What are UK Trusts?

In order to understand Trusts, it is important to first discuss by which laws they are governed, which are what makes them unique and distinct.

The law that governs Trusts in common law countries, is the equity law. Even today there is an existing debate on whether this law has merged with the common law or if it is still working parallel to it.

In this study I will not go further in that matter as it is a very complex debate and a very extensive topic, which could lead to a whole new essay. Therefore I will only give a brief explanation, in order to be able to understand the Trusts better.

Equity’s role according to Aristotle is to prevent the law from adhering too rigidly to its own rules and principles when those rules and principles produce injustice. Hence equity permits judges to depart from legal principle in order to promote justice.[1] This sentence is the perfect description of the foundations and objectives of equity law.

In the early twelfth century, the common law emerged as well as some unfairness that it carried with it due to the strict application of the rules. So there was an additional possibility in order to settle this unfairness, which consisted in appealing to the king’s conscience to provide them with justice.[2] Later on this role was delegated by the king to the Lord Chancellor, due to the increasing amount of appeals. As the appeals continued to grow, a separate court of equity, the chancery court was established in the fifteenth century and equity as a rival system of law began to take shape.[3]

First separate in the sense that one judge was able to dictate the common law and in case the person thought an injustice had been committed by the dictation of the rules of the common law, then he would have to go to a separate judge, the court of chancery, to appeal this decision in front of equity. This organization caused many problems, such as corruption. So in 1873-75 under the Judicature Acts the administration of both laws was unified[4], in the sense that the same judge could dictate common and equity law, thus making the process faster and simpler.

The role of the equity law is to act as a check of the legal rules being applied by the common law, and verify that these laws would not lead to injustice. Equity rectifies and solidifies the common law.

The law of trusts developed in the Middle Ages from the time of the crusades under the jurisdiction of the King of England. The common law regarded property as an indivisible entity, as it had been under Roman law and the continental version of civil law. Where it seemed inequitable to let someone with legal title hold onto it, the King's representative, the Lord Chancellor who established the Courts of Chancery, had the discretion to declare that the real owner in equity was another person.[5]

Equity has to be used in order to give the real owner the right to his property. That is why trusts are governed in a sense by the equity law, which does not follow rules but follows the moral principles that are set by its maxims.

Then we have to proceed to understand what a trust is today. A trust in its simplest definition is the imposition of an equitable obligation on the holder of the legal title.

To give an example a trust would be formed when a person, the settlor, hands in his property in an act of trust to another person, the trustee, in order for this person to manage on his behalf the assets, whilst the beneficial interest of these assets is held by a third person, the beneficiaries, who could be for example the sons and daughters of the settlor.

The trust provides for a legal owner to be able to deal with property for the benefit of those who cannot or do not want to deal with it themselves. This is commonly expressed as[6]:

Basically, according to trust law, a trust is a relationship whereby property is held by one party in benefit of another. The trustee is given legal title to the trust property but is obligated to act in the good of the beneficiaries. Additionally, Trusts usually have a protector, which is a swell designated by the settlor. The role of the protector is to control that the trustee is fulfilling his duties and is acting in the interest of the Trust.

The main reasoning issue the trust poses, specially for people with a continental European law background, is the division of property that arises when a trust is set up, on one hand we could say the legal owner of the property would be the Trustee, and that the economical owner of the property would be the beneficiaries, something very abstract that is not contemplated in civil law jurisdictions.

The complexity of the trust is latent when one tries to understand who is the real owner of the property, who in this case is not the settlor, not the beneficiary or not even the trustee but only the Trust itself. This leads us to understand why the liabilities, including fiscal liabilities become only responsibility of the trust and not of any of the other players. This is why Trusts have become such an attractive and interesting tool, for succession planning, wealth management and asset planning. Anyhow it could be argued that the trustee holds the legal property and the beneficiaries hold the economical property.[7]

Finally to put it in Fredrick Maitland’s words in reference to the Trust: “ Perhaps the greatest and most distinctive achievement of English lawyers, finding no equivalent in foreign law”[8].

[1]BEEVER, Allan, Aristotle on Equity, Law and Justice, Cambridge University Press, United States, 2004, p.33, available at:

http://journals.cambridge.org/action/displayAbstract;jsessionid=B0D21F781102A4466EDD095DA4AA2704.journals?fromPage=online&aid=217247

[2] MCDONALD, Iain and STREET, Anne, Equity & Trusts, Oxford University Press, Oxford, 2013, pages 4-5

[3] MCDONALD, Iain and STREET, Anne, Equity & Trusts, Oxford University Press, Oxford, 2013,

p.5

[4] MCDONALD, Iain and STREET, Anne, Equity & Trusts, Oxford University Press, Oxford, 2013,

p.6

[5] PETTIT, Philip, Equity and the Law of Trusts, Oxford University Press, Oxford, 2012. p. 10

[6] MCDONALD, Iain and STREET, Anne, Equity & Trusts, Oxford University Press, Oxford, 2013, p. 17

[7] BELLE ATOINE, Rose Marie, Offshore Financial Law, Trusts and Related Tax Issues, Oxford University Press, Oxford, 2013, p. 20

[8] PANICO, Paolo, International Trust Laws, Oxford University Press, New York, 2010,

p. 1