An Overview on Trusts

By Eugenia Monedero
June 9, 2008
1. INTRODUCTION ................................................................................................ 3
a.
Purpose ............................................................................................................. 3
b.
General Remarks on the History of Trusts ......................................................... 3
2. DEFINITION AND ESSENTIAL ELEMENTS OF TRUSTS............................... 5
a. Definitions provided by legal scholars ............................................................... 5
b. Definitions found in legal rules.......................................................................... 7
3. PARTIES TO A TRUST ....................................................................................... 9
4. RIGHTS AND DUTIES OF THE TRUSTEE...................................................... 10
5. TYPES OF TRUSTS........................................................................................... 13
a. Private Trusts .................................................................................................. 14
b. Charitable trusts .............................................................................................. 17
c. Other types of trusts ........................................................................................ 19
6. BREACH OF TRUST ......................................................................................... 20
7. REFERENCES ................................................................................................... 22
 1. INTRODUCTION

a. Purpose

The purpose of this paper is to provide an overview on Trust Law. First, we will try to
provide a simple yet clear definition of the term trust, through the analysis of the
definitions crafted by legal scholars and lawmakers. Second, we will describe the
essential elements of trusts, including its parties, as well as the trustee’s rights and
duties. Finally, we will go over the types of trusts, with the different approaches
available to classify them.

b. General Remarks on the History of Trusts

Before diving into the legal definition of trusts and the consequences following their
creation, let us first wonder why they are called trusts. Is it because all other legal
devices designed to transfer property do not involve trust, confidence, bona fide? The
answer to that question is clearly no, but we must still bear in mind that trusts require a
much higher level of confidence on the part of the person creating the trust than any
other creature of the law.

From a more formal research on the choice of the word trust to name this legal device, it
follows that the use of the word dates back to medieval times. The modern trust began
its existence as the medieval English use. In medieval England, a landholder sometimes
transferred the title to his land to another person who held it "to the use of" or “in trust
for” the transferor or another. A use arose where a person conveyed property of any
kind to another upon the understanding that the other would hold it on behalf of the
donor or on behalf of some third party (called cestui que use). Clearly, the person to
whom property was transferred was in a position of confidence which he might abuse
and, also, the rights of the cestui que use had to be protected. The common law courts
refused to recognize uses, and therefore afforded no protection to the beneficiaries.
However, the Court of Chancery forced the persons holding legal title to the property to
administer it for the benefit of the cestui que use in accordance with the terms of the
grant.

Thus, for our purposes, we may treat the ancient use as the exact counterpart of the
modern trust: the cestui que use has now become the cestui que trust (or beneficiary).
As we can see, the trust and confidence imposed on the trustee by the creator of the trust
is the core and essence of the matter.
 2. DEFINITION AND ESSENTIAL ELEMENTS OF TRUSTS

a. Definitions provided by legal scholars

Although many scholars claim that trusts are difficult to define because they are devices
created for multiple purposes, it is useful to have a glimpse of their meaning before
discussing them in detail.

Fortunately, the sources defining trusts are plentiful. Clarkson is one of the many
scholars who were kind enough to shed some light on the subject and provide a short
and simple definition of trust. According to Clarkson, “a trust involves any arrangement
by which legal title to property is transferred from one person to be administered by a
trustee for another’s benefit.”1 He goes on to explain that “[i]t can also be defined as a
right of property (real or personal) held by one party for the benefit of another.

The generally accepted definition of trust is provided by Mr. Underhill, author of the
renowned book “Law of Trusts and Trustees” who stated that “[a] trust is an equitable
obligation binding on a person (who is called a trustee) to deal with property over which
he has control (which is called the trust property) for the benefit of persons (who are
called the beneficiaries or cestui que trust) of whom he may be one and any of whom
may enforce the obligation.”2

The definition above provides more elements to have a better idea of how trusts work.
First, we are told that a trust is an “equitable obligation”. This brings Equity to our
minds, as opposed to Common Law. The term Equity refers to a particular set of
remedies and associated procedures. These equitable doctrines and procedures are
distinguished from "legal" ones. Equitable relief is generally available only when a legal
remedy is insufficient or inadequate in some way, for example, in a claim which
involves a particular piece of real estate, or if specific performance is the relief
requested. Although trusts are now governed by statute in most states in the US, they
owe their existence, as Mr. Iwobi puts it, to the “willingness of the Chancellors to

1
Kenneth W. Clarkson, Roger LeRoy Miller, Gaylord A. Jentz, Frank B. Cross, West's Business Law
9th Edition, page 957.
2
Taken from Essential Trusts, by Iwobi, 2nd edition, page 1.
compel any person who undertook to hold property on behalf of another to give effect to
his undertaking in circumstances where Common Law judges refused to intervene.” An
obligation exists because if the trustee fails to perform his duties, he will be liable for
breach of trust.

