Equity and Trust

Equity and trust refers to an area of law involving equality and entrusting assets to another person. Equity is defined as being fair/impartial, and this area of law helped lead to trusts. Trusts are arrangements where assets are owned and managed by someone on behalf of another person. Trusts are private, and help in will, estate and tax planning. Trust law governs all aspects of the trust.

A ‘settlor’ creates a trust by entrusting some or all of their assets to a person of their choice, who becomes known as a ‘trustee’. It is possible for multiple trustees to be chosen. They now legally own the trust property, but they must hold the property for the benefit of one or more individuals, who are named as beneficiaries. A trust document (which is normally written) will need to be made in order to ensure legality of this action.

The beneficiaries become the beneficial owners of the property, and at some point they will receive income as a result of owning the property, but the trust document declares how much interest they have in the property.

In the UK, trusts are generally in one of five forms:

  • Accumulation and Maintenance trusts are for young beneficiaries, allowing them to receive money if the trustees agree.
  • Bare trusts let the beneficiaries demand any or all of the property at any time.
  • Charitable trusts work to encourage charitable giving, and are unique in English law.
  • Discretionary trusts normally allow the trustees to choose the beneficiaries.
  • Interest in Possession trusts, which are normally part of a will and allow the widow to draw income for the rest of their life.

Trusts can be created during life, or after death, if stated in a will. They generally require three things – intention, subject matter and an object. The settlor is not required to inform the trustees of their decision to appoint them.