prof.

Alessio Reali – Business Law –

at 8th International Week at Babes-Bolyai University of Cluj-Napoca

TRUSTS

ON THE HISTORICAL ORIGINS OF TRUSTS

The concept of trust refers to a peculiar legal instrument developed by

the English lawyers (more precisely, the conveyancers1), in England, in the
17th century; or we can even say in the 13th century, if we also consider its
predecessor, namely the use.
To understand such a peculiarity, please note the preamble of the Hague
Convention on the law applicable to trusts and on their recognition,
signed on July 1, 1985:
“The States signatory to the present Convention,
Considering that the trust, as developed in courts of equity in common law
jurisdictions and adopted with some modifications in other jurisdictions, is a
unique legal institution,
Desiring to establish common provisions on the law applicable to trusts and
to deal with the most important issues concerning the recognition of trusts,
Have resolved to conclude a Convention to this effect, and have agreed
upon the following provisions”.
All the above, even if contemporary Scottish scholars claim that trusts
were also available in the Scottish legal system (which is a legal system
different from the English one2), from the very same time.

1
The word conveyancer comes from deed of conveyance which is the expression that
defines the legal act according to which the title of ownership over land (such as,
nowadays, freehold and leasehold) was and still is transferred, in England and Wales,
from the transferor to the transferee of the case. Deed of conveyance to be compared,
as a means for transfers of ownership, inter vivos, over lands, with, e.g., the Italian
private-law rule called principio consensualistico, stated by art. 1376 ICC, where the
provision says that ownership over every kind of determined properties (even
immovable ones) is transferred by the mere consensus/agreement validly expressed by
the parties of the case (on art. 1376 ICC, see A. REALI, Lectures on Italian Private Law,
Liuc e-books, 2021, p. 135 and pp. 227-228).
2
The Scottish legal system is different from the English one, because Scotland (which
is part of the United Kingdom of England, Wales, Scotland and Northern Ireland) is a
so-called hybrid (legal) system, from a comparative-law point of view. That’s because

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Anyway, leaving aside this sort of disagreement, what we can say for sure
is that trusts, in England, are one of the very first and major
outcomes/products of the already-mentioned unfamiliar system of law,
commonly known as Equity, created and developed over there, by
specific judges/courts, along with Common Law, inside a case-law (legal)
system, as a whole.
That’s it, with England being the very first country of those countries
which are nowadays called, in comparative law, common-law countries.

More precisely, to stress the point, we have to remember that common-

law countries are usually seen, in (modern) comparative law, as
counterpart to civil-law countries, meaning countries where the law is
provided for by codes (and other statutes), and jurisprudence is just
formally in charge of interpreting/construing abstract and general
provisions written in such codes.

Therefore, to sum up once and for all, in comparative law we do have the
general distinction between:

COMMON-LAW COUNTRIES CIVIL-LAW COUNTRIES

…and within common-law countries, we do have the distinction between

Equity and Common Law, the latter meaning the law originally
developed by the three English courts installed by William the Conqueror
when he conquered England in 1066 after the battle of Hastings (namely,
the Court of Common Pleas, the Court of Exchequer and the Court of
King’s Bench).

it takes the case-law system from all common-law countries, but its property rights are
structured like the ones existing in civil-law countries; and finally, as far as trusts are
concerned, Scotland does not have Equity too (see A. REALI, Un modello di trust
conforme all’ordinamento italiano: il trust senza l’equity, in Riv. Dir. civ., 2011, II, p.
161 ff.).

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 prof. Alessio Reali – Business Law –
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So inside England, as the very first common-law country (as per the
meaning that the term common-law bears today in comparative law…), a
distinction between common-law and equity was raised,

ENGLAND
(AS COMMON-LAW
COUNTRY)

COMMON-LAW EQUITY

… and trusts were eventually developed as a product of Equity.

Having said that, now, please note that to fully understand the concept of
trust (along with all its legal consequences), as well as to understand,
eventually, the proper way according to which trusts can (and are to)
circulate, nowadays (after signature and ratification of the Hague
Convention on trusts), in some civil-law countries, like Italy, we must
study and learn the origins of this legal instrument.
This activity is due, because the origins of the trust institution, which is an
instrument undoubtedly based on the concept of ownership – as we shall
see herein below – are nevertheless strictly linked with a concept of
ownership quite different from the one we are customarily used to deal
with in civil-law countries (again, like Italy, but also like France,
Germany, Spain, and so on).
In fact, in England, apart from the oddity – from a civil-law perspective –
that ownership over land in general is a time-based legal relationship
between a landlord and a tenant, trusts eventually gave birth to a kind of
ownership where the power of disposition and the power of enjoyment

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over the properties of the case were divided, in private autonomy, by the
settlors of the case, between trustees, from one side, and beneficiaries of
the trust, from the other side.
Whereas ownership over both immovable and movable properties is
meant to be, in civil-law countries, as something (more precisely, a right
in rem) where the right of disposition and the right of enjoyment go one
along with the other3; and the division between these two rights can be
opposed to the legal system only and exclusively in compliance with the
numerus clausus of the rights in rem4.
All the above also explaining why the Italian ownership described in art.
832 ICC is called selfish ownership (proprietà egoistica), against trustees’
ownership, that is a kind of ownership on behalf of third parties
(proprietà nell’interesse altrui).