The second element in our definition are the beneficiaries, which may include
individuals, financial institutions, or even “objects”, as we will see further below when
discussing charitable trusts.

Third, a trust must have a subject-matter, that is, property on which the trust is created
(called “trust property” or “trust estate”.) The property can be any kind of real or
personal property – money, real estate, stocks, bonds, collections, business interests,
personal possessions and vehicles.

Another essential element is dual ownership. In a trust, the legal ownership of (or title
to) the trust property is separated from its equitable or beneficial ownership (or title).
Legal title refers to the duties and responsibilities of maintaining and controlling the
trust property, while equitable title refers to the benefits and enjoyment of that property.
The essence of a trust is splitting the legal title and equitable title. The trustee has legal
title to the trust property: for most purposes, the law looks at the assets as if they were
now owned by the trustee. But trustees are not the full owners of the property. Trustees
have a legal duty to use the property as provided in the trust agreement and permitted by
law. The beneficiaries retain the equitable title, the right to benefit from the property as
specified in the trust. These titles can be split in many ways among different individuals
- the key is that no single person should own all of the equitable title and the legal title
(in such an event, there is no trust). Indeed, this is called trust merger, which refers to
the situation that occurs when the sole trustee and the sole beneficiary are the same
person or institution. In that case, the trust "merges" and ceases to exist. However, a
person can own all of one title and a part of the other, or parts of both titles. The
following examples illustrate this point:

1. A puts his brother in charge of a bank account to give money to A’s son until his son
turns 25, at which time A’s son gets the rest of the money. For the purposes of a trust,
this is a valid split of the legal title (which has been given fully to the brother) and the
equitable title (which has been given fully to the son).

2. A puts his brother in charge of a bank account to give money to both himself and his
son until his son turns 25, at which time they evenly split the rest of the money. This is
also a valid split of the titles because the legal title has been given fully to the brother
while the equitable title has been split between the brother and the son - so while the
brother has all of the legal title, he only has a portion of the equitable title.

3. A puts both his brother and his son in charge of a bank account to share the proceeds
from that account. This, too, is a valid trust because the legal title and equitable title
have been split - while the brother and the son each hold a part of both titles, neither
holds all of the legal and equitable title.

b. Definitions found in legal rules

This section includes some definitions taken from conventions adopted by international
organizations, and rules passed in the US and the UK in relation to trusts.

The Hague Convention on Trusts

In 1992, the Hague Conference on Private Law3 adopted the Convention on the Law
Applicable to Trusts and on their Recognition. The purpose of the Convention, of which
the United States is a member, is to lay down simple rules for determining which
country's laws govern a particular trust. The Convention also sets out the basic legal
consequences of a trust which must be recognized once its proper law has been
determined.

Article 2 of the Convention sets forth that “[f]or the purposes of this Convention, the
term ‘trust’ refers to the legal relationship created -- inter vivos or on death -- by a

3
The Hague Conference on private international law is an intergovernmental organization, the purpose of
which is "to work for the progressive unification of the rules of private international law" (Statute, Article
1).
person, the settlor, when assets have been placed under the control of a trustee for the
benefit of a beneficiary or for a specified purpose.”

This Convention was ratified by the UK Parliament through the enactment of the
Recognition of Trusts Act 1987.

Uniform Trust Code

The Uniform Trust Code was promulgated in 2000 and drafted by the National
Conference of Commissioners on Uniform State Laws. This Code is being widely
enacted in the United States.

