1. Express Trusts: Declaration of Trust Flashcards
What is equity?
A distinct body of rules and principles.
What are the purposes of equity?
To mitigate the rigours of the common law and provide more options for redress.
What is the most important form of equity?
The trust.
What are the maxims of equity?
‘He who comes to equity must come with clean hands’ and ‘Equity will not assist a volunteer’.
What does ‘property’ encompass?
Money, shares, land, personal possessions.
What is the difference between legal and equitable ownership?
Legal ownership is outright ownership, while equitable ownership involves a trust.
What is a trust?
An arrangement where a trustee holds property for the benefit of another.
Who is the settlor?
The person who creates a trust.
Who can be a trustee?
A third party or the settlor themselves.
What is a lifetime trust?
A trust created during the settlor’s lifetime.
Who are the beneficiaries of a trust?
Those who benefit from the trust.
What is the duty of a trustee?
To deal with property for the benefit of the beneficiaries.
Who can enforce the duty of a trustee?
The beneficiaries.
What is the role of equity in relation to the common law?
To mitigate its rigours.
What does equity focus on?
The consciences of the parties involved.
What are equitable remedies?
Remedies provided by equity.
What is the role of equity in providing redress?
To provide more options for redress.
What is the concept of trust?
When one person holds legal interest and another holds equitable interest in a property.
What is an absolute owner?
Someone who has both legal and equitable ownership of a property.
What is the practical significance of equitable interest in an absolute owner?
None, as they already have full ownership in law.
What is a settlor?
The person who creates the trust and sets out its terms.
What are the terms of the trust often referred to as?
The declaration of trust or trust deed.
What must the settlor ensure once they have set out the terms of the trust?
That the trustee gets legal title to the trust property.
When is the trust considered complete?
When the trustee has legal title to the trust property.
Who are the trustees?
The person or people chosen to hold the trust property for the benefit of the beneficiaries.
What must the trustee do?
Follow the terms of the trust and manage the trust property until the beneficiaries become entitled to it.
Who are the beneficiaries?
The people who will ultimately benefit from the trust and the managed property.
What happens to the ownership of the property held on trust?
It automatically splits up, with legal title going to the trustee and equitable or beneficial title going to the beneficiary.
What is the real value of the trust?
The equitable title that belongs to the beneficiary.
What are the characteristics of legal title?
It looks like the absolute owner, is responsible for managing the property, and is subject to onerous duties for misusing trust property.
What are the characteristics of equitable title?
It carries all the benefits of the trust property, can be enforced against third parties, and can be sold or given away.
What are the duties of trustees?
The duties include managing the trust property, following the terms of the trust, and not misusing the trust property.
What is the main duty of a trustee?
To look after the trust fund until beneficiaries are entitled to it.
What is the duty of a trustee regarding investing the trust fund?
To consider investing and growing the trust fund for the benefit of the beneficiaries.
What types of investments might trustees purchase for a long-term holding?
Riskier forms of investments that are more likely to grow in value over time.
What types of investments might trustees purchase for a short-term holding?
Safer forms of investments to retain the value of the trust fund.
Why use a trust instead of gifting property?
Trusts provide control and management by a trustee, ensuring decisions are made in the best interests of beneficiaries.
What can a declaration of trust or deed of trust allow trustees to do?
Drip-feed money early to beneficiaries, delay the entitlement of beneficiaries, or impose conditions on their entitlement.
What is the purpose of a trust?
To split up the management of property from the enjoyment of that property.
When does a trust arise in the context of private clients?
When people of all means plan for the future (estate planning).
In what context are houses owned in a trust arrangement?
Land ownership where multiple people own a house.
How are many charities organized?
As trusts.
What legal tool is often used to establish pension schemes?
Trusts.
What are express trusts?
Trusts that the settlor expressly intends to create.
What are examples of express trusts that benefit individuals?
Bare trusts, contingent interest, life interest, discretionary trusts.
What are express trusts to achieve a purpose?
Trusts where the settlor leaves property to achieve a specific purpose or objective.
What are examples of express trusts to achieve a purpose?
Putting money on trust to build a gymnasium, improve educational standards.
What are implied trusts?
Trusts that arise even without express intention from the settlor.
What are resulting trusts?
Implied trusts presumed to be intended by the settlor.
What are constructive trusts?
