What is a Trust?

Irwin Law's Canadian Online Legal Dictionary defines a trust as: "An arrangement under which money or other property is held by one person, often a trust company, for the benefit of another person or persons. These assets are administered according to the terms of the trust agreement."

Trusts are set to provide stewardship over an asset. Assets held in trust are most often land or money, but can be established for anything of value, including intellectual property and data. There are three parties involved in a trust agreement. Each party can be a person, a group of people, an organization, or a community.

  1. The trustor contributes property to the trust.

  2. The trustee manages the trust.

  3. The beneficiary receives the benefits of the trust agreement.

The most relevant type of trusts for our purposes are trusts set up to benefit a whole community.

  • There are over 125 land trusts in Canada set up to conserve private lands and waters of environmental and cultural significance. The National Conservancy of Canada is a not for profit organization (the trustee) that receive donations of land from individuals, corporations and governments (the trustors) to conserve and restore land for the long term benefit of Canadians (the beneficiaries).

  • Many First Nations, Metis and Inuit have established community trusts to oversee and manage Settlement Agreement or Land Claim Agreement funds. The Nunavut Trust has $1.8 billion of assets that are managed by six trustees. The trust has a mandate to invest the capital transfers from the Government of Canada (the trustor) to protect them from the effects of inflation and to provide income to the Inuit of the Nunavut Settlement Area (the benficiaries).

  • Charities in Canada can be established as corporations, unincorporated associations, or as charitable trusts. The Muriel McQueen Fergusson Foundation is an example of a charitable trust. The goals of the foundation are to fund research and public education into the causes, incidence and forms of treatment of family violence. The foundation accepts public and private donations (the trustors) and is managed by a volunteer board and an Executive Director (the trustees) that provides grants to registered charities in New Brunswick in the area of family violence.

These examples demonstrate several different ways trusts can been set up to manage donated assets to achieve a specified set of benefits for a particular community.

Trustees and beneficiaries enter into a special relationship called a fiduciary duty. Fiduciary duty means the trustees are legally obligated to act in the best interests of the beneficiaries, rather than serving their own interests. For example, attorneys have a fiduciary duty to their clients, and board members of a corporation have a fiduciary duty to shareholders.

The most important duties for trustees are loyalty and prudence. Loyalty means acting in good faith for the beneficiaries, avoiding conflicts of interest, and not acting for the benefit of themselves or a third party. Prudence means acting with due care, skill and diligence.

Trusts provide beneficiaries with legal protection when they place their confidence in the trustee. If a trustee acts against the interest of the trust's beneficiaries or fails to declare a conflict of interest, a breach of fiduciary duty has occurred. If a breach has occurred and the beneficiaries have suffered damages, the beneficiaries are entitled to take action in civil court.