Now, to introduce the history of the origins of trusts, please recall once
again the distribution of the land arranged by the Norman king, William
I, when he conquered the Anglo-Saxon territories.
A few of his followers, called Lords or tenants-in-chief, were granted the
right to use and exploit the entire English land on behalf of the King as
Overlord or Chief Lord, against payment of services (such as, above all,
knight service), and subject to incidents, related to the use of the land of
the case5.
Then, as these tenants-in-chief had to handle huge pieces of lands, they
had to organize and grant, in compliance with the rights previously
3
Please remember, exempli gratia, the definition of ownership contained in both the
French and the Italian civil code. See art. 544 FrCC: “La propriété est le droit de jouir
et disposer des choses de la manière la plus absolue, pourvu qu'on n'en fasse pas un
usage prohibé par les lois ou par les règlements”; see art. 832 ICC “Il proprietario ha il
diritto di godere e disporre delle cose in modo pieno ed esclusivo, entro i limiti e con
l’osservanza degli obblighi stabiliti dall’ordinamento giuridico” (“The owner has the
right to fully enjoy and dispose of the properties, within the limits and subject to the
duties provided for by the legal system”).
4
On the numerus clausus of the rights in rem, see REALI, Lectures on Italian Private
Law (1), p. 145 ff.
5
Please see, on all services and incidents, COOKE, Land law, pp. 14-16; OACKLEY,
Parker and Mellows: The Modern Law of Trusts, p. 4.

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granted to them, the very same right to use and exploit their lands, on
behalf of themselves, as Lords, to other tenants (with such tenants being
mostly subject to the very same services and incidents due by their
landlords to the King).
Thus, as we said, a pyramidal ladder was eventually created.

KING - OVERLORD

TENANTS-IN-CHIEF TENANTS-IN-CHIEF
LORDS LORDS

TENANTS – MESNE LORDS TENANTS – MESNE LORDS

LORDS LORDS

TENANTS – MESNE LORDS TENANTS – MESNE LORDS

LORDS

UNFREE TENURE UNFREE TENURE

TENURE TENURE

Furthermore, the above-mentioned tenancy right could be granted, by

the landlord of the case to his own tenant, in three different ways, namely:
1) as life estate6;
2) in fee tail7; or
3) in fee simple8.

6
The word estate is used, in English legal language, to define the right, limited in
time, that a certain person has over a piece of land.
7
A well-known example of such a scheme of distribution of the land is the case of the
Bennet family described by Jane Austen in Pride and Prejudice. The land was entailed,
and therefore the three daughters of Mr. Bennet could not inherit the estate of their
father. Thus, Mrs. Bennet dedicated her life to find out a husband for each of her
three daughters.

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All the three of them having in common the fact that they were tenancy
rights granted upon a time-based legal relationship between the landlord
and the tenant of the case.

As per above, accordingly, we can now easily see that no ownership like
the one we are used to think of, in civil-law countries, has been installed
in England.
In fact, we are used to think of ownership as a property right which is
“perpetual” (or “eternal” or, anyway, not to be measured in terms of
time), and therefore as something that is quite different from the kind of
ownership which runs inside the common-law systems even today
(represented by both freehold and leasehold), still measured in time.

Again, please also recall that the system of distribution of the land just
described created, from the very beginning, a system of taxation, due to
all services and incidents to be paid, starting from the bottom, over to the
top, inside the above-mentioned pyramidal ladder.
Moreover, due to the three kinds of estate available in the system, the
land of the case could not be freely transferred too, mortis causa, from the
lord/tenant of the case to his own descendants, throughout what we
know nowadays as a will (or testament). In fact, the first English law on
wills was the Statute of Wills, enacted only in 1540, during the reign of
Henry VIII.
Therefore, originally, the tenant of the case could pass the land to his own
future generations, both inter vivos and mortis causa, if possible, just in
compliance with the tenancy right granted to him, meaning, most of the
times, subject to the payment of the above-mentioned incidents and
services.

8
Almost the equivalent of what it’s called, nowadays, the freehold estate, which is in
fact also called estate in fee simple absolute in possession. Where absolute means, by
exclusion, not contingent, in other words, not subject to a condition precedent or
subsequent, or any other whatsoever determining event, like a termine or a deadline
(on the legal meaning of conditions and termine, from the Italian-private-law
perspective, please see REALI, Lectures on Italian Private Law (1), p. 303 ff.).

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Now, as major services to be paid by the tenant of the case, there were,
above all, knight service (namely, the duty to provide knights in case of
war), socage service (namely, the duty to supply land products at the
beginning and to pay a rent afterwards) and frankalmoyn (namely, the
duty to provide prayers on behalf of the lord of the case).
Whereas, as major incidents, there were, exempli gratia, linked with
knight service:
− the right of wardship, that it was the right of the lord of the case to
use the land of his tenant for his own exclusive benefit, in case the heir of
said tenant was under-age when the tenant died, until the minor reached
the age of majority9 (provided that a due maintenance was given to said
minor); and
− the right of marriage, meaning the right of the lord of the case to
choose the spouse of the minor heir of his own tenant or, otherwise, to
sell such right to third parties or even to the heir himself (in exchange of
“freedom”) against payment of a consideration (meaning, most of the
times, a payment of a sum of money)10.
All these incidents, as the time went by, became quite burdensome for
each tenant involved, even and sometimes especially for the tenants-in-
chief.
Accordingly, they eventually developed, with the advice of their
conveyancers, a legal tool to break this (feudal) system of taxation.

Now, as far as this breaking policy is concerned, please note that, in full
compliance with the distribution of the land under the tenancy rights
above displayed, two different kinds of tenancy rights were available,
inside the pyramidal ladder, when the persons holding the property right
of the case were more than one.

9
Namely, 21 years for males and 14 years for females.
10
Finally, please also note that: a) if the feudal lord of the case was the King himself,
then the minor heir also had to make a payment of half a year’s profit of the land on
attaining his or her majority; b) even in case of an adult heir (of the deceased tenant of
the case), said person could not claim her inheritance until she had paid a fixed sum
and, originally, a year’s profits of the land in question to the feudal lord of the case.

