The new role trusts play in modern financial markets: the evolution of trusts from guardian to entrepreneur and the reasons for the evolution

Abstract

Trusts, originally used to protect family landholdings over generations, have developed into a vehicle that not only acts as a guardian of family property, but also operates as an entrepreneur for commercial uses. The significant role the trust plays in financial markets has also spurred the introduction of trusts into civilian jurisdictions. This new role of trusts invites scholars to rethink general notions of the law like property, company, or tax in the context of trust law. Through an examination of the evolution of trusts, notably in China, this article seeks to redress misunderstanding of the new role of trusts and remove some of the mystery around the trust by placing it within the broader historical context within which trusts evolved. It also critically analyses the reasons for such evolution and attempts to answer the question of what makes a trust attractive for commercial uses. The article argues that the popularity of trusts in modern commercial and financial markets lies in the inherent flexibility of the trust device, the independence of trust property, the segregation of control and benefits of trust property, an ability of the trust to circumvent legal obstacles, and advantages of the trust over other business entities, such as companies.