Types of Trust

 It is important to know different kinds of trust, and

various terms used to classify them is vital for two
reasons:;

 (1) The first, straightforwardly practical reason is that

if you don’t get a grip on these terms you will be
unable to understand most of what judges and
lawyers say when they talk about trusts, and indeed
you will have an impossible time understanding the
rest of this subject.

 (2) Just as importantly, much of understanding the

law of any area on being able to see the distinctions
the law draws and classifications it devises, for only
by this means is a body of law comprehensible and
coherent, so that justice is done, and like
 cases decided alike.
 The central case of the trust is the express
trust. An express trust is which is
intentionally created by the holder of rights.
This person, called the ‘settlor’ (because he
‘settles’ the rights on trust, i.e. creates the
trust) either declares that he will henceforth
hold rights on trust for specified persons (the
‘beneficiaries’) thus making himself a
‘trustee’ for them, or transfers the rights on
trust for the beneficiaries to a third party,
who will serve as the trustee.

 The essential points to grasp about express

trusts are:
 (1) That arising as they do from the intentional
acts of a right holder, in order for express trusts
to be successfully created the
 right holder must comply with all the necessary
substantial and procedural requirements for the
creation of the trust to be successful. creation of
an express trust involve the effective exercise of
powers
 (2) The power of a right holder to create express
trusts reflects a
 principle of ‘freedom of trust’ similar to the
succession law principle of ‘freedom of
testamentary disposition’: a settlor can, within
the limits of the law, divide up the interests in
the trust rights any way he chooses, providing
different kinds of interest in, and different of the
value of, the trust rights for different
beneficiaries or different charitable purposes.
 Under an express trust, a settlor may decide
to divide up the interests according to a fixed
plan. But very often (and historically, for tax
reasons), a settlor may decide to take a ‘wait
and see’ approach, leaving the actual shares
or interests that his beneficiaries or charitable
purposes will receive under the trust to be
decided later.
 For example, a settlor may want to create a
trust for his children, but want to leave it
open how much each child will receive, so as
to take account in later years of their differing
circumstances
 A ‘fixed’ trust is one in which the interests of the
 different beneficiaries or charitable purposes are
determined at the outset; the trustee has no
decisions to make as to how he should distribute
the value of trust assets. A ‘discretionary’ trust is
one where he has such a ‘dispositive’ discretion,
i.e. a discretion as to how the assets are disposed
of. Discretions may be shaped in various ways,
but the typical case is one in which there are a
class of persons or charitable purposes to whom
the trustee may distribute the trust funds in such
shares as he, at his discretion, decides, so he can
choose to distribute the assets evenly, or in
unequal shares but giving some to all, or only to
one or a few of those in the class.
 The ‘fixed’ or ‘discretionary’ nature of a trust
turns upon whether the trustee has a discretion
in his distribution of the trust assets.
 ‘Fixed’ does not mean that the actual amount
that a beneficiary will receive is determinable
from the outset. For example, in a trust of shares
where the income of the shares (the dividends)
go to Paul as long as he lives (‘for life’) and then
the capital (the shares themselves) go to Peter, it
is impossible to tell how much Paul will get at the
outset, for that will depend upon the value of the
dividends on the shares over time. But the trust
is still fixed, for whatever dividends are paid out
on the shares, the trustee has no choice but to
transfer that income to Paul.
 Furthermore, a beneficiary may receive a
contingent or defeasible interest under a
 trust.
 A contingent interest is one which will only arise if a
certain event occurs. So, for example, a trust might
provide that your daughter, Samantha, is to receive an
income interest, but only if she completes her law degree
successfully. A defeasible interest is one which may come
to an end upon a certain event. You might give Samantha
an interest in income, which will terminate if she wins £1m
or more in a lottery.
 Though under both of these kinds of interest, it is not
certain at the outset whether Samantha will take under the
trust – or what she will take – they are still classified as
fixed interests because the trustee has no dispositive
discretion.
 A trust can include both discretionary and fixed elements:
for example, one may settle a trust of shares in a
company, with the income of the shares to be distributed
as it arises amongst your children Tom, Dick, and Mary in
such shares as your trustee, at his discretion, decides, with
the capital to be distributed in equal shares to Tom, Dick
and Mary once the youngest turns 18 years of age – these
capital interests are fixed.
 Summary

 Express trusts are those intentionally created by a

settlor when he or she effectively declares a trust.
The simplest form of the trust is the ‘bare’ trust or
‘nomineeship’, under which the trustee holds legal
title to the trust property ‘to the order’ of the
beneficiary.