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Namely, these two kinds of co-tenancy were tenancy in common and joint
tenancy.
Tenancy in common was a kind of tenancy right where the right of the
co-tenant of the case passed to his own heir, subject to one of the three
property rights recognised by the Common Law, when said co-tenant
died.
Joint tenancy, instead, was a kind of tenancy right characterized by the
fact that when one of the joint tenants of the case died, then the
remaining joint tenants were granted a so-called right of survivorship,
meaning that their personal tenancy right grew up, and all survivors
jointly acquired the entire right of the deceased joint tenant of the case.

Therefore, eventually, the conveyancers developed an instrument for the

transfer of the property right of the case on the land (called Use),
according to which said property right was transferred by the tenant A to
X, Y, W and Z, jointly, to the use of (exempli gratia) A, B and C (where A
was the transferor himself, and B and C could be, exempli gratia, son and
daughter of A)11.

The scheme was like this:

A X, Y, W, Z A, B, C

11
Please note that other uses of the Use were originally developed in the English soil,
for the following purposes. Namely, at the beginning, for temporary purposes like: a)
to favour the alienation of the land inter vivos, in compliance with the procedure of
alienation by substitution in force at the time (even if the Statute Quia Emptores, dated
1290, eventually solved this issue, because it prohibited future subinfeudation, from
one side, but it also granted, from the other side, free alienability of the estate of the
case to those entitled to a fee simple absolute in possession); b) to handle land on
behalf of Crusaders departing, e.g., for the Holy Land. Then, the Use was also used
for permanent purposes like: a) to handle land on behalf of the Franciscan Friars
(living in England from 1244), who were not entitled to own land by the their order;
b) to avoid the legal consequences emerging from a few statutes, issued, in the 13th
century, against corporations and ecclesiastical foundations, jointly known as Statutes
of Mortmain.

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A was called feoffer to the use;

X, Y, W and Z were called feoffes to the use;
A, B and C were called cestuys que use.

The subject matter of a Use was the tenancy right to use and exploit the
land of the case originally granted to A in accordance with the pyramidal
ladder above displayed.

Now, Common Law “ignored” the personal rights of X, Y, W and Z,

because, as we said, they were considered, jointly, as a sole legal owner
(rectius, as a sole tenant, at law, of the land of the case).
Therefore, until more than one feoffes to the use were available in the
structure, then there was no risk at all that the property right subject to
the Use of the case could raise, at the time of the death of any feoffe to the
use, the payment of all incidents otherwise due to be paid under the
regime of the above-mentioned pyramidal ladder.
On the contrary, until there was at least one feoffe to the use available,
then the structure broke, as well as continued to break, the policies linked
with the system of distribution of the land originally created by William
the Conqueror.

In a case like this, the sole initial problem was that the feoffes to the use
could breach their obligations, and no justice could be claimed neither by
the feoffer nor by the cestuys que use, because their rights were not
protected under (or covered by) the Common Law.
It took some time, but, in the end, the King, as chief responsible for
justice, despite the very purpose according to which the instrument had
been created12, had to appoint someone to take care of this subject matter
too, as he was repeatedly petitioned by his subjects13.
Therefore, he appointed his right arm, the Chancellor, a person who had

12
Namely, once again, to avoid the payment of all services and incidents related to the
land of the case, also due to him.
13
Even the lords/tenants-in-chief spending their time at the Royal Court.

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studied Roman law and Canon law, in Europe, when he was a young man
(and had, therefore, taken the so-called Master of laws), to take care of
said issue (that could not be dealt with before the courts of Common
Law) in a different/substantial way, meaning, eventually, under aequitas
(or equity, in English language).
The Chancellor, to solve the issue brought before him, followed this
procedure:
– first and foremost, he summoned all parties involved before him;
– then, he auditioned them; and
– then, eventually, he issued a judgment, under good conscience,
according to which he introduced a remedy to the substantial injustice of
the case coming out from the stricto sensu application of the Common
Law; and
– thus, finally, he enacted an “order (in personam), against X, Y, W
and Z, to act in good conscience notwithstanding what common law
says”, and to perform, consequently, all acts and deeds due to transfer the
land to A, or B and C.
If X, Y, W and Z did not comply with the judgment of the Chancellor,
then they were in contempt of court, and accordingly they could be put in
jail/prison right away.

Thus, the Chancellor finally recognized, around the 15th century, the Use
as a lawful instrument, under good conscience, and granted the right to
have the obligations of the feoffes to be fulfilled on behalf of (or to) the
cestuys que use14.

When the above-mentioned kind of justice was repeatedly delivered from

the Chancellor, it created a new corpus iuris, still related to the birth of
the above-mentioned new legal system, namely, the Equity, that started to
move along Common Law, but inside a new court (eventually, the Court

14
Please note, anyway, not on behalf of (or to) the feoffer, per se, if he was not one of
the cestuys que use, because he had disposed ab initio of his own properties on behalf
of third parties (namely, once again, the cestuys que use).

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of Chancery)15.

Having said that, when Henry VIII came into power, he succeeded in
obtaining, in 1535/1536, despite the opposition of the Parliament, the
enactment of the Statute of Uses, according to which the right of A, B
and C, previously created through the scheme of the Use, and recognised
in Equity afterwards, was recognised (or, more properly said, executed) in
Common Law.
Hence, most of the incidents and services due to be paid in accordance
with the original pyramidal ladder created by William I were reinstalled
within the realm.
The above-mentioned law initiated a huge reaction, part of which
culminated in the enactment of the already-cited Statute of Wills, in
1540, namely a written law according to which it was established that,
even under Common Law, all lands subject to non-military tenure, as well
as 2/3 of the lands subject to knight service, could be disposed of by
will16.
Then, in the meantime, three exceptions to the Statute of Uses were
developed and practised by the conveyancers, namely, the ones
concerning:
1) Uses declared on property other than freehold estates in land;
2) Uses where the cestuys que use of the case were charged with some
duties to be performed on behalf of the feoffes to the use;
3) Uses upon use.
In the third case, once they were in play, there was a valid first Use

15
Please note that in relation with the growth of the Equity system, Maxims of Equity
were also created, as the time went by. Here they are the major ones: i) Equity follows
the law (where the word law means Common Law; therefore this maxim means that,
from a technical point of view, “Equity does not challenge Common Law, but it
follows it, as it makes a gloss to it”); ii) Equity looks to intent not to form; iii) Equity
considers done what ought to be done; iv) Who comes to Equity must come with clean
hands (this last maxim was applied in Webb v Webb, namely a case that we are going
to analyse in one of the incoming lectures).
16
Even if this did not mean, at the same time, to avoid payment of the original feudal
taxes (which were eventually removed by the Tenure Abolition Act 1661).

