Trust Institute Foundation of

the Philippines, Inc.

One-Year Course on Trust
Operations and Investment
Management
 DAY 1
OUTLINE OF TOPICS

• HISTORY OF TRUSTS
• 1.Brief Situationer – English Equity Law
• 2.Development of Trust in England
• 3.Refinements introduced by American Law
• 4.Trust as a legal Institution in the Philippines
• 5.Trust Distinguished from other relationships
• 6. Types of Trusts
• Trusts are among the most versatile and
useful estate and financial planning tools.
You don’t have to be rich to use them, you
only have to be realistic about what these
complex instruments can, and cannot do
for you. Within limits, trusts can help you
do the following:
• Manage your assets in the event you are
disabled
• Manage assets for your children or family
in the event of your death
• Avoid probate
• Avoid creditors
• Minimize or eliminate estate and other
transfer taxes
 – Protect loved ones
– Own your insurance policies
– Control businesses, and more
• A trust like a corporation is a creature, or
fiction of the law. A trust is something you
create by following the procedures
required by laws.
• The key to using a trust is knowing that a trust
arrangement separates the legal ownership of
an asset from the benefit of that asset.
• The person holding legal title, the trustee, has a
fiduciary duty to the person or persons entitled to
the benefits of the trust property
• A fiduciary duty is a responsibility of care
imposed on the trustee by the provisions of the
trust law or agreement.
• The advantages of a trust agreement
come from the separation of ownership
and benefit.
 Five Key Elements of Every
Trust
• GRANTOR – is the person who transfers
property to the trust. Also called the
trustor, grantor, settlor or donor
• TRUST PROPERTY – is the principal or
subject matter of the trust – it is also called
the trust res
• TRUSTEE – is the person responsible for
managing and administering a trust.
• BENEFICIARY – is the person or persons
who will receive the benefits and
advantages of the property transferred to
the trust
• INTENT OF TRUST – every trust has a
purpose, or intent, which motivates the
grantor to set up the trust.
 CONCEPT OF TRUST
• The ancient trusteeship concept was a fundamental and
sacred one. Of interest to us in our present generation is
Christianity in which Jesus Christ is the acknowledged
trustee of the Christians and the Prophet Mohammed,
the acknowledged trustee of Islam.
• The concept, which follows the age-old virtues of faith
and confidence, the assured reliance on the integrity,
veracity, justice, friendship and other laudable virtues of
a person, through the years, has also acquired a
business concept as well. Thus, the present definition of
trust -
• “x x x a time-tested business arrangement
whereby a person called a trustee holds
and manages property for the benefit of
other persons called the beneficiary or
beneficiaries”
• The following historical and biblical truths
are cited as precursors of the modern day
trust:
• Under the Old Testament, Jehovah appointed
Moses, trustee of the people of Israel, and
gave him instructions to lead them out of
bondage;
• At an early date, the church was appointed
trustee of salvation; and it still is considered
as such
• For thousands of years, the priesthood was
the sole trustee of education. To a certain
extent, it still is.
• In 254 BC in Egypt, an influential person
named Uah, left a formally witnessed will
appointing his wife executor of his estate and
his friend as the guardian of his son
• In 457 BC an association was formed by a
group of Japanese to manage the estate of a
wealthy nobleman. Sadly, however, the
abortive trust company met with instant
disaster at the hands of oriental justice.
• On the theory that such a group could not
have a conscience and therefore was unfit
for the responsibilities involved, the
Mikado ordered the entire group
beheaded.
• To the Romans belong preeminently the credit
of inventing the will, the instrument which next
to the contract, has exercised the greatest
influence in transforming human society.
• The forerunner of the modern will was the
English will
• Wills naming executors were in use by the close
of the 12th century as shown by the will of Henry
II in 1182 wherein he named executors for his
properties.
• From the middle of the 13th century, the office
of the executor was a church office and the
executor was a bishop or a churchman.
• It was only during the reign of Edward I
(1272-1307) that the executor became the
recognized personal representative of the
decedent.
• With the recognition of the executor, the
probate practice came into being in England.
 English Equity Law
A Brief Situationer
• 1066 Battle of Hastings William (Duke of
Normandy) won and claimed the throne of
Edward the Confessor.
• Royal Court eased out local courts.
• Common Law has its source in previous court
decisions. Procedures rigid. Writs.
• Court of Chancery heard petitions in equity
• Relief in equity corrected common law.
• Both law and equity=common law tradition.
 Development of Trust in England

