The ABCs of Trusts
This article is written by Emelia Kwa, trainee of OTP Law Corporation
Despite being such an important part of our legal affairs, the concepts behind trusts can be rather intimidating to understand. We hope that this guide will be able to kick start your understanding of trusts.
The settlor is the person who created the trust. He may or may not be the trustee of the trust as he can appoint someone else to be the trustee.
The trustee is the person who has the legal right to control how the asset (e.g. property) of the trust in question is handled.
The beneficiary is the person who benefits from the trust (i.e. he will obtain the property, etc.), as well as the person whose interests the trustee must protect. There can be more than one beneficiary of a trust.
The different interests
There are two types of interests a person can have in an asset: (i) legal and (ii) beneficial.
Legal interest means that the asset has been placed in your name and it is (at first glance) yours completely.
Beneficial interest means that the property is not in your legal name. Instead, someone else holds the property (i.e. they have the legal right) on behalf for you. E.g. Property X was given to A to hold on trust for B. A would have the legal right while B has the beneficial interest.
What does a trustee do?
While trustees have the legal right to control the assets of the trust, this does not mean they can do anything they wish with the assets. Instead, they must comply with the terms of the trust as well as any statutes/ laws that apply to the trust in question.
Trustees also have to take note of the various duties they are subject to. This means that besides controlling how the assets of the trust are handled, they must take note of:
- their duty of care in how they manage the assets
- their duties to the beneficiaries
- whether they can make use of the assets for investments
What are some of the different types of trusts out there?
The trusts explained below are the more commonly found types of trust.
An express trust is one that is certain in three areas: intention, subject matter and beneficiary.
- Intention: there is proof that the person creating the trust had truly intended to do so.
- Subject matter: the assets placed under the trust are clearly defined and the interest the beneficiary will have is clearly stated.
Beneficiary: the persons receiving the assets can be clearly defined.
This means that the trustee has been asked to distribute the asset to a potentially large number of people. It is “discretionary” in nature since it is up to the trustee’s discretion to decide who he is able to distribute part of the asset to.
E.g. A will that states that money should be given to close friends of the deceased. The trustee then has to decide what would constitute a “close friend”.
Presumption of Resulting Trust (“PRT”)
This arises in the following scenario:
- A and B pay for a property in different proportions or A pays for a property solely without contributions from B;
- The legal title of the property is in B’s name solely; and
- There is no evidence that adequately reveals the true intention of A. This is why a presumption is required in the first place.
The court will then presume that A did not intend to give B the property – instead, B is holding the property on trust for A for the part of the property that A has contributed payment.
Presumption of Advancement (“POA”)
Again, in this scenario:
- A and B pay for a property in different proportions or A pays for a property solely without contributions from B; and
- The legal title of the property is in B’s name solely.
However, in this case, B says that the entire property was given to B by A as a gift.
But there is no evidence to prove that A intended to give the property to B as a gift – hence the use of a “presumption”.
This presumption occurs due to the relationship between A and B: either husband-wife or parent-child.
The court may then presume, due to their special relationship, that B was gifted the property and therefore owns the property.
Common Intention Constructive Trust (“CICT”)
A CICT arises when:
1. Two parties have contributed unequal amounts towards the purchase price of the property, and
2. There is sufficient and compelling evidence that the parties had a common intention for the property to be held on trust for the both of them and in a certain proportion.
This common intention can arise either at the time or after the purchase of the property. “Compelling evidence” would take the form of discussions or actions between the parties, for example.
A CICT differs from a PRT in two ways:
(i) It requires evidence (unlike a PRT which is presumed); and
(ii) The common intention can be either expressly stated or inferred.
E.g. A paid 70% while B paid 30% for a property. However, both parties have agreed (and have enough evidence to prove) that they should hold the property in the proportions of A having 40% and B 60%. Since there is enough evidence for this, the court will find that there was a common intention from both parties for them to hold the property 40%:60%.