It is believed an early use of trusts was seen around the time of the Middle Ages. As knights sought to protect and preserve their estates during their likely lengthy absence, they would transfer the legal ownership of their estate to a third party, such as a close friend, under an agreement whereby it was understood that ownership would be transferred back to the knight upon his return. This transfer of legal title empowered the transferee to manage the estate effectively and to enforce the rights of the estate against all parties while the knight was away.
In most instances, a returning knight would reclaim ownership of his estate without any difficulties. There were, however, occasions when the person who had managed the estate as the knight's "trustee" refused to relinquish ownership, despite the agreement between the two parties. Unfortunately for the knight, the agreement he had made was not deemed to be legally binding under English common law and the Court invariably asserted that the person with legal title over the estate was indeed the outright owner.
As disputes over ownership became more prevalent, separate rules of Equity developed in parallel with the English common law so that a beneficial interest in property could exist alongside a separate legal interest. While the common law rules provided for clarity and certainty of result, the rules of Equity applied principles of justice and conscience. Using these new rules, the Court of Chancery began to make a distinction between the legal and equitable ownership of an asset. This meant that it was then possible for one person to legally own and manage an estate in the best interests of other persons, without that owner actually deriving any benefit (financial or otherwise) from the estate himself. This separation is the underlying concept upon which a trust is based.
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