Trust

Question 1

Defining a Trust and Trustees

Answer 1

In a Trust, title and benefit are divided. One owns a house, but he cannot live there. He has investments, but cannot use the income for himself. He must use his rights(to the house, the shares, and so on) not for his own benefit, but for the benefit of someone else, or a set of other persons. In this case the owner is the ‘Trustee’ and the others are the ‘beneficiaries’. The person who sets up the trust is the ‘Truster’. The Trustee’s name will be found in the land Register.

Question 2

Real Subrogation (if a trustee owns land and sells it)

Answer 2

If a Trustee owns land in trust, and he sells it, the money he receives becomes trust money. If he uses this money to an asset, the asset will become a ‘trust asset’, just as the money was. The trustee’s duties remain the same, but now relates to the asset instead of the land. This is referred to as a ‘real subrogation’. The word ‘real’ does not imply that the assets in question are necessarily real rights. They may be personal rights.

Question 3

Trusts that are NOT Trusts and Trustee’s that are NOT Trustee’s.

Answer 3

Company directors are sometimes called ‘trustees’. What is meant is that they are fiduciaries. The charities legislation uses the term ‘charity trustees’ to mean ‘the persons having the general control and management of the administration of a charity; whether or not the charity is in fact a trust. Some juristic persons are called ‘trusts’, for instance the National Trust for Scotland. Investment trusts are not trusts either. They are ordinary companies, the business of which is investing in other companies.

Question 4

inter vivos trust

Answer 4

An inter vivos trust is set up by a living truster. A mortis causa trust arises on death and is set up by the truster’s testament. It is also called a ‘testamentary trust’. In such cases the executer may be the trustee, or may be directed to make over money or property to someone else, who is to be the trustee.

Question 5

Public trusts and private trusts

Answer 5

Public trusts are for the benefit of the public. Sometime it is difficult to identify whether a Trust is public or private. In the case ‘ Salvesen’s Trs v Wye’ a truster directed that a part of the trust estate was to be distributed ‘among any poor relations, friends or acquittances of mine’. This could plausibly have been classified as private or public.

Question 6

Family Trusts & Commercial trusts

Answer 6

There is an important distinction, important in practical more than in legal terms, between trusts that are used within commercial or financial arrangements, and trusts that are used within families, often for intergenerational wealth transfer.

Question 7

Discretionary Trusts

Answer 7

A trust is a discretionary one if the trustees are given an element of discretion as to the extent to which given beneficiaries will benefit. For example, if there are three beneficiaries, the Trust deed might authorise the trustees to give more to one and less to the others. A trust may be wholly or partially discretionary. In the case ‘Anderson v Smoke’, the trustees were directed to ‘dispose of the balance in any way they should think proper’. This was invalid. But a discretionary trust is valid if the trust deed sets out a defined class of persons, such as ‘my children’.

Question 8

Must the trustee act gratuitously

Answer 8

To be a trustee means to accept the onerous responsibility of administering a fund. This is responsible work and may be time-consuming. Trustees are entitled to be reimbursed for reasonable expenses, so that they do not end up out of pocket, but the default rule is that they are not entitled to be paid for their time. The trust deed may nevertheless provide for payment. In practice it might be supposed that, without payment, nobody would agree to be a trustee. That is sometimes true, but usually not. In public trusts people will usually be happy to act gratuitously, because they are public-spirited and believe in the cause. In family trusts family members will usually agree to act gratuitously out of family solidarity. But if a client wishes to appoint a solicitor as a trustee, the latter will usually insist that the trust deed should provide for remuneration. Likewise, the trustees of a commercial trust will insist on payment, and so on. A special case is the trustee in sequestration, who is entitled to remuneration by statute.

Question 9

Cessation of office (how a trustee loses office) death, resignation and removal by the court

Answer 9

A trustee loses office by death, by resignation or by removal by the court. The trust deed can prohibit resignation, but that is rare. The default rule, which usually applies, is that a trustee is free to resign, unless he or she is the sole trustee (in which case the solution is to assume new trustees first, and then resign) or unless he or she is remunerated. Even then the court can authorise resignation. Whether resignation has to be in writing is uncertain. In practice it is assumed that it is. The deed is called a ‘minute of resignation’. Unless the trust deed otherwise provides, there is no power for a trustee to be expelled by fellow trustees. But the court can remove a trustee, under a statutory power that covers certain defined circumstances, notably absence and insanity. There is a concurrent common law power which is used where there is ‘malversation of office’ for example, a serious breach of trust. The bankruptcy of a trustee, and conviction for an offence, are irrelevant (unless the trust deed so provides) in private trusts. But they disqualify a person from being a trustee of a charity. When a trustee debits office, no conveyance to the remaining trustees is necessary. The reason is that the title of trustees is not common but joint, and when a trustee leaves the stage the remaining trustees are automatically the sole owners.

