We take for granted that the tool of a revocable living trust is available to us. We can create a legal document where we usually name ourselves but may instead name a third party trustee to take care of our assets and possessions, yet the benefits of the trust remain ours, at least until our death.
This concept originated not as a separate area of the law, rather as a blend of English common law through the Court of Chancery, which was a court of equity (“fairness”) that followed a set of loose rules to avoid the slow pace of change and possible harshness (“inequity”) of English common law. The Chancery had jurisdiction over all matters of equity, including the separate legal doctrines of trusts, land law, estate administration and guardianships.
Due to problems that arose, the law of trusts first developed in the 12th century from the time of the crusades under the jurisdiction of the King of England. The English common law developed from ancient Roman law which regarded property as an indivisible entity – whoever owned legal title owned all rights and privileges. Hence, one would simply convey land to another in full fee title.
When a landowner left England to fight in the Crusades, however, he would convey ownership of his lands in his absence to another to manage the estate and pay and receive feudal duties, with the understanding that the ownership would be conveyed back upon the crusader’s return. Crusaders, however, often encountered a refusal to hand over the property upon their return.
The disgruntled Crusader would then petition the king, who would refer the matter to his Lord Chancellor. The Lord Chancellor could decide the case according to his conscience, determining what was “equitable” or “fair.” Typically the Lord Chancellor would consider it unconscionable that the legal owner could go back on his word and deny the claims of the Crusader. Therefore, he would find in favor of the returning Crusader.
Over time, it became known that the Lord Chancellor’s court (The Court of Chancery) would continually recognize the claim of a returning Crusader. The legal owner would hold the land for the benefit of the original owner, and would be compelled to convey it back to him when requested. The Crusader was the “beneficiary” and the named land title holder the “trustee”. The term “use of land” was coined, and, in time, developed into what we know now as a “trust.”
In modern trust law, we can create both inter-vivos trusts during our lifetime as well as testamentary trusts that determine how property is invested, owned and distributed following our death. A “trustee” is not to be confused with the owner or the beneficiary, in that the trustee is responsible for carrying out the terms of the trust. He has a fiduciary duty to the beneficiaries of the trust to own, invest and deal with the property prudently. Should the trustee violate those duties, he can be held liable to the beneficiaries.
The “Settlor” or “Grantor” of the trust is the person who creates the terms of the trust, and conveys money, property or assets to the trust. With most modern revocable trusts, the Settlor also serves as trustee as long as he or she is willing and able to serve in that role. Today, typically the Settlor is also usually the only beneficiary of the trust. In these common situations, when the Settlor acts as grantor, trustee and beneficiary, it is indistinguishable to holding outright fee simple title in the assets and property. The reason for the creation of the revocable trust during the grantor’s lifetime is to set the stage for an easy transition in the event of the grantor’s disability or death.
Disability or death may occur suddenly, in which case a grantor would not have had the opportunity to select the trustee who he or she would want to act, and the terms under which the money, assets and property are to be invested, held and distributed. Hence, today’s trusts are an extremely useful tool to ensure that your wishes are carried out.
As Paul Harvey would famously say, “And now you know the rest of the story.”
