Day 1 - History of Trust PDF

Trust Institute Foundation of the Philippines, Inc. One-Year Course on Trust Operations and Investment Management  DAY 1 OUTLINE OF TOPICS HISTORY OF TRUSTS 1.Brief Situationer – English Equity Law 2.Development of Trust in England 3...

Trust Institute Foundation of the Philippines, Inc. One-Year Course on Trust Operations and Investment Management  DAY 1 OUTLINE OF TOPICS HISTORY OF TRUSTS 1.Brief Situationer – English Equity Law 2.Development of Trust in England 3.Refinements introduced by American Law 4.Trust as a legal Institution in the Philippines 5.Trust Distinguished from other relationships 6. Types of Trusts  Trusts are among the most versatile and useful estate and financial planning tools. You don’t have to be rich to use them, you only have to be realistic about what these complex instruments can, and cannot do for you. Within limits, trusts can help you do the following:  Manage your assets in the event you are disabled Manage assets for your children or family in the event of your death Avoid probate Avoid creditors Minimize or eliminate estate and other transfer taxes  – Protect loved ones – Own your insurance policies – Control businesses, and more A trust like a corporation is a creature, or fiction of the law. A trust is something you create by following the procedures required by laws.  The key to using a trust is knowing that a trust arrangement separates the legal ownership of an asset from the benefit of that asset. The person holding legal title, the trustee, has a fiduciary duty to the person or persons entitled to the benefits of the trust property A fiduciary duty is a responsibility of care imposed on the trustee by the provisions of the trust law or agreement.  The advantages of a trust agreement come from the separation of ownership and benefit.  Five Key Elements of Every Trust GRANTOR – is the person who transfers property to the trust. Also called the trustor, grantor, settlor or donor TRUST PROPERTY – is the principal or subject matter of the trust – it is also called the trust res TRUSTEE – is the person responsible for managing and administering a trust.  BENEFICIARY – is the person or persons who will receive the benefits and advantages of the property transferred to the trust INTENT OF TRUST – every trust has a purpose, or intent, which motivates the grantor to set up the trust.  CONCEPT OF TRUST The ancient trusteeship concept was a fundamental and sacred one. Of interest to us in our present generation is Christianity in which Jesus Christ is the acknowledged trustee of the Christians and the Prophet Mohammed, the acknowledged trustee of Islam. The concept, which follows the age-old virtues of faith and confidence, the assured reliance on the integrity, veracity, justice, friendship and other laudable virtues of a person, through the years, has also acquired a business concept as well. Thus, the present definition of trust -  “x x x a time-tested business arrangement whereby a person called a trustee holds and manages property for the benefit of other persons called the beneficiary or beneficiaries” The following historical and biblical truths are cited as precursors of the modern day trust:  Under the Old Testament, Jehovah appointed Moses, trustee of the people of Israel, and gave him instructions to lead them out of bondage; At an early date, the church was appointed trustee of salvation; and it still is considered as such For thousands of years, the priesthood was the sole trustee of education. To a certain extent, it still is.  In 254 BC in Egypt, an influential person named Uah, left a formally witnessed will appointing his wife executor of his estate and his friend as the guardian of his son In 457 BC an association was formed by a group of Japanese to manage the estate of a wealthy nobleman. Sadly, however, the abortive trust company met with instant disaster at the hands of oriental justice.  On the theory that such a group could not have a conscience and therefore was unfit for the responsibilities involved, the Mikado ordered the entire group beheaded.  To the Romans belong preeminently the credit of inventing the will, the instrument which next to the contract, has exercised the greatest influence in transforming human society. The forerunner of the modern will was the English will Wills naming executors were in use by the close of the 12th century as shown by the will of Henry II in 1182 wherein he named executors for his properties.  From the middle of the 13th century, the office of the executor was a church office and the executor was a bishop or a churchman. It was only during the reign of Edward I (1272-1307) that the executor became the recognized personal representative of the decedent. With the recognition of the executor, the probate practice came into being in England.  English Equity Law A Brief Situationer 1066 Battle of Hastings William (Duke of Normandy) won and claimed the throne of Edward the Confessor. Royal Court eased out local courts. Common Law has its source in previous court decisions. Procedures rigid. Writs. Court of Chancery heard petitions in equity Relief in equity corrected common law. Both law and equity=common law tradition.  Development of Trust in England Uses (Passive Trust) introduced shortly after Norman Conquest. Trustee has no duties; mere receptacle of legal title; beneficiaries enjoy property; can direct trustee to convey use to another with no ceremonies. Principal Objects of Uses: Statute of Uses (27 Henry VIII, c.10) Effects of the Statute of Uses  Principal Objects of Uses What is a “use”? A to B to C To avoid the burdens of holding legal title to land. To enable religious houses to obtain profits of land, despite mortmain acts ( Edward I, 1279 and 1290, preserve kingdoms revenue by preventing land from passing into the possession of the church). To have greater freedom to make inter vivos transfers of land, and Transfers by will.  The Statute of Uses “Whenever any person should thereafter be seized of land to the use of another, the latter shall be deemed the legal owner of such lands.” The” use” was developed to serve a number of purposes, the principal of which were to avoid burdens that came with land ownership under the feudal Anglo-Norman kingdom  Effect of the Statute of Uses By express provisions, or by court interpretation, certain equitable interests were not converted to legal interest: personal property, active trusts, & uses upon uses. What is a “use upon a use” – A to B to C to D Active vs. Passive Use (no care or duty) These were recognized by the Chancery Court as trusts after the Statute of Uses and became the modern law of trusts  Prior to the Statute of Uses (1535) there existed in England a relationship known as trust Two classes: active or special – trustee held property for some temporary purpose and with active duties to perform Passive or a “use” – legal title was transferred to one as a holder for the benefit of another, but with positive duties of care or management.  