Some charity trustees, and people thinking about becoming trustees, are nowadays influenced by the thought that they might be “personally liable” if things go wrong with the charity. What they fear is that, if they make a mistake in the running of the charity or if it gets into debt, they might have to make good any loss or shortfall out of their own private resources. While for a few people this can be a real worry that leads them to resign their trusteeship, it is in fact extremely rare for a trustee to be made “personally liable” in this way. Generally the law protects trustees who have acted reasonably from the consequences of honest mistakes, and trustees can take their own measures to reduce the risk still further.
From Bouviers:
TRUST, contracts, devises. An equitable right, title or interest in property, real or personal, distinct from its legal ownership; or it is a personal obligation for paying, delivering or performing anything, where the person trusting has no real right or security, for by that act he confides altogether to the faithfulness of those intrusted. This is its most general meaning, and includes deposits, bailments, and the like. In its more technical sense, it may be defined to be an obligation upon a person, arising out of a confidence reposed in him, to apply property faithfully, and according to such confidence. Willis on Trustees, 1; 4 Kent, Com. 295; 2 Fonb. Eq. 1; 1 Saund. Uses and Tr. 6; Coop. Eq. Pl. Introd. 27; 3 Bl. Com. 431.
2. Trusts were probably derived from the civil law. The fidei commissum, (q. v.) is not dissimilar to a trust.
3. Trusts are either express or implied. 1st. Express trusts are those which are created in express terms in the deed, writing or will. The terms to create an express trust will be sufficient, if it can be fairly collected upon the face of the instrument that a trust was intended. Express trusts are usually found in preliminary sealed agreements, such as marriage articles, or articles for the purchase of land; in formal conveyances, such as marriage settlements, terms for years, mortgages, assignments for the payment of debts, raising portions or other purposes; and in wills and testaments, when the bequests involve fiduciary interests for private benefit or public charity, they may be created even by parol. 6 Watts & Serg. 97.
4. – 2d. Implied trusts are those which, without being expressed, are deducible from the nature of the transaction, as matters of intent; or which are superinduced upon the transaction by operation of law, as matters of equity, independently of the particular intention of the parties.
5. The most common form of an implied trust is where property or money is delivered by one person to another, to be by the latter delivered to a third person. These implied trusts greatly extend over the business and pursuits of men: a few examples will be given.
6. When land is purchased by one man in the name of another, and the former pays the consideration money, the land will in general be held by the grantee in Trust for the person who so paid the consideration money. Com. Dig. Chancery, 3 W 3; 2 Fonbl. Eq. book 2, c. 5, §1, note a. Story, Eq. Jur. §1201.
7. When real property is purchased out of partnership funds, and the title is taken in the name of one of the partners, he will hold it in trust for all the partners. 7 Ves. jr. 453; Montague on Partn. 97, n.; Colly. Partn. 68.
8. When a contract is made for the sale of land, in equity the vendor is immediately deemed a trustee for the vendee of the estate; and the vendee, a trustee for the vendor of the purchase money; and by this means there is an equitable conversion of the property. 1 Fonbl. Eq. book 1, ch. 6, §9, note t; Story, Eq. Jur. SSSS 789, 790, 1212. See Conversion. For the origin of trusts in the civil law, see 5 Toull. Dr. Civ. Fr. liv. 3, t. 2, c. 1, n. 18; 1 Brown’s Civ. Law, 190. Vide Resulting Trusts. See, generally, Bouv. Inst. Index, h. t.
TRUSTEE, estates. A trustee is one to whom an estate has been conveyed in trust.
2. The trust estate is not subject to the specialty or judgment debts of the trustee, to the dower of his wife, or the courtesy of the husband of a female trustee.
3. With respect to the duties of trustees, it is held, in conformity to the old law of uses, that pernancy of the profits, execution of estates, and defence of the land, are the three great properties of a trust, so that the courts of chancery will compel trustees, 1. To permit the cestui que trust to receive the rents and profits of the land. 2. To execute such conveyances, in accordance with the provisions of the trust, as the cestui que trust shall direct. 3. To defend the title of the land in any court of law or equity. Cruise, Dig. tit. 12, c. 4, s. 4.
4. It has been judiciously remarked by Mr. Justice Story, 2 Eq. Jur. §1267, that in a great variety of cases, it is not easy to say what the duty of a trustee is; and that therefore, it often becomes indispensable for him, before he acts, to seek, the aid and direction of a court of equity. Fonbl. Eq. book 2, c. 7, §2, and note c. Vide Vin. Ab. tit. Trusts, O, P, Q, R, S, T; Bouv. Inst. Index, h. t.