Although the Code does not provide for an express definition of trust, it sets out that a
trust may be created “by (1) the transfer of property to another person as trustee during
the settlor’s lifetime or by will or other disposition taking effect upon the settlor’s death.
(2) “declaration by the owner of property that the owner holds identifiable property as
trustee; or (3) exercise of a power of appointment in favor of a trustee.”4

4
Uniform Trust Code, Section 401.
 3. PARTIES TO A TRUST

There are typically three main parties to a Trust:

(1) The trust creator, sometimes called the grantor, settlor, trustor or donor, is the
person who started out as owner of the property that is to be transferred to and held by
the trust.

(2) The trustee is the person or financial institution (such as a bank or trust company)
that holds the legal title to the trust estate. There may be one or more trustees. If a
trustee is unwilling or unable to serve, then a successor trustee steps in to hold and
manage the trust estate. The trustee is obligated to act in accordance with the terms of
the trust for the benefit of the trust beneficiaries.

(3) The beneficiaries, also called objects, are the persons who the trust creator intended
to benefit from the trust estate. The rights of the beneficiaries depend on the terms of the
trust. Beneficiaries have the "equitable title" to the property held in the trust.
 4. RIGHTS AND DUTIES OF THE TRUSTEE

Broadly speaking, trustees have two main duties: first, they must administer the trust
property prudently and in good faith. Second, they must strictly comply with the terms
of the trust.

Although most of the rights and duties may be freely set forth in trust agreements or by
the court, as the case may be, the Uniform Trust Code has set out the fundamental
duties of a trustee and lists the trustee’s powers in Article 8. Most of the provisions
contained in Article 8 may of course be overridden in a private trust agreement but the
obligation to act in good faith, in accordance with the purposes of the trusts, and for the
benefit of the beneficiaries must always be fulfilled by the trustee; otherwise, he will be
in breach of trust.

That having been said, let us examine the main duties of the trustee set out in the
Uniform Trust Code.

1. Duty to administer trust: Section 801 of the Code provides that “[u]pon
acceptance of a trusteeship, the trustee shall administer the trust in good faith, in
accordance with its terms and purposes and the interests of the beneficiaries, and
in accordance with this Code.” This section confirms that the primary duty of a
trustee is to follow the terms and purposes of the trust and to do so in good faith.
It is worthy to mention that the Uniform Trust Code applies to express trusts
only.
2. Duty of Loyalty: Section 802(a) sets forth that “a trustee shall administer the
trust solely in the interests of the beneficiaries.” This principle is sometimes
referred to as the obligation of the trustee not to place the trustee’s own interests
over those of the beneficiaries. Most violations of the duty of loyalty concern
transactions involving the trust property.
3. Impartiality: Section 803 provides that “[i]f a trust has two or more
beneficiaries, the trustee shall act impartially in investing, managing, and
distributing the trust property, giving due regard to the beneficiaries’ respective
interests.” This section focuses on the trustee’s duty of administration, which
includes disbursing and distributing proceeds among beneficiaries. In doing so,
 the trustee should be particularly careful when allocating receipts and making
disbursements between income and principal and should consider, when
applicable, a reallocation of income to the principal account and vice versa. The
duty to act impartially does not mean that the trustee must treat the beneficiaries
equally; rather, the trustee must treat the beneficiaries equitably in light of the
purposes and terms of the trust, that is, taking into account the settlor’s intention
when creating the trust.
4. Prudent administration: Section 804 sets out that “[a] trustee shall administer
the trust as a prudent person would, by considering the purposes, terms,
distributional requirements, and other circumstances of the trust. In satisfying
this standard, the trustee shall exercise reasonable care, skill, and caution.”
Although a settlor may modify the standard of care specified in such section,
there is a limit: Section 1008 of the Uniform Trust Code prohibits a settlor from
releasing a trustee from liability for breach of trust committed in bad faith or
with reckless indifference to the purposes of the trust of to the interests of the
beneficiaries.
5. Costs of administration: Section 805 provides that [i]n administering a trust, the
trustee may incur only costs that are reasonable in relation to the trust property,
the purposes of the trust, and the skills of the trustee.”
6. Duty to inform and report: Section 813 sets out the trustee’s duty to keep the
beneficiaries reasonably informed of the administration of the trust.

