trusts

Origin of Trusts

Introduction | The Concept | Deciding on a Trust | Civil Law | Other Jurisdictions

As already stated in its simplest form, a trust originates when a person known as a Settlor transfers property to another person known as a Trustee for the benefit of a yet another person(s) known as a beneficiary.

Originally, there was no guarantee that the Trustee would use the asset for the benefit of the beneficiary. Once the Settlor transferred the property, advantage was taken by the recipient of the property despite undertaking that the property would be used for the benefit of another person (the beneficiary). As the recipient acquired what is known as the “legal title” to the property, the beneficiary would be in difficulty in trying to enforce rights to receive advantages associated with the property as initially envisaged by the Settlor.

The English legal system sought to overcome this injustice by adopting a split concept of ownership.

In the early days, the Lord Chancellor was known as “Keeper of the Kings Conscience” and in holding the office of a cleric, had jurisdiction over spiritual matters and other issues affecting the conscience of an individual. In circumstances where property was transferred to a recipient for the benefit of another, that person acquired legal title that could not be denied by the law courts. But the Lord Chancellor could exercise his jurisdiction by saying to the recipient that although he had legal ownership, he also had a duty to honour his obligation, and if he did not do so, his conscience would be damaged. A system developed whereby the Lord Chancellor would enforce the beneficial rights of the person to whom the transfer was intended to benefit.

Beneficial rights therefore became part of the title to property, with legal ownership being held by the Trustee while beneficial ownership was held by the person to whom the benefit of the property was transferred, the beneficiary.

This is a very basic explanation of a complex historical process that shaped the development of the trust device.

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