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executed/recognised, at law, whereas the second Use was not recognized,

once again, at law, and it could not be even recognised in Equity, at the
very beginning.
Therefore, the issue at stake at the time became to obtain coverage of a
Use upon use, on behalf of the final beneficiary of the case, before, once
again, the Chancellor and the Court of Chancery.
The first approaches were unsuccessful, but, starting from the case
Sambach v Dalston (1634), the competent court eventually decided that
even a Use upon use should be enforced, in Equity, in compliance with
the decision undertaken by the original transferor.
Accordingly, the Use upon use got recognition, and we can say that,
basically, everything went back to the starting point that existed before
the enactment of the Statute of Uses.
The transfer completed, e.g., by A to third parties, to the use of X, Y, Z,
and W, to the use of A, B and C, eventually became known as a transfer
completed in trust on behalf of A, B and C17, with X, Y, Z, and W
becoming so-called legal owners of the land of the case, and A, B and C
becoming so-called equitable owners of the very same land; and
therefore, the trust institution, as commonly known nowadays, eventually
was established.

To end with, having explained the origins of trusts in England, now,

please note that the trust instrument could have been repealed from the
legal system, in the following centuries, as the Statute of Uses lost its
relevance inside the system itself, as the time went by.
Nonetheless, the division between the legal ownership, pending against
the trustee of the case, and the equitable ownership, pending against
(rectius, on behalf of) the beneficiaries of the trust of the case, became
quite useful, in different areas of the English (private) law, as well as of
the (private) laws of other common-law countries.
Therefore, the trust mechanism has survived, along the centuries, to be
customarily quite employed even today, for a numerous series of
purposes, some of which are going to be mentioned herein below.
17
To distinguish it from the Use executed by the Statute of Uses.

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Nonetheless, the same division between the legal ownership, pending

against the trustee of the case, and the equitable ownership, pending on
behalf of the beneficiaries of the trust of the case, is also the very reason
why the trust instrument found quite a lot of difficulties in being
recognised in civil-law systems, until the Hague Convention on the law
applicable to trusts and on their recognition was eventually signed, on July
1, 1985.

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THE HAGUE TRUST CONVENTION18

As the history on creation and evolution of trusts within the English legal
system has disclosed, English settlors were eventually allowed to develop
a legal instrument where the right of enjoyment over certain properties
was severed from their right of disposition (as it is severed, even
nowadays).
Moreover, they were also allowed to create a tool where two different
kinds of ownership (namely, legal and equitable ownership) appear to
coexist over the same goods/properties; and this is the reason why, as just
advanced, trusts has always been seen, from a private-comparative-law
point of view, as legal transactions against the kind of ownership
customarily in force in civil law countries, and, even if not against it, in
any case, against the numerus clausus of the rights in rem (which allows
the separation of the two above-mentioned rights, when it is to be
opposed against third parties, in the sole and limited cases provided for
by the law).
Therefore, as previously said, a convention on private law was needed, to
have trusts eventually recognised in civil law countries too; hence, the
Hague Convention on the law applicable to trusts and on their recognition,
signed on July 1, 1985, which is, more precisely, an international private
law convention19.

Now, according to art. 2, par. 1, HTC, “[t]he term trust refers to the legal
relationships created – inter vivos or on death – by a person, the settlor,
when assets have been placed under the control of a trustee for the benefit
of a beneficiary or for a specified purpose”.
As per above, please note that art. 2 HTC offers a definition of trust that,

18
The text of the Hague Trust Convention (hereinafter the “HTC”) is available on the
website of Hague Conference on Private International Law at https://www.hcch.net.
19
Two purposes were indeed behind the signature of the HTC, as the same text of the
convention makes clear. Namely, the purpose of the recognition of common-law trusts
inside civil law systems, and the purpose of the identification of a sole proper law to
be applied to solve every quarrel on trusts, particularly in common law countries.

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in compliance with art. 3 HTC20, covers just the so-called express trusts;
and it can also be qualified as a sort of an objective definition of trust21.
Whereas, in common-law jurisdictions trusts are more often defined from
a subjective point of view, namely, from the trustees’ point of view,
rectius, from the perspective of the obligations to be performed by every
trustee on behalf of third parties. And this is the reason why:
a) as already said, trustees’ ownership is also qualified as a kind of
ownership on behalf of third parties, against, e.g., the ownership defined in
art. 832 ICC, which is generally called a selfish ownership; and,
b) express trusts can be covered, still in common-law jurisdictions,
jointly with resulting trusts and constructive trusts, by a sole definition, as
all of them share a common core of so-called fiduciaries duties, to be
performed by the trustee of the case on behalf of the trust beneficiaries of
the case (either identified by the settlor, in case of an express trust, or by
the court, in case of both a resulting trust and a constructive trust)22.