Uses and trusts were introduced into England shortly after the Norman conquest. It was said by an English lawyer many years ago that the parents of the trust were fraud and fear and the court of conscience was its nurse. Burdens of landholdings and others of similar nature fell upon the holder of the legal title.  Upon the commission of certain crimes the holders of the legal title suffered a forfeiture, which could be avoided by vesting the legal estate in another and retaining only the use. Not only was the equitable estate of the cestui que free from dangers and the duties, but it could be held by a large and influential class which could not hold the legal estate in lands, namely religious corporations.  The “mortmain acts” forbade the alienation of lands to religious corporations, and this prevented the religious orders from acquiring directly the real property they needed, and which charitably had taken vows of poverty, and could not consistently hold property in their own names. The “use” solved this problem for them.  Early English law was extremely rigid Unless a “writ” or law gave a remedy which exactly fitted the situation, a remedy was hard to find. The interests of the beneficiary of a “use” were not protected by the common law courts, because no writ existed to fit the case Honorary obligation, no legal standing  If the trustee saw it fit to deny that he held the property as trustee, and to appropriate it to his own use, he might do so with impunity. The development of the “Court of Chancery” wrought change. It became the custom to petition the King or his council for relief in cases where the law gave no remedy  The chancellor became the custodian of the king’s conscience, and his court the court of conscience Equity and fairness were supposed to rule there, rather than technicality The process by which the chancellor acted was known as a subpoena. It commanded the defendant to do or refrain from doing a certain act  By the beginning of the 16th century uses and trusts had come to involve such serious injustices that parliament was persuaded to act against them Aside from the reasons named in the statute itself, there was according to some authorities, the desire on the part of Henry VII to destroy the monasteries and confiscate their property, which he could do by abolishing the uses.  Refinements introduce by American Law Trust Instruments set forth rights & duties of parties and the powers of the trustee. Court-made rules stated & restated or changed by statutes but no attempt yet to codify the whole body of trust law. American law of trust has been expounded in the Restatement of the Law of Trusts, adopted by the American Law Institute.  Trust as a Legal Institution in the Philippines The Philippine Trust Company (1916) Supreme Court under American Rule Civil Code of the Philippines National Internal Revenue Code Land Registration Law (registration of land under trust) General Banking Law of 2000 Omnibus Investments Code/Foreign Invest. Act  Omnibus Investments Code of 1987 Art. 15. Philippine national shall mean xxx a trustee of funds for pension or other employee retirement or separation benefits, where the trustee is a Philippine national and at least sixty percent (60%) of the fund will accrue to the benefit of Philippine nationals. Foreign Investment Act of 1991 (Sec.3, a)  Definition of Trust Civil Code of the Philippines Art. 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary.  Bogert, Trusts, DEFINITION OF FUNDAMENTAL TERMS: Sec. 1. A trust is a fiduciary relationship in which one person is the holder of the title to property subject to an equitable obligation to keep or use the property for the benefit of another.  Definition of terms The SETTLOR of the trust is the person who intentionally causes the trust to come into existence. The TRUSTEE is the person who holds title for the benefit of another. The TRUST PROPERTY is the property interest which the trustee holds subject to the rights of another. The BENEFICIARY is the person for whose benefit the trust property is to be held or used by the trustee. TRUST INSTRUMENT is the document by which property interests are vested in the trustee and beneficiaries and the rights and duties of the parties (called the trust terms) are set forth.  The Parties to the trust: Trustor/Creator/Settlor/Grantor/Donor -Trustor-Beneficiary. Trustee -Trustor-Trustee -Co-Trustee/Joint-trustee; -Trustee-Co-beneficiary; -One of several Joint trustees-sole beneficiary. Beneficiary/cestui que trust/cestui que trustent -Income and Remainderman/Primary -Animals, inanimate objects, Charities  Trust distinguished from Agency TRUST AGENCY Property-an element Not an element Legal title with bank Legal title with client Own name of bank In the name of client Death does not Death extinguishes terminate the account the agency  Trust distinguished from CASA Trust CASA Not insured by PDIC Insured by PDIC Covered by Covered by R.A.1405 Sec.55.1(b)R.A.8791 Secrecy of Bank Dep. No guarantee/fixity. Principal & interest guaranteed Relates to specific Obligation is to repay. property Conveyance Contract  Trust distinguished from Bailment Trust Bailment Covers both personal Covers only personal and real property. property Legal title transferred Legal title retained Equitable rights Legal rights Fiduciary Relation Not fiduciary relation.  Trust distinguished from Contract for Benefit of Third person. A promises B, for a consideration running from B to A, that he (A) will deliver over property to C, C in some jurisdictions might be unable to enforce the performance of A’s promise because C is a stranger to the contract. Art. 1311 NCC. Acceptance by beneficiary, must be communicated to obligor before revocation, is necessary. Else no privity of contract.  TYPES OF TRUSTS EXPRESS OR IMPLIED (Arts.1443 & 1447, Civil Code) ACTIVE OR PASSIVE PRIVATE OR CHARITABLE PERSONAL TRUST OR CORPORATE INTERVIVOS OR TESTAMENTARY – INSURANCE TRUST REVOCABLE OR IRREVOCABLE