SHAH ABDUL LATIF UNIVERSITY

KHAIRPUR

ASSIGNMENT TOPIC:
Law of trust
Submitted by
Zain-ul-Abdin Shaikh-196

Submitted to
Miss Anum Shaikh

CLASS: BBA-III

DEPARTMENT OF BUSINESS ADMINISTRATION

 1. Introduction
In common law legal systems, a trust is a relationship whereby property (including real,
tangible and intangible) is managed by one person (or persons, or organizations) for the
benefit of another. A trust is created by a settler (or feoffor to uses), who entrusts some or
all of their property to people of their choice (the trustees or feoffee to uses). The trustees
hold legal title to the trust property (or trust corpus), but they are obliged to hold the
property for the benefit of one or more individuals or organizations (the beneficiary
cestui que use, or cestui que trust), usually specified by the settlor, who hold equitable
title. The trustees owe a fiduciary duty to the beneficiaries, who are the "beneficial"
owners of the trust property.

The trust is governed by the terms of the trust document, which is usually written and
occasionally set out in deed form. It is also governed by local law. The trustee is obliged
to administer the trust in accordance with both the terms of the trust document and the
governing law.In the United States, the settlor is also called the trustor, grantor, donor or
creator.

1.1 History
The trust law developed in England at the time of the Crusades, during the 12th and 13th
centuries.

At the time, land ownership in England was based on the feudal system. When a
landowner left England to fight in the Crusades, he needed someone to run his estate in
his absence, often to pay and receive feudal dues. To achieve this, he would convey
ownership of his lands to an acquaintance, on the understanding that the ownership would
be conveyed back on his return. However, Crusaders would often return to find the legal
owners' refusal to hand over the property.Unfortunately for the Crusader, English law did
not recognize his claim. As far as the courts were concerned, the land belonged to the
trustee, who was under no obligation to return it. The Crusader had no legal claim.

The disgruntled Crusader would then petition the king, who would refer the matter to his
Lord Chancellor. The Lord Chancellor could do what was "just" and "equitable", and had
the power to decide a case according to his conscience. At this time, the principle of
equity was born.

The Lord Chancellor would consider it unjust that the legal owner could deny the claims
of the Crusader (the "true" owner). Therefore, he would find in favor of the returning
Crusader. Over time, it became known that the Lord Chancellor's court (the Court of
Chancery) would continually recognize the claim of a returning Crusader. The legal
owner would hold the land for the benefit of the original owner, and would be compelled
to convey it back to him when requested. The Crusader was the "beneficiary" and the
friend the "trustee". The term use of land was coined, and in time developed into what
we now know as a trust.The waqf is an equivalent institution in Islamic law.

"Antitrust law" emerged in the 19th century when industries created monopolistic trusts
by entrusting their shares to a board of trustees in exchange for shares of equal value with
dividend rights; these boards could then enforce a monopoly. However, trusts were used
in this case because a corporation could not own other companies' stock and thereby
become a holding company without a "special act of the legislature”. Holding companies
were used after the restriction on owning other companies' shares was lifted.

1.2Trustees
The trustee may be either a person or a legal entity such as a company. A trust may have
one or multiple trustees. A trustee has many rights and responsibilities; these vary from
trust to trust depending on the type of the trust. A trust generally will not fail solely for
want of a trustee. A court may appoint a trustee, or in Ireland the trustee may be any
administrator of a charity to which the trust is related. Trustees are usually appointed in
the document (instrument) which creates the trust.

A trustee may be held personally liable for certain problems which arise with the trust.
For example, if a trustee does not properly invest trust monies to expand the trust fund, he
or she may be liable for the difference. There are two main types of trustees, professional
and non-professional. Liability is different for the two types.