What is a Trust?
In broad terms, a trust is simply a way of gifting property. Any type of property -shares, buildings, cash etc. can be placed under a trust. You can use a trust to make a gift of a life policy on the terms set out in the trust document.
The person who creates a trust (the settlor) chooses the people who can benefit (the beneficiaries) and defines how and when they are able to enjoy the gifted property. Once the trust is up and running it can then only be dealt with according to those terms. You could contrast the position with that under your will, which you can change as many times as you like whilst you are alive. On the other hand, gifting a life policy under a will may not secure the benefits obtained from writing the policy under an appropriate trust.
Why can’t a sole trustee be a sole beneficiary?
The sole trustee cannot be the sole beneficiary because a trust is a legal relationship between a trustee and the beneficiary or beneficiaries.
If a sole trustee were also the sole beneficiary, then this would be an agreement that a person had with themselves. The law says that no trust can exist in these circumstances.
However, a trustee can be a beneficiary of the trust as long as there is at least one other beneficiary as well.
Can the Settlor be a trustee?
The simple answer is ‘yes’ but it is usually advisable to have at least one other trustee. In addition, HMRC may look at the substance of the structure and exceptionally argue that the trust arrangement is simply a sham. If the sole trustee is the settlor practical difficulties might arise in contesting the position and two or more Trustees are recommended.
From the Trustee Act 1925:
Indemnities
26. Protection against liability in respect of rents and covenants.
— (1) Where a personal representative or trustee liable as such for—
a) any rent, covenant, or agreement reserved by or contained in any lease; or
b) any rent, covenant or agreement payable under or contained in any grant made in consideration of a rentcharge; or
c) any indemnity given in respect of any rent, covenant or agreement referred to in either of the foregoing paragraphs;
satisfies all liabilities under the lease or grant [F20 which may have accrued and been claimed] up to the date of the conveyance hereinafter mentioned, and, where necessary, sets apart a sufficient fund to answer any future claim that may be made in respect of any fixed and ascertained sum which the lessee or grantee agreed to lay out on the property demised or granted, although the period for laying out the same may not have arrived, then and in any such case the personal representative or trustee may convey the property demised or granted to a purchaser, legatee, devisee, or other person entitled to call for a conveyance thereof and thereafter—
(i) he may distribute the residuary real and personal estate of the deceased testator or intestate, or, as the case may be, the trust estate (other than the fund, if any, set apart as aforesaid) to or amongst the persons entitled thereto,without appropriating any part, or any further part, as the case may be, of the estate of the deceased or of the trust estate to meet any future liability under the said lease or grant;
(ii) notwithstanding such distribution, he shall not be personally liable in respect of any subsequent claim under the said lease or grant.
[F21 (1A) Where a personal representative or trustee has as such entered into, or may as such be required to enter into, an authorised guarantee agreement with respect to any lease comprised in the estate of a deceased testator or intestate or a trust estate (and, in a case where he has entered into such an agreement, he has satisfied all liabilities under it which may have accrued and been claimed up to the date of distribution)—
(a) he may distribute the residuary real and personal estate of the deceased testator or intestate, or the trust estate, to or amongst the persons entitled thereto—
(i) without appropriating any part of the estate of the deceased, or the trust estate, to meet any future liability (or, as the case may be, any liability) under any such agreement, and
(ii) notwithstanding any potential liability of his to enter into any such agreement; and
(b) notwithstanding such distribution, he shall not be personally liable in respect of any subsequent claim (or, as the case may be, any claim) under any such agreement.
33. Protective trusts.
— (1) Where any income, including an annuity or other periodical income payment, is directed to be held on protective trusts for the benefit of any person (in this section called “the principal beneficiary”) for the period of his life or for any less period, then, during that period (in this section called the “trust period”) the said income shall, without prejudice to any prior interest, be held on the following trusts, namely:—
(i) Upon trust for the principal beneficiary during the trust period or until he, whether before or after the termination of any prior interest, 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, in any of which cases, as well as on the termination of the trust period, whichever first happens, this trust of the said income shall fail or determine;
(ii) If the trust aforesaid fails or determines during the subsistence of the trust period, then, during the residue of that period, the said income shall be held upon trust for the application thereof for the maintenance or support, or otherwise for the benefit, of all or any one or more exclusively of the other or others of the following persons (that is to say)—
(a) the principal beneficiary and his or her wife or husband, if any, and his or her children or more remote issue, if any; or
(b) if there is no wife or husband or issue of the principal beneficiary in existence, the principal beneficiary and the persons who would, if he were actually dead, be entitled to the trust property or the income thereof or to the annuity fund, if any, or arrears of the annuity, as the case may be;
as the trustees in their absolute discretion, without being liable to account for the exercise of such discretion, think fit.