Then, in the easiest type of express trust available under the HTC we do
have:
i) a settlor;
ii) a trustee; and
iii) a beneficiary;
that they can all be either natural or legal persons, depending on the
circumstances of the case.
Furthermore, all express trusts, covered by the Hague Trust Convention,
have the following characteristics:

20
See art. 3 HTC: “The Convention applies only to trusts created voluntarily and
evidenced in writing”.
21
Meaning a definition that defines the institution from an objective point of view, or
from a third-party point of view, or even better, from the point of view of the legal
system.
22
Accordingly, please note that resulting trusts and constructive trusts are judicial
remedies, not covered by default rule by the Hague Trusts Convention, which simply
states, on them, that “[a]ny Contracting State may, at any time, declare that the
provisions of the Convention will be extended to trusts declared by judicial decisions”
(see article 20, par. 1, HTC).

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a) the trust fund (or trust patrimony) is separated from the personal
patrimony of the trustee of the case (as art. 2, par. 2, lett. a), HTC and
art. 11, par. 3, HTC clearly disclose23); and
b) there is real subrogation of the trust properties, meaning that if a
certain trust property is disposed of (like, sold or alienated/transferred
against a consideration), by the trustee of the case24, then the new
property acquired by the trustee becomes, automatically, a trust property
(still to be managed by the trustee of the case on behalf of third parties).

And just to emphasise it, incidentally speaking, please note that the two
above-mentioned characteristics are the most important ones, in terms of
rules of law, when it comes to management of properties to be performed
on behalf of third parties.
Moreover, as far as the separation of funds is particularly concerned,
please also note that if we brainstorm, in terms of ownership, starting
from a concept of ownership where the two rights of disposition and
enjoyment are intertwined each other (as it happens under art. 832 ICC),
then every case of separation of funds also means – from the point of view
of the legal system of the case – limitation of liability for the owner of the
case. Limitation that, accordingly, is allowed, e.g., in the Italian legal
system, just in the limited cases provided for by the law25.
23
See art. 2, par. 2, lett. a), HTC: “A trust has the following characteristics – a) the
assets constitute a separate fund and are not a part of the trustee's own estate”. See also
art. 11 HTC: “(1) A trust created in accordance with the law specified by the preceding
Chapter shall be recognised as a trust. Such recognition shall imply, as a minimum, that
the trust property constitutes a separate fund […]. (3) In so far as the law applicable to
the trust requires or provides, such recognition shall imply, in particular – a) that
personal creditors of the trustee shall have no recourse against the trust assets; b) that the
trust assets shall not form part of the trustee's estate upon his insolvency or bankruptcy;
c) that the trust assets shall not form part of the matrimonial property of the trustee or
his spouse nor part of the trustee's estate upon his death”.
24
As it regularly happens, as trustees have the power to dispose of all trust properties
by default rule.
25
See Articolo 2740 CC (Responsabilità patrimoniale): “[I]. Il debitore risponde
dell’adempimento delle obbligazioni con tutti i suoi beni presenti e futuri. [II]. Le
limitazioni della responsabilità non sono ammesse se non nei casi stabiliti dalla legge”;

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Whereas, on the contrary, if we brainstorm, still in terms of ownership,

starting from a concept of ownership on behalf of third parties, where the
rights of disposition and enjoyment are severed one from the other, then
the separation of funds granted to the owner of the case does not mean at
all, per se, limitation of liability for the very same owner. Because, as it
happens to trustees, they are fully liable, with their personal
fund/patrimony, for all obligations taken on a personal basis, from one
side; and they are fully liable, once again, with the trust fund of the case,
for all obligations taken on as trustees of a certain trust, from the other
side.
Therefore, finally, we can now easily understand that the separation of
funds, granted by the provisions of the HTC to all express trusts covered
by it, it is nothing more than the natural recognition, inside a private-
international-law agreement, of the separation of funds granted by the
English courts to the trusts originally recognised over there, on the simple
basis of the division between the right of disposition of the trustees of the
case and the right of enjoyment of the trust beneficiaries of the case.

Having said that, please also note that, apart from the above-mentioned
technical characteristics of every trust, there is another, major, practical
characteristic that covers all express trusts of the HTC, namely their
extreme flexibility, as:
1) a settlor can be one of the beneficiaries of the trust of the case, or
even the sole beneficiary of said trust26; and
2) a settlor can also be one or the sole trustee of the trust of the case (as
it happens in a self-declaration of trust, mentioned herein below).

Accordingly, these are possible trusts schemes:

Article 2740 ICC (Financial liability): “[I]. The debtor is liable for fulfilment of his
obligations with all his present and future assets. [II]. Limitations of liability are not
allowed, except in the cases provided for by the law”.
26
As we learned when we were speaking of the history of the instrument.

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A A and/or B A and/or B, C, D27

Then, please also note that, still due to the means originally used for its
own creation in England, an express trust, in a common-law jurisdiction,
is not set up via contract.
In fact, express trusts are regularly set up by way of a unilateral legal
transaction, namely, a declaration of trust, or, as previously advanced, a
self-declaration of trust, when the settlor of the case declares himself
trustee, under the circumstances; and that’s, where every declaration of
trust must also be a declaration on property28.
Therefore, when we are dealing with the structure of every express trust,
we must also keep in mind the distinction between:
− the deed of trust (or, as the North Americans tend to call it, the trust
instrument); and
− the deeds of assignment of the properties of the case to the
appointed trustee.
Article 4 HTC emphasises this distinction, as it states that “[t]he
Convention does not apply to preliminary issues relating to the validity of
wills or of other acts by virtue of which assets are transferred to the
trustee”.