The trustees are the legal owners of the trust's property. The trustees administer the
affairs attendant to the trust. The trust's affairs may include investing the assets of the
trust, ensuring trust property is preserved and productive for the beneficiaries, accounting
for and reporting periodically to the beneficiaries concerning all transactions associated
with trust property, filing any required tax returns on behalf of the trust, and other duties.
In some cases, the trustees must make decisions as to whether beneficiaries should
receive trust assets for their benefit. The circumstance in which this discretionary
authority is exercised by trustees is usually provided for under the terms of the trust
instrument. The trustee's duty is to determine in the specific instance of a beneficiary
request whether to provide any funds and in what manner.

By default, being a trustee is an unpaid job. In modern times trustees are often lawyers,
bankers or other professionals who will not work for free. Therefore, often a trust
document will state specifically that trustees are entitled to reasonable payment for their
work.

1.3.Beneficiaries
The beneficiaries are beneficial (or equitable) owners of the trust property. Either
immediately or eventually, the beneficiaries will receive income from the trust property,
or they will receive the property itself. The extent of a beneficiary's interest depends on
the wording of the trust document. One beneficiary may be entitled to income (for
example, interest from a bank account), whereas another may be entitled to the entirety of
the trust property when he attains the age of twenty-five years. The settlor has much
discretion when creating the trust, subject to some limitations imposed by law.

2.Type of Trust

2.1Cnstructive trust
a constructive trust is not created by an agreement between a settlor and the trustee. A
constructive trust is imposed by the law as an "equitable remedy." This generally occurs
due to some wrongdoing, where the wrongdoer has acquired legal title to some property
and cannot in good conscience be allowed to benefit from it. A constructive trust is,
essentially, a legal fiction. For example, a court of equity recognizing a plaintiff's request
for the equitable remedy of a constructive trust may decide that a constructive trust has
been "raised" and simply order the person holding the assets to the person who rightfully
should have them. The constructive trustee is not necessarily the person who is guilty of
the wrongdoing, and in practice it is often a bank or similar organization.
2.2 Express trust
arises where a settlor deliberately and consciously decides to create a trust, over their
assets, either now, or upon his or her later death. In these cases this will be achieved by
signing a trust instrument, which will either be a will or a trust deed. Almost all trusts
dealt with in the trust industry are of this type. They contrast with resulting and
constructive trusts. The intention of the parties to create the trust must be shown clearly
by their language or conduct. For an express trust to exist, there must be certainty to the
objects of the trust and the trust property. In the USA Statute of Frauds provisions require
express trusts to be evidenced in writing if the trust property is above a certain value, or is
real estate.

2.3 Implied trust

An implied trust, as distinct from an express trust, is created where some of the legal
requirements for an express trust are not met, but an intention on behalf of the parties to
create a trust can be presumed to exist. A resulting trust may be deemed to be present
where a trust instrument is not properly drafted and a portion of the equitable title has not
been provided for. In such a case, the law may raise a resulting trust for the benefit of the
grantor (the creator of the trust). In other words, the grantor may be deemed to be a
beneficiary of the portion of the equitable title that was not properly provided for in the
trust document.

2.4Private and public trusts.

A private trust has one or more particular individuals as its beneficiary. By contrast, a
public trust (also called a charitable trust) has some charitable end as its beneficiary. In
order to qualify as a charitable trust, the trust must have as its object certain purposes
such as alleviating poverty, providing education, carrying out some religious purpose,
etc. The permissible objects are generally set out in legislation, but objects not explicitly
set out may also be an object of a charitable trust, by analogy. Charitable trusts are
entitled to special treatment under the law of trusts and also the law of taxation.

3. Purpose of a Trust
The purpose of a trust is essentially to provide someone with the benefits of certain
property while, at the same time, protecting them from themselves and limiting or
conditioning how they can use the property. For example a trust would be very useful
if you wanted to give money or other property to a minor, who may not have the
maturity or even the legal capacity to control and manage the property. In addition,
trusts allow for someone else to manage the property, which can be useful when the
property management requires significant time and/or skill (such as managing a large
stock portfolio or several real estate properties). Finally, when property is put into a
trust, it keeps that property out of probate, because the property is no longer belongs
to the settler (the person who created the trust).
4. Declaration of trust
A declaration of trust, also referred to as a trust deed or agreement, is a document used to
list the terms of a trust. For example, a trust agreement lists such things as the trust’s
purpose, the trust creator’s name, and the trustees’ names. It also includes such details as
how the benefits of the trust should be distributed and who the beneficiaries are. A
declaration of trust also lists the person who will serve as a replacement trustee, if one
becomes necessary, as well as what level of authority the trustee will have.