Implied trusts created to achieve a fair result between parties.
What is the purpose of a constructive trust?
To prevent the legal owner from having full enjoyment of the property.
What are the two main types of implied trusts?
Resulting trusts and constructive trusts.
What is the family tree of trusts?
A classification of trusts based on their nature and purpose.
When can a trust be created?
Either during the settlor’s lifetime or in their will upon death.
What are lifetime trusts?
Trusts created to take effect during the settlor’s lifetime.
What must the settlor do to create a valid lifetime trust?
Make a valid declaration of trust and transfer property into the trust.
What is the process of constituting a trust?
Transferring trust property to the trustee.
What is a will trust?
A trust that takes effect upon the testator’s death.
What are the requirements for a valid will trust?
Valid declaration of trust in a will and directing title to the trustee.
What is the residuary estate?
What remains of the settlor’s property after debts, tax, and specific legacies.
Who is the residuary beneficiary?
The person named to receive the residuary estate.
What happens if a settlor attempts to create a lifetime trust but something goes wrong?
Equitable interest goes back to the settlor’s residuary estate.
What happens if a testator attempts to create a will trust but something goes wrong?
The trust property goes to the residuary beneficiary.
Who inherits the equitable interest if a settlor dies without leaving a will?
The settlor’s statutory next-of-kin under the rules of intestacy.
What are express trusts?
Trusts that the settlor expressly intends to create.
What is required for an express trust to be enforceable?
A valid declaration of trust.
What is a fixed interest trust?
Trustees have no discretion in distributing trust property.
What is a discretionary trust?
Trustees have discretion in distributing trust property.
What can the settlor indicate in a discretionary trust?
The class of people who might benefit.
What is the benefit of a discretionary trust?
Allows trustees to respond to changes in circumstances.
What are the three certainties for a valid declaration of trust?
Certainty of intention, certainty of subject-matter, certainty of objects.
What is certainty of intention?
Clear intention to create a trust.
What is certainty of subject-matter?
Clear identification of the property held on trust and the individual interests of beneficiaries.
What is certainty of objects?
Clear identification of who the beneficiaries are.
What must a valid declaration of trust identify?
Trustees, trust property, beneficiaries, powers and duties of trustees.
What is the purpose of putting assets in a trust?
To allow the trustee to manage the property.
What is the role of the trustee in a trust?
To manage the trust property.
What is a trustee?
A person responsible for managing the trust property.
What is a settlor?
The person who creates the trust.
What is a beneficiary?
A person who benefits from the trust.
What is a fixed interest trust?
Trustees have no discretion in distributing trust property.
What is a discretionary trust?
Trustees have discretion in distributing trust property.
What can the settlor indicate in a discretionary trust?
The class of people who might benefit.
What is the benefit of a discretionary trust?
Allows trustees to respond to changes in circumstances.
What are the three certainties for a valid declaration of trust?
Certainty of intention, certainty of subject-matter, certainty of objects.
What is certainty of intention?
Clear intention to create a trust.
What is certainty of subject-matter?
Clear identification of the property held on trust and the individual interests of beneficiaries.
What is certainty of objects?
Clear identification of who the beneficiaries are.
What is certainty of intention?
Words that impose a duty on someone to act as a trustee.
What are precatory words?
Words that express a wish, hope, or expectation, but do not create a trust.
What happens if there is no certainty of intention?
Law relies on various presumptions to determine the legal result.
What is certainty of subject matter?
The trust property must be described and the beneficiaries’ interests defined with certainty.
What are the requirements for trust property to be certain?
Must be identifiable, currently owned, and listed individually if in one trust fund.
What is the issue with using the word ‘some’ for a collection of items in a trust?
It does not provide certainty as to the number of items held on trust.
Can a trust be created over a collection of items?
Yes, as long as the items are identical and physically separated from other property.
What happens if the beneficiaries’ shares or interests in the trust fund are not defined with certainty?
The trust will fail.
What happens if there is no certainty of trust property?
No trust is created, settlor remains outright owner.
What happens if the settlor transfers property to a third party and declares that person shall be a trustee over ‘some of it’?
No trust is created, third party takes entire property absolutely.
What happens if the settlor appoints a trustee but does not specify the interests of the individuals?
Trustee holds trust fund for the benefit of the settlor under a resulting trust.
