Understanding Equity System in Express, Constructive and Secret Trusts

In the context of equity system, compensatory trusts are implied by third parties in various situations. For instance, when one family member lends money to another or asks someone to purchase a property on their behalf. The main purpose of the equity system is to deliver rightful assets to the rightful person. The beneficiary may receive income from trust property or the property itself, depending on the wording of the trust document. Understanding the concept of equity helps in defining benefits for beneficiaries in different areas. Furthermore, express and constructive trusts are differentiated by clear rules and regulations, allowing parties to be advantaged and benefited.

Equity and Trusts

Equity in general can be referred to the rules and regulations developed by the court to
mitigate the severity of common law. However, it is important for the community to undertake
such rules so as to provide the relief to the common people regarding the harshness of the natural
laws (Hudson, 2014). Herein, researcher focuses on understanding of the roles of equity,
equitable principles and equitable remedies in the English law has been focused on. Along with
this, investigator will discuss different types of trust and specifically secret trust and it creation
procedure. Lastly, implementation of these trusts on the basis of law. On the basis of
understanding made through these aspects further essay will critically analysing the statement of
“the rules of equity make a clear distinction between express trusts and constructive trusts. This
is to the advantage of the beneficiaries.”
According to the English Common Law, equity can be defined as the set of maxims that
supremacy over all the legislations and from which all the other respective civil laws are flowed
(Evansand Jones, 2003). Furthermore, equity is commonly illustrated as the approach used by
Court of Chancery in mitigating the harshness of common law as well as permitting the courts to
make the use of their discretion and accordingly apply justice on the natural law. The main role
of equity system is attributed for contributing significantly towards the development of law.
However, these contributions are especially seen in different areas such as auxiliary (new
process), exclusive and concurrent jurisdictions. Further, these are the three major categories of
the equity system which focuses on different aspects of the common law. Under the auxiliary
jurisdiction, equity has helped in rising the new procedures regarding the discoveries made by
court of chancery in order of witnesses, interrogations process and the testimonies made on the
oath. While in exclusive jurisdiction, equity system helped the common law court in the cases
such as partnership, mortgages, bankruptcy, company law, trusts and administration of estates in
which it is failed to enforce (Atkins, 2013). Lastly, concurrent jurisdiction can be defined as the
wide range of new remedies developed by the equity system in order to enforce rights of both at
law in equity.
In addition to it, the major role of equitable principle is to develop basic rules from suits
in equity that focusing on treating everyone in fair, equal or ethical way. In other words,
development of basic rules and regulation that are applied to achieve the fairness wherever the
strictness or harshness of common law or natural law too severe or unkind for the common
people (Barnett, 2013). However, the main purpose behind these principles is that it allows the
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system to address the inflexibilities of the common law in different cases. Furthermore, equitable
principles are considered as the most important distinction that exist within the two systems.
However, in common law decisions are based on the references to existing legal doctrines while
on the other hand, equity system focuses on fairness and flexibility which are further known as
maxims of equity (Foxand Krige, 2013).
Lastly, equitable remedy is a remedy that is action prescribed by the court to resolve the
matter. However, this type of remedy is used when there is no financial remedy available.
Furthermore, it can only be allotted by the judges as it is matter of law. There are several
principles of remedies as defined above but the two major equitable remedies are injunctions and
specific performance (Hepburn, 2013). In this regard, injunctions can be mandatory or
compulsory for the individual to do something. While in case of specific performance, party is
require to perform a contract.
In general terms, trust refers to the relationship where property is held by one party for
the benefits of another. However, in this trust is created by the settlorwho transfers the property
to trustee. In this case, trustee is responsible for holding the property for the trusts beneficiaries.
Further, trustee is given the legal title to hold the property but is obligated to act for the good of
the beneficiaries (DeMott, 2014). The individual is compensated and reimbursed the expenses
but all the profit generated through the property is given to its original owner. The trustee may be
either an individual, company or a public body. However, a trust is governed by several terms or
stipulations under which it is created.