When a person or group of people creates a trust, a declaration of trust is executed and
signed. An individual who creates a trust includes his name, address, and date of
execution of the trust in this document. He also includes the name and address of the
trustee. Often, this document also includes provisions for assigning a new trustee in the
event that the initial trustee is unable to serve. For example, a successor trustee may take
over if the original trustee dies, becomes incapacitated, or is simply unwilling to serve.

5. Creation
Trusts may be created by the expressed intentions of the settlor (express trusts) or they
may be created by operation of law (resulting trusts).

Typically a trust is created by one of the following:

1. a written trust document created by the settlor and signed by both the settlor and
the trustees (often referred to as an inter vivos or "living trust");
2. an oral declaration
 3. the will of a decedent, usually called a testamentary trust; or
4. A court order (for example in family proceedings).

6. Duties of trustees
Trustees have certain duties (some of which are fiduciary). These include the duty to:

• Carry out the expressed terms of the trust instrument

• Defend the trust
• Prudently invest trust assets
• Be impartial among beneficiaries
• Account for actions and keep beneficiaries informed
• Be loyal
• Not delegate
• Not profit
• Not be in a conflict of interest position
• Administer in the best interest of the beneficiaries

The terms of instrument that creates the trust may narrow or expand these duties—but in
most instances they cannot be eliminated completely. Corporate trustees, typically trust
departments at large banks, often have very narrow duties, limited to those the trust
indenture explicitly defines.

A trustee carries the fiduciary responsibility and liability to use the trust assets according
to the provisions of the trust instrument (and often regardless of their own or the
beneficiaries' wishes). The trustee may find himself liable to claimants, prospective
beneficiaries, or third parties. In the event that a trustee incurs a liability (for example, in
litigation, or for taxes, or under the terms of a lease) in excess of the trust property they
hold, they may find themselves personally liable for the excess.

Trustees are generally held to a "prudent person" standard in regard to meeting their
fiduciary responsibilities, though investment, legal, and other professionals can be held to
a higher standard commensurate with their higher expertise. Trustees can be paid for their
time and trouble in performing their duties only if the trust specifically provides for
payment. It is common for lawyers to draft will trusts so as to permit such payment, and
to take office accordingly: this may be an unnecessary expense for small estates.

7. Liabilities of trustees
In carrying out his or her duties, a trustee is subject to various liabilities, including:

1. Breach of trust of fiduciary duty.

2. Failure to properly carry out the responsibilities of the office of trustee as
provided in the trust agreement.
 3. Losses arising out of the unauthorized delegation of responsibilities or resulting
from commingling trust assets with the personal assets of the trustee or using trust
assets for personal purposes.
4. Losses arising from unfavorable investments made by the trustee, where the
investments were unauthorized by the terms of the trust agreement or were not
allowed by law.
5. Failure to distribute trust assets to beneficiaries entitled to such distributions.
6. Legal fees resulting from a proceeding where the trustee is found guilty of
misfeasance in administering the trust and is therefore found to be liable to the
trust.

8. Rights of trustrees
A project to examine the rules governing the liability of trustees and trust funds when
trustees enter into contracts.

When trustees enter into contracts they do so personally, incurring personal contractual
obligations and, unless the contract says otherwise, personal liability to the other
contracting party. A trustee has the right to be indemnified from the trust fund for
obligations properly incurred and the contracting party will have a derivative claim
against the trust fund based on this right.

No such right exists where the obligation was not properly incurred or the trustee is
indebted to the trust fund. In these circumstances, the trustee will have to meet any
liability out of their own pocket (even if the trust fund is sufficient to meet it). In the
event of the trustee's insolvency, the contracting party will be left without a remedy.

