In BC law, a “trust” is a useful tool for investment structuring. Our clients use trust primarily to manage investment properties and for estate planning.

But what exactly is a trust? How do you use it lawfully to manage your investment? What happens when the trust relationship breaks down? What are the remedies?

What is a Trust?

At its core, a trust is a legal relationship where one party (the trustee) holds assets for the benefit of another party (the beneficiary). The person who creates the trust is known as the settlor.

The BC Court of Appeal cases of Chung v. Chung, 2025 BCCA 136 and Zhang v. Zhang, 2025 BCCA 143, released in May 2025, illustrate different facets of trusts:

• In Chung v. Chung, rental apartment buildings were beneficially owned by two brothers, Jae Hoon Chung who lives in Seoul and Won Sok Chung who lives in Vancouver, but legally owned by corporations that held the investment properties as “bare trustees”. Won Sok Chung, who actively managed the properties, was also the president, sole director, and sole shareholder in these corporate trustees. This structure separated the legal ownership (held by the corporations as trustees) from the beneficial ownership (enjoyed by the brothers). Using corporations as owners of the apartment buildings carry the benefits of separating liabilities from the two brothers personally, as well as lowered corporate income tax rates.
• In Zhang v. Zhang, the appellants were found to hold shares and units in a BC company in trust for the respondents. The trial judge found these trusts enforceable despite claims they were set up for an illegal purpose.

These 2 cases highlight that a trust creates a fiduciary relationship, meaning the trustee has a duty to act in the best interests of the beneficiaries.

Key Elements of a Trust:

The critical elements of a trust in law are the following:

1. Fiduciary Duty: This is paramount. The trustee has a legal and ethical obligation to act solely for the benefit of the beneficiaries.
   • In Chung v. Chung, Won Sok Chung, the brother in Vancouver, was found to have breached his fiduciary duties by misappropriating funds from the corporate trustees’ bank accounts for personal use, in buying a house on Marine Drive for himself, without his brother’s consent. The court noted his actions breached both the “no conflict” rule (a trustee cannot put their personal interests in conflict with their duties to the beneficiary) and the “no profit” rule (a trustee cannot personally profit from their position as trustee). His failure to disclose his secret profit and the misinformation he provided did not meet the requisite standards for honesty and good faith.
   • Similarly, in Zhang v. Zhang, the appellants were found liable for breach of trust. The trial judge described their conduct in denying the trust, which they later conceded existed, as “untethered from the truth” and “exceptionally egregious”. Helen, one of the appellants, was found to have fabricated claims and evidence.
2. Identifiable Trust Property (Subject Matter): The assets held in trust must be clearly identifiable.
   • In Chung, the trust property included Vancouver apartment buildings and the funds generated from them, which were later misappropriated to purchase a residential property on Marine Drive.
   • In Zhang, the trust property consisted of shares and units in a BC company.
3. Beneficiaries (Objects): The individuals or entities who will benefit from the trust must be clearly ascertainable.
   • In Chung, the beneficiaries were the two brothers, Jae Hoon Chung and Won Sok Chung, according to their respective interests in the joint investment.
   • In Zhang, the respondents (Myles and Rose) were the beneficiaries of the shares held in trust by the appellants.
4. Terms of the Trust: The trust agreement (which can be written or, in some cases, oral or implied by conduct) outlines the trustee’s powers and responsibilities and how the trust assets are to be managed and distributed.
   • In Chung, the agreements stipulated that Won was prohibited from withdrawing funds from the corporate trustees without Jae’s consent, and income was to be disbursed proportionally. Won’s withdrawals without consent constituted a breach of these express terms.

What are the Different Kinds of Trusts?

Express or Explicit Trust – The Most Common Kind

• Creation: An express trust is created intentionally by a settlor (the person creating the trust). The settlor expressly states their intention to create a trust, identifies the trust property, the beneficiaries, and often the terms of the trust.
• How it Arises:
  • Through a written document, such as a trust deed or a will.
  • In some cases, it can be created orally, although trusts involving land typically require written evidence.
• Key Characteristic: The defining feature is the clear intention of the settlor to create the trust relationship.
• Real-Life Examples:
  • In Chung v. Chung, the initial arrangement where corporations held Vancouver apartment buildings as “bare trustees” (a bare trust is a simple form of trust where the trustee holds property for the benefit of a beneficiaries who have the absolute right to that property) for the benefit of the two brothers was an explicit trust structure. The agreements outlined that Won Sok Chung was prohibited from withdrawing funds without Jae Hoon Chung’s consent, and income was to be disbursed proportionally to their interests.
  • In Zhang v. Zhang, the appellants were found to hold shares and units in a BC company in trust for the respondents. The trial judge found these trusts enforceable, implying an established, intended trust relationship.

