The History of Trusts

Trust law goes a long way back in history. However, the concept of trust, the cases it covers and the way it is enforced has changed and developed over time. However, we can find a couple of instances throughout history that show the development of the concept as we now know it.

Going all the way back to Roman times, the concept of Fideicommissum can be found. This concept could be compared to what a modern testamentary trust looks like. The Institutes of Roman Law mention how this fideicommissum works: an heir is appointed and it is committed to t trust that the inheritance is then passed on to another heir. If no heir was appointed, the testament was considered void. Even though Emperor Augustus was the one that passed the fideicommissum as legally binding, Romans rarely had an issue with having it being enforced. Before Augustus, all parties with the fideicommissum acted in good faith, because of the weight friendships had in Roman society.  If a party didn’t comply with what was asked of them, they could fall into infamy, losing their social standing and many of the benefits and legal protections Roman citizens had. Being a social and commercial outcast was a very real and tangible punishment for Roman citizens.

However, their concept of trusts only applied to testaments, as no living trusts existed at the time.

Trust law, as we know it now, began to develop some time after that, around the 12th century in England.

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During the crusades, it was common for landowners to leave everything behind and fight for this holy cause. However, something had to be done with their belongings, especially the land they owned and managed. The most common solution to this was that the landowner (settlor) transferred their land to someone else (a trustee) to manage, pay and receive what was due during their absence; all with the understanding that the land would be transferred back to the original owner once he came back from the Crusades.

However, due to the limitations of common law, the original owner had no legal claim to the land, which meant that the trustee was under no obligation to transfer it back if they didn’t want to. It was because of this that the concept of equity arose. The crusader would take the petition to the king, and the king would transfer it his Lord Chancellor, who would decide it was unethical for the trustee to deny the original landowner the right to his land.

It is through cases like these that the concept of trust arose, as well as the legal backing they needed to be enforced. As a result today we have such unique inventions as the ability to form land trusts and pet trusts. 

The pilgrims that travelled from England to what would become the United States brought with them the English Law, which meant that trusts also made their way across the Atlantic.

It was here that concepts such as spendthrift trusts also developed, this being a trust that is completely managed by the trustee for the benefit (but independently) of the beneficiary.

And so this concept developed and evolved into what we now know and understand as trust law. Trust law has since evolved as US trust law has become more important worldwide. There are offshore jurisdictions such as Nevis, the Cook Islands and the Bahamas. These became popular due to their strong asset protection benefits, including immediate protection from existing creditors.

While such laws are beneficial for settlors and beneficiaries, they have been invalidated by US courts. For this reason, many in the USA have chosen to use a domestic asset protection trust. Such trusts are often domiciled in havens such as Nevada, South Dakota and Wyoming to name a few. These jurisdictions have favorable laws which resemble offshore trusts.

One example is the ability to form an unregulated private trust company. This will allow you to act as the trustee of your irrevocable trust. This allows you to maintain full control while being able to turn off distributions. This allows you to protect assets held in trust from creditors such as the government, spouses, car accidents and more.