Nature and creation

A trust is not a separate legal entity. Rather it is a relationship between persons that gives rise to equitable obligations enforceable by the courts. There are four elements essential to a trust:

• • a trustee (which is a legal entity);
• • trust property;
• • a beneficiary; and
• • personal obligations attached to the trust property.

Fiduciary duties

A fiduciary duty arises where the primary purpose of the relationship is for one person to serve the interests of another person. A trustee/beneficiary relationship is one type of relationship where a fiduciary duty arises. Therefore, a trustee owes a fiduciary duty to the trust beneficiaries and as a result, must act in the beneficiaries’ best interests.

Equity

Trust obligations were first formulated and enforced by the English equity courts. Even now, they are only enforceable by a court that has equitable jurisdiction. Not all courts have such a jurisdiction.

Creation of trusts

Trusts can be created in a number of different ways:

• • by an express intention of the settlor to create a trust;
• • by a person providing the purchase money and acquiring property in the name of another person. Unless there are special circumstances, this situation creates a resulting trust in favour of the person who provided the money;
• • where a person holds property and has a personal obligation to account, regardless of that person’s intention. Sometimes this occurs where a person has dishonestly dealt with property. This is known as a constructive trust; and
• • where a person holds a property absolutely for another, without any active obligations. This is called a bare trust.

See Nature and creation.