Question 10

Lapsed trusts

Answer 10

A trust is said to lapse if no trustee remains in office. This can happen if the sole trustee, or the sole surviving trustee, dies or if a body corporate is dissolved. It will be necessary for one or more new trustees to be appointed so that the trust administration can be continued. The court can appoint a new trustee. The common-law rule is that if a trustee dies in office, no rights pass to his or her executor. In general that is still the law. But if a sole trustee dies, there exists a limited statutory power in favour of the trustee’s executor to take up the office.

Question 11

Deciding and doing- General

Answer 11

The trust deed is the constitutive document and it can lay down the rules for the trust’s administration. The general law applies only in so far as the trust deed is silent. The default rules are as follows. A meeting of trustees must be quorate, and a quorum is a majority of trustees. Decisions can be made by a majority. But the majority must be a majority of the trustees, not merely a majority of those trustees at the meeting. Suppose that there are six trustees. Four turn up to a particular meeting. A decision is taken by a three-to-one majority. The decision is invalid because three is not a majority of six. If a trust has two trustees, they will both have to agree on any decision. Deadlocks are therefore possible, but are uncommon: in most trusts the decisions are not merely majority decisions, but unanimous. Occasionally a breakdown of relations produces total deadlock: the ultimate remedy is for the court to appoint a judicial factor.

Question 12

Deciding and doing- Consultation

Answer 12

All trustees must be ‘consulted’: in the absence of consultation any decisions reached is invalid. In the leading case, ‘Wyse v Abbott’, there were three trustees. Two of them appointed additional trustees, but they had not consulted the third. Even though a majority decision was in itself sufficient, the lack of consultatim made the appointment invalid. Although the principle is clear, its applicatim in practice is less so. At a minimum it means that every trustee must be notified of forthcoming meetings. But ‘consultation’ is unnecessary Where it would be pointless or impossible, such as where the trustee in question is uncontactable.

Question 13

Protectors

Answer 13

In many jurisdictions there is the possibility of having a ‘protector’ a trust. A protector is not a trustee but nevertheless has certain powers, including a power of veto for certain matters. Although protectors are not used in current Scottish practice, in the opinion of the Scottish Law Commission ‘it is almost certainly competent at present for a Scottish truster to appoint a protector by express provision in a trust deed’ and it may be that protectors will in future become an important feature of trust law.

Question 14

Execution of documents

Answer 14

All trustees have a duty, as a matter of trust law, to sign, even if they were minority dissenters when the decision was made. The law is unclear, whether, as a matter of conveyancing law the signature by a majority suffices. In ‘Harland Engineering’ the Outer House held that it was sufficient if the majority signed. The case was appealed to the Inner House on another point, and there some doubt was expressed as to whether the first-instance decision on signatures had been correct. The Trust (Scotland) Act 1921 s.7 says that is some cases majority signature suffices, but the section’s exact meaning is obscure. In practice all trustees sign.

Question 15

Trust Purposes- General

Answer 15

Every trust has its purposes. If these were simply to hold for the beneficiary or beneficiaries, then every trust would be a ‘bare’ trust. Some trusts are bare, but in most the purposes are rather more complicated. It is competent to identify certain beneficiaries and then give the trustees a discretion as to what each is to take. Where that happens, it is common for the truster to give them a non-binding ‘letter of wishes’ indicating how he or she would like the discretion to be exercised.

