Trusts

What is a trust?

A trust is an arrangement where the legal ownership and beneficial ownership of property, such as land and money, are split up.  This arrangement has its roots in the fact that in the past England had two separate legal systems which ran side by side.

Law and Equity

Historically courts of law could only apply the letter of the law in a strict and harsh manner and there was very little room for the judge to use his own discretion. Often this meant that rules could be applied in an unfair way and injustices could result. Because of this, people who were disadvantaged by the harsh application of the law would petition the Lord Chancellor to relax the strict legal rules.

As a result of this a second set of courts grew up where judges were appointed by the Lord Chancellor to exercise discretion on his behalf. This alternative legal system became known as equity and it was possible for equity to recognise someone other than the legal owner as the person truly entitled to the benefit of property.

Although law and equity were merged into a single legal system and a single hierarchy of courts in 1879, they remain distinct legal concepts. In a trust the legal owner of the property is referred to as the trustee and he actually holds the property on behalf of the beneficiary, who is the equitable owner of the property.

Why are trusts used

If you own property outright then you are both the legal and equitable ownership. Trusts are used wherever it is desirable for legal and equitable ownership to be held by different people. This might be the case where:

• The equitable owner does not qualify for legal ownership (eg. he is under 18 and so cannot own land)
• The property is held for the benefit of a number of people and there are too many for everyone to be a legal owner
• You want to pass on your property, but still have a measure of control over it
• Where the person who will benefit cannot be trusted to handle the property wisely

For independent financial advice on trusts and their benefits, speak to a financial advisor today.