks would be required to live in the property. Therefore it may be concluded that it is not necessary that the idea of Trust Law will always find its origin in the English system only1. In this paper different aspects of the contemporary trust law will be studied and the importance of the beneficiary in this law would be discussed. The Origin of the trust law The historical origin of the trust can be found in the so called crusades in which the English noblemen fought and were away from England for years. The noblemen were significant land-owners in England under the feudal land system. The problem arose as to who would be using the land and in what way when the noble men were out of the country. As a consequence the rule of equity recognized that the land left unused by the noblemen, who were unable to exercise their legal rights on the other, will be used by other men. So the equity recognized an arrangement where the right of the noblemen will be retained. The nobleman was regarded as the person who will have the ultimate beneficial right and the person who will be benefiting from this arrangement is known as beneficiary. In the absence of the nobleman, the Stewart who accepts the charge of the land is entitled to raise taxes on the land and so on. So in such an arrangement the nobleman passes their legal rights of the land to the trusted person referred as “trustee” but the ultimate beneficial right of the property remains with the nobleman who serves as the “beneficiary”. The core duty of the trustee is to stick to the terms and condition of the trust2.Therefore the “beneficiary” is referred to have the “equitable interest “in the property3. A major traditional practitioner’s Lewin gave the following description of trust. He defined trust as “a duty or aggregated accumulation of obligations that rest upon the person described as trustee. The responsibility bestowed on him is due to the property held by him under his control. The property is compelled by the court in the 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 of such provision is invalid or lacking in accordance with equitable principle”4. Problem with the Law In California, people presented petitions and pleaded for justice to the Chancellor (the keeper of the King’s conscience) stating that the property given to the trustee for their benefit was mis-applied. So the court of Chancery built up two ideas: first, “the obligation of the feoffee to uses or trustee to hold the property for the benefit of the cestui que use or beneficiary”5 and second, “the right of the beneficiary to obtain the use of the property”6. Thus this notion backed that the trustee’s obligation with regard to the property was correlative to the beneficiaries’ right in it7. A major traditional practitioner Lewin argued that the consequence is such that the benefits and the advantages accrued will not go to the trustee and in turn will go to the person called “cestui que” that is the beneficiary. The trustee may be the beneficiary in the case where the advantage accrued will be in his favor to the extent of his beneficial interest8. Importance of Beneficiary The central tension in the Trust Law is regarding the right of the trustee and the beneficiary. The settler who establishes the terms in the trust is bestowed with the power to decide up to which extent the beneficiaries have the equitable interest, and the extent of control the trustee has in case of trust administration. The organizing principle of the law of donatives transfer says that “donor’s or settler’s intention is given effect to maximum extent allowed by the law”9. But the position of the beneficiary also claims supremacy. It is the beneficiary who only has the ownership interest and not the settler10. The rule in the case of Saunder v Vautier in1841 gives the beneficiary the right to instruct the trustee to transfer property to them absolutely. They can exercise this power only if they hold between them the entirety of the equitable interest and if they are all legally competent to act. The rule of Sauders v Vantier demonstrates one particular important facet of right of a beneficiary: the beneficiaries under a trust have proprietary rights in the trust fund and not merely personal rights against the trustee11. The spendthrift clause states that “No interest of a beneficiary in the principal or income of this trust may be anticipated, assigned or encumbered, or subjected to any creditor’s claim or legal process prior to its actual distribution to the beneficiaries”12. Hence a more detailed clause may require the trustee to pay a certain amount of his principal income directly for the benefit of the beneficiary and not upon any written or oral direction or assignment of the beneficiary. Even if the beneficiary is prohibited by the trust from transferring the interest, the beneficiary may direct the trustee to distribute the interest of the trust to another person. In such a case the direction given by