What is a trust?
July 29, 2020
Every time I tell someone I will be teaching Trusts in January, I get the question back, “What is Trusts?”
Since Trusts are an important part of everyday life, and not just for lawyers, I thought I ought to post an answer.
The origins of trusts date back to before written records, so though the concepts have roots in church law, Roman law, Germanic traditions, and even Islamic traditions, the exact origin is unknown. In England, they are traced back a thousand years, when they existed as relief from the harsh rules of the feudal system. Trusts as we know them developed into a uniquely English concept that was imported to Canada.
Because Trusts are a concept or set of principles, no single plain language definition fully captures their variety or adaptability, though Wikipedia tries. Their definition, in my view, is incomplete, and requires their article to go on at length to provide an explanation.
Simply, but technically, put, a trust is any relationship where one person, called a trustee, is compelled by equity to hold property for the benefit of another person or persons (called beneficiaries).
Another way to describe it is an equitable obligation binding the trustee to deal with property owned by the trustee as a separate fund, for the benefit of the beneficiaries.
Equity is a branch of law that arose in history out of a separate set of courts in England called Chancery Courts, which acted on behalf of the King to relieve from the harsh results that might arise under common law. Chancery Courts and Law Courts were merged after Charles Dickens criticized the slow and expensive nature of Chancery in Bleak House. (Who says literature has no power?).
The principles of equity continue to be applied to protect people from adverse results. In the law of Trusts, they have many different uses.
Every estate involves at least one trust (in Ontario, we now call executors “estate trustees” to recognize this role). But trusts are frequently used for other purposes, some of which include:
- putting the family cottage in trust to protect it for future generations
- a family trust or business trust used for tax planning
- a family trust or business trust used to separate control of a business from the income (so Mom and Dad still run it, but share income with the kids or grandchildren)
- a trust setting aside money to support a vulnerable person who cannot manage the funds themselves
- a pension fund
- a lawyer holding a client’s money
- a realtor holding a deposit
- an amount of money set aside to protect future payments, such as under a construction contract
- a charitable trust to advance education, relieve poverty, or other public good
- a constructive trust imposed to require the trustee to pay ill-gotten gains to the victim
- a constructive trust in family law, to share the value of family assets regardless of paper title
- a resulting trust in law over funds held jointly
- a fund set up to ensure the future remediation of mining lands
- a fund set up to benefit indigenous peoples
- funds held by directors of an unincorporated association, such as a sports league, for the benefit of the league (sometimes)
- a Real Estate Investment Trust created to take advantage of special tax rules where investment properties are owned by a REIT.
Trusts come in three general types: express types, trusts by operation of law, and statutory trusts.
An express trust is a trust created intentionally by one or more people for the benefit of others. Examples include the estate trust, the family trust, the business trust, the charitable trust, the vulnerable person trust, the lawyer or realtor’s trust.
Constructive trusts and resulting trusts are trusts created by operation of law. Even if no one intended to create a trust, one exists as a remedy to protect the interest of the innocent person in specific property.
The pension fund, environmental fund, a constructive lien fund, or funds for the benefit of Indigenous peoples are statutory trusts (though the latter is debatably something else entirely).
Trusts even are relevant to criminal law – you might recall that Senator Mike Duffy was tried and acquitted on a charge of breach of trust in his dealing with public funds.
The creation of trusts brings with it a wide range of responsibilities and rights, enough for a full law school course. If you want to know about how trusts might affect you, speak with your lawyer, or stay tuned for future articles.
(I referenced texts by Eileen Gillese, The Law of Trusts and Mark Gillen and Faye Woodman’s The Law of Trusts: A Contextual Approach, in drafting this piece. The definitions are paraphrases of cases quoted by them, the rest of the writing is mainly my own, though some of the examples are theirs. I also reread Bleak House, considered by some the greatest novel of the 19th century.)