NATURE AND CLASSIFICATION OF TRUSTS
Unit 1 Origin and Nature of Trusts
Unit 2 Classification of Trusts
Unit 3 Requirements for Creation of Trusts
Unit 4 Constitution of Trusts and the Exceptions
Unit 5 Express Private Trusts
Unit 6 Charitable Trusts
ORIGIN AND NATURE OF TRUSTS
CONTENTS
1.0 Introduction
2.0 Objectives
- Main Content
- Origin of trusts
- Nature of trusts
- Uses of trusts
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment (TMA)
7.0 References/Further Readings
INTRODUCTION
The Law of Trust was part of the received English law into Nigeria, which comprised of the Common Law, the doctrines of Equity and Statutes of General Application. Equity was developed by the Lord Chancellor in the Court of Chancery, the purpose of which was to mitigate the harshness of the common law. The development of the equitable principles by the Court of Chancery also influenced the growth of trust. Consequently, the received English law and case law has to a large extent shaped the development and practice of the law of trusts in Nigeria.
OBJECTIVES
This unit will introduce you to the origin of trusts, nature and uses of trust. You will also traverse the differences and similarities between the concept of trust under trust law, customary law and the Land Use Act. At the end of this Unit, you should be able to:
- Trace the origin of trusts
- Define or describe trust
- Understand the nature of trusts
- Differentiate between the concept of trust, under law of trust, customary law and the Land Use Act
- State the practical uses of trusts
MAIN CONTENT
Origin of Trusts
The exact origin of trust cannot be ascertained and there are controversies surrounding the subject. What is certain however is that the Court of Chancery entertained trusts cases. One school of thought believed that trust was transplanted into England from Roman legal system. The Court of Chancery no doubt also influenced the law of trusts as administered in that court. Another school of though however disproved that English law of trust has no connection with Roman law. Notwithstanding this controversy, the law of trusts as we now have it in England was greatly influenced and expanded by the Chancellors in the Chancery Courts which administered equity, in their enforcement of uses.
The origin of the modern concept of trust has been credited to the concept of uses during the medieval period, which was a means of conveying land to someone for the use or of one or more persons. The concept then was that a person called the feoffor conveyed land to another person called the foefee for the benefit of one person or more called the beneficiaries and at that time called cestui que use.
In this type of arrangement, the common law recognised only the feofee’s legal title in respect of the property conveyed and does not recognise the interest of the cestui que use in any way. As a result, it became common place for the foefee to use the property for his own benefit instead of that of the cestui que use or to use the same in an unconscionable way or to the detriment of the cestui que use or retain the property for himself without the cestui que use being able to get relief or remedy from the common law courts. In its equitable jurisdiction however, the Chancery courts then intervened and act on the conscience of the feofee to make him perform according to the purpose of the conveyance and prevent either the feofee from keeping the property for his own use or to compel the feofee to use the property for the benefit of the cestui qui use in accordance with the agreement that the property is to be used for the benefit of the cestui que use. Through the enforcement of uses by the courts of equity, the equitable interest of the cestui que use in the property conveyed to the feofee became recognised.
The Courts of Chancery do also punish defendants (i.e. feoffee) who disobey its orders by committing them to prison for contempt. The common law courts however do come to the rescue of such erring defendants by obtaining the release of the imprisoned defendants through the writ of habeas corpus.
In connection to the relevance of the concept of uses was at the medieval period and before the Statute of Wills 1540 was enacted, when it was not permitted to transfer land by will. At that time, land was regarded as something personal to the owner and cannot survive him. Any attempt to transfer land by will therefore fails and the tenure of the testator in the land will be extinguished. The concept of use was then employed to circumvent this rule.
Another relevant discussion concerning the origin of trust is with respect to the Statute of Mortmain, which prevented the transfer of land to corporations and ecclesiastical foundations. This was primarily to prevent situations whereby land will be taken out of circulation because corporations live in perpetuity and thus such land will be held forever. It also means that tax usually collected on inherited land can no longer be collected. As a result of the employment of the concept of use, the purpose of Statute of Mortmain was defeated resulting in the loss of tax/revenue to the crown and feudal lords.
The concept of uses then became a means of tax avoidance and this resulted in the enactment of the Statute of Uses 1535, which has the object of investing the cestui que use immediately with the legal title such that the feofee can eased out and incidents of keeping land out of circulation and tax avoidance could be terminated. This objective was short-lived as lawyers devised the concept of “use upon a use”, which was to convey land to the use a third party for the use of the actual beneficiary; with the effect that the Statute of Uses only had effect on the first of the uses and subsequent uses were unaffected. The incidents of feudal taxes however became abolished in 1660 by the Military Tenures Abolition Act while the Statute of Uses was later repealed in 1925.