Question 16

Trust Purposes-Failure

Answer 16

If the purposes are too indeterminate or too obscure to be interpreted, the trust will be void ‘by reason of uncertainty. A ‘secret’ trust is a trust where the trust purposes are known only to the trustee. Such trusts are also invalid. There is some tension between that rule and the fact that a discretionary trust is lawful. In a discretionary trust there is an ascertained or ascertainable class of beneficiaries, and the trustees can choose which of them is to benefit and to what extent. If that is the case then the trust is not invalid. The trust is void if its purposes are contrary to public policy. There is also what is sometimes called the ‘rule against perpetuities’, which places time-limits on private trusts. Another way in which a trust may be void is if it confers no substantial human benefit. This is probably a sub-type of the ‘contrary to public policy’ rule. The cases all deal with testamentary trusts but the principles presumably apply to all trusts. In ‘McCaig v University of Glasgow’, John Stuart McCaig left a testamentary true. ‘“The purpose of the trust is that my heritable property be not sold, but let to tenants, and the clear revenue or income be used for the purpose of erecting monuments and statues for myself, brothers, and sisters on the tower or circular building called the Stuart McCaig Tower, situated on the Battery Hill above Oban, the making of these statues to be given to Scotch sculptors”. The Court of Session declined office but the University of Glasgow accepted. The truster’s sister, Catherine McCaig, sought reduction of the trust. (She would benefit if it were held invalid.) She was successful. It was held that a trust must have beneficiaries, and this trust had none. However, it could be argued that there was human benefit in promoting the arts. Many public trusts are regarded as valid even though they confer only remote benefits on living persons. Lord Kyllachy gave the following as examples of purposes contrary to public policy: to lay the truster’s estate waste, and to keep it so; or to turn the income of the estate into money, and throw the money yearly into the sea; or to expend the income in annual or monthly funeral services in the testator’s memory; or to expend it in discharging from prominent points upon the estate, salvoes of artillery upon the birthdays of the testator, and his brothers and sisters. There have been similar cases, such as ‘Aitken’s Trs v Aitken’. George Aitken set up a testamentary trust: ‘In respect of the ancient connexion of my family with the town of Musselburgh, extending over several centuries, and seeing that I am the last of the male line I wish to be erected on the site of the property at the corner of High Street, Fisherrow, and South Street…a massive equestrian bronze statue of artistic merit, representing me as Champion at the Riding of the Towns Marches; for this purpose the present building will be removed and the site enclosed in an artistic manner and laid out with shrubs or otherwise; the whole work is to be done unsparing of expense’. This too was held invalid. Lord Sands commented that ‘if the testamentary directions are unreasonable as conferring neither a patrimonial benefit on anybody are invalid’? nor a benefit upon the public or any section thereof, the directions and this is perhaps the best attempt that has been made to state the law succinctly. However, it must be conceded that the authorities in this area are ‘confused’. The ‘no human benefit’ rule is applied in mortis causa trusts more readily than in inter vivos ones. If a trust is invalid then it becomes a resulting trust.

Question 17

Powers- General

Answer 17

The trust assets are stock market investments. If the trustee, is thinking of selling the shares and using the money to buy, and then let out, heritable property, so that the trust income would be rents rather than dividends, this would be within the purposes of the trust. But it might or might not be within the powers. The trust provisions might not allow investment in land. The trustees’ powers are determined by the trust deed. In practice trust deeds usually say that the trustees can do virtually anything. The law also has a set of default powers, for example, powers that exist unless the trust deed excludes them. Some are implied by common law, some by legislation. There is a good deal of overlap between the common-law powers and the statutory powers. The latter are in Trusts (Scotland) Act 1921, s4. The ‘Trusts (Scotland) Act 1921, s.5’ provides that even if the trust deed actually excludes any of the s. 4 powers, the court may grant such powers. Trustees sometimes wish to employ a professional to manage the investment portfolio, and Trusts (Scotland) Act 1921, s.4B empowers them to do this.

Question 18

Sale by trustees

Answer 18

A common misconception is that a sale by trustees will be a breach of trust. In fact, trustees presumptively have the right to sell any trust asset. The proceeds will of course themselves be trust property. For example, if a house that is subject to an improper liferent is sold. the proceeds of sale would be invested, and the improper liferenter would receive the income. Because the law implies a power to sell, sale would be in breach of trust only if the trust deed were to limit the power’ but in practice that seldom happens.