In view of the level of confidence involved in every trust, it is only logical that so many
duties are imposed on trustees. However, trustees also have some rights arising from
their capacity. Although trustees are not entitled to be paid for their services, unless
there is an express authorization in the instrument, if any, or by the court, they do have
the right to be reimbursed out of the trust funds for any expenses properly incurred in
the performance of their duties. Also, a trustee who has been held liable for breach of
trust has a right to be compensated by any beneficiary who has directly forced the
trustee to breach the trust to the extent to which such beneficiary has benefited from
such situation. Also, actions by the beneficiaries against a trustee are barred by statute
after a certain period has elapsed.
Moreover, the Uniform Trust Code also provides for the rights of the trustees,
including:

1. Power to delegate: Section 807 provides that a trustee may delegate the
obligations and powers “that a prudent trustee of comparable skills could
properly delegate under the circumstances.” This section applies only to
delegation to agents, not to a cotrustee.
2. Power to direct: Section 808 provides that in the case of revocable trusts, the
trustee may follow a direction given by the settlor even if it goes against the
terms of the trust.
3. Discretionary powers: Section 809 provides for a grant of discretion which
established a range within which the trustee may act. The purpose of this section
is to restrict the discretionary powers of the trustee more than providing for such
powers. However, it is said that the trustee may decide how to administer the
trust provided, of course, that his action must always be in good faith, in strict
compliance with the terms of the trust, and in accordance with his other duties,
including the obligation to exercise reasonable skill, care and caution.
4. General powers: Section 815 is intended to grant trustees the broadest possible
powers by granting them the powers of an unmarried competent owner of
individually owned property, unlimited by restrictions that might be imposed on
it by marriage, disability, or cotenancy.
5. Specific powers: Although general powers are granted to the trustee in the
previous section, Section 816 provides for specific powers, which does nothing
but provide detail on some of the powers that may be exercised by a trustee,
although it is not an all-inclusive list. Some of the powers listed in this section
are: to collect trust property and accept or reject additions to the trust property
from the settlor or any third party; to acquire or sell property; to deposit trust
money in an account; to borrow money and mortgage or pledge the trust
property, among others.
 5. TYPES OF TRUSTS

Trusts may be classified in many ways; however, legal scholars generally use the same
terminology when discussing their classification. The most common types of trusts
include express and implied, resulting and constructive, and charitable trusts.

Now, these terms do not say much if listed at random. Yes, they are related to one
another but in different ways: they may be opposite in meaning, they may be part of the
same category or they may be broader than the rest. If the term “resulting trust” stands
alone, although it does convey meaning, it still calls for its comparison with
“constructive trusts” because the term arises from a distinction drawn between the two.
This is why it becomes necessary to include them under certain categories, and this is
why different though similar classifications have been drawn up by legal scholars.

We will first discuss the different ways in which three renowned legal scholars, one
from the US and the others from UK, have classified trusts. Then, for the sake of clarity,
we will choose one of these classifications and explain each type of trust in detail.

a. Classification of trusts by Clarkson

According to Clarkson, trusts are divided into two main categories: express and implied.
As we can see, this classification focuses on the intention of the settlor. Within the
category of express trusts, Clarkson includes: living (or inter vivos) trusts, testamentary
trusts, charitable trusts, spendthrift trusts, and totten (or tentative trusts). Implied trusts,
on the other hand, include resulting and constructive trusts.

b. Classification of trusts by Iwobi5

Mr. Iwobi divides trusts into three main categories: express private trusts, resulting and
constructive trusts, and charitable trusts.

c. Classification of trusts by Mr. Phillip S. James6

5
Author of Essential Trusts, published by Canvendish Publishing Limited.
6
Author of Introduction to English Law, published by Butterworths.
This British author classifies trusts according to their purpose into private and
charitable trusts. The first category includes express and implied trusts. Implied trusts,
in turn, include resulting and constructive trusts. In addition, this author explains that
implied trusts are sometimes called “constructive trusts” and then divided into
“resulting” and “non-resulting” trusts.

For the purposes of this paper, we will use the classification provided by Mr. Phillip S.
James, according to the purpose for which trusts are created. However, since Clarkson
mentions some specific types of trusts not included in the classification of Mr. James,
we will also explain them briefly.

a. Private Trusts

As Mr. James points out, private trusts may be divided into two categories: express and
implied.

