Understanding The Law Of Trust and its legal implications

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Trust constitutes a very important and comprehensive branch of Equity jurisprudence. Trusts have been applied to a great variety of cases, which never could have been in the contemplation of those who originally introduced them, but which, nevertheless, are the natural attendants upon a refined and cultivated state of society, where wealth is widely diffused, and the necessities and conveniences of families, of commerce, and even of the ordinary business of human life, require that trusts should be established to exigencies of time to come. 

The Indian Trusts Act is one of India’s most significant pieces of legislation. The objectives of trusts in India are governed by and protected by this statute. India’s trust law is intricate and has seen extensive development. According to the Indian Trusts Act, a trust’s main goal is to safeguard the interests of its beneficiaries.

Meaning Of Trust

The word, “Trust” in its legal sense has a technical and definite meaning which is very much different from the sense in which we use the word in our daily parlance. The three certainties, namely, a person, who is a trustee, for the property which may be chattel or land or money or any property tangible or intangible which is called trust property and a person for whose benefit the property is held. The combination of these three elements must exist, before we get the relationship of Trustee and beneficiaries. Mere intention to create a trust without a gift of property for the purpose or object would not be a trust.

Thus, when a person has property or rights which he holds or is bound to exercise for or on behalf of others, or for the accomplishment of some particular purpose or for particular purposes, he is said to hold the property or rights in trust for others, for the purpose and he is called Trustee. A trust is a purely equitable obligation and is enforceable only in a court in which equity is administered. 

Definitions Of Trust 

Section 3 of the Indian Trust Act defines trust as an obligation annexed to the ownership of property, and arising out of confidence reposed in and accepted by the owner, or declared and accepted by him for the benefit of another one or of another and to the owner. 

According to Smith, “A trust is a duty deemed in equity to rest on the conscience of the legal owner. This duty may be either passive, such as to allow the beneficial ownership to be enjoyed by some other person, named as the cestui que trust, in which case the legal owner is styled a bare trustee, or it may be some active duty, such as to sell, or to administer for the benefit of some other person or persons; such as for example, are the duties of a trustee in bankruptcy

Maitland defines Trust as: “When a person has rights which he is bound to exercise on behalf of another, or for the accomplishment of some particular purpose, he is said to have those rights in trust for that other or for that purpose, he is called a trustee”. Maitland has said that “Trust is a most powerful instrument of social experimentation.”

Hanbury defines a trust relationship as “That which arises where property vested in a person or persons which they are obliged to hold to continual dominion and stewardship for the accomplishment of a particular purpose or for other persons according to their direction, such persons being given by Equity a quasi proprietary rights analogous to the Common Law right of ownership”.

Classification Of Trust

Trust can be classified on the basis of:

Modes of Creation:

  • Expressed & Declared Trust- An express trust is one created, not by facts and circumstances, but by express words. For example: A declared himself a trustee of “Blackacre’ for B. Similarly where A conveys the land C in trust for B is an example of express trust. Express Trusts Are Called Declared Trust.
  • Implied Trust– Such trusts are created. or raised by act of construction of law. It arises from the presumed intention of the owner of the property. In the case of Cook vs Fountain, “express trusts are declared either by word or in writing, and these declarations appear either by direct and manifest proof,or violent and necessary presumption. It is also called as  presumptive trusts.
  • Constructive Trust– A constructive trust is a duty by one person or company to hold some property for another person or company. A constructive trust is set up by a court as an “equitable remedy.”
  • Resulting Trust– A resulting trust is an equitable reversion that arises by operation of law whenever a person has created an express intentional trust, but the express trust fails or does not completely dispose of the trust property.

Objects Of Trust 

  • Private Trust: A private trust primarily confers a benefit of the trust on certain persons or a class of them. When the trust is established for family members, relatives, friends, etc. then the trust is called a Private Trust.
  • Public Trust: A public trust, confers a benefit on the public at large.Trust to promote public welfare or education are public trusts and they may incidentally confer a benefit on an individual or a class of them. It is to be noted that there must be a purpose or objective behind this type of trust. A public trust may be a charitable trust or a purpose trust or a religious trust but it must be answerable to the public also.

Constituents Elements Of Trust

The essential feature of trust is that the trustee holds the property or must exercise his rights of property in a fiduciary capacity and stands in a fiduciary relation to the cestui que trust. 

The main features of trust are as follows:

  • The person creating the trust reposes confidence in the person in whom he vests the property to the intent that it is to be held for the benefits of a third person.
  • The relationship is with reference to the property that is vested.
  • Trust shall be utilized for the benefits of a third person, called a beneficiary or cestui que trust.
  • There must be Intention of the author to create trust.
  • Purpose of the trust must be lawful.
  • The monetary asset is assigned for the benefit of the trustee.
  • Gives control or transfer the trust property to the trustee which includes the intention of the author.
  • Trustee can claim expenses & salary from the benefits from the trust of his work.

Also according to Section 4 of Indian Trust Act, A trust may be created for any lawful purpose. The purpose of a trust is lawful unless:

  • It is forbidden by law, or 
  • Is of such nature that, if permitted, it would defeat the provision of any law,
  • Fraudulent in nature involves,
  • Implies injury to the person or property of another, or the court regards it as immoral or opposed to public policy.

Every Trust of which the purpose is unlawful is void. When a trust is created for two purposes of which one is lawful and the other is unlawful and the other two purposes cannot be separated, the whole trust is void.

Nature Of Trust, Trustee’s & Beneficiary’s Right

In English law “Trust” involves the conception both of an obligation as well as of ownership. The trustee is sometimes said to be the ‘legal’ owner, while the cestui que trust is the ‘equitable’ owner, but this expression is not accurate, for the interest of the trustee may be, and often equitable only. It is better therefore to say that the trustee is the ‘nominal owner’, while the cestui que trust is the ‘beneficial’ owner of the property. 

Prof. Keeton has correctly observed about the nature of equity in following terms, “A trust is, the relationship which arises wherever a person called the 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 or for some object permitted by law, in such a way the real benefit of the property accrues not to the trustee but to the beneficiaries or other objects of the trust.”

The conception of a trust, as such involves that of a double ownership in the sense that one person in whom property is vested is compelled in Equity to hold it for the benefit of another or for some purpose other than his own. The former is called the trustee, and his ownership is trust ownership; the latter is called beneficiary and his ownership is beneficial.

Salmond explains double ownership in this way that the trustee is destitute of any right of beneficial enjoyment of trust property. His ownership, therefore, is a matter of form rather than of substance, and nominal rather than real.

In India, there is no such thing as equitable ownership, and when property is vested in a trustee, the owner is the trustee. The Indian beneficiary cannot, therefore, have any equitable ownership in the land. He can only have rights against the trustee, which are laid down by the Indian Trusts Act, 1882. The Indian Law thus differs from the English Law on this point.