Question 19

Duties- Investment duties

Answer 19

Trustees have duties to invest the trust funds in a reasonable manner. The investments must be both ‘authorised’ within their powers and ‘proper’. This common-law duty is given greater specification by thee Trusts (Scotland) Act 1921, s.4A. One requirement is that the trustee must ‘have regard’ to the possibility that ‘diversification’ of investments may be in the best interests of the beneficiaries. Trustees are judged by an abstract objective standard, rather than by the standard of their own personal investment acumen. An example of an investment that, though authorised, was improper, is Melville v Noble’s Trs. Here, trustees left money on deposit receipt for 19 years. A deposit receipt was a reasonable way of ‘parking’ money on a short-term basis, but in the longer term it was likely to prove a poor investment. Although there was no doubt that the trustees had the power to put money on deposit receipt, they were held liable for having failed to invest reasonably. In ‘Clarke v Clarke’s’ the trustees held certain shares for many years which steadily declined in value, eventually reaching zero. They were held liable to make good the loss. The case illustrates the economic naiveté common among lawyers: the fact that the value of the shares eventually fell to zero does not mean that it was unreasonable to hold on to them. It merely shows that the investment turned out to be a bad one. In principle, it can never be obvious now that a share, or other investment asset, will lose value, for if it were obvious then market forces would mean that that fact would be reflected in its present value. Thus it can be reasonable to retain an investment asset the value of which in fact declines steadily every year. Equally, it can be unreasonable to retain an investment asset that gains value steadily every year. The rationality of investment decisions can be assessed only on the basis of the information available at the relevant time. Trustees have two types of investment duties, firstly, not to invest in a way that is outwith their powers, even if the investment promises to be a good one and secondly is to choose wisely between the various possible investments that are within their powers. It is a law of economics that the higher the yield, the higher the risk; and the lower the risk, the lower the yield. In ‘Melville v Noble’s Trs’ the trustees chose low risk, low yield. They were held personally liable. In ‘Raes v Meek’ the trustees chose high yield, high risk. They were held personally liable. In practice they tend to go for a diversified portfolio producing moderate yield and moderate risk, and the courts seem happy with that.

Question 20

The rule against accumulation

Answer 20

In 1797 an English banker named Peter Thellusson died. His testament left various large bequests. Even after those bequests the residue was a large sum which he left to trustees. They were to re-invest the income until his great-grandchildren had all died, and then they were to distribute the capital to certain defined descendants. The lawfulness of the trust was litigated but upheld. It was felt that such long-term accumulation was against the public interest.
After his death, the ‘Trusts (Scotland) Act 1961 s.5 and the Law Reform (Miscellaneous Provisions) (Scotland) Act 1966, s6’, was passed, this limits the the period during which a trust could accumulate income. The basic rule is that income may be accumulated only for the first 21 years of a trust’s life. Once the period during which accumulation has elapsed, income has to be distributed to the beneficiaries.

Question 21

Fiduciary duties of trustees

Answer 21

Trustees, being fiduciaries, are subject to fiduciary duties. A trustee must not buy from, sell to, borrow from or lend to the trust; or in any other way deal with the trust in his or her personal capacity, except in so far as the trust so allows. The justification is that the trustee’s interest as an individual would be in conflict with his or her duty as a trustee. Trustees must not put themselves in such a position where their interest conflicts with their duty. In ‘University of Aberdeen v Magistrates of Aberdeen’, the Aberdeen Council owned some land in trust. It then bought the land from itself. The price became part of the trust fund. Many years later some of the beneficiaries sought to reduce the sale. One defence to the action was that the price had been the full market value. This defence was held irrelevant and reduction was granted. If a client wishes his or her solicitor to be a trustee, the solicitor will usually agree to do so only if the trust deed allows him or her to charge. Likewise, in unit trusts the trustee will be authorised to charge. The trust deed’s authorisation can be implicit as well as express. As with other duties, the duty not to be an auctor in rem suam can be waived by the beneficiaries. The same principles apply equally to executors.

The trustees must consider only the beneficiaries’ interests. In Martin v City of Edinburgh” the defenders were trustees who allowed their political outlook to influence their investment decisions. It was held that they were acting in breach of trust: there was a conflict between their duty as trustees and their political agenda. One may suspect that the motivation for the litigation — by a politician of one party against a Council controlled by a different one — was itself primarily political. In the English case of Cowan v Scargill’ where the facts were rather similar the same result was reached. The court commented that trustees may even have to act dishonourably if the interests of their beneficiaries require it, citing examples from earlier English case law.

Question 22

Breach of Trust

Answer 22

Not every breach of duty by a fiduciary is a breach of fiduciary duty. Ultra vires breach, this is where the trustees do something that is outwith their powers, such as making an unauthorised investment, or paying the wrong beneficiary. Intra vires breach, this is where is where they do something that is within their powers but do it badly, such as making an unwise investment decision. Breach of fiduciary duty. The classification is, however, not free from difficulty. One could argue that trustees have no power to act in breach of their fiduciary duties, so that breach of fiduciary duty is really an aspect of ultra vires breach. The distinction between intra vires and ultra vires breach is said to be important because liability for ultra vires breach is strict, whereas liability for intra vires breach is fault-based. The authorities are, however, less than clear on this point. A case could be made for the view that there is no liability without fault.

