A trust is not a separate legal entity. Rather it is a relationship between persons that gives rise to equitable obligations enforceable by the courts. There are four elements essential to a trust:

• a trustee (which is a legal entity);

• trust property;

• a beneficiary; and

• personal obligations attached to the trust property.

A fiduciary duty arises where the primary purpose of the relationship is for one person to serve the interests of another person. A trustee/beneficiary relationship is one type of relationship where a fiduciary duty arises. Therefore, a trustee owes a fiduciary duty to the trust beneficiaries and as a result, must act in the beneficiaries’ best interests.

Trust obligations were first formulated and enforced by the English equity courts. Even now, they are only enforceable by a court that has equitable jurisdiction. Not all courts have such a jurisdiction.

Trusts can be created in a number of different ways:

• by an express intention of the settlor to create a trust;

• by a person providing the purchase money and acquiring property in the name of another person. Unless there are special circumstances, this situation creates a resulting trust in favour of the person who provided the money;

• where a person holds property and has a personal obligation to account, regardless of that person’s intention. Sometimes this occurs where a person has dishonestly dealt with property. This is known as a constructive trust; and

• where a person holds a property absolutely for another, without any active obligations. This is called a bare trust.

See Nature and creation.

An express trust can be created orally or by a written instrument. However, if the trust property is real estate, the declaration of trust must be in writing.

To be valid, an express trust must satisfy three tests of certainty. These are:

• certainty of intention (to create a trust);

• certainty of subject matter. For a trust to validly exist there must be trust property; and

• certainty of beneficiaries.

An express trust can be varied in a number of ways:

• pursuant to powers contained in the trust instrument. Most trust deeds permit variation of the trust powers but prescribe certain procedures to be followed or consents to be obtained in order to do so;

• through the inherent jurisdiction of the courts. These circumstances are quite limited; and

• through the power to vary conferred on the court by statute. A number of such powers are conferred by the state and territory Trustee Acts to assist in management or administration of trusts.

The maximum life of a trust is limited by the perpetuity period. In most states the maximum life of a trust is 80 years. The perpetuity period time limit has been abolished in South Australia. In almost every modern trust, the trust can be terminated at any earlier time by either the trustee or the appointor (or both).

Beneficiaries can bring a trust to an end, if they are all over 18 and beneficially entitled to the whole of the trust property.

See Express trusts.

Resettlement occurs when a trust comes to an end and the assets of the trust are transferred to another trustee to be held on different trusts.

Resettlement is often authorised by the trust deed but can have serious revenue consequences including:

• capital gains tax because there has been a disposal of the assets of the trust;

• income tax because of the deemed disposal of trading stock, if the trustee is running a business; and

• stamp duty because there has been a change in ownership of dutiable property.

Sometimes a resettlement can be unintended and can arise from a variation in the trust deed including:

• the addition or removal of beneficiaries; and

• changing the terms of the trust.

See Resettlement.

Trustees have certain rights that protect them when discharging their duties in a proper manner. The principal right of trustees is their entitlement to reimbursement from the trust fund for debts properly incurred in the course of the conduct of the trust by the trustee personally.

A trustee may, in appropriate circumstances, also have a right of reimbursement from a beneficiary.

In most jurisdictions, the right of reimbursement can be excluded so that it is not available to a liquidator who may become subrogated to the rights of a trustee. However, great care should be taken or the directors of a trustee company could become personally liable: s 197 , Corporations Act 2001 (Cth).

Unless the powers of a trustee can be said to be conferred by the court under its inherent jurisdiction or found in legislation (principally the Trustee Acts of the states and territories), all powers must be sourced in the declaration of trust.

Important powers that are found to a greater or lesser extent in the various state and territory acts include:

• a power of sale;

• power to postpone sale;

• power to manage;

• power of maintenance and advancement;

• power to mortgage;

• power to lease; and

• power to insure insurable trust property in Western Australia.

Duties of a trustee are imposed by the trust instrument, statute and general equitable principles. Departure by a trustee from the terms of the trust can result in the trustee being personally liable for any losses.

General principles governing such duties include:

• to adhere to and carry out the terms of the trust;

• to get in the trust property;

• not to impeach the validity of the trust instrument or the title of the beneficiary;

• to act impartially amongst the beneficiaries;

• to properly invest the trust funds;

• to keep and render proper accounts;

• to exercise reasonable care;

• not to delegate duties or powers (subject, in Western Australia, to certain narrow statutory exceptions where a trustee may, under s 54 of the Trustees Act (WA), delegate duties of powers temporarily during his or her period of absence from Western Australia or physical infirmity and other than in South Australia where s 17 of the Trustee Act 1936 (SA) provides for a general power of delegation);

• to act gratuitously (modified by statute): s 77 of the Trustee Act 1958 (Vic); s 58 of the Trustee Act 1898 (Tas); s 59B of the Trustee Act 1936 (SA) and s 70(1) of the Administration and Probate Act 1919 (SA); and

• not to deal with trust property for personal benefit or otherwise profit by the trust.

See Rights, powers, and duties of trustees.