As per above, now, as for the remaining provisions of the Hague

Convention on trusts that are worthy to be mentioned, let’s start from
those governing the law applicable to the (express) trust of the case.
First of all, art. 5 HTC denies, to physical and legal persons of civil-law
countries (like Italy), the possibility to choose as proper law of the trust of
the case the law of a State that does not know the concept of trust, per se
27
The sole scheme not available, under the above-mentioned policy is, exempli gratia,
for A to be, at the same time, settlor, sole trustee and sole beneficiary of the trust of
case, as in this case the trust would be a void one (meaning that another third-party
trustee is always due, when A, being settlor of the trust of case, wants to keep the
position of both trustee and beneficiary of the trust of the case).
28
Meaning that a trust is void, on the contrary, in case no properties are mentioned, in
the declaration of trust, as possible subject matter of the trust of the case.

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(meaning, besides the fact that said State has ratified the HTC)29; and this
implies that, e.g., Italian citizens, if it is the case, they must set up the trust
of the case choosing one of the laws, basically of common-law legal
systems, that are familiar with the trust institution.
Secondly, art. 6 HTC grants the settlor of the case the utmost freedom of
choice (meaning, the freedom of performing forum shopping) when
he/she must choose the proper/applicable law for his/her own express
trust30.
Then, art. 8 HTC states what are the subject matters basically covered by
the law chosen by the settlor under the Hague Convention on trusts,
which they refer, substantially speaking, to all (legal) internal
relationships amongst settlor, trustee and beneficiaries of the trust31.
As per above, art. 8 HTC also covers the validity of the trust set up under
the HTC, in compliance with the proper law chosen by the settlor; and
therefore, as far as validity of trusts is concerned, we must remember that
for a trust to be validly created, in common-law countries, the so-called
three certainties must be satisfied, namely:
1) certainty of intention;
2) certainty of subject matter; and
3) certainty of objects.
Accordingly, in relation with the certainty of objects, please note that

29
See art. 5 HTC: “The Convention does not apply to the extent that the law specified
by Chapter II does not provide for trusts or the category of trusts involved”.
30
See art. 6 HTC: “A trust shall be governed by the law chosen by the settlor. The
choice must be express or be implied in the terms of the instrument creating or the
writing evidencing the trust, interpreted, if necessary, in the light of the circumstances of
the case. Where the law chosen under the previous paragraph does not provide for trusts
or the category of trust involved, the choice shall not be effective and the law specified in
Article 7 shall apply”.
31
Please note that, on the contrary, all issues concerning the relationship between
settlor, trustee and beneficiaries, from one side, and third parties (like, exempli gratia,
a third-party buyer of the trust property of the case from the trustee in charge), from
the other side, are governed by article 11, par. 3 HTC and/or one of the 3
safeguarding clauses mentioned afterwards, namely articles 15, 16 and 18 HTC.

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under English law the so-called non-charitable purpose trusts are void32;
whereas HTC allows even them33, in its role of international-private-law
convention on trusts which covers all kinds of (express) trusts set up
worldwide34.
Then, from the trust beneficiaries’ point of view, please note that all
common law systems provide for the distinction between the so-called
fixed-interest beneficiary trusts and the so-called discretionary trusts.
As per above, please note that here the word discretionary refers to
trustees’ discretion in the distribution of the trust properties to the trust
beneficiaries of the case. Whereas, whenever a discretion is related to the
management of the trust properties, in this very case we must remember
that every trustee always has an overall discretion by default rule (that is
also linked with the above-mentioned real subrogation of the trust
properties).
Then, again, distribution of the trust properties to beneficiaries can
involve both distribution of revenues (trust income) during the trust
period, as well as distribution of trust capital during both the trust period
and at the end of it. Trust period, whose duration is still governed, by
default rule, by the law chosen by the settlor, under art. 8 HTC35.

32
Due to the so-called beneficiary principle, according to which every trust must have
at least one beneficiary who can enforce the trust, if it is the case, against the trustee in
charge. Finally, as far as the charitable purposes trusts are concerned, they are allowed
because the Attorney General can always enforce them against the appointed trustees.
33
See above, in the text, art. 2, par. 1, HTC.
34
And accordingly, there are common-law territories that allow the settlement of non-
charitable purposes trusts under their laws, like, above all, the Channel Islands of
Jersey, Guernsey and Isle of Man.
35
See art. 8 HTC: “The law specified by Article 6 or 7 shall govern the validity of the
trust, its construction, its effects, and the administration of the trust. In particular that
law shall govern – a) the appointment, resignation and removal of trustees, the capacity
to act as a trustee, and the devolution of the office of trustee; b) the rights and duties of
trustees among themselves; c) the right of trustees to delegate in whole or in part the
discharge of their duties or the exercise of their powers; d) the power of trustees to
administer or to dispose of trust assets, to create security interests in the trust assets, or
to acquire new assets; e) the powers of investment of trustees; f) restrictions upon the
duration of the trust, and upon the power to accumulate the income of the trust; g) the

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Having said that please also note that other possible optional tools
available for express trusts are the following ones:
– the protector; and
– the letter of wishes.
Protector and letter of wishes are optional tools to trusts, because:
− the first one was introduced when the management of the trust fund
passed, from a passive one, to an active one (due to the different subject
matters for trusts available inside the market); whereas,
− the second one was introduced in relation with family trusts
managed by trust corporations acting as professional trustees, when the
traditional personal relationship originally in force between settlors and
physical-persons trustees started to disappear.
These optional tools are covered, in the Hague Convention on trusts,
mostly under art. 2, par. 3, HTC36.