Question 23

Consequences Of Breach Of Trust

Answer 23

If trustees are personally liable, they must to restore to the trust the lost value. Breach may not cause loss, and in that case there is no liability.

Question 24

Judicial relief

Answer 24

The Trusts (Scotland) Act 1921, s.32 provides that if a trustee has incurred personal liability, the court ‘may’ discharge that liability if the trustee acted ‘honestly and reasonably’.

Question 25

Liability of Trustees to third parties

Answer 25

If trustees incur liability to third parties, the question of whether they are personally liable is generally of little significance, for even if they are, they are entitled to be reimbursed from the trust estate. In the case where the trust becomes insolvent, the creditors will wish, if possible, to hold the trustees personally liable. It is commonly said that if trustees enter a contract, they are personally liable on it unless the contract expressly states that they are contracting only as trustees.

Question 26

Insolvency: Beneficiaries, Truster, Trustee as individual, Trust as such.

Answer 26

(1) Beneficiary

If a beneficiary becomes insolvent, the beneficial interest is part of his or her patrimony and so is in principle available to the creditors. Suppose, for instance, that John is entitled to €5,000 each quarter from a trust. His creditors could arrest in the hands of the trustees. Or suppose that trustees hold a house in beneficial liferent for Laura and in beneficial fee for Fiona. Fiona is sequestrated. The beneficial fee passes to her trustee in sequestration for the benefit of her creditors. This does not affect Laura’s rights.

(2) Truster

The insolvency of the truster after the trust has been established is normally irrelevant. But there is a qualification. Insolvency law says that those who are factually insolvent trusts conserve their assets for the creditors’ benefit. If there is such a transfer — which is called a ‘gratuitous alienation’ — the creditors can insist that the assets be re-transferred. Usually the clairn is made after the transferor has been sequestrated, or gone into liquidation, and the claim is made by the trustee in sequestration or the liquidator.

(3) Trustee as individual

The insolvency of a trustee as an individual has no effect on the trust. The rule is a common law one, and remains so as far as diligence and liquidation are concerned. For sequestration, the rule has been put on a statutory footing. The common law rule is often traced to the case of ‘Heritable Reversionary Co Ltd v Millar’. In fact, it goes back to the seventeenth century, but at common law there was an exception in relation to heritable property where the fact of the trust was not disclosed on the register. In’Heritable Reversionary Co Ltd v Millar’, the House of Lords changed the law so as to remove the exception.

Question 27

Vacation and early termination of private trusts ‘ The rule in ‘Miller’s Trs v Miller’

Answer 27

The rule in ‘Miller’s Trs v Miller’, confirmed by the Whole Court in’ Yuill’s Trs v Thomsons’ allows the partial or complete termination of a trust at the request of a single beneficiary, where that beneficiary is the only person with an interest. The rule is as follows: if a beneficial interest is vested in a given person, and there is no reason for the trustees not to pay or transfer to that person, except for a direction in the trust deed that they must not do so until that person has reached a specified age, then that person, if he or she has reached the age of 16, can demand that the trustees pay, or transfer, to him or her, notwithstanding that the trust deed forbids them to do so. If the beneficiary is the sole beneficiary then the trust is terminated. The rule is well illustrated by Miller’s itself. Sir William Miller set up a trust for his son John. The trust deed provided that the trustees were not to transfer the trust estate to John until he was 25. This was, therefore, a bare trust, with the speciality that a beneficiary could not dernand that the trustees denude until a stated agreement of the beneficiaries: their wishes override the terms of the trust deed and the views of the trustees. The beneficiaries may also make a unanimous decision for a variation (as opposed to a termination) but in that case it may be that the trustees have to agree. If the trustees do not agree to a variation, the beneficiaries can always terminate the trust and then set up a new one, on the new terms that they want to see, but having a new trust, as opposed to having a varied but existing trust, can cause certain problems. However, beneficiaries who are under age cannot consent, and, moreover, it seems that, as far as common law is concerned, nobody can consent for them. Secondly, one or more beneficiaries may be as yet non-existent.

