Express trust


An express trust is a trust created "in express terms, and usually in writing, as distinguished from one inferred by the law from the conduct or dealings of the parties." Property is transferred by a person to a transferee, who holds the property for the benefit of one or more persons, called beneficiaries. The trustee may distribute the property, or the income from that property, to the beneficiaries. Express trusts are frequently used in common law jurisdictions as methods of wealth preservation or enhancement.

Terms

Law generally requires only a simple formality to create an express trust. In certain jurisdictions, an express trust may even be established orally. Typically, a settlor would record the disposition, where real property is to be held in trust or the value of property in trust is large. Where legal title to property is being passed to a trustee, a "deed of settlement" or "Trust Instrument" may be used. Where property is to continue to be held by the person making the trust, a "declaration of trust" will be appropriate.
Often, a trust corporation or more than one trustee is appointed to allow for uninterrupted administration of the trust in the event of a trustee's resignation, death, bankruptcy or incapacity. Additionally a Protector may be appointed who, for example, is authorized to appoint new trustees and to review the trustees' annual accounts.
To be valid at common law, a trust instrument must ascertain its beneficiaries, as well as the res or subject matter of the trust, unless it is a charitable trust which does not provide specific beneficiaries.
To be valid in equity, a trust must satisfy the following elements:
1. Property or rights of a kind which can be the subject of a trust
2. A declaration of trust or disposition on trust by a person legally competent to create a trust
3. Certainty of property and objects

Common forms of express trust

; Bare trust: property transferred to another to hold e.g. for a third person absolutely. May be of use where property is to be held and invested on behalf of a minor child or mentally incapacitated person.
; Life Interest trust: the income from property transferred is paid to one person, "the life tenant", during their lifetime and thereafter is transferred to another person. The trustees may have power to pay capital as well as income to the life tenant. Alternatively, they may have rights to transfer property to other beneficiaries ahead of their entitlement.
; Discretionary trust: the trustees may pay out income to whichever of the beneficiaries they, in the reasonable exercise of their discretion, think fit. They will normally also have a power to pay out capital. They may have extensive powers, even to add new beneficiaries, but such powers may normally only be exercised bona fide in the interests of the beneficiaries as a whole. Discretionary trusts must not be indefinite and are subject to 'the rule against perpetuities'. In New South Wales, the time prescribed is a statutory period of 80 years from the date the disposition takes effect.
; Charitable trusts: this is also a form of discretionary trust; trusts for a purpose are generally invalid at common law however charities are an exception. Persons wishing to pass money to causes not recognised as charitable may instead make gifts to established companies or associations or may establish trusts or trust-like structures in jurisdictions which do not restrict non-charitable purpose trusts.
; Protective trusts and Spendthrift trusts: can be established to provide an income for persons who cannot be trusted with it.

Three Certainties of Express Trust

; Fixed trust – ‘List certainty rule’ : see e.g. West v Weston
; Discretionary trust -'criterion certainty test’ :is whether it can be said that a given individual is or is not a member of the range of objects : Re Baden’s Deed Trusts; McPhail v Doulton

Variation of Trusts in English Law

The Variation of Trusts Act 1958 gave the courts the power to vary trusts in the following circumstances
The court does not have the power to consent to the variation of a trust on behalf of an ascertained individual who is sui juris.

Forms of trust used by UK taxpayers

; Accumulation and Maintenance trust: A variation on the discretionary trust, the A&M does not carry the Inheritance tax disadvantages of a discretionary settlement but can only be established for persons under 25 who must be entitled to income at that age. Allows the accumulation of income within the trust until 25.
; Disabled Trust: Similar to an A&M trust but established for a disabled person.
; Reverter to Settlor trust: A trust where, on the death of the life tenant, the property reverts to the person making the gift.
; Nil Rate Band Discretionary trust: UK inheritance tax is payable at 40% on estates worth over £325,000 for the 2009-2010 tax year. If assets up to that value are placed in a discretionary trust during a person's lifetime, the trust will not be taken into account for inheritance tax if the person survives for a further 7 years. Likewise in a will, many persons leave a legacy on discretionary trusts so as to take full advantage of their nil rate band.

Forms of trust used by US persons

Certain US jurisdictions and other jurisdictions have developed a radically different interpretation of the trust. Valid trusts can be established by persons who then continue to deal with property as if it were their own during their lifetime, the trust crystallising on death. Trust funds can be taxed as legal entities by election.