In context to the significance, trust is considered to be the most innovative contribution to
the English Legal system. At present, trust play a vital role in various common law system and
its success has enforced some of the civil law judiciaries to involve them into civil code of
conduct. Further, the basic principle of trust is defined as the property of any sot may be held in a
trust which can be varied for both commercial and personal reasons. A trust can provide benefits
in several areas such as estate planning, asset protection and taxes (Kumar, Gopaland Aggarwal,
2016). There are several types of trust that can be used in different situations. However, trusts
have different names and it totally depends upon the characteristics or the purpose of trust. A
single trust can be accurately be described in several ways such as: a living trust can be often
considered as the express trusts because it is revocable trust. Following are the different types of
trusts:
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Express trust: An express trust is raised when settlor intentionally or purposively decides
to create trust over their assets as of now or after death. However, in these cases trust is achieved
by signing a trust instrument which can be termed as either will or trust deed. Intention of the
parties to create the trust should be shown clearly by the language or conduct (Li and et.al,
2013). Further,in order to exist an express trust, it is important for having the certainty to the
objects of the trust and trust property.In context to USA,statute of Frauds provisions require
express trust to be evidenced in writing if the trust property is above a certain value or is a real
estate.
Constructive trust: It is just opposite of express trust because a constructive trust is not
create by any agreement or contract between settlor and the trustee. However, it is the trust
which is imposed by the third party most often by the government as an equitable remedy (Akka,
2014). Further, a constructive trust occurs generally when some wrongdoing is conducted in
which wrongdoer has been granted the legal title of some property and acquiring the wrong
benefits.The main purpose of constructive trust within the English law is that it helps in
delivering the rightful assets to rightful person. It is not necessary that every time,trustee is the
person who is responsible for doing the wrong activities but in practice it is often a bank or
similar kind off organisation (Robbins, 2014).
Secret trust: In general, secret trust can be defined as the trust which arises when
property is left to a person or individual according to the will on the understanding that they will
hold the property or assets as trustee on behalf of the beneficiaries who are not named in the will.
According to the English law, secret trust is a class of trust which is referred as the agreement
between testator and trustee come into existence after the death which mainly aims to benefit
those person whose name is not defined formally in the will (Equity & Trusts, 2014). However,
in this case trustee is responsible to take care of property as well as provide the actual benefits to
the beneficiaries. Furthermore, trustee is liable to acquire compensation or can reimburse the
expenses made in maintaining the property. In this regard, full secret trust is the integral part of
express trust which is created when a testator leaves property to a specified person in his will and
who agrees to hold the property on the trust for the third party. However, in full secret trust
neither the fact of trust and nor the identity of beneficiary is revealed in the will. While on the
other hand, half-secret trust helps in eliminating the danger if the testator indicates in his will that
the recipient of the bequest is not intended to take the property absolutely rather than as a trustee.
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Through the means of this, identity of beneficiary remains the hidden, but the beneficiary clearly
named within the will is seen as the secret trustee.
Difference between full secret trusts and half secret trust:
Full Secret Trust Half Secret Trusts
It is the type of trust of which there is no mention in
the testator’s will.
This is the type of trust which is referred in the will but
normally beneficiary under the disposition is not
named.
It is the part of express trusts and it is created when
testator left the property for a specific individual in
his/her will.
In this, testator cannot reserve him/herself as the power
of making the future unwitnesseddisposition just by
naming the trustee.
In order to prove the full secret trust there must be an
intention that it was communicated to the trustee.
Communication according to half secret trust must be
either at or before the execution of the will.
Acceptance of full secret trust can be communicated in
two ways, either by the trustee directly stating his
acceptance or by implying it through not declining.
Failure of half secret trust depends upon the fact the
beneficiary of the trust cannot be shown or
communicated is not at or before the execution of the
will.
There are several different situation in which trust is implied by the law. However, it is
the trust between trustee and party due to which this implied trust is commenced. Therefore, as
per the trust law, situation in which one member of the family provides the money to another for
the sake of future but asks the third member of the family to hold the money or invest it for the
second one (Watt, 2014). However, the trust from one member towards the third member is
defined as the trust implied by law. In this, third member is responsiblefor maintaining the trust
as well as carrying out the activities for second member.Other than this, implied trust would be
the situation in which one party provides the money to another for the purchase of property and
let him hold the property until party does not made a gift or as a natural expression of
transferring the property. In this, money provider have the trust on the other party due which
allow individual to take property on his or her behalf and expects whenever he/she wants,
property will be given by the trustee (Hepburn, 2013).Therefore, these are some of the situations
in which trust is implied by the law and it is the responsibility of trustee to make sure that trust is
being maintained and carried out in effective and efficient manner.
