History of Trusts

Basic Concepts Trust concepts have been around in one form or another and have been used successfully for over 3900 years. In 1805 B.C., the first known recorded trust or estate plan was created by an Egyptian name Uah which laid out the transfer of , guardianship of son, and burial instructions for himself.

Fast forward many years, around 51 B.C, Julius Caesar used a “Holding Trust” to hold his possessions by a trusted Senator for the benefit of his family while he was off fighting the Gallic Wars. Later when he became emperor of Rome, the Senate incorporated trusts into Roman law.

Skipping through the Dark Ages and hundreds of years, we arrive in 13th century England. When the Franciscan friars migrated to England, they were forbidden to own property. Parishioners, who wanted to look after (benefit) their friars, would transfer property to another, “for the ” of the friar. The transferee became known as the feoffee to uses (pronounced fee-fees or fee-uh-fees), who would hold the property for the benefit of the friar, the use (pronounced ses-tee kay use or setty kay use). Legal title was in the feoffee, while beneficial (equitable) title was in the cestui que. The arrangement created a form of land ownership, or equitable and beneficial interest in land called a use.

As these arrangements grew in popularity, clever lawyers began finding more and more uses for uses, as they became known. As uses could be used to evade obligations, defraud creditors and successfully evaded the feudal death tax, they became increasingly popular.

Other landholders in the fourteenth and fifteenth centuries also needed a way to both profit from their land and avoid feudal incidents. Landholders were supposed to hold their land at the will of a , who worked in the service of the king or queen. In exchange for the land, landholders were obliged to pay certain fees to the lord, who kept some and turned the rest over to the Crown. Many of the royal incidents (basically “taxes”) associated with real property were exacted by the Crown when the landholder died. However, the Crown could collect incidents only if the legal title passed from the landholder to an heir.

Soon courts began to recognize the right of a landholder, as feoffor, to give possession of his land to a tenant while giving legal title to a third party, or feoffee. They also enforced agreements between a feoffor and feoffee in which the feoffee held title to the land only for the benefit of the cestui que use.

6 Copyrights- 2017 Common Law Note: Common law, also referred to as “case law” or “precedent”, is a body of law based on prior judgments and decisions, as opposed to “statutory law” made law by legislative process or “regulation” issued by various government agencies.

Under the common law, when legal title to land was held by more than one feoffee, partial title did not pass to the deceased feoffee's heirs upon the death of a feoffee. Instead, the deceased feoffee's portion of the title passed to the other feoffees. A landholder, as a feoffor, could give legal title to several feoffees and add a new feoffee to the legal title upon the death of any feoffee. Under this system, the death of a title-holding feoffee did not give rise to an inheritance incident. Thus, a landholder could avoid feudal incidents while he himself or a person of his choosing continued to reap profits from the land.

By giving legal title to two or more feoffees, a feoffor also could avoid other royal incidents, such as marriage fees and other fees associated with the death of a landholder. If the property was held in other persons' names, a landholder could also avoid losing the property due to debt or felony conviction. By the end of the fifteenth century, almost all of the land in England was owned in use. Because most of the land was owned by a relatively small number of wealthy landowners, in most cases the actual title owners did not actually live on their parcels of land. Another consequence was that the Crown had lost substantial revenues due to the avoidance of the land-based feudal incidents (tax).

Statute of Uses King Henry VIII attempted to reclaim these lost revenues with the passage of the in 1535. Under the act, the full title to land was automatically given to the person for whom the property was being used, the cestui que use. The act also reinstated the old feudal rule of , which held that land should go to the oldest son upon the death of the landowner.

Landholders strenuously objected to the statute. Over the next four years they conducted a Pilgrimage of Grace to London to convince the king and Parliament to eliminate primogeniture and reverse the abolition of the use estate.

The campaign caused Henry VIII to loosen the royal grip on land ownership. In 1540 Parliament passed the Statute of Wills, which abolished primogeniture and gave landholders the right to devise their property to whomever they pleased in a written will and testament. However, Parliament did not abolish the Statute of Uses.

Immediately after the act was passed, landholders set about creating loopholes. The courts also were hostile to the legislation. They accommodated landholders by giving the statute a strict technical construction and by expanding other methods for landholders to put their property in the name of another person while keeping it for their own use or profit or for the use or profit of another person.

