How did it all begin?
Trusts were first derived under the Statute of Uses in England in 1535. Prior to 1535, the legal real property practice was for landlords (landholders) to pay a type of land-royalty fee to the King. As you may know, land in England was fundamentally owned by the King and landlords could buy leaseholds from the King in his capacity of freeholder. These leaseholds could span a period of years exceeding 99 years. Oddly, the real property laws of England and many of its then colonies still use this land ownership of freehold and leasehold. Under King Henry VIII’s reign these payments were exacted from landholders and upon the death of a landholder the King could exact additional fees, like an inheritance tax, from the heir. Landholders began transferring their leaseholds into the name of one individual but for the benefit of another. This transactional party above would be termed the cestui que use and become the person benefiting from the use of the land, but was neither the initial landholder nor the heir of the landholder. Under this plan, there arose a type of land ownership termed “use”. This idea caught on quickly across the English country side and it was not long before the courts of England recognized this use right allowing the landholder to transfer possession of the land to one individual for use of the land while transferring legal title to another. Transferring title to land to two or more individuals, the landholder was also able to avoid other fees such as marriage fees and other fees associated with the death of a landholder. If the property was held in other persons’ names, a landholder could also avoid losing the property due to debt or felony conviction. By the end of the fifteenth century, almost all of the land in England was owned in use.
Like any government that depends on revenue generation to run its country, England was no different. The King, King Henry VIII at that time, was a very determined monarch and personally pushed through Parliament a special law designed to stop this loss of money for the Realm. This law was termed the Statute of Uses. This legislation terminated the short historic bifurcating of land rights between use and title, as I noted above. This legislation also acted to transfer full title to land automatically to the individual that was using the land as well as a reinstatement of the draconian feudal rule of primogeniture, which held that land should go to the oldest son upon the death of the landowner. Predictable, landholders vigorously abhorred this legislation and after a protracted and focused lobbying by the landholders the King scrapped the legislation. However, just five years later, Parliament enacted the Statute of Wills which gave rights to the landholders to pass property at their own discretion in the form of a written will and testament. Parliament did not rescind the Statute of Uses. Now not only were the landholders appalled but the courts were equally enraged.
Somewhat similar to modern circumstances, landholders began a period of creativity by finding and exploring loopholes in the legislation and the court also responded by using strict construction of the unfavorable legislation by allowing landholders to place property in the title of another individual while simultaneously retaining use of the property for their own use, benefit and profit. It was ultimately the courts that expanded this practice of the landholders into a concept of trust whereby a vehicle labeled a land trust allowed one individual to hold title to the land for the benefit of another individual who may direct the management and use of the land. The courts went on to reason that a trust allows the landholder to have some ability to use the land and that the person who received the transfer of the land performed no labor on the land and had no real function to the land, except to hold title. Thus, this individual became known as the “trustee”. The courts further reasoned that the trust was recognized in the courts of equity, but not in the courts of law. Thus, trusts had no jural ability to be sued or to sue in courts of law. This notion still exists in England as well as the United States.