 However, beneficial interests under trusts are

commonly structured by the use of contingent
interests – interests which may arise or lapse on the
occurring of events, and by providing the trustee with
dispositive discretions, discretions to allocate trust
property amongst a class of persons. Trusts, or trust
provisions, which incorporate discretions are termed
‘discretionary’, those not incorporating discretions
are called ‘fixed’.
 A beneficiary under a fixed trust has an interest in the
trust which the law regards as a property right that he
owns. For that reason, he can transfer that interest to
someone else, by ‘assigning’ it in writing.

 So, for example, if you are a beneficiary of a trust who

receives income on the trust investments each month – an
‘income’ beneficiary – you can assign that interest,
 For example to your spouse, and if you did that your
spouse would then have the right to demand the income
payments each month from the trustee. But because your
fixed trust interest is your property, it also forms part of
your estate if you go bankrupt. Thus the trustee will have
to pay that income to your ‘trustee in bankruptcy’ who
takes charge of your property, and he will use that income
along with all the rest of your property rights to pay off
your creditors.
 To prevent interests under a trust being assigned by
beneficiaries or going to pay off their
 creditors if they go bankrupt, the settlor might use a
protective trust.
 Such a trust normally utilises the device of a certain kind
of ‘defeasible interest’ , i.e. a determinable life interest
followed by a discretionary trust:
 the trust will commonly confer a life interest upon a
person (‘the principal beneficiary’) determinable (i.e. which
will terminate) upon his or her bankruptcy or any other
event whereby they would lose their right to keep the
income from the trust (e.g. assignment the interest).
 If such an event occurs, the trustees will automatically
hold the trust property on a different trust, usually a
discretionary trust in favour of the principal beneficiary
and his family.
 Once this happens, neither the principal beneficiary nor
anyone who has claims upon his property like his trustee
in bankruptcy, will have any claim against the trust since
the principal beneficiary will then have no entitlement
under the trust, only a hope of receiving some income if
the trustee exercises his discretion in the principal
beneficiary’s favour – and a mere hope cannot be assigned
or otherwise transferred.
 The main points to note regarding such trusts
are as follows:
_ they may be created by the inclusion of
appropriate terms in a trust instrument (in which
case regard must be had to the particular words
used, especially as to the formulation of the
determining events) or simply by incorporating the
statutory protective trust, set out in section 33 of
the Trustee Act 1925 an attempt by a settlor to
create a protective trust in his or her own favour is
not void per se, but will not protect the trust rights
from their trustee in bankruptcy where the first
 determining event to occur is the settlor’s
bankruptcy: Re Burroughs-Fowler; Re Detmold
 Decisions as to whether a determining event has
occurred in a particular case must be read in the light
of the definition of the determining event being
considered.
 For example, the express clause in Re Hall was
narrower than the statutory term construed in Re
Gourju’s Will Trust, thus justifying different decisions
on similar facts. The section 33(1)(i) formulation of
the determining event is very wide:
 ‘Upon trust for the principal beneficiary during the
trust period or until he … does or attempts to do or
suffers any act or thing, or until any event happens,
other than an advance under any statutory or express
power, whereby, if the said income were payable
during the trust period to the principal beneficiary
absolutely during that period, he would be deprived
of the right to receive the same or any part
thereof…’.
 The statutory language is difficult, but if you
concentrate on the passage in bold first, it is
clear that the first fixed trust for the primary
beneficiary will end if anything happens,
whether by his own act, such as an
assignment, or not, such as a creditor
petitioning the court to declare him bankrupt,
that will result in his losing the right to be
paid by the trustee,
 i.e. that someone else would have that right
to be paid instead.
Summary
 A protective trust is a defeasible fixed trust
(the ‘primary trust’), which on the occurrence
of a defeating condition, is replaced by a
discretionary trust (the ‘secondary’ trust).
 By broadly framing the defeating conditions
to include any event whereby the beneficiary
of the primary trust (the ‘primary’ beneficiary)
loses his right under that trust.