• Uses (Passive Trust) introduced shortly

after Norman Conquest. Trustee has no duties; mere
receptacle of legal title; beneficiaries enjoy property; can direct
trustee to convey use to another with no ceremonies.

• Principal Objects of Uses:

• Statute of Uses (27 Henry VIII, c.10)
• Effects of the Statute of Uses
 Principal Objects of Uses

• What is a “use”? A to B to C
• To avoid the burdens of holding legal title to land.
• To enable religious houses to obtain profits of
land, despite mortmain acts ( Edward I, 1279 and
1290, preserve kingdoms revenue by preventing
land from passing into the possession of the
church).
• To have greater freedom to make inter vivos
transfers of land, and
• Transfers by will.
 The Statute of Uses
• “Whenever any person should thereafter
be seized of land to the use of another, the
latter shall be deemed the legal owner of
such lands.”
• The” use” was developed to serve a
number of purposes, the principal of which
were to avoid burdens that came with land
ownership under the feudal Anglo-Norman
kingdom
 Effect of the Statute of Uses
• By express provisions, or by court
interpretation, certain equitable interests were
not converted to legal interest: personal
property, active trusts, & uses upon uses.
• What is a “use upon a use” – A to B to C to D
• Active vs. Passive Use (no care or duty)
• These were recognized by the Chancery
Court as trusts after the Statute of Uses and
became the modern law of trusts
• Prior to the Statute of Uses (1535) there
existed in England a relationship known as
trust
• Two classes: active or special – trustee held
property for some temporary purpose and
with active duties to perform
• Passive or a “use” – legal title was
transferred to one as a holder for the benefit
of another, but with positive duties of care or
management.
• Uses and trusts were introduced into
England shortly after the Norman conquest.
• It was said by an English lawyer many
years ago that the parents of the trust were
fraud and fear and the court of conscience
was its nurse.
• Burdens of landholdings and others of
similar nature fell upon the holder of the
legal title.
• Upon the commission of certain crimes the
holders of the legal title suffered a forfeiture,
which could be avoided by vesting the legal
estate in another and retaining only the use.
• Not only was the equitable estate of the
cestui que free from dangers and the
duties, but it could be held by a large and
influential class which could not hold the
legal estate in lands, namely religious
corporations.
• The “mortmain acts” forbade the alienation
of lands to religious corporations, and this
prevented the religious orders from
acquiring directly the real property they
needed, and which charitably had taken
vows of poverty, and could not
consistently hold property in their own
names.
• The “use” solved this problem for them.
• Early English law was extremely rigid
• Unless a “writ” or law gave a remedy which
exactly fitted the situation, a remedy was
hard to find.
• The interests of the beneficiary of a “use”
were not protected by the common law
courts, because no writ existed to fit the
case
• Honorary obligation, no legal standing
• If the trustee saw it fit to deny that he held
the property as trustee, and to appropriate
it to his own use, he might do so with
impunity.
• The development of the “Court of
Chancery” wrought change.
• It became the custom to petition the King
or his council for relief in cases where the
law gave no remedy
• The chancellor became the custodian of
the king’s conscience, and his court the
court of conscience
• Equity and fairness were supposed to rule
there, rather than technicality
• The process by which the chancellor acted
was known as a subpoena. It commanded
the defendant to do or refrain from doing a
certain act
• By the beginning of the 16th century uses
and trusts had come to involve such serious
injustices that parliament was persuaded to
act against them
• Aside from the reasons named in the
statute itself, there was according to some
authorities, the desire on the part of Henry
VII to destroy the monasteries and
confiscate their property, which he could do
by abolishing the uses.
 Refinements introduce by
American Law