7 Copyrights- 2017 Though intended to abolish uses, it was challenged in court and the Statute of Uses was held by the courts to be inoperative if the feoffee was given active duties to perform. Even more importantly, these early decisions regarding the Statute of Uses resulted in the English courts expanding the concept of the trust as a replacement.

Courts focused on the difference between a trust and a use to achieve essentially the same result for landowners. In a trust the title owner plays some active role in connection with the use of the property. In contrast, with a bare use, the feoffee performed no work in connection with the property and served only as a strawperson. If a feoffee was performing duties in connection with the property, the land was not in use, courts reasoned, but in trust. Many of the rules on trusts that developed in response to the Statute of Uses were adopted in the United States and continue in effect today.

In 1660 Parliament abolished all remaining feudal incidents associated with land in the Statute of Tenure. This obviated the need for a Statute of Uses because there no longer was any need to evade feudal incidents. Although the Statute of Uses was finally repealed by Parliament in 1925 by the Law of Property Act, but the Statute of Uses still remains as law in Missouri and some other states.

Under this law, the statute removed legal title from the feoffee to uses and gave it to the cestui que use, thus “executing” the use (terminating the use) and converting it into a legal interest. The Statute of Uses “executes” or destroy trusts (if there are no “active” duties for the trustee to perform) and transfers legal title to the trust property from the trustee to the beneficiary. Though intended to abolish uses, it was challenged in court and the Statute of Uses was held by the courts to be inoperative if the feoffee was given active duties to perform. This is an important statute to be aware of especially if you ever find yourself in a court situation.

Historically, the Statute of Uses contained exceptions:

1. A trust for the sole and separate use of a married woman. 2. A trust under which the trustee has an express duty to convey at the direction of the beneficiary. 3. A trust which was a use on a use (e.g., a devise to A and his heirs to the use of B and his heirs upon trust for C and his heirs. 4. A trust of personal property, including estates for years in land, tangible chattels and choses in action.

We have spent considerable time here concerning the Statute of Uses and a brief history since it is a primary concern when forming Illinois-type Land Trusts in states which do not have a specific land trust statute. We will come back to this when we talk about statutes which may affect land trusts in Missouri.

8 Copyrights- 2017 That’s enough for now on the boring history of trusts and the law. I will attempt to weave these concepts into later fundamentals for trust creation and trustee duties as they apply. This will come more into play when we get more specific in our discussion as it relates to Illinois-type land trusts.

Concept Summary Uses, as used in real property, are equitable or beneficial interests in land. The concept of uses allowed parties much creativity in the holding, division and transfer of interest in real property which then led to abuses and avoidance of taxes. The Statute of Uses created to avoid this use (or abuse) declared that if a party holds land “to the use of” or in trust for another beneficiary, then legal title was vested in the beneficiary and not the owner of record. Courts decided however that the statute only applied if the trust was passive so arose our modern law of trusts.

In today’s terminology, the feoffee to uses is the trustee and the cestui que use is the beneficiary. The fundamental nature of a trust is the division of title. In most trusts legal title to the property and thus legal ownership is held by the trustee. Equitable title is held by the beneficiary who holds beneficial (equitable) ownership of the property.

Legal vs. Equitable Title Fundamental to the notion of the trust (excepting an Illinois – type land trust) is the division of ownership between “legal” and “equitable.” This division had its origins in separate English courts in the late medieval period. The courts of common law recognized and enforced the legal ownership, while the courts of equity recognized and enforced the equitable ownership. Today, while legal and equitable interests are usually enforced by the same courts, they remain conceptually distinct.

The basic distinction between legal and equitable ownership is important to understand for our future discussion. The divisions between legal and beneficial (equitable) ownership are normally created by an express instrument of trust. The creator (“settlor”) of the trust will convey property to the trustee and instruct the trustee to hold and manage the property for the benefit of one or more beneficiaries of the trust, per the terms set out in the trust agreement.

Legal Title The legal owner of the property is nothing more than the name on the deed. In the context of at trust, the legal title holder is the trustee and the rights of use, possession, or the rights to collect rents or receive profits from the property is as defined by the trust.

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