Chapter 14: Introduction to Trusts
What is a trust?
A trust is a relationship pursuant to which a person is obliged by the rules of equity to
deal with certain property of other persons or for a particular purpose
Strong fiduciary relationship exists
Essential elements of a trust:
The trust property
The beneficiary (or beneficiaries)
Parties to the creation of an express trust:
3 essential parties:
The settlor: the person who creates the trust
The trustee(s) the person appointed to carry out the settlor's instructions and hold the
trust property for the benefit of the beneficiary
The beneficiary (or beneficiaries): the person (or persons) for whose benefit the trust
May be a natural person or a body corporate
The law recognises the trustee as the legal owner of the trust property
Trustee can be the settlor and/or one of the beneficiaries but not the sole beneficiary
A trust would be unworkable if the trustee was unable to determine whether any
particular person was a beneficiary.
A trust is not a separate legal entity. It is a relationship in which one person (the
trustee) holds an asset of some type on behalf of another (the beneficiary). It is the
trustee who sues or is sued
Duration of a trust:
The duration of a trust may be stated in the trust itself or may be implied from the terms
of the trust.
Trusts cannot last indefinitely. The trust property must vest in a particular person or
persons within the time period allowed by the law ('rule against perpetuities').
o (Old) common law: a trust must vest within a life in being plus 21 years.
o Today in most Australian states, the perpetuity period cannot exceed 80 years
(eg Perpetuities and Accumulations Act 1968 (Vic) s 12).
Types of trusts :
Trusts can be classified in three ways:
1. How they were created: trusts are created by the settlor (express and implied trusts), or
by law (constructive trusts)
2. The nature of the beneficiaries’ interest: varies depending on if it is a fixed or
3. When the trust will begin to operate: a trust may operate during the life of the settlor or
only post mortem (testamentary trusts)
Discretionary trusts: In a discretionary trust, a range of beneficiaries are named, and the trustee is given the
discretion of determining which one(s) should receive a particular benefit at any
particular point in time, and in what proportions.
In a fixed trust, the proportion of the trust property which vests in particular
beneficiaries is fixed. One type of fixed trust is the unit trust
Unit trusts: trusts fund is divided up into a number of equal units.
In a unit trust, operating as a trading trust, the units are transferable.
Operation of a trading trust: Shareholders of a limited liability corporate trustee have
limited liability – limited to the amount still unpaid on their shares.
Express powers: trust deed will usually list the powers of the trustee
Implied powers: trustee will generally be given the implied power to do anything and
everything that i