Finally, other provisions of the Hague Convention on trusts that must be

considered are the following ones:
− art. 11 HTC, that deals with the recognition of trusts in the countries
that did not know the trust instrument before the ratification of the HTC,
and, consequently, the minimum effects of said recognition within these
countries37;

relationships between the trustees and the beneficiaries including the personal liability
of the trustees to the beneficiaries; h) the variation or termination of the trust; i) the
distribution of the trust assets; j) the duty of trustees to account for their
administration”.
36
See art. 2, par. 3, HTC: “The reservation by the settlor of certain rights and powers,
and the fact that the trustee may himself have rights as a beneficiary, are not necessarily
inconsistent with the existence of a trust”.
37
See art. 11 HTC: “A trust created in accordance with the law specified by the
preceding Chapter shall be recognised as a trust. Such recognition shall imply, as a
minimum, that the trust property constitutes a separate fund, that the trustee may sue
and be sued in his capacity as trustee, and that he may appear or act in this capacity
before a notary or any person acting in an official capacity. In so far as the law applicable
to the trust requires or provides, such recognition shall imply, in particular – a) that
personal creditors of the trustee shall have no recourse against the trust assets; b) that the

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− art. 12 HTC, which deals with the registration of the trust properties
in country of the case38;
− article 13 HTC, which deals with recognition of trusts more closely
or exclusively connected with States that did not know the trust
instrument, once again, from a substantial point of view (meaning inside
their private laws), before signature and ratification of the HTC39;
− articles 15, 16 and 18 HTC, which are also called safeguarding
clauses, and are also mostly directed to civil-law countries, so to solve
possible issues of incompatibility, arising on a case-by-case situation,
between the trust of the case40, and the legal system of the case (like the
Italian one), that can be governed by different rules of law on the subject
matter at stake. As it can happen, e.g., when a so-called family trust is set
up, in a civil law system, to pass wealth through generations, because it
must always comply with the rules of law on succession (mortis causa) of

trust assets shall not form part of the trustee's estate upon his insolvency or bankruptcy;
c) that the trust assets shall not form part of the matrimonial property of the trustee or
his spouse nor part of the trustee's estate upon his death; d) that the trust assets may be
recovered when the trustee, in breach of trust, has mingled trust assets with his own
property or has alienated trust assets. However, the rights and obligations of any third
party holder of the assets shall remain subject to the law determined by the choice of law
rules of the forum”.
38
See art. 12 HTC: “Where the trustee desires to register assets, movable or immovable,
or documents of title to them, he shall be entitled, in so far as this is not prohibited by or
inconsistent with the law of the State where registration is sought, to do so in his
capacity as trustee or in such other way that the existence of the trust is disclosed”.
39
See art. 13 HTC: “No State shall be bound to recognise a trust the significant
elements of which, except for the choice of the applicable law, the place of
administration and the habitual residence of the trustee, are more closely connected with
States which do not have the institution of the trust or the category of trust involved”.
Please note that art. 13 HTC gave birth, in the Italian legal system, after ratification of
the HTC, executed with Law October 23, 1989, n. 364, to a huge domestic debate on
so-called trusts interni, which, anyway, are not meant to exist under the HTC, as just
trusts mostly or exclusively connected with the legal system of the case (like the Italian
one, e.g.) do exist, under the HTC (see the text above).
40
Which is in any case a legal instrument originally developed in common-law
jurisdictions, that generally have different policies, from civil-law countries, on most
of the areas of private law.

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the interested legal system of the case, whose provisions are basically
different form the rules of law available on succession mortis causa in
force in common law States. All the above, where trusts mostly but not
exclusively connected with a civil law country, being them international
trusts stricto sensu, they do involve application of art. 15 HTC41; whereas
art. 16, par. 1, HTC42 is to be applied in case of trusts exclusively
connected with the legal system of the case43, and, finally, art. 18 HTC in
both cases44.

Finally, in relation with the above-mentioned safeguarding clauses, please

also note that quite important kinds of trusts, nowadays available in
common-law jurisdictions, and therefore due to be considered, are the
following ones:
− Protective trusts, allowed under the English law;
− Spendthrift trusts, allowed in most of the States of the United States
of America; and

41
See art. 15 HTC: “The Convention does not prevent the application of provisions of
the law designated by the conflicts rules of the forum, in so far as those provisions cannot
be derogated from by voluntary act, relating in particular to the following matters – a)
the protection of minors and incapable parties; b) the personal and proprietary effects of
marriage; c) succession rights, testate and intestate, especially the indefeasible shares of
spouses and relatives; d) the transfer of title to property and security interests in
property; e) the protection of creditors in matters of insolvency; f) the protection, in other
respects, of third parties acting in good faith. If recognition of a trust is prevented by
application of the preceding paragraph, the court shall try to give effect to the objects of
the trust by other means”.
42
Whose objective field of application is meant to be the very same provided for by
art. 15, par. 1, HTC.
43
See art. 16 HTC: “The Convention does not prevent the application of those
provisions of the law of the forum which must be applied even to international
situations, irrespective of rules of conflict of laws. If another State has a sufficiently close
connection with a case then, in exceptional circumstances, effect may also be given to
rules of that State which have the same character as mentioned in the preceding
paragraph. Any Contracting State may, by way of reservation, declare that it will not
apply the second paragraph of this Article”.
44
See art. 18 HTC: “The provisions of the Convention may be disregarded when their
application would be manifestly incompatible with public policy (ordre public)”.

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− Asset Protection Trusts, available nowadays still in some of the U.S.

States, as well as in a few offshore jurisdictions (compared to U.S.).