 The trust funds are prevented from going to
the primary beneficiary’s creditors. Thus the
protective trust ‘protects’ the trust in the case
of the beneficiary’s insolvency.
 Legal rights and duties arise in different
ways. The four most
typical ways in which they arise are:
 _ by legislation
 _ by order of the court
 _ by agreement between legal actors
 _ by operation of law.
 By Act of Parliament, or under regulations made pursuant to such
an Act, legal rights and duties can be created. An Act may confer
upon subjects a right to vote, or may impose a duty to drive at
certain speed limits. A court can, of course, make various orders,
creating new rights and duties. The court may order you to pay a
fine, creating a duty upon you to do so. It might grant you a right
to support from your spouse on divorce, and so on.
The law also recognises, of course, certain rights and duties which
may arise because subjects of the law effectively act to create such
rights.
As we have already seen, the creation of an express trust gives rise
to duties upon the trustee, to distribute the trust assets in certain
ways, and rights of the beneficiaries, to the benefits of the trust
assets as set out in the terms of the trust.
 But the law also gives rise to rights which are not
created by legislation, or by order of the court, or
by the intentional acts of individual parties.
Here’s an
 example: if I negligently knock you down causing
you injury, the law will recognise a new right –
your right to bring an action for damages against
me to compensate you for the harm I caused you.
 That new right was not created by statute, nor
did I exercise any legal power to grant it to you;
rather, the law holds that the occurrence of
certain facts (here, my negligence causing you
loss),gives rise to new rights and/or duties.
 In certain factual circumstances a trust will
arise by operation of law. Constructive trusts
arise by operation of law; indeed, one might
say that ‘constructive trust’ and ‘trust arising
by operation of law’ are synonyms.
 A way of thinking of trusts which arise by
operation of law is by opposing them to
express trusts using the criterion of
‘consent’. An express trust arises because the
settlor consents to, or intends to, create the
trust.
 A constructive trust, on the other hand, does
not depend (or does not depend wholly) on
the consent of the settlor or any other person
involved in the transaction.
 An example of a constructive trust is the one
imposed by the Privy Council in AG for Hong
Kong v Reid (1992). Reid, the chief
prosecutor in Hong Kong, accepted bribes
from criminals.
 The court held that Reid held the bribe money
on trust for the Attorney-General of Hong
Kong, his employer.
 The term ‘resulting trust’, like ‘implied trust’,
is troublesome, for it appears to be used in
different ways.
 ‘Resulting’, in this context, comes from the
Latin resalire, means ‘jumping back’. A
resulting trust is one where the interest in the
trust assets ‘jumps back’ to the person who
provided trust assets to the trustee.
 On the traditional reading, there are two
cases which are classified as resulting trusts.
 The first case arises when a person providing
assets receives a benefit under a trust
because of an evidentiary presumption that
the court of equity applies.
 Because of the operation of this presumption,
these trusts are traditionally known as
‘presumed resulting trusts’ or ‘presumed
intention resulting trusts’.
 Generally speaking (there are exceptions
which will be dealt with ,
 if A transfers an asset to B gratuitously (i.e.
taking no payment of any kind in return, ‘for
no consideration’), and if there is no reliable
evidence of A’s true intentions, the court will
find that B holds the asset on trust for A.
 Likewise, if A and B contribute money or
other value to the purchase of an asset in B’s
name, and again, if there is no reliable
evidence otherwise as to A’s and B’s
intentions, B will hold the asset on trust for
himself and A in shares proportionate to the
amount they contributed to the purchase
price.
 The second case is one where a trust ‘fails’, in whole
or in part. If Martin transfers an asset to his trustee
on trust for Mabel, but after doing that it turns out
that Mabel died some years ago, then the trustee will
hold the asset on trust for Martin.
 If Alex transfers his house, Blackacre, on trust for Eric
for life, then here we have a problem; there is no
person specified to have the benefit of the fee simple
interest in Blackacre in remainder that falls into
possession after Eric’s death; that interest in
Blackacre results to Alex; he will be the beneficiary of
this future interest in Blackacre, not having effectively
disposed of it when he declared the trust.