In England, the common law was applied and owing to the harshness or rigidity of this law, equitable principles were development by the Lord Chancellor in order to mitigate the harshness and/or injustice of the common law rules. As a result of the flexible nature of equity and the granting of reliefs to those who the rules of common law worked injustice on, there arose profound conflict between the Lord Ellesmere, Chancellor of the Chancery Court and the Chief Justice of the Common Pleas, Sir Edward Coke, in the Earl of Oxford’s Case (1615) 1 Rep. Ch. 1 during the reign of King James I (1603 – 1625). The conflict was resolved in favour of equity such that whenever there is a conflict between the doctrines of equity and the rules of common law that of equity will prevail.
Later, there was reorganization of the courts in England by the Judicature Acts of 1873 and 1875 which resulted in the abolition of the Chancery Court. The doctrines of equity and rules of common law then became fused and henceforth administered in the same court.
SELF ASSESSMENT EXERCISE (SAE) 1
Trace the origin of the law of trusts and the Court of Chancery’s influence on its development in England.
Nature of trusts
To attempt a definition of a trust like all legal terms, is fraught with difficulty. The definition given by Keeton has however been described as adequate, which described a trust in the following manner, “All that can be said of a trust therefore, is that it is the relationship which arises whenever a person called the trustee is compelled in equity to hold property, whether real or personal, and whether by legal or equitable title, for the benefit of some persons (of whom he may be one and who are termed as ces tui que trust) or for some object permitted by law, in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiaries or other objects of the trust” See Keeton, The Law of Trusts, Eight Edition, p. 3 cited in Jegede, M.I. (1999). Law of Trusts, Bankruptcy and Administration of Estate. Lagos: MIJ Professional Publishers Limited, p. 11.
By way of illustration, trusts usually involve situations whereby individuals control or plan the distribution of their property or estate either in their life time or after their deaths. A trust is created by an individual when he executes a written Declaration of Trust directing one person or more persons (sometimes this can be a corporate trust company) called a trustee(s) to hold property or assets in accordance with the terms and conditions contained in the trust instrument for the benefit or one or more persons or a section of the general public, called the ‘beneficiaries’ or cestui que trust, who are the equitable owners of the property or assets, while the legal interest is vested in the trustee. In Nigeria as in most jurisdictions, the law of trusts is governed by statutes and case law.
The trustee is charged with the management of the trust property and holding the same according to the instructions of the settlor in the trust instrument. It is however possible for a person to be both the trustee and the beneficiary in a trust. The written Declaration of Trust usually names the first trustees while it specifies the position for the appointment of successive trustees and contains the terms of the trust. These terms sets out the powers and duties of trustees and the benefits accruing to the beneficiaries. Other ways of creating a trust are through the exercise of power of appointment, transfer of trust either inter vivos or in someone’s Will, by contract and statute. A trust created by a Will is referred to as a testamentary trust and the terms and conditions of such trusts are contained in the Will creating it.
A trust may be created during someone’s lifetime i.e. inter vivos and such a trust is called a living or inter vivos trust, in such a case, the person creating the trust is referred to as the grantor, settlor or donor. The trust agreement or declaration usually contains the provisions guiding the trust and in the event of the death of the settlor, the trust property will be regulated by the provisions of the trust rather the Will of the settlor or provisions of any statute. This is because a trust may supplant a Will since all the estate of the settlor would have already been planned and settled by the trust before the settlor’s death. On the other hand, a trust may be the creation of a Will. A trust created inter vivos may be revocable or irrevocable if such provision is reserved in the instrument creating the trust.
An example of a trust is when a father vests the title of his house in a choice area of Abuja to a reputable estate agent firm with instructions to let out the house to tenants, manage it and pay a certain percentage of the rent yearly to his daughter who is 10 years old until she attains 21 years of age when the house will become vested in the daughter and trust determined.
A trust may also be created by contract or by statute. In a trust, the trustee occupies a position of confidence and must act in good faith with respect to the trust property. He is in a fiduciary relationship with the beneficiaries and must act honestly, not make secret profit, must deal with the trust property for the benefit and in the interest of the beneficiaries and not act in a manner that can jeopardize such interest.
Trust consists of vast and interrelated parts, and the issues involved may sometimes be intricate. In most cases, trust issues often brought before the courts for adjudication are whether the trust is question is a legal one or has been validly created, questions of lawful management of the trust property, whether the trust is a private or public one, requests on a trustee to render account, requests for specific performance, recover of trust assets, breach of trust and construction of trust terms, etc.
Despite the various and the imperativeness to which trust could be put into, however, trusts are less frequently used in Nigeria as in England where the concept was received into Nigeria because of the cultural and social differences in the lives of the people.