61. Power to relieve trustee from personal liability.
If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.
62. Power to make beneficiary indemnify for breach of trust.
— (1) Where a trustee commits a breach of trust at the instigation or request or with the consent in writing of a beneficiary, the court may, if it thinks fit, . . . F49 , make such order as to the court seems just, for impounding all or any part of the interest of the beneficiary in the trust estate by way of indemnity to the trustee or persons claiming through him.
From the Trustees Investments Act 1961:
PART IV SUPPLEMENTAL
4. In this Schedule, unless the context otherwise requires, the following expressions have the meanings hereby respectively assigned to them, that is to say—
“debenture “ includes debenture stock and bonds, whether constituting a charge on assets or not, and ‘loan stock or notes;
TRUST FORMATIONS
MORTGAGE TRUST
The Parties:
MORTGAGOR: (GRANTOR/TRUSTEE/BENEFICIARY)
MORTGAGEE: (TRUSTEE/BENEFICIARY)
LAND REGISTRY: (TRUSTEE)
The Intent:
As evidenced by terms of the Mortgage Agreement and the Mortgage Deed, as well as the forms filed with the Land Registry.
The Purpose:
Following the creation of a mortgage; to grant legal and equitable title documents of the property purchased into the care of the LAND REGISTRY, with possession of the equitable estate retained by the MORTGAGOR, as security for a 1st legal charge in favour of the MORTGAGEE, which is only actionable in the event of default on the Mortgage Agreement.
The Trust Res:
The legal and equitable title to the GRANTOR’S property.
PUBLIC UTILITIES TRUSTS
The Parties:
WATER POISONING PLC (GRANTOR/TRUSTEE)
RESIDENT PERSON (TRUSTEE/BENEFICIARY)
The Intent:
As evidenced by the communications sent and received by the Parties, as well as the bills accepted and paid by the Trustee.
The Purpose:
To provide the Beneficiary with a water supply fit for human consumption, with the Trustee being responsible for paying the costs of said supply, plus sewage services.
The Trust Res (Property):
Water and Sewage Services.
BIRTH CERTIFICATE – TWO SETTLOR PUBLIC TRUSTS
The Parties:
THE CROWN (GRANTOR/TRUSTEE/BENEFICIARY)
STRAWMAN (GRANTOR/TRUSTEE/BENEFICIARY)
The Intent:
As evidenced by the Birth Certificate and all documents and transactions executed between the parties.
The Purpose:
The granting by THE CROWN of a certificate of legal title for every name registered, for whom the grantee is presumed to be the liable fiduciary trustee.
The Trust Res:
The future sweat equity of the flesh and blood registered is granted in an implied trust by the ‘Informant’ [Mother and/Father] on behalf of their offspring, under Power of Attorney presumed to exist at law until the child is of legal age. State benefit privileges due to subjects of THE CROWN and the upholding of the law of the land are also granted into the Trust by THE CROWN, for the benefit of the name on the certificate.
BANKING TRUSTS
The Parties:
CUSTOMER (GRANTOR/BENEFICIARY)
BANK (TRUSTEE)
The Intent:
As evidenced by all communications between the parties.
The Purpose:
The placing of the CUSTOMER’S financial interests, assets and/or instruments into the trust and possession of a Bank for the benefit of the GRANTOR/BENEFICIARY.
The Trust Res:
The financial interests, assets and/or instruments of the CUSTOMER.
PRIVATE FAMILY TRUSTS
The Parties:
MOTHER (GRANTOR/TRUSTEE)
FATHER (GRANTOR/TRUSTEE)
OFFSPRING (BENEFICIARIES)
The Intent:
As evidenced by declaration, documents and deeds.
The Purpose:
To place the property of the MOTHER & FATHER in Trust, for the benefit of their offspring.
The Trust Res:
The legal estate and sweat equity of the Grantor/Trustees.
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