The different types of trusts

The nature of trusts and trust types

A trust is a way of holding property rights,where that property is managed by one person, known as the trustee, for the benefit of another, known as the beneficiary. In essence, the trustee holds the legal title to the trust property but is required to do so for the benefit of one or more persons, usually specified by the settler, who hold the equitable title. 

Therefore, a trust is purely equitable obligation and could be enforced only in courts where equity is administered.

There are currently a number of different types of trusts. The most commonly used one is express trust, where the disposer expressly identifies the beneficiary and the purpose of the trust if there is one. Other common types of trusts in practice include:

  • Resulting trust;

  • Constructive trust;

  • Non-charitable purpose trust;

  • Charitable trusts.

These categories are not strictly defined and can often overlap in their application.

Resulting trust

A resulting trust is a creation of an implied trust by operation of law, whereas an express trust is created by the intention of the disposer.

A resulting trust is a situation in which a transferee is required by equity to hold property on trust for the transferor or for another who provided the purchase money for the transfer.

The name comes from the understanding that the beneficial interest results, in other words comes back to the transferor or to the party making the payment.

When does a resulting trust arise?

In practice, resulting trusts are of two kinds. A presumed resulting trust is created by a rebuttable presumption of intention that property purchased by one party but vested in another’s name should be held by that other on trust for the first party to the extent of his share in the purchase. Similarly, where there is a transfer by one party into the name of another or in their joint names, there is a presumption of a resulting trust for the first party.

Secondly, where property is conveyed to a person in the capacity of a trustee, there will be an irrebutable presumption of resulting trust for the disposer of any or part of the beneficial interest which is not disposed of.

Constructive trust

A constructive trust is another example of trust which arises by operation of law and not through the express or implied intentions of the settler.

There is no strict definition of constructive trust and therefore the concept is up to date used as a means of furthering the legal principles of property law.

The general rule is that a person holds property by way of constructive trust where equity and good conscience require it should be held or enjoyed by another. Therefore, it applies where it would be inequitable to allow the trustee to assert full beneficial ownership of the property.

In practice

In practice, the imposition of constructive trust is often a determination that previously declared trusts are enforceable against someone other than the original trustee, or extend to additional property. For example, a third party who receives property in circumstances where he has actual or constructive notice of the trust and consequently the fact that the property transferred is trust property will also become a constructive trustee of that property. Therefore, it establishes the principle that property subject to a constructive trust must have come into the hands of the alleged trustee as a result of unconscionable dealing.

In further example, constructive trust may arise to prevent a fiduciary from making use of his position to gain a benefit for himself.

Non-charitable purpose trust

A private trust is essentially a trust in favour of ascertainable individuals. A charitable trust on the other hand is a trust for purposes which are treated in law as charitable. However, sometimes a trust could be established for purposes which are not exclusively or at all charitable.

Therefore, non-charitable purpose trusts are ones recognised as valid even though they are not created for a charitable purpose. 

The case law has considered and recognized as valid purposes trusts for the building or maintaining monuments or tombs or for caring for the testator’s animals. Some examples of trusts under the case law, which have been enforced, include trusts to feed the testator’s horses and hounds, trust to set up a specific monument, or to be applied for useful or benevolent purposes.

Charitable purpose trust

For a trust to be charitable purpose trust, a specific purpose must be specified. Further, the purpose needs to be able to fit into one of four categories recognised as exclusively charitable. Those categories are: trusts for the relief of poverty, trusts for the advancement of religion, trusts for the advancement of education and trusts for other purposes beneficial to the community. 

Further to having to find application within one of the categories, charitable purposes are those which are considered to be of such value and importance to the community that they ought to receive especially favourable treatment.