What is a Trust?
A trust is related to "trust" in the ordinary sense of relying on another. A trust is a formal arrangement for property management. The management of the property is according to the original owner's directions.
The Trust Relationship
A trust is a legal relationship between the original owner of the property, the manager, and the person or persons who benefit. The original owner is known as the grantor, settlor, or trustor. The manager is known as the trustee. The person who benefits is known as a beneficiary.
The Origin of the Trust
Until 1535, in England, taxes collected on estates were enforced by the law courts, as long as the owner had both legal title (the right to transfer) and equitable title (possession and use). The equitable title was also known as the beneficial interest.
English lawyers saw that taxes collected on estates could be avoided by separating the ownership of property by transferring just the legal title or the equitable title. Thus, landowners would sometimes transfer their property to a legal title holder to have and hold for the use of a beneficiary, also known as the cestui que use ("one who uses"). English court's upheld the promise between the grantor and the legal title holder that the latter would hold the property for the cestui que use. Such "uses" were often given to children who could not otherwise hold legal title.
The use of split title--the separation of legal title and equitable title--as an tax loophole was closed by the 1535 Statute of Uses. Equitable title was equated with legal title so as to make equitable title owners subject to the taxes collected on estates.
More importantly, the idea of split title was permitted to remain. The trust was born.
Since 1535, trust techniques have been applied to both real and personal property. Because trust matters were considered matters of equity, decisions about them were made by England's equity courts. Today, trust matters are still regarded as matters of equity. Disputes are decided on equity principles without a jury.
Copyright 2012 LexisNexis, a division of Reed Elsevier Inc.