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Commercial Trust Law


  • Unit No: 18
  • Level: High school
  • Pages: 13 / Words 3193
  • Paper Type: Assignment
  • Course Code: M/617/4823
  • Downloads: 538
Question :

This sample will let you know about

  • Discuss about the different types of trust with analysis.
  • Discuss about the commercial law.
  • Discuss about the difference between contract law and trusts law.
Answer :
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Trust is defined as a structure where business operations are carried out by trustees on behalf of members of the trust. Trust do not enjoy advantages of being termed as a separate legal entity. Establishment and dissolution of trust is effected through trustees. In a trust an individual or a company both can enjoy status of trustee (Clarke and et. al., 2017). Trustee is legally liable for debts of the trust and assets of trust are used to meet those debts. Trust hold properties and performs operations for others so that benefits can be generated. Commercial trust is a legal business through a legal contract in which properties are transferred to trustees. Laws and regulations are applied on trust and trust law works to facilitate the principle that more then one individual can enjoy right on same property. Property in the trust is supplied by third person and in legal terms that person is termed as Settlor.

In this project report mechanics of creating express trust including rights and beneficiaries is defined. Different types of trust with rights and responsibilities of the parties to the trust is mentioned. Application of trust law and equity is mentioned in commercial transaction. Relationship between contract law and trust law and process to limit trustees liability is critically defined in the project report.


1.1. Explain the mechanics of creating express trust including rights of beneficiaries

Trusts which are created in express terms and usually in written form are termed as express trusts. Express trusts are created for a particular purpose and formation of these type of trust can not be imposed by a court (Luhmann, 2018). It is a direct trust and termed as a legal arrangement in which different trustee controls finances or property for other individuals. Express trusts are free and defined by the creator of the trust. These type of trust are governed on the basis of three elements.
  • Subject matter
  • Intention
  • The object

Formation of express trust is influenced through an intention for establishing an idea prevailing in the settlor mind. In an express trust creator of the trust transfers property to trustee who holds it for the benefit of third person to whom the property actually belongs. Formation of express trust is supported with legal documents so that requirements for establishing a valid trust can be fulfilled. Express trust is created for various purposes such as charitable gifts and family settlements. Formation process of express trust is mentioned as below:

Formation of express trust is initiated by Settlor when they possess a valid reason for transferring property to a trustee. Distribution of property will take to beneficiary when all the terms of the trust are meet in appropriate manner. Three requirements for formation of express trust needs to be meet (Ausness, 2018).

  • The three certainties must be present for an express trust to be valid. This requirement was stated in Knight v Knight (1840) case by Lord Langdale MR. Their must be certainty of intention i.e. intention must be available to create a trust. Certainties of subject mater i.e. property which will form part of the trust funds must be identifiable and clear. Certainty of objects i.e. beneficiaries of the property to whom trust will serve must be present so that duty of trust can be fulfilled.
  • Formation of trust must be followed with applicable legal formalities when related to property or when beneficial interest in the property is served.
  • Constitution of trust must be made properly so that property is duly vested in the intended trustee.

After fulfilling all the requirements and making a trust deed registration can be made as a express trust.

There are certain rights available with beneficiary of a trust and some of them are as follows-

  • Copy of each document can be demanded by beneficiary for getting updated with the current status of operations. This right enable beneficiaries to track the proceedings in the entity (Lamprecht, 2019).
  • There is a right to obtained information from the books of account maintained by the trust. It is a contingent right which means that only when the extreme needs arise, this right can be exercised. They possess all rights to access different documents of trust such as trust deed, tax statements and balance sheet.
  • Beneficiaries are entitled to receive income or or right in the assets specified in the trust deed. If the assets are managed by the trustees, the rights to receive the benefits becomes a vested right. Vested right to the trust income or capital until the trustee have exercised their discretion. On the other hand, there is a discretionary right in which the complete discretion is exercised by the trustees only.
  • The right to modify the trust deed when it discretionary in nature. In this, there is no interference of any third party or court to. However, testamentary trust is the one in which beneficiary can approach the court for make modification in the deed. Worried for Law Homework Help ? Get our experts Help Now!

1.2. Distinguish different types of trust with analysis of nature of respective rights and obligations of the parties to the trust

A trust can be formed in different types which have been elaborate below along with concerned rights and obligations related to the parties of trust. The same are as follows:

Bare trust- In this trust, beneficiaries hold complete right with respect to capital and assets of the trust (Mitchell and Liew, 2018). Along with this, they have right in the income earned from such properties or assets. The right to manage asset is with the trustees with the intention to generate maximum benefit. No discretion is exercised by them also there is no practical control on the assets. On the other hand, rights of beneficiaries include to make decision about receipt of income from and to call on the assets. Mainly the right to make decision regarding assets and capital of trust remain in the hands of trustees further all the income earned by the properties in which they remain go in their hand only.

