Subject relevant to: Probate Lawyers and Trust Litigation:

Trusts, with ancient roots tracing back to the Middle Ages, are used ubiquitously in modern life for both personal and business purposes.  Yet regardless of its purposes, the trust rests upon the relationship, based on property, between two persons: the trustee who controls the property and the beneficiary who enjoys the property (Waters’ Law of Trusts in Canada, 3rd Ed, By Donovan W.M. Waters, Q.C., 2005, pg 2) (“Waters”).

Lawyers practicing in the area of estate disputes necessarily require an intimate knowledge of the law of trusts; and indeed, the administration of a deceased’s estate is a form of trust.

But what is the nature of a trust?  And are there different kinds of trust?

This article will provide a brief summary of the nature and types of trust in Canada.

What is a Trust?

A trust is:

“a 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 beneficiaries) or for some object permitted by law, in such a way that the real benefit of the property accrues, not to the trustees, but to the beneficiaries or other objects of the trust” (The Law of Trusts, by G.W. Keeton and L.A. Sheridan, 1993, at pg 3).

The key features of the trust include a distinct and separate fund composed of an asset (or assets), a person or purpose serving as the object of the trust and having exclusive right to enjoy the fund, and a person holding title to the asset (or assets) held in the trust and sometimes administering or managing the fund (Waters, pg 3).

Although this definition and these features apply to trusts generally, there are specific types of trust, each having their own distinct characteristics.

The Different Types of Trust

There are four types of trust: the express trust, the implied trust, the resulting trust and the constructive trust.

One way of thinking about the different types of trust is to organize them into a continuum based on how they are created.

Trusts are created in one of two ways.  First, a trust will be created where it is clear from a person’s words or acts that that person intends to settle property by way of trust.  Second, the law may impose trust machinery in given circumstances to ensure that property passes from one party to another (Waters, pg 19).

Thus, the continuum is bookended by the express trust (corresponding to the creation of trust by settlor’s intention) and the constructive trust (corresponding to the creation of trust by operation of law).  In between the express and constructive trusts lie the implied and resulting trusts (Waters, pg 362).

Thus, I will introduce each trust in the order in which they sit on the continuum between settlor’s intention and legal imposition: the express trust, the implied trust, the resulting trust and the constructive trust.

Each type of trust may be involved in a given estate dispute such as a Wills Variation Act claim.

The express trust, which uses the word “express” to refer to the settlor’s intention, is created where the settlor clearly and specifically says that given property is to be held in trust.  This is to be contrasted with implied trusts, which require the testator’s language to be construed in order for its legal meaning to be revealed.   If the language reveals an intention to create a trust, then an implied trust will arise (Waters, pg 20).

An implied trust is commonly used for two situations.  The first situation occurs where the intention to create a trust is not expressed clearly, and therefore must be discovered from indirect or ambiguous language.  The second situation is where one person has gratuitously transferred his property to another party or paid for property and had the property put into another’s name.  Here, it is implied that the intention of the transferor or purchaser was for the transferee to hold the property on trust for the transferor or purchaser (Waters, pg 362).

A resulting trust, generally speaking, will arise wherever legal or equitable title to property is in one party’s name, but that party, due to being a fiduciary or giving no value for the property, is obliged to return the property to the original title owner, or to the person who did give value for it (Waters, pg 362).

More specifically, a resulting trust will occur in three situations: first, where A purchases property and has it transferred into B’s name, or into the joint names of A and B; second, where A transfers property to B or into the names of A and B; and third, where the purposes set out by an express or implied trust fail to exhaust the trust property (Waters, pg 21).

The constructive trust arises without regard to any party’s intention, but rather upon the imposition, by law, of an obligation on a party to hold specific property for another.

The person obligated becomes a constructive trustee to the person owed performance of the obligation (Waters, pg 454).

In Canada, the constructive trust has been used to remedy unjust enrichment (Becker v. Pettkus [1980] 2 S.C.R. 834), to remove the gain obtained by breach of confidence by a party to a commercial negotiation (International Corona Resources Ltd. v. Lac Minerals Ltd [1989] 2 S.C.R. 574), to regulate the property rights of a married couple (despite applicable legislation generating a different outcome) (Rawluk v. Rawluk [1990] 1 S.C.R. 70), and to remove wrongful gains, even absent an unjust enrichment (Soulos v. Korkontzilas [1997] 2 S.C.R. 217).

Conclusion

In conclusion, trusts are important legal devices used for a variety of personal and business purposes, and are particularly relevant to lawyers practicing trust litigation.

The trust is a relationship in which a trustee is compelled to hold property, for the benefit of beneficiaries or some object permitted by law, in such a way that the real benefit of the property accrues not to the trustees but to the benefits or objects of the trust.

There are four types of trust: the express trust, the implied trust, the resulting trust and the constructive trust.

The express trust arises upon clear and specific words expressing an intention that given property be held in trust.

Implied trusts, unlike express trusts, do not involve clear and specific words setting out an intention to create a trust, but rather require courts to construe the words of the settlor in order to reveal such an intention.

A resulting trust will arise wherever the legal or equitable title to property is in one party’s name but that party, due to being a fiduciary or giving no value for the property, is obliged to return the property to the original owner, or to the person who did give value for it.

A constructive trust arises not by the intention of the settlor, but rather by the legal imposition of an obligation to hold property for another party.  The person obliged to hold the property becomes the constructive trustee to the beneficiary (the person who will receive the benefit of the property held in trust).