the beneficiary is recognized as the revocable authorization to pay13. “The duty of loyalty in the Trust Law” requires the trustee, the administrator of the trust to safeguard the importance of the beneficiary. “The sole interest rule is regarded as the most fundamental rule in the trust law”14. This rule prohibits the trustee to place himself in such a position where his personal interest conflicts with the personal interest of the beneficiary15. The beneficiary can seek information from the trustee regarding what can be done with the principle income of the trust. Sometimes even the trustee has to pay a certain amount of the income to the beneficiary. The most important aspect of the trust is that the beneficiary is provided with the most important and integral part of the trust structure. Though the beneficiary did not take part in the establishment or in the administration of the trust but to safeguard the benefits, trust and the well being of the beneficiary, the beneficiary was empowered with many responsibilities. The key responsibilities include understanding the vision of the trust, actively participating in its affair, understanding the right and responsibilities, understanding the investment fundamentals, understanding the role and responsibility of the trustee and having a clear view of the trust accounting16. Case Saunder v Vautier In this case a testator by his will bestows a certain amount of East India stock to his executors and trustee. The interest and dividends that get accumulated to the trust will be transferred to his great nephew, Daniel Vautier after reaching the age of 25 years. He was supposed to get the principle amount of the stock along with the interest and dividend accrued. The testator died in 1832 and Daniel in 1841 attained the age of 21 years, which means he was an adult. Now he claimed the stock and the accrued dividend and interest stating that he was going to marry and start his own business. It was held by Lord Cottenham, L.C. that the gift has to be transfer on the death of the testator and not when Daniel attains the age of 25 years. Thus he terminates the whole; trust must end before it was intended by the testator17. The rule is not confined to only gifts by persons but also to the gifts to a specific charity. The rule although seems to empower the beneficiary with the power to terminate the direction of accumulation but it does not stop there, it opens into a much wider direction18. Kingsnorth Finance Co Ltd v Tizard In this case the husband and wife jointly hold a matrimonial home on trust. After getting divorced the wife did not want to stay with her husband. However she came to that house to look after her child. One day in her absence, he signed a mortgage with a mortgagee and absconded with the money. The husband was the sole guarantee. The court ordered that the “equitable right of the wife bound the mortgagee”19. The inspection done by the mortgagee was insufficient and was affixed by constructive notice20. Conclusion The basic thought behind the trust is to enjoy the management and ownership divided between the two parties. The fragmentation and the ownership are enjoyable only when the property is vested to the trustee. However since the trusted is ready to hold the legal title for the benefits of the beneficiary so they are bound by equity that allocates an equitable interest to the beneficiary. References 1. Angus Patricia M. TEN FACTS EVERY TRUST BENEFICIARY SHOULD KNOW. (Private Health Management, 2003, pp. 48-50) < http://www.angusadvisorygroup.com/pdfs/families_resources/10_Facts.pdf> accessed 23 January 2013 2. Gallanis Thomas P., The New Direction of American Trust Law. IOWA Law Review. [2011]. Vol 97 3. Hudson, A. Undertanding Euity and Trust (Routledge 2012) 4. Langbein, John H., Questioning the Trust-Law Duty of Loyalty: Sole Interest or Best Interest?. Faculty Scholarship Series: The Yale Law Journal. [2005],Vol 114 5. Moffat Graham et al, Trusts Law: Text And Materials (4th edn, Cambridge University Press 2005) 6. Paul Matthews, “The New Trust: Obligations without Rights?”, In Oakley A.J., Trends in Contemporary Trust Law (Oxford University Press 1996) 7. Price John R. & Donaldson Samuel A., Price on Contemporary Estate Planning (CCH 2008) 8. Report on the rule in Sauders v. Vauntier. (Law Reform Commission, 1975) < http://www.manitobalawreform.ca/pubs/pdf/archives/18-full_report.pdf> accessed on 23 January 2013 9. The Revocation and Variation of Trusts part 2. (Law commission paper, n.d.) < http://www.lawcom.govt.nz/sites/default/files/publications/2011/05/lc2931-perpetuities-and-the-revocation-and-variation-of-trusts-review-of-the-law-of-trusts-third-trusts-issues-paper-fa-part-2-150.pdf> accessed 23 January 2013 10. THE RULE IN SAUNDERS v. VAUTIER. (INSTITUTE OF LAW RESEARCH & REFORM, 1972) < http://www.law.ualberta.ca/alri/docs/fr009.pdf> accessed 23 January 2013 11. The Trust Concept (n.d.), p. 47. accessed on 23 January 2013 Read More