It has to be noted that the concept of family ownership of land in Nigeria served a purpose similar to that of trust, where the concept of individual ownership is a foreign one, rather, land belongs to the family and the head of family holds the family land for the use of the family members. The head of family to some extent assumes the position of a trustee and all members of the family have equal right to the property. See Amodu Tijani v. Secretary of Southern Nigeria [1921] 1A.C. 399 at p. 404 per Lord Haldane. The concept of trust under customary law is however different from that under the English law because while the trustee is regarded as the owner of the trust property, the head of family is not regarded as the owner of the family property, but rather as the caretaker.
The Land Use Act also embodied the concept of trust by vesting the control and management of land in each State of the federation in the Governors to be held in trust and administered for the use and common benefit of all Nigerians. See the Supreme Court decision in Abioye v. Yakubu [1991] 5 NWLR (Pt. 190) p. 130.
The concept of trust under the Land Use Act is however not the same as in the law of trusts because the trustee under the Act, which is the Governor cannot be compelled to render account as trustee under English law. Thus, the kind of trust created under the Act has been regarded as a bare trust. See Abioye v. Yakubu (supra). Also, while the head of family under customary law can be held to account, the Governor under the Act cannot be held to account.
SELF ASSESSMENT EXERCISE (SAE) 2
Discuss the concept of trust under trust law, customary law and the Land Use Act.
Uses of trusts
Trusts are of various types and used for different purposes which are sometimes reflected in the name of the trust. Contrary to popular beliefs, trust is not for the exclusive preserve of rich people. People with limited means and wealthy people can create or establish a trust for their own benefit or for the benefit of others. For instance, trust inter vivos may be used for the purposes of asset planning and management, for the settlor’s own benefit and may be used to dispose or distribute the settlor’s asset after his/her death.
Trust may be used as a means of financial support and life insurance for a settlor who is incapacitated or having some disabilities or as a security during old age. A trust can also be used to support a spouse in the event of one of the spouse dying before the other, for the education endowment of settlor’s children or other persons who may be underage at the time of the settlor’s death. Trust may also be used to as a means of giving out gifts or transferring property to loved ones, family members or other objects. A trust can equally be used to benefit or improve a definite section of the society or such a section of the general public capable of being made certain. Examples of these are charitable trusts established for the purpose of providing members of the public with education or those created for the propagation of religion.
Despite the variety of purposes that trusts can be put into, based on pubic policy, a trust that is illegal or created with the intention of evading creditors or legal liabilities, or to be used as an instrument of fraud or one contrary to public policy will not be recognised and would be set aside by the law court. The same principle was encapsulated by equity.
SELF ASSESSMENT EXERCISE (SAE) 3
What do you understand by the work “trust” in relation to the law of trusts?
CONCLUSION
Understanding the nature of trusts and the influence of equity on its development is very crucial to a better appreciation of the concept of trusts generally and the various purposes to which trusts can be used. The interrelatedness between trust and equity is also fundamental to successful understanding of and navigating through many of the terms and technical words which feature regularly in the law of trusts.
SUMMARY
In this Unit, you have traversed the origin, nature and the varying purposes to which trusts can be put into. You’ve also appreciated the controversies surrounding the origin of the law of trusts in England and its reception in Nigeria. You learnt how it is difficult to have a generally acceptable definition of the term trust and how the development of the law of trust was influenced by the Court of Chancery; which accounted for the harmonious relationship between trust and equity, through their administration in that same court. You are also exposed to the features of trust, the different elements making up a trust and how public policy consideration will prevent a trust from being used to evade creditors, legal liabilities or being used as an instrument of fraud. In the next Unit, you will be introduced to the classification of trusts.
TUTOR-MARKED ASSIGNMENT (TMA)
- Name the parties to a trust relationship and describe the role of each of the parties.
- Discuss the concept of uses and its importance in the modern law of trust
REFERENCES/FURTHER READINGS
Asein, J.O. (1998). Introduction to Nigeria Legal System. Ibadan: Sam Bookman Publishers.
Fabunmi, J.O. (2006). Equity and Trusts in Nigeria. Ile-Ife: Obafemi Awolowo University Press Ltd.
Jegede, M.I. (1999). Law of Trusts, Bankruptcy and Administration of Estate.
Lagos: MIJ Professional Publishers Limited.
Olawoye, C.O. (1974). Title to Land in Nigeria. Ibadan: Evans Brothers Ltd.
Park, A.E.W. (1998). The Sources of Nigerian Law. Lagos: African University Press, London: Sweet & Maxwell.
Trust, The Free Dictionary, Trust, Retrieved September 3, 2010 from http://legal-dictionary.thefreedictionary.com/trust