What Is Trust Law?

In common law, a trust refers to an arrangement by which one person holds or deals with property for the benefit of another.

The person creating the trust is called the settlor, while the person enjoying the benefit is called the beneficiary. The person who administers the property under the trust is called the trustee.

A person may be a settlor, a trustee and a beneficiary of the same trust.*

The Three Certainties

Generally, a trust must have three certainties:

• certainty of intention: The language of the alleged settlor must be imperative.
• certainty of subject matter: The trust property must be certain.
• certainty of objects: The beneficiaries must be certain or clearly identifiable.

Terminology

A bare trust (also known as a simple trust or a naked trust) refers to a trust where the trustee holds property without further duty to perform.

An inter vivo trust (also known as a living trust) is one made by deed, oral declaration, or in writing to take effect during the lifetime of the settlor.

A testamentary trust is one created under a will. Because a will can become effective only upon death, a testamentary trust is generally created at or following the date of the settlor’s death.

A spendthrift trust is one created to protect the beneficiaries from their inability to properly handle money. The funds often become payable after the beneficiaries come of age.

Statutory Trust and Deemed Trust

By the operation of law, certain funds advanced from one person to another for the specific purpose of paying a third can become impressed with a trust and may not otherwise be appropriated.

For example, under the Construction Lien Act,^ all funds received by an owner that are to be used in the financing of the improvement, constitute a trust fund for the benefit of the contractor. This is called the “owner’s trust.”

Similarly,  all funds owing to a contractor or received by a contractor or subcontractor on account of the contract price of an improvement constitute a trust fund for the benefit of the subcontractors and other persons who have supplied services or materials to the improvement. This is called the “contractor’s trust.”

*Note: This kind of “creative” trust, when used for ulterior purposes, e.g., avoiding creditors or tax authorities, is voidable.

^R.S.O. 1990, c. C30

Note: Please keep in mind that this article is provided for information and educational purposes. It does not constitute legal advice and should not be regarded as such. The law may have changed since the publication of the article.

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