Differences Between Private And Public Trust: The expansion of trust to protect the interest of the beneficiary was an invention of equity. Prior to the intervention of the Court of Chancery in the issue of trusts, a beneficiary to a trust property has no right of action over a trustee who mismanages the trust property of which he is a beneficiary to. At Common law, the interest in the subject matter of a trust is vested in the trustee de facto and de jure. There was no such thing as the equitable interest of the beneficiary. Equity saw this as unjust and consequently remedied the situation.
Today, the beneficiary of a trust has what is known as an equitable interest over the trust property, and it is on the basis of this interest that trusts became properly defined and categorized.
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What Is a Trust?
The ordinary meaning of trust is confidence and reliance. Trust in law is the confidence vested in a person who has legal ownership of a property to hold and manage same for the benefit of another.
A trust is an equitable duty whereby a property is vested in a person Known as the trustee binding him to be in control of the property and deal with it accordingly for the benefit of a person or persons known as the beneficiaries of which him (the trustee) may be one of, or for the benefit of the public.
What are the parties to a trust?
There are three parties to a trust; the settlor or testator who is the person creating the trust, the trustee to whom the property is vested in and the beneficiary who is entitled to reap from the trust property in one way or the other, accordingly.
The subject matter of a trust is referred to as the trust property.
Classification of Trusts
Trusts are Classified into two; private trust and public trust.
Private trust is an equitable obligation created by the settler or testator the as case may be, binding the trustee to hold and control the trust property for the benefit of some named persons which may include himself.
There are two types of private trust; express private trust and implied private trust. An express private trust may be executory or executed. It is executory if the trust was created without the settler/testator indicating the beneficial interest of the beneficiaries. It is executed where the beneficial interest of the beneficiaries are specifically defined.
Further, an express private trust may be fully secret or half secret. It is a fully secret trust where the wordings creating the trust did not indicate that a trust has been created but rather suggest an outright gift on the surface, but the settler/testator had gone further or goes further to extract a promise from the trustee that the grant is for the benefit of another person either before or after executing the instrument.
It is a half secret trust where the wordings creating the trust shows that a trust has been created but did not mention the names of the beneficiaries, although the communication must be made before or at the time of execution of the instrument.
An express private trust can be created by declaration inter vivos or by testamentary dispositions, and for an express private trust to be valid; there must be certainty of words, certainty of subject matter and certainty of objects or beneficiaries.
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Implied trusts are such private trusts that are not created by the parties but arise by operation of the law. The two types of implied trusts are resulting trust and constructive trust.
Public trusts also known as charitable trusts is an equitable obligation imposed on the trustee to be in control of the trust property for the benefit of the beneficiaries who must be named objects recognized by law. A public trust is one which must benefit the public or a section of it. The trust must be of charitable nature irrespective of the motive or intention of its creation and it must be exclusively charitable. Charitable trusts have a number of advantages which include that it is not subjected to tax payment and it can run in perpetuity.
Upon the breach of the trust obligation in a public trust, the beneficiaries of the trust have no legal capacity to proceed against the trustee in order to enforce the trust; it is rather the Attorney-General of the state or of the federation as the case may be, or the Administrator General of Public Trustee that has the locus standi to enforce charitable trusts. This is because public trust is a matter of the public interest. Moreso, allowing the beneficiaries to proceed against the trustee warrants multiplicity of action.
Another important feature of a charitable trust is that the charitable objects (that is, the purpose or beneficiaries of the trust) need not be certain. However, it must not be so vague that the court finds it impossible to apply the proceeds of the trust an accordingly. Again, the beneficiaries of a public trust must not be related to the settler/testator except where the trust created is for the relief of poverty.
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Differences Between Private And Public Trust
1. Private trust is an equitable obligation imposed on a party known as the trustee to hold in trust and control the trust property for the benefit of some named persons, whereas a public trust is a legal obligation created and imposed on the trustee to hold and control the trust property for the benefit of some named object recognized by law.
2. While private trust is created for the benefit of some private persons, public trust is created exclusively for charity and for the benefit of the public.
3. The beneficiaries of a private trust are definite whereas those of public trust are uncertain. Thus, in a private trust, where the beneficiary is not certain but other requisite certainties are present, a valid express private trust will not arise, rather, it will give rise to a resulting trust. Vague words such as, “to my friends, dependants, relations” etc, cannot create a valid private trust.
The trust will rather fall back and be held in resulting trust for the estate of the testator/settlor. In a public trust however, vague words such as “for charity purposes” does not invalidate the trust. Therefore, the objects need not be certain.
4. In a public trust, there must exist no kind of nexus or relationship between the settlor/testator and the beneficiaries except where the trust being created is for the relief of poverty. On the other hand, private trust can be created in favour of a beneficiary even though he shares a nexus with the settler/testator, regardless of the purpose of the trust.
5. A trustee of a public trust cannot be a beneficiary to that public trust. On the other hand, in a private trust, the beneficiaries can include the trustee.
6. Public trust cannot be enforced by the beneficiaries. This is because it is a matter of the public and also, for the purpose of preventing multiplicity of actions. It is the Attorney-General of the state or the federation as the case may be, or the Administrator General of Public Trustee that can enforce public trusts.
On the other hand, upon the breach of trust by the trustee in a private trust, the beneficiary has the locus standi to proceed against the trustee in default for the purpose of enforcing the trust.
7. Public trust has fiscal advantage in the sense that the trust created cannot be subjected to tax payment except for Value Added Tax (VAT) for the purchase of goods and services where implicated. On the other hand, private trust is not exempted from tax Payment.
8. Time does not run against public trusts. Thus, the rule against perpetuity does not operate against it. Public trusts can therefore run in perpetuity. For private trusts however, it can only run for 21 years. The rule is that there must be an end to a private trust.
9. A public trust is to be executed by a board of trustees whereas one or few trustees will be adequate for a private trust. There is no need to constitute a board of trustees in a private trust.
10. Since public trust can run in perpetuity, it does not necessarily revert to the estate of the testator/settler. For private trusts however, there are occasions where the trust or purported trust may fall back to the estate of the settler such as occasions of death or where the trust fails for uncertainty of object.
While private trust is created in favour of private individuals, public trust is for public and charitable purposes. The essentials of these two trusts and their implications differ and may be unfavourable if not well appreciated. One must therefore first determine the nature of the trust being created. The differences between the two have been well highlighted in this article.
Edeh Samuel Chukwuemeka, ACMC, is a lawyer and a certified mediator/conciliator in Nigeria. He is also a developer with knowledge in various programming languages. Samuel is determined to leverage his skills in technology, SEO, and legal practice to revolutionize the legal profession worldwide by creating web and mobile applications that simplify legal research. Sam is also passionate about educating and providing valuable information to people.