A trust is created by a settlor or a grantor, transferring property to a trustee to hold in trust for stipulated purposes and may be created inter vivos or on death by will.
This implies that a trust is formed when a person transfers a property or rights to another person who holds it for a third party.
There are many reasons why trusts are created. The most common reason is where the intended beneficiary of a right is not capable of holding it at a given point in time. An example of this is where the beneficiary is a minor.
Trusts create three legal persons: the settlor or grantor who is the legal owner of a property and he decides to transfer it to a third party via a trustee. The trustee is the one who holds the property for the beneficiary. The beneficiary is the original person for who the settlor seeks to transfer the property.
Legally, a trust is not valid until there is a beneficiary. In other words, because a trust imposes an obligation on the trustee, there is the need to identify a person for whom the trustee is to hold the property otherwise the arrangement cannot be seen as a trust.
A trust presents some kind of 'powers' which places an obligation on the trustee. The breach of this obligation leads to legal action on the part of the beneficiary. The beneficiary therefore holds some proprietary rights to the trust property and this in turn gives the trustee a fiduciary duty towards the beneficiary. This obligation is one that can only be enforced if there is an identifiable beneficiary for the trust.
In Morice V Bishop of Durham , the main legal element of trusts, which is known as the beneficiary principle was established. The beneficiary principle states that for a trust to be valid, the following conditions must exist: 1. There should be someone in whose favour the courts can decree the performance of a trust. In other words there should be a beneficiary 2. The identity of a beneficiary must be certain and the court must be able to identify such a beneficiary.
In Re Astor, it was held that a trust for the preservation of an independent newspaper was void because there were no human beneficiaries identified in the trust. This therefore lays precedence for the fact that every trust must have an identifiable beneficiary for whom the trust is being established. Other than that, the trust cannot be recognised as legal.
However, the ruling of Re-Denley established a separate set of precedence that seems to contradict the beneficiary principle. In Re-Denley, the ruling was that a trust can be valid if there is some person or a group of persons who could be reasonably assumed to be capable of enforcing the rights to the trust in court.
In other words, a trust might be legally binding if a class of beneficiary could be reasonably inferred by examining the circumstances. This therefore means that on the basis of the ruling form Re-Denley, an arrangement without a clearly specified human beneficiary could be classified as a trust if certain conditions are met.
In Re-Denley, the main point of legal conflict was based on the fact at sports facility was to be held in trust for the employees of an organisation. It was argued in the case, that the employees were not a defined group of people and the trust was therefore void under law. The ruling of Justice Goff was as follows:
“No distinction in principle between a trust to permit a class defined by reference to employment to use and enjoy land in accordance with rules to be made at the discretion of trustees on one hand and on the other hand, a trust to distribute trustee's income at the discretion of the trustee among a class defined by reference to for example the relationship to the settlor”
This therefore means that a trust can be legal if there is a defined class of individuals who can benefit from the property if it can be inferred from the instructions...