In considering how, if at all, this situation could be improved the Commission will have
to balance the position of creditors with the competing interests of beneficiaries who
benefit from the current protection given to the trust fund.

This project will not commence until after completion of current law reform projects,
when it will be considered against other priorities.

9. Powers of the trustees

The trustee is charged with caring for and managing the trust property. To do this, the
trustee must have the ability to control the property, and the trustee can therefore do
things like buy or sell the property, rent or lease it, manage the related finances, invest
related securities, etc. As for the exact scope of the trustee’s powers, you should look to
the trust document itself. Many times the document will include an explicit list of
precisely what powers the trustee has. You should also look to the relevant state law.
Many states have passed laws which outline what powers the trustee has (unless the trust
says otherwise). Other states have more basic laws which simply say that the trustee has
any powers that he or she needs to handle the trust property and perform his or her duties.
Finally, if the trustee needs the power to do something which is not covered in the trust or
by state law, he or she can seek permission from the court to exercise these additional
powers. Similarly, a beneficiary can go to court if they want to try to limit the trustee’s
powers (this comes up, most typically, where the beneficiary believes the trustee is
abusing his or her powers).

10. Rights of beneficiary

Before you can begin to understand beneficiary rights you need to fully understand what
a beneficiary is. This is the person that you name on your financial documents that will
get the money that you have if anything should happen to you. For example, if you have
a life insurance policy, you will need to name someone as the beneficiary so that this
person will get the money in your policy. By naming a beneficiary, the money will not
go through an estate or probate at the time of your death. This makes the entire process
relatively smooth. What most people do not understand is that your will does not count
when thinking of beneficiaries in terms of life insurance policies or trusts that you have
established. These are all things that you need to understand.

When you think about beneficiary rights and who you can name as a beneficiary of your
policies the only thing you really need to think about is who you want to get the money.
You can name anyone as the beneficiary as long as he or she is of sound mind and is
legally competent. However, life changes and your beneficiaries may need to change as
well. You will want to look over these documents every now and then so that you can
determine if anything needs to change. You may have had a birth or a death in your
family and you will want to make sure that it has not effected who you named as your
beneficiary. If it has you will need to talk to the company or organization in charge of
your policy and have this person changed.

11. Appointment of new Trustee

Power of court to appoint new trustees.The court may, whenever it is expedient to
appoint a new trustee or new trustees, and it is found inexpedient difficult or
impracticable so to do without the assistance of the court, make an order appointing a
new trustee or new trustees either in substitution for or in addition to any existing trustee
or trustees, or although there is no existing trustee.In particular and without prejudice to
the generality of the foregoing provision, the court may make an order appointing a new
trustee in substitution for a trustee who . . . F1 is [F2incapable, by reason of mental
disorder within the meaning of [F3the Mental Health Act 1983], of exercising his
functions as trustee], or is a bankrupt, or is a corporation which is in liquidation or has
been dissolved.The power conferred by this section may, in the case of a deed of
arrangement within the meaning of the M1Deeds of Arrangement Act, 1914, be exercised
either by the High Court or by the court having jurisdiction in bankruptcy in the district in
which the debtor resided or carried on business at the date of the execution of the
deed.An order under this section, and any consequential vesting order or conveyance,
shall not operate further or otherwise as a discharge to any former or continuing trustee
than an appointment of new trustees under any power for that purpose contained in any
instrument would have operated.(4)Nothing in this section gives power to appoint an
executor or administrator.

12. Rules for the appointment of new Trustee

The procedures for electing or appointing new trustees are usually set out in a charity’s
governing document or associated rules or standing orders. These procedures must be
followed regardless of the process used to find and select trustees.

The procedures vary between charities. For example:

• New trustees might be appointed by the existing board members, or might be

elected by members at an Annual General Meeting
• Trustees of membership organisations might have the power to co-opt or to fill
casual vacancies between Annual General Meetings
• One or more trustees might be appointed by outside organizations.