A trust is a legal and fiduciary relationship where one person holds the legal title to a property, while another person holds the equitable ownership and receives its benefits.
There are three main parties involved in any trust:
- The Trustor: The person who establishes the trust.
- The Trustee: The person who holds the legal title, manages the property, and in whom confidence is reposed.
- The Beneficiary: The person for whose benefit the trust is created, who holds the equitable title.
Purposes of Trust
Trusts are highly useful in law and serve two primary purposes depending on how they are created:
1. Asset Management (Express Trusts) An express trust is created by the clear, direct intention of the parties. It is useful when a trustor wants to safely entrust the administration of their property to a capable trustee, ensuring that the property is managed for the benefit of a specific person (like a minor child or an incapacitated relative).
2. Preventing Fraud and Unjust Enrichment (Implied Trusts) An implied trust is not created by an agreement, but comes into being by operation of law to satisfy the demands of justice and equity. It is a powerful legal tool used to protect individuals from unfair dealing.
For example, if someone acquires a property through mistake, duress, or fraud, the law automatically steps in to treat the wrongdoer as a “constructive trustee”. By legally forcing the wrongdoer to hold the property in trust for the true owner, it prevents unjust enrichment and gives the defrauded party a solid legal basis to sue for the reconveyance (return) of the property.
How a Trust is Created
Under Philippine law and rules of procedure, the process of how a trust is created depends on whether it is an express trust or an implied trust:
1. Express Trust
An express trust is created by the direct and positive intent of the trustor, typically through a will or a written instrument.
- Form requirement: If the express trust involves real or immovable property, it cannot be proved by mere oral or parol evidence; it must be in writing.
- Judicial Appointment of a Trustee: To carry into effect the provisions of the will or written instrument, a trustee must be appointed by the court. The petition for appointment is filed in the Regional Trial Court (RTC) where the will was allowed, or if there is no will, in the RTC of the province where the property is situated.
- Posting of Bond: Before entering the duties of the trust, the appointed trustee must file a bond in an amount fixed by the judge, payable to the Government of the Philippines, to ensure the protection of the party in interest. While the trustor may exempt the trustee from giving a bond in the will or requested exemption, the court may still cancel this exemption and require a bond at any time.
2. Implied or Constructive Trust
Unlike an express trust, an implied trust does not require an express agreement or a written instrument. It is created automatically by operation of law or equity.
- How it arises: A constructive trust exists when a person acquires property through mistake, fraud, duress, undue influence, or breach of fiduciary duty. By force of law, the person who wrongly obtains the property is considered a trustee of an implied trust for the benefit of the rightful owner.
- Evidence: Because it is created by operation of law, an implied trust does not need to be evidenced in writing and its existence can be proved by parol (oral) evidence.
- Remedy: The rightful owner can enforce this trust by filing an action for reconveyance, which generally prescribes in ten (10) years from the issuance of the Torrens title to the trustee.
Trust vs. Will vs. Intestate
As to concept: A trust is a legal relationship where one person holds legal title to a property for the equitable benefit of another. A will is a formal act where a person controls the disposition of their estate. Intestate is the mode of succession prescribed by operation of law when a person dies without a valid will.
As to creation: A trust is created either by the direct intention of the parties or by operation of law to prevent unjust enrichment. A will is created through the strictly personal, free, and solemn act of the testator. Intestate succession is created automatically by operation of law.
As to effectivity: A trust can take effect during the lifetime of the creator or upon their death if it is a testamentary trust. A will takes effect strictly after the death of the testator. Intestate succession also takes effect at the exact moment of the decedent’s death.
