Express Trust

What are Express Trusts?

An express trust is a fiduciary relationship where one party, known as the trustee, holds legal title to property for the benefit of another party, called the beneficiary. The settlor creates the trust intentionally, who transfers property to the trustee with clear instructions for its management and distribution. The express trust stands in contrast to other types of trusts, such as implied trusts or constructive trusts, which are not created intentionally.

Legal Framework Governing Express Trusts

The legal framework for express trusts in England and Wales is primarily governed by the Trustee Act 2000, the Trusts of Land and Appointment of Trustees Act 1996, and common law principles. These laws outline the duties and powers of trustees, the rights of beneficiaries, and the requirements for creating and administering trusts.

Key Principles

Several key principles underpin the operation of express trusts:

• Fiduciary Duty: Trustees owe a fiduciary duty to the beneficiaries, meaning they must act in the beneficiaries’ best interests and manage the trust property with care and loyalty.
• Separation of Legal and Beneficial Ownership: Trustees hold legal title to the trust property, while beneficiaries hold equitable (beneficial) interest.
• Intention to Create a Trust: The settlor must clearly intend to create a trust, expressed through explicit language or conduct.
• Certainty of Subject Matter and Objects: The trust property (subject matter) and the beneficiaries (objects) must be clearly identifiable.

Types of Express Trusts

Express trusts can take various forms, each serving different purposes and providing distinct benefits. Common types of express trusts include:

Discretionary Trusts

In a discretionary trust, the trustee has discretion over distributing the trust income and capital among the beneficiaries. This trust provides flexibility in responding to beneficiaries’ changing needs and circumstances.

Fixed Trusts

In a fixed trust, the deed specifies the share or interest each beneficiary will receive from the trust. The trustee has no discretion over the distribution, ensuring certainty and predictability for the beneficiaries.

Bare Trusts

A bare trust, also known as a simple trust, holds property for a single beneficiary who has an absolute right to both the income and capital of the trust. The trustee’s role is limited to holding and transferring the property as directed by the beneficiary.

Life Interest Trusts

A life interest trust, or interest in possession trust, grants a beneficiary the right to receive income from the trust property for their lifetime, after which the property passes to other beneficiaries (remainder beneficiaries).

Charitable Trusts

A charitable trust is established for purposes recognised as charitable under the law, such as relieving poverty, advancing education, or promoting health. Charitable trusts benefit from favourable tax treatment and are subject to oversight by the Charity Commission.

Creating an Express Trust

Step 1: Intention to Create a Trust

The settlor must have a clear intention to create a trust. This intention can be expressed in writing, orally, or through conduct. However, certain types of trusts, such as those involving land, must be evidenced in writing to comply with the Statute of Frauds.

Step 2: Identifying the Trust Property

The trust property, also known as the trust fund or trust corpus, must be clearly identified. The property can include real estate, cash, securities, or other assets.

Step 3: Appointing Trustees

The settlor appoints one or more trustees to manage the trust property. Trustees can be individuals or corporate entities, and must be willing and able to fulfil their fiduciary duties.

Step 4: Defining the Beneficiaries

The beneficiaries of the trust must be clearly identified or ascertainable. In the case of discretionary trusts, the class of beneficiaries can be broadly defined, but there must be a mechanism for determining who qualifies as a beneficiary.

Step 5: Executing the Trust Deed

The trust deed is a formal document that outlines the trust’s terms and conditions, including the trustees’ powers and duties, the beneficiaries’ rights, and any specific instructions for managing and distributing the trust property. The settlor and, in some cases, the trustees must execute the trust deed.

Administering an Express Trust

The administration of an express trust involves managing the trust property in accordance with the trust deed and applicable laws. Critical aspects of trust administration include:

Managing Trust Property

Trustees are responsible for managing the trust property prudently and in the best interests of the beneficiaries. This includes making investment decisions, collecting income, and maintaining the property.

Distributing Income and Capital

Trustees must distribute the trust income and capital in accordance with the terms of the trust deed. In discretionary trusts, trustees must exercise their discretion fairly and reasonably when making distributions.

Keeping Accounts and Records

Trustees must keep accurate accounts and records of all trust property transactions. Beneficiaries can inspect these records and receive regular reports on the trust’s financial status.