Obligation of beneficiaries is for the payment of inheritance tax on the account of death of trust settle. This is done when the death occurs in sever years of staring of the trust. In the context to trustee, the instructions of beneficiaries are to be followed in every case.

Discretionary trust- This trust is established by a sole person or a couple viz. Settlor or settlors. One of the interesting features is that management is done by the beneficiaries who are usually two or more than that. There are two ways of creating this that is for lifetime or by will.

The rights of beneficiaries extend to obtain information, remove or replace trustee etc. and trustees have the rights such as adding or deleting the beneficiaries which provide enhanced flexibility. It is a discretionary right of trustee to approve or deny the income.

With respect to liabilities, beneficiaries have no obligation to use the property for the benefit of beneficiaries. On the contrary, beneficiaries are under the obligation to pay taxes on income earned on the trust assets (Chen-Wishart, Loke and Vogenauer, eds., 2018).

Accumulation trust- This trust is formed for retirement assets where income can be accumulated that can be added to the capital of trust. The rights of trustees and beneficiaries are there is no urgency or prompt distribution of withdrawals from the account and entitlement of benefits, respectively.

Obligation of beneficiaries is to pay income tax as an individual on the retirement benefits. Trustees are obliged to accumulate the benefits till its maturity or expiration of the trust.

Non-resident trust- This trust is for the people who are not resident in UK as defined in the tax laws. Such individuals are trustees. Also, it can be formed where few trustees are UK resident and rest are non resident, not ordinarily resident or had abode in UK at the time for establishment of trust.

The rights of trustees in the respect of this trust are to make decisions for the benefit of the beneficiaries. Beneficiaries have the entitlement to use the assets only on account of distributing the incomes by the trustees. In considering the liabilities, trustees are under the obligation of abiding by the laws and rules related to putting the assets for the investment. To disclose the records of proceedings to the beneficiaries for keeping them updated. On the contrary, beneficiaries have the obligation to pay the taxes which are mentioned in the guidelines and required by the international taxes laws (Norbury, 2018). Want to get Assignment help ? Talk Our Exper Now!

Settlor-interested trust- This trust is the one in which the settlor or their spouse or civil partner benefits from the trust. It can be in any form such as interest in possession, accumulation or discretionary trust. The types can be decided on the requirements of trustees and beneficiaries.

Rights of trustees and beneficiaries are same as in the case of any other trust. There are certain common obligations which are there in every trust and cannot be modified. These are to be followed without any contravention.


2.1. Explain the particular context of commercial transaction into contract with trusts law and equity

Commercial transactions refers to the payment that is paid for a good or service. It can be between different types of entities which may include government, other entities etc. Also, there is no specific scale at which these are conducted. Without commercial transactions, no business can survive for a long time. Every deal which involves such payment is usually executed through agreements which may in many different forms (Tan, 2019).

Contract is an agreement which is enforceable at law. Companies form and execute contracts before any transaction in order to manage the whole activities properly and to prevent any issues which may be converted into conflicts at a later stage. It is very important to form contract by including terms and conditions approved by both the parties. There should be clarity in all the clauses in order to avoid conflict or disputes. This may not be beneficial for the businesses who are involved in the contract.

Trust laws comprise of the provisions which should be abide for the fiduciary relationship among the parties in a trust. Trustees have the duty to act by being legal and maintaining the element of trust. On the other hand, equity law provides basis for the equality of people living in a country. It is a simultaneously administered by common law which has the motive of bringing fairness in the judgement (Goldberg, 2018).

Commercial transactions should be made in a contract by taking into consideration the provisions of equity and trust law. It should also include the level of complexities available in the trust while formulating a contract. The main reason for this is to protect any breach or contravention of the clauses entered into the contract. Furthermore, it should be fair and just without any fraudulent intention as there are many beneficiaries involved who created the trust for earning income and to carry the management of property for their benefit. Take Examples of Assignments Now!

When a contract for commercial transactions is formed for it should not include any element which can make problem for the parties involved. Also, the commercial transactions should be carried with the inclusion of clauses which have been approved with the beneficiaries. A trust is an equitable obligation which binds the parties viz. Trustee having the absolute control on the trust property. The income earned from the properties should be paid to the beneficiaries at the time of trust being dissolved or matured. The payment is in the nature of commercial transaction which should be done in the right spirit and honesty.