Question 28

Variation and early termination of public trusts - Variation of non-charitable public trusts

Answer 28

Non-charitable public trusts can be varied under the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 s.9-11. Several grounds exist for variation, such as if the purposes of the trust ‘have been fulfilled as far as it is possible to do so’. The court can vary the trust purposes, or provide for the trust assets to be transferred to another trust. Any variation must have regard to the ‘spirit’ of the trust deed: the new scheme ‘must’ enable the resources of the trust to be applied to better effect consistently with the spirit of the trust’s constitutive document, having regard to changes in social and economic conditions since the time when the trust was constituted’. Law Reform (Miscellaneous Provisions) (Scotland) Act 1990, s.10 and 11, provide simplified machinery for the variation of smaller trusts. As well as the statutory rules, the court has a common law power to vary public trusts: this goes by the curious name of the ‘cy pres procedure’.

Question 29

Variation and early termination of public trusts - Variation reorganisation of charitable trusts

Answer 29

The Law Reform (Miscellaneous Provisions)(Scotland) Act 1990 covers only non-charitable public trusts. Charitable trusts are now ‘reorganised’ under the ‘Charities and Trustee Investment (Scotland) Act 2005’. This can be done in two ways. The first is for the trustees to propose a variation to OSCR, which can then if it sees fit approve the proposal. In this case the court does not have to be involved. Alternatively, OSCR can petition the court to approve a variation. Such a petition does not require the trustees’ consent. The conditions for such a reorganisation are similar to those in the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990.

Question 30

Cy près

Answer 30

If a charitable trust is unworkable, the court has power at common law to modify its provisions to make it workable, This is called a ‘Cy pres’ scheme. There are two main types of case. The first is ‘initial failure’, where the trust cannot be put into operation, and the other is ‘supervening failure’, where the charitable trust is up and running but later becomes unworkable. In either case the court makes a cy pres scheme, which is supposed to be as near to the original intention of the truster as possible, consistent with workability. These two main types of case are not exhaustive: a cy pres scheme is always possible for a charitable trust in the case of ‘strong or compelling expediency. There can be many causes of unworkability, such as changes in the law, or changes in social or economic conditions. One type of initial failure is a testamentary trust in favour of a named charity that in fact does not exist. In such a case, if it can be established that the testator had a ‘general charitable intention’ the court will approve a cy pres scheme. Otherwise the legacy will be void. A cy pres scheme can take the form of simply directing that the funds be made over to an existing charity.

Question 31

Liferent Trusts (Improper liferent)

Answer 31

Improper liferents are more common than proper ones, and their importance in practice justifies a few words. One reason why they are more popular than proper liferents is their flexibility. In a proper liferent, if the property is to be sold free of the liferent that will need the agreement of both parties. But in an improper liferent the trustee can sell, and unless the trust deed says otherwise, the trustee does not need anyone’s consent to do this. The trustees in the case of death, have the power to sell the house without the consent of the beneficiaries. A proper liferent of investments are not possible. In the case of company shares, the trustees are the shareholders, with all the rights of shareholders.

Question 32

Charities

Answer 32

A charity in the form of a non-profit company under the ‘Companies Acts: this is known as a ‘company limited by guarantee’. Each type of charity is governed by the law applicable to the type of organisation in question, but in addition they are all subject to the law of charities. ‘Charity’ is a classification based on an organisation’s purpose, not its form. Charities are supervised by the ‘Office of the Scottish Charity Regulator’. This maintains the Scottish Charity Register. When a charity grows, has employees and significant assets, the trust is seldom a workable form, and juristic personality is likely to be needed, whether as a company limited by guarantee, or as a Scottish Charitable Incorporated Organisation. Just as a charity may take the form of a trust, so there can also be a trust for the benefit of another charity.

Question 33

The insolvency effect

Answer 33

One of the most important features of the trust is the ‘insolvency effect’, the fact that the trustee’s ordinary creditors (the liabilities in the general patrimony) cannot attach the assets in the special patrimony. The trust estate is a ringfenced fund. This principle applies both to diligence and to insolvency processes (sequestration and liquidation). The fact that the beneficiaries’ rights survive the trustee’s insolvency means that they behave rather like real rights. But they are not. They are personal rights in relation to the special patrimony, while the trustee’s ordinary creditors have personal rights in relation to the general patrimony. Thus in principle the two sorts of claims do not conflict.