(i) Express private trusts: This term refers to a trust which is expressly imposed. It may
be created in many ways: by deed, by writing, by will, or (except in some cases) just
orally. Whatever the method of creation, however, the creator must make his intention
absolutely plain. Thus, it has been stated that in order for a trust to arise there must be
three “certainties”: certainty of words, certainty of subject-matter, and certainty of
objects.

a) Certainty of words. This means that the words used must show a clear intention
that a trust shall arise. For example, if X gives Y a ring and says “I charge you to
hold this ring in trust for Z”, X has clearly imposed a trust. On the other hand,
when precatory words are used, it is sometimes difficult to determine whether
the settlor has intended to impose a trust or merely express a wish. Precatory
words are those which express a wish or desire rather than a clear command.
Expression such as “in full confidence”, “hope”, “desire” are examples of
precatory words. This does not mean that if precatory words are used, no trust
will arise. Rather, these particular words in their particular context may still
 create a trust. What is paramount here is the intention of the creator, so that facts
as well as words may furnish evidence of a trust – if, for example, someone
intends to create a trust of money and a special account is opened in respect of it.
b) Certainty of subject-matter. This requirement speaks for itself: if the subject
matter to be held in trust is not determined, courts cannot enforce the trust. Thus
if A, by his will, directs his executor to hold “some portion of my property” in
trust for B the trust would fail.
Now, it is noteworthy that Mr. Iwobi draws a distinction between certainty of
trust property and certainty of beneficial interest. The former refers to what Mr.
James calls certainty of subject-matter, that is, the identification of the property
that will be transferred in trust. The requirement of certainty of beneficial
interests applies whenever there is more than one beneficiary. In this case, the
beneficial interest of each beneficiary must be clearly stated by the terms of the
trust.
c) Certainty of objects. This requirement focuses on the identity of the
beneficiaries, who must be determined, or ascertainable, when the trust is
created. Mr. James provides a clear example: “if a man were to give a picture to
another upon the understanding that it should be held in trust for someone who
should be subsequently named, and if the donor were to die without disclosing a
name, there would be no express trust and the picture would ‘revert’ to the
donor’s estate by operation of law. On the other hand, a trust dependent upon the
condition that the beneficiary must be marries to a wife ‘of Jewish blood and the
Jewish faith’ will be valid: whether a person has Jewish blood is an ascertainable
fact and so is the meaning of ‘Jewish faith’.”
In general, English law requires that a valid trust conform to what is called the
beneficiary principle. That is, there must be some definite class of objects whose
members can seek to enforce the trust against the trustees. Thus, any attempt to
create a trust to serve some particular purpose rather than to benefit particular
people, will usually fail.

Express trusts are usually divided into inter vivos and testamentary trusts. An inter
vivos (or living) trust is one created during the lifetime of the grantor. A common type
is a revocable "living" trust in which the grantor transfers title to property to a trust,
serves as the initial trustee, and has the ability to remove the property from the trust
during his lifetime. On the contrary, a testamentary trust is included under the terms and
conditions established in a will. Such trusts take effect after the death of the person
making the will.

(ii) Implied private trusts: Sometimes a trust is imposed by law even in the absence of
an express trusts. Thus, implied trusts arise either from presumed intention (resulting
trusts) or by operation of rules of law or equity (constructive trusts).

a. Resulting trusts. This term refers to trusts which are not expressly created by a
donor but whose acts lead courts to presume that his intention was indeed to
impose a trust.
There are two typical types of resulting trusts – which Mr. Iwobi calls presumed
resulting trusts and automatic resulting trust. The first one describes the
situation where a person gives money to another to purchase property (not as a
loan). The person who purchases the property is presumed to hold that property
in trust for the person giving him the money. This presumption may, however,
be counterbalanced by a contrary presumption called the presumption of
advancement. This arises where a husband or a father advances money for a
purchase by his wife or child. This presumption also extends to cover the case of
a person in the place of a parent (acting in loco parentis) who supplies money
for someone whom he treats as his child. The second type of resulting trust,
often called automatic, describes the situation where a person settles property
upon trustees without making provision for the exhaustion of the entire interest
in the property. In this case, the unexhausted interest is said to be held in trust by
the trustees for the benefit of the settlor.
b. Constructive trusts. This kind of trust is imposed by law independently of
anyone’s intention. Constructive trusts exist because Equity does not permit a
trustee to benefit by reason of his fiduciary position. If he does, he holds
whatever he acquires in trust for the beneficiaries. A stock example of a case in
which a trust of this type arises is where property held in trust is, in breach of
trust, conveyed by trustees to someone who had notice of the trust: here equity
protects the rights of the beneficiaries and treats the stranger as a constructive
trustee, whether or not he consents to act as such.
 This principle that a constructive trust in favor of the beneficiaries will always
arise where, if it were not implied, the trustee would benefit from his position
has been widely applied to company directors. They owe a fiduciary duty to
their company and must not allow their private interests to conflict with this
duty. Therefore, any profits they make in breach of duty they hold as
constructive trustees for the company.
An interest contribution to the topic of constructive trusts is that made by Mr.
Iwobi who explains that there is a traditional approach and a new model
approach to constructive trusts. Those who advocate for the traditional approach
view constructive trusts as a separate institution, which arises in a limited
number of well-defined situations. The new model approach – followed in the
US –provides that constructive trusts are a remedial device which is invoked
against anyone who acquires property to the detriment of another, thereby
unjustly enriching himself.