2.2. Demonstrate the interactions between contract law and trusts law and explain how trusts are not bound up with contract.

Contract law is for making the agreements which can enforceable by law. It provides legal obligation which must abide by the parties. It includes different clauses which can be in written as well as oral form depending on the types of contract the parties wish to form. It comprise of the promise which should be completed without any breach or contravention otherwise there may arise consequences which can lead to financial burden (Young, 2018). In brief, contract law is the one which remain responsible to formulate law and every part involved in the contract remain responsible to follow all the standard terms and conditions formulated by contract law otherwise it give rise to unnecessary consequences.

Trust laws are for all the trusts formed by the trustees and beneficiaries. It provides the rights and obligations which should be exercised and fulfilled. Also, the most important element in this is that there should be a fiduciary relationship between the people involved in the trust. There should not be any mistake in the part of the parties. According to this law, there are three parties as mentioned in the law which should be there in every trust. Generally, the administration of the assets is with the trustee. Also, the decision making is done for the benefit of beneficiaries who have interest in the trust money or property. Basically all the trusts that are formed by the trustees remain responsible for to comply with all the trust laws. Existence of fiduciary relationship among all the parties involved in trust is necessary in order to make this law enforceable. All the decisions taken remain in the benefit of beneficiaries who invest money in order to run the trust.

A trust is not a defined as the legal person just like a company hence, it cannot be a party to the contract. Also, there is no signing authority to contract. However, the trustees is the proper signatory due to fiduciary capacity which should be within the legal scope. There are many legal authority which can be exercised by a trust and one of such authorities being entering inton contracts or agreements (Dodd, 2017).

Legally, a trust can enter into the contract by the trustees but there is no legal capacity to contract in its own right. It is not bound by the contract as it is not a legal entity according to the law. Therefore, the practice of treating trusts as if they have a legal personality is theoretically incorrect and contracts entered into by the trust in its own name may not be legally enforceable by or against the parties thereto. As a matter of ‘best practice', the trustee should always be named as the contracting party in formal agreements. However, it should be clear from the face of the document that that the trustee is acting as trustee of the specific trust.

It is a common perception of people that every trust is based on contract and established on this only but there is no legal capacity of trust to enter into the contract. The conditions included in the contract can only bound the trustees to act. It depicts the intention of the contract describing the intention but there is no legal provision by which it can be bound. Also, a contract where the trust is mere a device to hold security for the payment then in such as care the liability can be restricted.

2.3. Critically analyse how trustees limit their liabilities including a provision in their contract of appointment and exclude liability for a range of defaults

Trustees bears the unlimited personal liability for all the liabilities, expenses and debts incurred through trust. They mainly seek to limit personal liability by limitation of the liability clause in documents which they implement in capacity as trustee. The liabilities are arise out of duties which trustee takes of company. In this, liability of trustees are based in kind of charity (Roper, 2017). Liability is to be indemnified incurred through trustee accordance with the duties. To limit the liabilities of trustees, there is a provision included in a contract to fix the liabilities of trustees. The trustees enter in to contract and also acts the liabilities solely in capacity as the trustees under trust deed dates and their liability is limited to assets. Other than this, limitation of the liability clause seeks to attain agreed risk allocations among trustee and counterparty entering in an agreement with trustee in capacity as trustee. Liabilities of the trustees clauses to address their liability limit and attain agrees risk allocation among unsecured trust creditors and the trustee. If drafted in a proper manner, the developed clauses regarding the limit liability insulate trustees against any personal insolvency which arise because of the trust debts. The liability limitation clause should be drafted with the care because courts will approach them with the caution as they limit the liabilities. In regards to this, limitation of the liability clause were short however the liability limitation clauses have enhancing complex. Several current liability limitation clause use the technical concepts and some are appear to the misconstrue law. There will be an agreement on which mention about bearing the fix amount of penalty and the trustees will not be responsible in bearing the penalty and risk of some other person.


From the above report, it has been concluded that commercial law is that part of legal system which provides the laws for governing the matters of organisations which are in the nature of commercial. Furthermore, there is a concept of trust which includes three parties who have their rights, powers and obligations. Furthermore, there are different kinds of trusts which should be opted by the parties according to their requirements. Trust support trustees in get their right in every scenario. Also, it has connection with the contract as every trust is the outcome of contracts but there is no legal capacity provided to the trusts. This does not make it bound to the contract however, the trustee can be held liable for the acts which may not be in favour of the beneficiaries. Also, there are numerous ways through which the liabilities of trustees can be reduced.

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