Money is often handed over for a particular job — to pay a specific creditor, complete a transaction, or fund a defined purpose. Usually that creates a simple debt. But where the recipient is not free to use the money for anything else, the law can treat it as held on trust. That distinction is decisive in practice: if the recipient becomes insolvent, a lender with a trust has a proprietary claim that ranks ahead of ordinary unsecured creditors, often turning a near-total loss into full recovery.
This lesson takes you through how these trusts work, from formation to what happens when things go wrong.
- Nature and Requirements — what a Quistclose trust is, the conditions for one to arise, and where the beneficial interest sits while it lasts.
- Insolvency Significance and Operation — why the proprietary claim matters on insolvency, what happens once the money is properly applied, when the purpose fails, and how a resulting trust then returns the funds to the lender.