A more recent version of these What Is A Trust notes – written by Oxford students – is available here.
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What is a trust?
In the 18th and 19th centuries trusts were employed by wealthy landowners in order to tie up wealth for the benefit of succeeding generations - the land was vested in the eldest son of each generation, but the trustees of the settlement were given overriding powers to raise capital for the benefit of other members of the family Trusts were also used to get round the rule that a married woman could not hold property in her own right during the marriage, by vesting her property in trustees to hold on trust for her Trusts also played an important role in the development of societies, clubs and unions in the 19 th century, as such bodies were not legal entities and could not hold property on their own behalf - trustees had to do this for them The trust today Can be classified as: family, commercial or social, but many fall into more than one Family:
1. To enable property (particularly land) to be held for persons, such as minors, who cannot themselves hold it
2. To enable a person to make provision for dependants privately, i.e. for a man to his mistress, or to his illegitimate child - a will becomes a public document once probate has been obtained
3. To tie up property so that it can benefit persons in succession - a gift of property to trustees can ensure that it is passed on to children; although the original trustees may sell the property, they are nonetheless bound to pass on the proceeds to the intended recipients
4. To protect family property from wastrels. A gift of money to trustees, who will pay an income to an frivolous relation may be preferred. Alternatively, property may be given to trustees to hold such that it will be preserved from the beneficiary's creditors in the event that he becomes bankrupt
5. To make a gift to take effect in the future in the light of circumstances which have not yet arisen, i.e. giving money to trustees to hold on behalf of 3 daughters, but with discretion to distribute as they see fit, with reference to whether daughters have attained financial security/ become married etc
6. To minimise the incidence of income tax, capital gains tax and inheritance tax.
7. To enable two or more persons to own land. It is a feature of English land law, that if two or more persons wish to own land jointly, they cannot be the absolute legal and beneficial owners of that land - up to four may be legal owners, but all beneficial interests have to take effect behind a trust
8. To facilitate investment through unit trusts and investment trusts. These enable an investor to acquire a small stake in a large portfolio of investments, and to spread a risk across a substantial range of stocks and shares. a. In a unit trust, the promoter of the trust invites the public to subscribe for units of a fixed initial value. The funds are then invested in the stock market, either generally
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