 Because the right in the trust asset jumps back to the
person who provided the asset to the trust in these
cases irrespective of his intention, these trusts have
become known as ‘automatic resulting trusts’.
 However, there is a tendency in some judges and
commentators to refer to any trust where the
provider of assets receives a benefit under a trust as
a ‘resulting trust’. On this broad reading, the bare
trust for A is an example of a resulting trust.
 So also would be the case where Sheila transfers
securities on trust for herself and her husband in
joint shares – one share results or ‘jumps’ back to
Sheila on the terms of the trust.
 Notice that in the traditional two cases of resulting
trust, the trust is a bare one. The holder of the
interest gets a pure ownership interest in equity, an
ownership interest that is held by the trustee ‘to his
order’, or to the order of himself and another co-
owner as co owners of the whole, as in case of A and
B above.
 So we see that the term ‘bare trust’ can arise in more
cases than that of the express bare trust.
Summary
 A resulting trust arises where a beneficial interest
under a trust ‘jumps back’ to the person who
provided property or paid for it.
 Two kinds of resulting trust are traditionally
recognised. Presumed intention resulting trusts
arise in the absence of evidence as to the
provider’s intentions when he or she makes a
gratuitous transfer or purchases, or contributes
to the purchase of, property in another’s name.
 Automatic resulting trusts arise when any or all
of the beneficial interests created under an
express trust fail; in such cases the undisposed
interest(s) in the trust property results to the
settlor.
 All express trusts are for purposes in the sense
that a settlor creates a trust with some purpose
or motive.
 As we have seen, the central case of the express
trust is one in which assets are transferred to a
trustee on terms which ‘carve up’ the value of the
assets in various ways amongst the different
beneficiaries, usually over a period of some
years.
 A ‘purpose trust’ is one in which the assets are
not merely carved up amongst the beneficiaries,
but is devoted to the carrying out of some
purpose, for example a trust to devise a 40-letter
alphabet for the English language. While it might
be true that a great many individuals might in
fact benefit from that, they are, clearly, not
beneficiaries of the trust in the way that
beneficiaries of a normal trust are, in two senses.
 Defined interests in the trust, like a capital or
income or defeasible interest, as normal
beneficiaries do; in other words, they cannot be
treated as having any equitable ownership
interest in the trust fund.
 Second, because they do not have any equitable
ownership interest in the fund, they have no
standing in a court of equity to enforce the trust
against the trustee. Because there is no one with
any particular ownership right, and therefore no
one with any standing in court vis-à-vis the
trust, the ‘default’ position is that such trusts are
invalid. If a settlor tries to create a purpose trust,
then the trust will fail at the outset, and if he has
transferred assets to a trustee to carry out the
trust, the assets will be held on resulting trust for
him.
 There is, however, a very significant and
economically important exception to this
principle – the case of the ‘charitable trust’ or
public trust’.
 A settlor can create a trust to carry out a
charitable purpose, for example to assist the
poor, and such a trust is valid. How, you might
ask, is such a trust enforced? Do ‘the poor’ have
standing in court to make the trustee use the
property as intended?
 No. The state, in the form of the Attorney-
General (assisted by the Charity Commissioners)
alone has the power to enforce such trusts.
 It is for this reason that charitable trusts are also
known as ‘public trusts’, because they involve the
participation of the state, and by way of contrast,
purpose trusts which are not accepted by the law
 as charitable are called ‘private purpose trusts’.
 As we have seen, the basic rule is that private
purpose trusts are invalid. There is, however,
a truly tiny class of exceptions, which are all
testamentary; trusts for the provision and
upkeep of graves and monuments, trusts for
the care of the testator’s animals; and trusts
for private masses for the better repose of
the testator’s soul.
Summary
 Purpose trusts are trusts in which funds are
devoted to carrying out a purpose such that
there are no particular individuals who would
benefit.
 Such a trust has no beneficiaries, therefore,
and for this reason amongst others, with a
few anomalous exceptions, private purpose
trusts are invalid.
 Charitable or public purpose trusts are valid
and are enforced against trustees by the
Attorney General.