b. Charitable trusts

Charitable trusts refer to trusts designed for the benefit of a segment of the public or the
public in general. They differ from other types of trusts in that the identities of the
beneficiaries are uncertain – that is why they are usually called objects.

Strangely enough, no comprehensive definition of a legal “charity” has been provided

either by statute of by the courts. However, in order to determine the existence of a
charitable trust, the classification of charitable purposes which is most often used is the
one made by Lord MacNaghten in Income Tax Special Purposes Commissioners v
Pemsel (1891). This is the classification adopted by the Uniform Trust Code. According
to this classification, charitable trusts comprise trusts:

(1) for the relief of property;

(2) for the advancement of education;
(3) for the advancement of religion;
(4) for other purposes beneficial to the community.
This last category is said to be overriding, so that all trusts, if they are to be charitable,
must meet the requirement that they are for the public benefit.

Also, in order for a trust to be a charitable trust it must meet certain requirements:

• It must be charitable in character and not, for example, political: This is what we
discussed above when referring to the charitable purposes.

• It must be exclusively charitable: this means that no part of the trust fund may be
applied to a non-charitable purpose.

• It must benefit the public at large, or some section of it, rather than named
individuals: This requirement focuses on the objects of the charitable trust; a
charitable trust will only be valid if it is intended to benefit the public at large in
some way. Named individuals or persons belonging to the donor’s private circle
do not fall under this category.

The cy-près doctrine

Sometimes, a trust is written in such a way that it cannot be fulfilled, either because of
the confusing vocabulary used or because circumstances change. In the presence of such
situation, the Court has the power to interpret the trust document as nearly as possible in
light of the intention of the settlor, especially where a literal construction would give the
document an illegal, impracticable or impossible effect.

The French expression cy-près means “as close as possible” which means that where a
charitable trust fails, courts may still enforce the trust by using the trust property for a
purpose which as closely as possible resembles the original charitable purpose.
However, the trustees cannot determine on their own the manner in which property
should be applied. The responsibility for devising a suitable scheme lies with the
Charity Commission, in England, or the courts.

Nevertheless, this doctrine cannot be applied in all circumstances. In fact, it cannot be

applied where the donor intended the property to be applied for one specified purpose
and no other. The donor’s intention is essential in this case. This is known as initial
failure. If there is subsequent failure, for example where a trust is created for a
charitable purpose which the trustees have begun to carry out or for the benefit of a
charitable body which was undoubtedly in existence at the time it was made, the
property involved will remain in the charitable domain irrespective of whether such
entity continues to exist or not or whether the purpose is no longer practicable. In this
case, the cy-près doctrine will apply and the trust property will be used to fulfill a
charitable purpose other than the one specified at the outset.

c. Other types of trusts

As we previously stated, Clarkson and other scholars have come up with other
categories of trusts apart from those discussed above. They are spendthrift trusts and
totten trusts. The former refer to a trust that is established for a beneficiary which does
not allow the beneficiary to sell or pledge away his or her interests in the trust. A
spendthrift trust is beyond the reach of the beneficiaries’ creditors, until such time as the
trust property is distributed out of the trust and placed in the hands of the beneficiary.
To qualify as a spendthrift trust, the trust must explicitly place restraints on the transfer
of the trust funds. A totten or tentative trust refers to a special type of trust created when
one person deposits money in his name as a trustee for another. This trust is tentative
because it is revocable at will until the depositor dies or completes the gift in his
lifetime by some unequivocal act or declaration. If the depositor dies before the
beneficiary dies and if the depositor has not revoked the trust, a presumption arises that
an irrevocable trust has been created for the benefit of the beneficiary. At the death of
the depositor, the beneficiary obtains property rights to the balance on hand.
 6. BREACH OF TRUST

