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question.jpgIn Trusts and Estates

What is the difference between legal title and equitable title?

Legal title refers to the duties and responsibilities of maintaining and controlling some property, while equitable title refers to the benefits and enjoyment of that property. The essence of a trust is splitting the legal title and equitable title in some piece of property such that one or more people (the trustees) have the legal title and control the property while others (the beneficiaries) own the equitable title and get the use and enjoyment of the property.

These titles can be split in many ways among different individuals - the key is that no single person should own all of the equitable title and the legal title (in such an event, there is no trust). But a person can own all of one title and a part of the other, or parts of both titles. The following three examples help to understand this point:

1.Assume I put my brother in charge of a bank account to give money to my son until my son turns 25, at which time my son gets the rest of the money. For the purposes of a trust, this is a valid split of the legal title (which has been given fully to the brother) and the equitable title (which has been given fully to the son).

2. Assume that I put my brother in charge of a bank account to give money to both himself and my son until my son turns 25, at which time they evenly split the rest of the money. This is also a valid split of the titles because the legal title has been given fully to the brother while the equitable title has been split between the brother and the son - so while the brother has all of the legal title, he only has a portion of the equitable title.

3. Assume that I put both my brother and my son in charge of a bank account to share the proceeds from that account. This, too, is a valid trust because the legal title and equitable title have been split - while the brother and the son each hold a part of both titles, neither holds all of the legal and equitable title.

It should be noted that if, at any time, the full legal title and equitable title are held by a single individual, a merger has happened, which means the titles have fully merged such that the individual has full ownership of the property and the trust is over.