What traces its history through Ancient Rome and the Crusades, can have many de facto owners, none at the same time, and can hold entire groups of companies, money or property while owning nothing?
The answer is a trust.
Trusts play a vital role in private wealth planning like pensions, business structures, local government — in the form of education and healthcare trusts like the NHS, even village Halls have trust funds – trusts are part of everyday life with the most established trusts run by charities – benefiting good causes on a truly under-appreciated scale.
Many employee benefit and pension schemes are also trust-based, with the largest pension trusts being worth more than the gross domestic product of some countries. So, trusts don’t just concern the wealthy — millions of everyday hardworking people will be beneficiaries of a trust.
Trusts trace their history to Ancient Rome, and were developed further in England in response to injustice experienced by early Crusaders. They often transferred their lands to trusted friends before going to fight for years or decades — for them to be administered for their families in their absence — only to return and find that the person holding the title to the land refused to hand it back.
To counter this injustice, a new concept was needed that recognised that legal and beneficial title in a single asset could be split. Legal title means owning something on paper; beneficial title denotes a right to benefit from the asset. Most of the time, legal and beneficial ownership vest in the same person.
When a trust is created, there is a split — the person who holds legal title to the thing is a trustee, and the person for whose benefit they are holding the asset is the beneficiary. When the Crusaders signed their lands over to friends, they intended to part with legal, but not beneficial, ownership — the friend was intended to hold the legal title for the benefit of the Crusader and his family, ie, as a trustee.
The recognition of this led to the development of trust law by the ancient Court of Chancery, which strived to ensure that a strict application of the common law was tempered by innovating in the interests of justice — the case law so developed was known as “equity”. Legal principles were developed in relation to trusts — for example, the principle that someone cannot benefit from acting as trustee — so in the case of the Crusaders, lands intended to be held in trust could not be kept by the trustee for his own benefit.
It’s odd to think of ownership in one asset being split into different dimensions. It gets even more interesting where discretionary trusts are concerned — if such a trust is established for A, B and C, none of them has any fixed rights to benefit from the assets, only a right to be considered as an object of distributions. A, for example, may never receive a penny. Further, many offshore jurisdictions such as Bermuda recognise trusts with no beneficiaries at all — as long as they meet certain conditions including having clear purposes — so the “real” owner of their assets is, effectively, an idea.
With a history tracing back through holy wars and ancient empires, trusts fulfil a diverse range of functions, from aiding education, family trusts, aiding charities, trusts set up to orphan special-purpose vehicles, and investment trusts. They are ubiquitous yet mysterious to many, they help the wealthy with intergenerational wealth & generational planning, and workers to survive in their old age.
They are one of the most complex and interesting concepts in law.