• Trust Instruments set forth rights & duties

of parties and the powers of the trustee.
• Court-made rules stated & restated or
changed by statutes but no attempt yet to
codify the whole body of trust law.
• American law of trust has been expounded
in the Restatement of the Law of Trusts,
adopted by the American Law Institute.
 Trust as a Legal Institution in the
Philippines

• The Philippine Trust Company (1916)

• Supreme Court under American Rule
• Civil Code of the Philippines
• National Internal Revenue Code
• Land Registration Law (registration of land
under trust)
• General Banking Act (R.A. 227)
• General Banking Law of 2000
• Omnibus Investments Code/Foreign Invest. Act
 Omnibus Investments Code of
1987

• Art. 15. Philippine national shall mean xxx

a trustee of funds for pension or other
employee retirement or separation
benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of
the fund will accrue to the benefit of
Philippine nationals.
• Foreign Investment Act of 1991 (Sec.3, a)
 Definition of Trust

• Civil Code of the Philippines

Art. 1440. A person who establishes a trust is

called the trustor; one in whom confidence is
reposed as regards property for the benefit of
another person is known as the trustee; and
the person for whose benefit the trust has
been created is referred to as the beneficiary.
 Bogert, Trusts,

• DEFINITION OF FUNDAMENTAL
TERMS:

• Sec. 1. A trust is a fiduciary relationship in

which one person is the holder of the title
to property subject to an equitable
obligation to keep or use the property for
the benefit of another.
 Definition of terms
• The SETTLOR of the trust is the person who intentionally causes
the trust to come into existence.

• The TRUSTEE is the person who holds title for the benefit of
another.

• The TRUST PROPERTY is the property interest which the trustee

holds subject to the rights of another.

• The BENEFICIARY is the person for whose benefit the trust

property is to be held or used by the trustee.

• TRUST INSTRUMENT is the document by which property interests

are vested in the trustee and beneficiaries and the rights and duties
of the parties (called the trust terms) are set forth.
 The Parties to the trust:

• Trustor/Creator/Settlor/Grantor/Donor
-Trustor-Beneficiary.

• Trustee
-Trustor-Trustee
-Co-Trustee/Joint-trustee;
-Trustee-Co-beneficiary;
-One of several Joint trustees-sole beneficiary.

• Beneficiary/cestui que trust/cestui que trustent

-Income and Remainderman/Primary
-Animals, inanimate objects, Charities
 Trust distinguished from Agency
TRUST AGENCY
• Property-an element • Not an element
• Legal title with bank • Legal title with client
• Own name of bank • In the name of client
• Death does not • Death extinguishes
terminate the account the agency
 Trust distinguished from CASA
Trust CASA
• Not insured by PDIC • Insured by PDIC
• Covered by • Covered by R.A.1405
Sec.55.1(b)R.A.8791 Secrecy of Bank Dep.
• No guarantee/fixity. • Principal & interest
guaranteed
• Relates to specific • Obligation is to repay.
property
• Conveyance • Contract
 Trust distinguished from Bailment
• Trust • Bailment
• Covers both personal • Covers only personal
and real property. property
• Legal title transferred • Legal title retained
• Equitable rights • Legal rights
• Fiduciary Relation • Not fiduciary relation.
 Trust distinguished from Contract
for Benefit of Third person.
A promises B, for a consideration running from B
to A, that he (A) will deliver over property to C, C
in some jurisdictions might be unable to enforce
the performance of A’s promise because C is a
stranger to the contract.

Art. 1311 NCC. Acceptance by beneficiary, must

be communicated to obligor before revocation, is
necessary. Else no privity of contract.
 TYPES OF TRUSTS
• EXPRESS OR IMPLIED (Arts.1443 &
1447, Civil Code)
• ACTIVE OR PASSIVE
• PRIVATE OR CHARITABLE
• PERSONAL TRUST OR CORPORATE
• INTERVIVOS OR TESTAMENTARY
– INSURANCE TRUST
• REVOCABLE OR IRREVOCABLE