History of Trust.

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The history of trust services in the UK is rooted in English equity law, which developed the concept of the trust (known initially as a "use") as a response to the inflexibility of the common law.

 

 

I. Medieval Origins (The "Use")

 

• The Crusades (12th-13th Centuries): The need for trusts first arose when landowners, often knights going on Crusades, would transfer legal ownership of their land to a trusted friend (feoffee or later, trustee) to manage the estate and pay feudal dues for the benefit of their family (beneficiaries) in their absence. Under common law, the friend legally owned the land, but when they returned, the common law courts often refused to compel the friend to return the property.

   

• The Court of Chancery and Equity: Dissatisfied claimants petitioned the King, who delegated the matters to the Lord Chancellor. This led to the creation of the Court of Chancery (a court of equity), which intervened based on "good conscience" or fairness to recognise the returning Crusader's beneficial interest in the land, compelling the feoffee to hold it "to the use" of the family. This split of legal ownership (held by the trustee) and beneficial ownership (held by the beneficiary) is the foundation of the modern trust.

   

• Avoiding Feudal Duties: By the 15th and 16th centuries, the "use" was also exploited to avoid feudal taxation and the doctrine of escheat (property reverting to the lord if there were no heirs).

   

 

II. Statutory Attempts and Modern Trust Birth

 

• Statute of Uses 1535: King Henry VIII enacted this statute to end the widespread use of the 'use' and recover lost feudal revenue by stating that the legal title would pass directly to the person who had the beneficial interest, thereby extinguishing the use.

   

• "Use Upon a Use" and the Modern Trust: Legal practitioners and landowners circumvented the Statute of Uses by creating a "use upon a use" (e.g., to A to the use of B to the use of C). The courts held that the Statute only executed the first use (passing legal title to B), leaving B to hold the legal title for the benefit of C. This device, enforced by the Court of Chancery, became the modern trust.

   

• Supremacy of Equity (17th Century): The Court of Chancery, though facing criticism for corruption and inefficiency, continued to develop trust principles. The Judicature Act 1873 ultimately merged the courts of equity and common law, establishing that where their rules conflicted, the principles of equity (and therefore trust law) would prevail.

   

 

III. Consolidation and Modern Application

 

• Trustee Act 1925: A landmark piece of legislation that codified the laws governing trusts, streamlining administration and clarifying the powers and responsibilities of trustees.

   

• Expansion of Purpose: Trusts evolved from primarily property-holding devices for land into a versatile legal instrument used in:

  • Financial Investment: Notably, unit trusts and pension trusts, where trustees manage assets for the benefit of savers/employees.

     

  • Estate Planning: Used extensively for managing intergenerational wealth, tax efficiency, and managing property for minors or incapacitated individuals.

     

  • Charities: Charitable organisations in the UK are often established as trusts.

     

• Modern Regulation: Subsequent legislation, such as the Trustee Investments Act 1961, the Trusts of Land and Appointment of Trustees Act 1996, and the Trustee Act 2000, further modernised the framework, giving trustees greater flexibility in investment decisions and emphasising the best interests of beneficiaries. More recently, the Trust Registration Service (TRS), managed by HMRC, has been established to record beneficial ownership of assets held in most express UK trusts, in line with anti-money laundering regulations.

   

The video below explains the historical origins of the trust in the context of equity.

The History of the Trust | Equity & Trusts

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