Resulting Trust, Constructive Trust in Comparison to an Express Trust

There are 2 other types of trusts, whose differences are best illustrated using the table below:

Why is an Express Trust Useful for a Real Estate Investment?

The Chung case provides a clear example of why trusts are employed in investment scenarios, particularly in joint ventures:

1. Separation of Legal and Beneficial Ownership: The Vancouver properties were legally owned by corporations acting as bare trustees, while the brothers held the beneficial (or equitable) interest. This separation can be useful for various reasons, including:
   • Asset Protection: While not a foolproof shield (especially against legitimate claims), holding assets in a trust can sometimes offer a layer of separation from personal liabilities, depending on the trust structure and jurisdiction. (Though in Zhang, an alleged motive for the trust was to avoid creditors from China, which the court ultimately found did not render the trust unenforceable in the specific circumstances).
   • Simplified Management and Transfer: Especially with multiple investors, having a corporate trustee can streamline the management of the property. Changes in beneficial ownership might be managed internally within the trust structure rather than requiring changes to legal title of the property itself. This is especially useful when some of the investors are overseas like the brother who lives in Korea.
   • Confidentiality: While not absolute, a trust can sometimes offer a degree of privacy regarding the ultimate beneficial owners.
2. Defined Roles and Responsibilities: A trust structure, ideally with a clear trust agreement, can delineate the roles and responsibilities of the parties involved.
   • In Chung, Jae (in Korea) was the passive investor, while Won actively managed the properties in Vancouver and was entitled to a management fee. The trust agreements also outlined restrictions, such as the prohibition on Won withdrawing funds without Jae’s consent. This clarity (though ultimately breached) is crucial for investment partnerships.
3. Facilitating Joint Investment: Trusts can provide a flexible vehicle for multiple parties to pool resources and invest jointly.
   • The Chung brothers used this structure for their joint investment in two Vancouver apartment buildings, with their respective interests clearly defined (Jae at just over 45%, Won at 55%).
4. Holding Specific Assets: Trusts are commonly used to hold specific assets like real estate or shares for the benefit of defined individuals, as seen in both Chung (real estate) and Zhang (shares).

However, as Chung v. Chung starkly demonstrates, the effectiveness and integrity of a trust arrangement hinge critically on the trustee’s adherence to their fiduciary duties. When a trustee, like Won Sok Chung, breaches that trust by misappropriating funds for personal gain and concealing their actions, the legal framework of the trust provides the mechanism for the beneficiary (Jae Hoon Chung) to seek remedies, such as the constructive trust and punitive damages ultimately awarded in the appeal.

These cases serve as a potent reminder that while trusts are powerful tools for investment and planning, they are built on a foundation of good faith. The courts will intervene to protect beneficiaries and hold errant trustees accountable for their “reprehensible conduct.”

When we advise our clients in a dispute over real estate investments, we keep them focused on the key elements of the trust relationship if they use this tool to ensure their business viability. The trust relationship provides better and more expressive protections to the beneficiaries than, e.g., the oppression remedy in a corporate shareholders’ dispute.

Roland Luo: Vancouver Commercial Litigation Lawyer

With more than 20 years of litigation experience, our team provides a seasoned perspective when it comes to the often-uncertain nature of a dispute over a trust. In addition to clarity in law, we use French, in addition to English, in Court and we also have the advantage of under standing Chinese both in written evidence and in court testimonies, we are more effective in court to deal with the “convoluted” and “rambling” as the trial judge noted in the Zhang case.

Located in downtown Vancouver, Roland Luo proudly represents clients throughout British Columbia, Canada, and the United States. To schedule a confidential discussion, contact us online or by phone at 604-800-4628.