Hi David, could you explain to me what is dual ownership in trust law? Legal title and equitable title?


Hey! Trusts law, oh trusts law how I do not miss you.  Trusts and equity was my third subject at law school and I remember going though it thinking WTF is this about? How can there be common law and equity? TOO MUCH! Anyway- I passed, but barely.  In the years since then it's made a lot more sense. 

So, trusts huh? First a little note on trusts, trust came out of equity, equity being the arm of law first developed in the Courts of Chancery in the UK and then transplanted here. Equity arose because sometimes the application of the common law strictly, led to really unfair and undesired outcomes. Let me give you an example.

If I was in the Middle Ages and I have a plot of land and I want to transfer my land over to you for 20 years because I'm going to fight in the Crusades or something. I want you to look after the land while I'm gone, then any money you make I want you to keep for my benefit, or I want you to give to my children while they are here or whatever. So far, so good? Except, I'm relying on your word alone. I would want to be sure you are trustworthy now and in the future. This is because under the Common Law, only the person with the property has a right over it.

20 years have gone past and I want my land back, you could be like: LOLOLOLOLOL... no, and I have no right to challenge you.  You could make a case that I deserted the land, or that you were squatting in it, or whatever. Regardless, the Common Law strictly applied means that I have no right to get my land back because I technically transferred the ownership to you and then racked off.

In comes the trust.  A trust is a legal arrangement that means that some sort of property is being held by one person for the benefit of another under certain conditions.

The peculiar seeming thing about trusts is that they give rise to a dual ownership of something. Before you can be dual owners of property under a trust you need these four things to happen:

  1. Somebody has to hold the property (trustee)

  2. There has to be something that can be held in trust (land, money, etc.)

  3. There have to be people for whom the trust is being held (beneficiaries)

  4. The trustee is under an obligation to hold the property for the beneficiaries.

Bear with me here. Let me continue using the example I used above.

I'm in the Middle Ages and I want to go to the Crusades and I want you to look after my land but I want you to give everything you make from it to my kids. I'm the smartest feudal lord in the land and I come up with a new legal instrument called a trust, just for this purpose.

The trust means that you don't own the property, I DO- the title is mine alone I have the legal title to my property; but you are looking after it for me so that the proceeds can benefit my children. Because you're looking after it for me you have to be able to use it like I would, so you can enter into contracts, employ people, buy and sell things from the land, you could demolish buildings that are falling down and replace them.

Because you're using the land with my permission, you have the legal right to act as the owner under the law of trusts, you have the equitable title to the property PROVIDED that you do all of these things so that my beneficiaries are getting the benefits. You can act as the owner of the property but you have to do it within the trust rules we established.  The only thing you can't do is sell the land, because the title is mine. You can't transfer it on to someone else without my permission, you can't leave it in a will. Nada.

Let's recap.

Legal title in something is the title I would have to sell, dispose, bequeath, transfer, let, lease or gift a property, because ultimately the title is mine. I own it. Mine.

Equitable title, is legal title given to someone else to treat the property as if they owned it, as long as they are acting for the benefit of the beneficiaries, remember they do not own the property but they control it like an owner would.

Hope that helps.

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