Complying with Legal and Tax Obligations

Trustees must comply with all legal and tax obligations, including filing tax returns, paying taxes due, and adhering to regulatory requirements. This is particularly important for charitable trusts subject to specific regulations and reporting requirements.

Legal Considerations and Best Practices

Fiduciary Duties of Trustees

Trustees owe several fiduciary duties to the beneficiaries, including:

• Duty of Loyalty: Trustees must act solely in the best interests of the beneficiaries and avoid conflicts of interest.
• Duty of Care: Trustees must manage the trust property with the same care and skill that a prudent person would exercise in managing their affairs.
• Duty to Act in Accordance with the Trust Deed: Trustees must adhere to the terms of the trust deed and exercise their powers within the scope of their authority.
• Duty to Provide Information: Trustees must keep beneficiaries informed about the trust and provide access to relevant records and accounts.

Tax Implications

The tax treatment of trusts can be complex, and trustees must be aware of the tax implications of their actions. Trusts are subject to various taxes, including income tax, capital gains tax, and inheritance tax. It is essential to seek professional advice to ensure compliance with tax laws and optimise the trust’s tax efficiency.

Protecting Beneficiaries’ Interests

Trustees must act in the best interests of the beneficiaries and protect their rights. This includes ensuring that the trust property is managed prudently, distributions are made fairly, and beneficiaries receive accurate and timely information about the trust.

Potential Challenges and Solutions

Disputes Among Beneficiaries

Disputes among beneficiaries can arise over the management and distribution of the trust property. Clear communication, transparency, and adherence to the trust deed can help prevent and resolve conflicts. Mediation or legal intervention may sometimes be necessary to resolve disputes.

Trustee Misconduct

Trustee misconduct, such as breach of fiduciary duty or mismanagement of the trust property, can have serious consequences for the beneficiaries. Beneficiaries can take legal action against trustees who fail to fulfil their duties. Regular monitoring and oversight can help prevent trustee misconduct.

Changing Circumstances

Changing circumstances, such as a trustee’s death or incapacity, changes in the beneficiaries’ needs, or shifts in the financial or legal landscape, can impact the administration of the trust. The trust deed should include provisions for addressing such changes, and trustees should be prepared to adapt their management strategies accordingly.

Case Studies

Family Trust

A family trust is established to provide for the education and welfare of the settlor’s children and grandchildren. The trust deed specifies that the trustees have the discretion to distribute income and capital to the beneficiaries based on their needs. The trustees must carefully assess the beneficiaries’ needs and circumstances and make distributions that align with the settlor’s intentions.

Charitable Trust

A charitable trust is created to fund scholarships for underprivileged students. The trust deed outlines the criteria for awarding scholarships and the process for selecting recipients. The trustees must ensure that the trust’s funds are used exclusively for charitable purposes and comply with regulatory requirements.

Importance of Legal Advice

Given the complexities and potential pitfalls of creating and administering express trusts, obtaining professional legal advice is crucial.

At DLS Solicitors, we offer expert guidance and support in matters involving express trusts.

Our experienced team can assist with the following:

• Trust Creation: advising on the appropriate type of trust, drafting the trust deed, and ensuring compliance with legal requirements.
• Trust Administration: Providing ongoing support for trustees, including managing trust property, making distributions, and fulfilling fiduciary duties.
• Dispute Resolution: Representing clients in disputes involving trustees and beneficiaries and providing effective legal solutions.
• Tax Planning: Advising on the tax implications of trusts and strategies for optimising tax efficiency.

Conclusion

Express trusts are a vital tool in estate and financial planning, providing a flexible and efficient means of managing and distributing assets. Understanding the legal framework, creation process, and administration requirements is essential for ensuring that trusts operate effectively and in accordance with the settlor’s intentions.

At DLS Solicitors, we are committed to providing comprehensive legal support to our clients, ensuring that their trusts are established and managed with the highest standards of professionalism and expertise. Whether you are considering creating a trust, administering an existing trust, or addressing disputes or tax issues, our dedicated team is here to help.

This detailed overview aims to demystify the concept of express trusts and offer practical insights into their application. At DLS Solicitors, we are here to support you through every step of the process, ensuring that you are well informed and confident in addressing any legal challenges related to trusts. If you require further information or legal assistance regarding express trusts or related matters, do not hesitate to contact us at DLS Solicitors.