Trusts

There are many different types of trusts and many ways to create a trust. However, at its most basic, a trust is a type of relationship where one person (the trustee) holds property which is for the use and benefit of another person (the beneficiary).

The trustee has possession and legal title to the property being held in trust (“trust property”). However, all decisions made by the trustee about the use and management of the trust property must be made with the beneficiary’s interests in mind. If the trustee uses the trust property for his or her own benefit, there has been a “breach of trust.” In those situations, the beneficiary should consult a lawyer about how to best to remedy the situation.

A trust is different from a gift because the intended recipient does not receive the property right away. Also, a trust allows the settlor to impose certain conditions on the beneficiary before the beneficiary may receive the trust property. For example, some common conditions are the requirement that the beneficiary reaches the age of 21 or the requirement that the beneficiary to be in school.

It is possible for there to be more than one trustee of the same trust as well as more than one beneficiary.

There are two main ways a trust can be created. An “express” trust is created when someone intentionally decides to create a trust. A “resulting” or “constructive” trust is created and recognized by law even though the people involved did not intend to create a trust.

An “express trust” is created when a settlor wishes to gift property to a beneficiary, but decides that the property should be managed by a third party (the trustee). The settlor will transfer the trust property to the trustee and give him or her certain instructions about how to manage the trust property for the benefit of the beneficiary. Once the trust property has been transferred to the trustee, the settlor has no more control over the trust and her role is finished.

A settlor can either create a trust while alive (called an “inter vivos trust”) or at the time of her death (called a “testamentary trust”). Testamentary trusts are usually created in a will.

A lawyer should be consulted to help you create a trust in order to make sure that the trust meets your goals.

A “constructive trust” is created by law to prevent injustice. For example, a “constructive trust” may be imposed where one person (A) uses his or her own money to buy a house, but registers title to the house in the name of another person (B). Unless A intended the house to be a gift to B, the law recognizes that B holds the house in trust for A. In that case, B would not be allowed to sell the house without A’s permission and keep the money for him or herself.

All trustees are subject to certain “equitable principles,” or obligations imposed by law. This includes managing the trust property in a way that benefits the beneficiary.

In an express trust, the trustee must also follow all the settlor’s instructions as agreed to at the time the trust was created. Often, these instructions are written down and form part of the “trust deed,” or document which creates the trust.

General duties of a trustee include:

• Preserving the trust property
• Maintaining records of the administration of the trust
• Keeping an “even hand” between beneficiaries (i.e. not favouring one beneficiary over another one)
• Keeping trust property separate from the trustee’s personal property

A trustee must be able to “account” for all the trust property, which means keeping records of how the trust property was managed. For example, if the trust property is a bank account, the trustee must keep records of all the transactions in and out of the bank account, including records of why the transactions occurred. This is one of the trustee’s most important duties, but is often overlooked.

A trustee may be ordered by a court to formally “pass her accounts.” This means that the trustee must put her records together in a special court-approved format and present the records to the court. The beneficiary of the trust is given the opportunity to review the trustee’s accounts and raise objections (for example, if the records show that the trustee used the trust property improperly, for example to buy herself a car). The court will review the objections. If the court agrees with the objection, the trustee may be ordered to repay money into the trust.

A trustee is not allowed to use the trust property as though it were her personal property. Failure to follow this rule is called a “breach of trust.” If the trustee does not willingly return the trust property when asked, the beneficiary can go to court to get an order requiring the trustee to return the trust property. A lawyer should be consulted to help navigate the legal process.

A trustee is required to follow the rules of the trust as set out in the trust instrument (the document which established the trust). If there is no trust document, the trustee’s duties are created by the law.

A beneficiary can ask certain things of a trustee – for example, a beneficiary is entitled to information about the trust and to review the records of the administration of the trust kept by the trustee. However, the beneficiary generally cannot ask the trustee to do something that is not allowed under the terms of the trust, except in certain circumstances.

Sometimes, the restrictions placed on the trustee and the beneficiary by the trust document are too restrictive or impractical. In those cases, it is possible to go to court to vary the terms of the trust. A lawyer can help you navigate this procedure.