Trust as Ownership: A Critical Evaluation

 Mr. Rahul Kumar


Abstract

Trust is a very old but still a very peculiar concept in terms of ownership. Trust may create two or more owners of the same property with different capacities. Therefore, Salmond called Trust an instance of “dual” ownership, on the other hand, Fratcher called it a “split” ownership. However, subsequent authors criticised both the “dual” and “split” concepts basing their arguments on the instances where the requirements of both the concepts might not be fulfilled. Consequently, a vacuum is created as to how can “Trust as ownership”be characterised ? The present article evaluates the different incidents of Trust as ownership and endeavours to arrive at the true nature of Trust.

INTRODUCTION

A trust is a very peculiar instance of duplicate ownership which permits for the separation of powers of management and the rights of enjoyment.[i] Starting with the concept of ownership that denotes the relation between a person and an object forming the subject-matter of his ownership but mainly dominated by the ‘bundle of rights’ theory in common law tradition. It majorly comprises of right to possess (may not necessarily be having the possession), liberty to use, enjoy, manage and receive income from the thing owned, liberty to consume, destroy or alienate, characteristic of being indeterminate in duration (perpetual interest) and residuary character.[ii]

On the other hand, the concept of trust creates two or more owners of one property at the same time without any need for separate interests.[iii] Walter G. Hart evaluated many definitions given by various philosophers, authors, and statutes of different countries and their respective criticisms together in his paper titled “What is A Trust?.” and gave a definition that has overridden all the criticism. the definition as follows:

“A trust is an obligation imposed whether expressly or by law whereby the obligor is bound to deal with property under his control for the benefit of a person who may enforce the obligation.”

The one who has the obligation is called trustee and his ownership is called trust ownership whereas the one who gets the benefit is called beneficiary or equitable owner and his ownership is called beneficial ownership.[v] The purpose of trusteeship is to protect the rights and interests of persons who for any reason are unable effectively to protect them for themselves like an unborn child, infant, and lunatic persons. Trust may also be created for the property on which a large number of people have an interest or conflicting interest. In such circumstances, a trustee may be appointed whose power and duty is to safeguards the interest of each of the persons.[vi]

TRUST VIS-À-VIS OWNERSHIP

  • Trust in Substance and Form

The ownership of a trustee is a matter of form rather than of substance and nominal rather than real because in between the beneficiary and the trustee, the law recognises that the property in fact, belongs to the beneficiary and not to the trustee.[vii] The substance of trust ownership mostly resembles an agency where an agent is conferred with powers and duties to administer the property of another person as per his directions.[viii] However, in legal theory, a trustee is not an agent[ix] because the property is vested in trustee no less than in the beneficiary as against agency where the property remains vested in the principle only.[x] Trust should also be distinguished from a mere contractual obligation to deal with one’s property on behalf of someone else as in the creation of a trust, the ownership is vested in the trustee as against the contractual obligation where specific rights are conferred on the other party, but ownership remains with the principle only. The beneficiary has more than mere personal rights against his trustee to the performance of the obligation of the trust.[xi]

  • Legal Ownership and Beneficial Ownership

Lord Diplock in Ayerst v. C&K Construction Ltd held that the legal ownership of the trust property lies in the trustee, but he holds it not for his benefit but for the benefit of the cestui que trust (beneficiary).[xii] A beneficial owner is also the owner of the property, but his ownership is distinguished from legal ownership. Simply put, legal ownership is essentially official or formal ownership which brings responsibilities along with the rights. Therefore, the trustee is held responsible for the liabilities arising out of the property, whereas beneficial ownership is meant for the enjoyment or benefit of the beneficial owners except for his liability for joining in the breach of trust.[xiii] Indeed, the trustee has to use the property for the benefit of the beneficiary and if he fails to do so, he may be held liable to make good of loss sustained to the property and the beneficial owner.[xiv]