Whenever the trustee fails to comply with any of the terms of the trust, or if he violates
a duty owed to the trust beneficiaries, he is in breach of trust. An example of breach of
trust would be a transfer made by the trustee which is not permitted under the trust to a
third party. Also, if the trustee redirects the trust property from the trust to himself he
would be in breach of trust.

The most common remedies for a breach of trust applied at common law and in equity
are: (1) an injunction to restrain the breach; (2) a personal remedy against the trustee;
(3) a proprietary remedy against the trustee or some other party who has received the
property from him.

1) This remedy applies when a beneficiary suspects that a trustee intends to

breach the trust. In such case, the beneficiary may go to court and request
for an injunction to prevent the breach.
2) This remedy applies where a breach of trust has already been committed.
Here, the beneficiaries are entitled to file a personal action against the
trustee to recover the profits made by the trustee or seek compensation.
3) This remedy applies where a loss has been caused by the trustee’s breach
of trust to the trust estate and where a personal action would be futile
because the trustee does not have any funds to compensate for the
damage caused. In this case, the beneficiaries are entitled to pursue the
proprietary remedy called tracing which entails following the trust assets
which have been lost.

In addition, the Uniform Trust Code sets out the remedies available to the beneficiaries
for breach of trust, which is defined as “a violation by a trustee of a duty the trustee
owes to a beneficiary.”7 Pursuant to Section 1001(b), to remedy such a breach, the court
may: “(1) compel the trustee to perform the trustee’s duties; (2) enjoin the trustee from
committing a breach of trust; (3) compel the trustee to redress a breach of trust by
paying money, restoring property, or other means; (4) order a trustee to account; (5)
appoint a special fiduciary to take possession of the trust property and administer the
7
Section 1001(a) of the Uniform Trust Code.
trust; (6) suspend the trustee[.]” These are some of the remedies available under the
Uniform Trust Code. As we can see, the UTC offers a more flexible scheme because it
permits courts to determine, at their discretion, which remedy should be applied in light
of the circumstances and the degree of seriousness of the trustee’s breach.
 7. REFERENCES

Bibliography

- Clarkson, Kenneth W; LeRoy Miller, Roger; Jentz, Gaylord A; Cross, Frank B. (2004)
West's Business Law, 9th Edition, Thomson West.

- Friedman, Jack P. (1994) Dictionary of Business Terms, Barron's Business Guides.

- Hague Convention on the Law Applicable to Trusts and on their Recognition.

Available at http://www.hcch.net/index_en.php?act=conventions.text&cid=59. Last
visited: June 6, 2008.

- Iwobi, Andrew (2001) Essential trusts, 2nd edition. London: Cavendish Publishing
Limited.

- James, Philip S. (1989) Introduction to English Law, 12th edition. London:

Butterworths.

- Langbein, John H. (2007) "Why Did Trust Law Become Statute Law in the United
States?" Alabama Law Review, Vol. 58, No. 5. Available at SSRN:
http://ssrn.com/abstract=1014236. Last visited: May 30, 2008

- Thomas, David A. (Spring 1999) "Anglo-American land law: Diverging developments

from a shared history-Part I: The shared history". Real Property, Probate and Trust
Journal. Available at:
http://findarticles.com/p/articles/mi_qa3714/is_199904/ai_n8841825. Last visited: June
6, 1998.

- Uniform Trust Code, drafted by the National Conference of Commissioners on

Uniform State Laws. Available at:
http://www.law.upenn.edu/bll/archives/ulc/uta/2001final.pdf
Websites visited:

The Washington State Association Bar: http://www.wsba.org

The Asset Protection Corporation: http://www.assetprotectioncorp.com/
University of Pennsylvania Law School: http://www.law.upenn.edu/
http://law.freeadvice.com
www.nolo.com