“The rules of equity make a clear distinction between express trusts and constructive trusts.
This is to the advantage of the beneficiaries.”
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On the basis of above study it can be said that, rules and legislation of equity clearly
makes the distinction between express trusts and constructive trusts so as to provide fruitful
benefits or advantages to the beneficiaries (Evansand Jones, 2003). In this regard, as per the rules
modified in auxiliary jurisdiction eye witnesses helped in creating express trust between the
party and trustee. While in the case of forming partnership equity system has led the
beneficiaries toattain various benefits that common law is unable to provide. Furthermore, there
is clear difference between express and constructive trusts as both plays crucial role in their own
situations (Kumar, Gopal and Aggarwal, 2016). Likewise, express trusts provide clearly
description of all the terms and stipulation between the parties in the written form so that chances
of fraud become very less. While on the other hand, compensatory trusts is implied by the third
party in various situation like in case of one family member lending money to another family
member along with this, one person asking another person to purchase the property on behalf of
him or her. However, in both the trusts, equity system focuses on providing benefits to the
beneficiaries so that main purpose of equity system within express and constructive
trustsaccording to the English law is that it helps in delivering the rightful assets to rightful
person (Li and et.al, 2013).However, it is not essential that every time, trustee is the person who
is responsible for doing the wrong activities but in practice it is often a bank or similar kind off
organisation.Furthermore, according to trust of equity, beneficiary will either immediately or
eventually will receive the income from the trust property or they will receive the property itself.
However, the interest of beneficiary depends upon the wordings of trusts document (Watt, 2014).
In conclusion to the above essay it can be said that there are several laws and legislations
that are important to abide in context to generate desired results and outcomes. However,
understanding the concept of equity system helps in defining the actual benefits or advantages
for the beneficiaries in different areas. Further, study entails thedifferent types of trusts such as
express, constructive and secret trust and the as per the new modifications of equity system
within the common law so that beneficiaries can be benefited. In addition to this, the rules and
regulations of equity clearly in differentiating between express and constructive trust so that in
various situation parties can be advantaged and benefited.
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REFERENCES
Journals and Books
Atkins, S., 2013. Equity and trusts. Routledge.
Barnett, S., 2013. Course Notes: Equity and Trusts. Routledge.
DeMott, D.A., 2014. Relationships of Trust and Confidence in the Workplace. Journal of Equity
and Trusts. 100.p.1255.
Evans, M. and Jones, B.L., 2003. Equity and Trusts (Vol. 3). LexisNexis Butterworths.
Fox, M.A. and Krige, J.D., 2013. Investigating the sources of performance in South African
general equity unit trusts. Investment Analysts Journal. 42(77).pp.45-54.
Hepburn, S., 2013. Principles of Equity & Trusts (Aus) 2/e. Routledge.
Hudson, A., 2014. Equity and Trusts. Routledge.
Kumar, A., Gopal, K. and Aggarwal, A., 2016. Design and Analysis of Lightweight Trust
Mechanism for Secret Data using Lightweight Cryptographic Primitives in MANETs.
International Journal of Network Security. 18(1).pp.1-18.
Li, M. and et.al., 2013. Secure ad hoc trust initialization and key management in wireless body
area networks. ACM Transactions on sensor Networks (TOSN). 9(2). pp.18-20.
Online
Akka, E., 2014. Secret trusts – Rawstron v Freud [2014] EWHC 2577. [Online]. Available
through: <http://www.lawskills.co.uk/articles/2014/11/secret-trusts-rawstron-v-freud/>.
[Accessed on 16th January 2016].
Equity & Trusts, 2014. [Online]. Available through:
<http://jaceywongliching.blogspot.in/p/equity-trusts.html>. [Accessed on 16th January
2016].
Robbins, R., 2014. The Four Stages of Trust: The Secret of Creating Trust. [Online]. Available
through: <http://innerself.com/content/personal/relationships/5225-the-four-stages-of-trust-
by-dr-riki-robbins.html>. [Accessed on 16th January 2016].
Watt, G., 2014. Trust and Equity. [Pdf]. Available through:
<http://www.pbookshop.com/media/filetype/s/p/1397833380.pdf>. [Accessed on 16th
January 2016].
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