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ON THE CURRENT USES OF TRUSTS IN COMMON-LAW JURISDICTIONS

Thanks to all common characteristics previously described45, express

trusts are regularly used, in common law jurisdictions, to fulfil quite a few
(private-law) purposes, that stretch from succession law up to
commercial/business law.
In fact, they are regularly used to:
1) tie up properties so that they can benefit more than one person in
succession.
As for this purpose, please note that it is possible to reach it, in England
(as well as in other common law countries), because the English law
allows settlors to meddle trusts with future interests, namely interests on
(or rights over) properties that are not in possession of the titleholder of
the case, but due to be legally possessed by him/her in the future.
Exempli gratia, a grandfather/grandmother can make an outright gift46 to
his/her child, parent of children too, hoping that on his/her child’s death
the gifted property of the case will go to his/her grandchildren; but there
is no guarantee that the child will do so. On the contrary, if the gift is
performed to trustees to hold upon trust for the child for life with
remainder to grandchildren, then grandchildren can draw a benefit out of
the trust fund. No one can normally guarantee that the person ultimately
entitled will receive the very same property that was originally settled in
trust, because – as we are aware of – trustees have power to sell/dispose of
the trust properties by default, if it is the case, and re-invest the proceeds
afterwards (on behalf of all beneficiaries of the trust). Anyway, this
scheme certainly ensures that even the person ultimately entitled shall
receive a benefit from the trust fund;
2) let properties, particularly land, to be held on behalf of persons who
cannot hold them directly (like infants or minors)47;
45
Namely, separation of funds, real subrogation of the trust properties, and extreme
flexibility of the structure.
46
Namely, a donazione, governed by art. 769 ICC and ff. ones, in Italian private law.
47
Still in terms of comparative law, in Italy, legal representatives are commonly used
to hold properties on behalf of minors, as well as on behalf of other incapable persons
in general (like, inabilitati, inderdicted persons, or persons subject to support

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3) allow everyone to make provisions for dependants (like, e.g., a lover)

privately, and avoid, therefore, the public procedure called probate,
otherwise due upon death of the settlor/deceased person (or de cuius) of
the case48;
4) protect family properties from spendthrifts (or wastrels).
Once again, a person may feel that an outright gift of some properties
performed directly to his/her own spouse and/or own child could lead to
a possible waste of them.
Instead, a gift of the same properties to trustees to hold the properties
upon trust to pay a regular income out of them to the widow and/or the
son can prevent, or at least lessen, their dissolution.
Moreover, this purpose can be reached with two different schemes,
namely:
a) a scheme where trustees of a discretionary trust are granted a
discretion as to the amount (if any) they will pay over, at any time, to the
above-mentioned beneficiaries; or
b) a scheme where the properties are given to trustees to hold them
upon trust for beneficiaries that are not allowed to dispose of (rectius, to
assign) their position as trust beneficiaries49, due to a clause, inserted in
the deed of trust, that provides for either a restraint on (voluntary and
involuntary) alienations (in case of a spendthrift trust set up in U.S.) or a
determinable interest (in case of a protective trust set up in U.K.);

administration). See on the subject matter, A. REALI, Lectures on Italian Private Law,
Liuc e-books, 2021, p. 71 ff.
48
On probate’s peculiarities, due, under succession law, in common law jurisdictions,
to be compared, once again, with the rules of law on transfer of properties mortis
causa in civil law jurisdictions, please see, above all, the response of the UK
government to the Green Paper on Regulation (EU) No 650/2012 of the European
Parliament and of the Council of the 4th of July 2012 on jurisdiction, applicable law,
recognition and enforcement of decisions and acceptance and enforcement of authentic
instruments in matters of succession and on the creation of a European Certificate of
Succession, available at ec.europa.eu/justice/news/consulting_public/successions/
contributions/contribution_uk_en.pdf, and mentioned hereinafter.
49
Otherwise freely assignable to third parties.

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5) in England, enable two or more persons to own land50;

6) provide pensions schemes for retired employees and their
dependants;
7) provide for ESOPs (Employees Share Ownership Plans), still on
behalf of employees during their working life;
8) facilitate investments under so-called unit trusts or investment trusts;
9) manage timeshares, where a timeshare is a legal transaction that
starts from a timeshare contract, meaning “a contract between a trader and
a consumer – (a) under which the consumer, for consideration, acquires the
right to use overnight accommodation for more than one period of
occupation, and (b) which has a duration of more than one year”51. More
precisely, a contract which is nowadays, basically in all EU Member
States, the subject matter of a specific law, enacted under the guidelines
provided for by Directive 2008/122/EC of the European Parliament and
the Council of 14 January 2009 on the protection of consumers in respect of
certain aspects of timeshare, long-term holiday product, resale and exchange
contracts.
As per above, please also note that quite a few physical and legal persons
are involved in these legal transactions, meaning, in case of a timeshare
performed via trust, at least a developer, a marketing company, a
management company, and the trust itself. Namely, a trust that, under the
circumstances, controls (directly or indirectly) the management company
and the marketing company, and it is specifically set up to guarantee the
consumers, beneficiaries of the case, throughout the typical above-
mentioned separation of funds, which is – as we learned – a common
characteristic of every trust52;
10) run securitizations, where trusts are commonly used as Special
Purpose Vehicles (SPVs), to guarantee, once again, throughout the

50
In fact, today land can only be owned, in English law, jointly, throughout a trust for
sale.
51
See section 7, par. 1 of [t]he Timeshare, Holiday products, Resale and Exchange
Contracts Regulation 2010, available in legislation.gov.uk/uksi/2010/2960/contents.
52
On timeshare, in Italian language, see A. REALI, Il timesharing via trust: l’esperienza
di common law e la realtà di civil law, in A. GAMBARO – U. MORELLO (EDs), Trattato
dei diritti reali, Milan, 2011, II, p. 523 ff.

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separation of funds, the debenture-holders of the case;

11) manage voting agreements (under so-called voting trusts)53;
12) support joint ventures or project financings in general;
13) provide for either guarantees on behalf of, or mechanisms for
payment of, third parties-creditors, in general;
14) in U.S., even perform all activities that in civil law countries are
regularly run via companies54.

53
To fulfil purposes that are mostly ruled, within the Italian legal system, by art. 2341-
bis ICC and art. 2341-ter ICC, on patti parasociali.
54
Meaning both partnerships and companies stricto sensu meant, available, e.g., in the
Italian legal system.

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