  • The Persona of Trust as Ownership

Fratcher claimed that the trust ownership of property is ‘split’ between a person known as trustee who has rights and powers of an owner, and a beneficiary, for whose exclusive benefit the trustee is bound to use those rights and power. To supports his argument Clarry took a few of Honoré’s incidents of ownership where neither the trustee nor the beneficiary may have rights to possess or use trust property, if the terms of the trust dictate that the property must be leased to a suitable third party, with the income derived therefrom accumulating until some later time. Thereby, the beneficiary may have no present entitlement to receive capital or income from the trust. Therefore, the beneficiary does not need to have the complex bundle of beneficial relations which may be called ownership.[xix]

Furthermore, vesting of trust property in a ‘custodian’, ‘nominee’ or only one of the trustees relaxes the rule that all trustees must ‘own’ trust property jointly and further undermines the dual and split ownership metaphor in trust that assumes joint ownership. In custodian trusteeship, title to trust property is vested in the custodian trustees, but the powers of management remain in the ordinary trustee. Thereby, in such cases, the ordinary trustee is not trustee at all as no trust property is vested in them.[xx] Therefore, practical development shown by custodian and nominee trustee underlines the development of an autonomous conception of ‘fiduciary ownership’ that can be abstracted from the strict notion that title must be held in the name of every trustee and better reflects the reality of modern trust administration. Indeed, a trust regards the fiduciary administration of property for the fulfilment of an ascertainable purpose.[xxi]

CONCLUSION

Following the aforementioned incidents of ownership, it can also be argued that trust challenges the very concept of ‘ownership’ by not following the ‘bundle of rights’ theory in stricto sensu. It can further be argued that ownership remains suspended during the administration of the trust in circumstances such as custodian or nominee trustee where the ordinary trustee does not enjoy the ‘bundle of rights’ theory. This approach will conceptualise trust as a sui generis relation with the property.[xxii] However, such a need has not been felt yet, as ownership is only useful as a general concept in its ability to explain and order legal thought. Therefore, until there is another solution to the ambiguity concerning the true nature of ownership in a trust is found, the concept of ‘fiduciary ownership’ can be used as a preferred term to express the ownership structure of a trust.


 

Mr. Rahul Kumar is a 3rd year B.B.A., LL.B student at School of Law, Bennett University.

 


[i] PJ Fitzgerald, Salmon on Jurisprudence, 256, (12th ed., 2016).

[ii] A. M. Honore, Ownership, Oxford Essays in Jurisprudence, 370 (1961), see also Ram Bharose Sharma vs. Ram Swaroop and Ors., (2001) 9 SCC 471.

[iii] Supra 1.

[iv] Hart, Walter G., What Is A Trust  Law,  15, Quarterly Review, 294-301 (1899).

[v] Supra 1.

[vi] Supra note 5, 257.

[vii] Supra 1.

[viii] S. 182, The Indian Contract Act, 1872.

[ix] S. 3, The Indian Trust Act, 1882.

[x] Chapter X, Indian Contract Act, 1872.

[xi] Supra 1, 259.

[xii] Ayerst v C&K Construction Ltd, AC 167 (1976, House of Lords).

[xiii] S. 68, Supra 4, Jon Hook, Do you own something legally or beneficially?, Easter Daily Press Property, (16:58 15 January 2018), https://www.edp24.co.uk/edp-property/the-tax-implication-of-legal-ownership-versus-beneficial-ownership-1-5355933, last seen on 10/11/2019.  

[xiv] S. 23, supra 4.

[xv] WF Fratcher, Property and Trust, 6 International Encyclopaedia of Comparative Law, 11 (1973).

[xvi] JW, Salmond, Jurisprudence,  227-232  (4th ed., 1913).

[xvii] Daniel Clarry, Fiduciary Ownership And Trusts In A Comparative Perspective, 63 International and Comparative Law Quarterly, 901, 928 (2014).

[xviii] B Rudden, Things as Thing and Things as Wealth, 14 Oxford Journal of Legal Studies, 81, 82,86 (1994).

[xix] Glenn v. FCT[1915] HCA 57 (High Court of Australia).

[xx] JD Heydon and MJ Leeming, Jacob’s Law of Trusts in Australia 49-50 (7th ed., 2006).

[xxi] Supra 16.

[xxii] R Wibier, Can a Modern Legal System Do without the Trust?, Law and Financial Markets Review, 37-45 (2011).

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