What is the object of the trust?
The beneficiary.
Why is it important for the beneficiaries to be identified with certainty?
So that trustees know who to distribute property to.
What happens if trustees distribute property to someone who is not a beneficiary?
They will be in breach of trust.
What is the test for certainty of objects in a fixed interest trust?
The complete list test.
What is the complete list test?
It must be possible to draw up a complete list of each and every beneficiary.
What is required to satisfy the complete list test if beneficiaries are described as a class of people?
Conceptual certainty and evidential certainty.
What is conceptual certainty?
Clear and objective description of the class.
What is evidential certainty?
Sufficient evidence to identify all beneficiaries.
What happens if the description of the class is unclear and lacks precision?
The trust will fail.
What happens if there is insufficient evidence to identify all beneficiaries?
The trust will fail.
What is a discretionary trust?
A trust where trustees have discretion in distributing property.
Is it necessary to draw up a complete list of possible beneficiaries in a discretionary trust?
No.
What is the purpose of a discretionary trust?
To allow trustees to decide how to distribute property.
What is the difference between a fixed interest trust and a discretionary trust?
In a fixed interest trust, a complete list of beneficiaries is required. In a discretionary trust, it is not.
What happens if trustees do not have sufficient evidence to identify all beneficiaries in a fixed interest trust?
The trust will fail.
What happens if trustees do not have sufficient evidence to identify all beneficiaries in a discretionary trust?
They can still exercise their discretion in distributing property.
What must trustees ensure when distributing trust property?
Distributing to the right type of people within a class.
What is the ‘Given postulant test’?
Conceptual certainty only.
What is required to satisfy the test for a discretionary trust?
Conceptual certainty.
What makes a trust fail?
Unclear and imprecise language to describe the class.
What is the first test a discretionary trust must overcome to be valid?
Administrative workability.
When is a discretionary trust administratively unworkable?
When the class is too wide, too large, or too large to survey.
How can you determine if a discretionary trust is administratively unworkable?
It depends on the size of the class compared to the size of the trust fund.
Is administrative unworkability an issue for fixed trusts?
No.
What is capriciousness in a discretionary trust?
No rational reason for the trust.
What are the tests a discretionary trust must overcome to be valid?
Conceptual certainty, administrative workability, and no capriciousness.
What happens if there is no certainty of objects?
Resulting trust in favor of the settlor.
What is the beneficiary principle?
A trust must be for the benefit of individuals.
What is the purpose of the rule against perpetuities?
To prevent excessive locking away of wealth in trusts.
What is the rule against remoteness of vesting?
Beneficial interests must become unconditional within the relevant perpetuity period.
What is the perpetuity period for trusts created on or after 1 April 2010?
125 years.
What are the formalities relating to the declaration of trust for will trusts?
Must comply with the Wills Act 1837 and be signed by the testator in the presence of two witnesses.
What are lifetime trusts?
Trusts created during the settlor’s lifetime.
What is the purpose of lifetime trusts?
To transfer assets during the settlor’s lifetime.
What is the purpose of discretionary trusts?
To give trustees discretion in distributing trust assets.
What is the trustee’s discretion based on in discretionary trusts?
No rational basis, according to the terms of the trust.
What is the result if there is no rational basis for the trustee’s discretion in a discretionary trust?
The trust may be invalid.
What is the purpose of the perpetuity rule?
To ensure property remains freely alienable.
What is the potential disadvantage of property being held in trust for a long period of time?
Money does not circulate freely in the economy.
What is the rule against remoteness of vesting for trusts for individuals?
Beneficial interests must vest within the relevant perpetuity period.
What is the perpetuity period for trusts created on or after 1 April 2010?
125 years.
What are the formalities for the declaration of trust in a will trust?
Must comply with the Wills Act 1837 and be signed by the testator in the presence of two witnesses.
What is the purpose of lifetime trusts?
To transfer assets during the settlor’s lifetime.
What is the purpose of discretionary trusts?
To give trustees discretion in distributing trust assets.
What is the trustee’s discretion based on in discretionary trusts?
No rational basis, according to the terms of the trust.
What is the result if there is no rational basis for the trustee’s discretion in a discretionary trust?
The trust may be invalid.
What is a declaration of trust?
A declaration of trust is a statement that establishes the terms of a trust.
Can declarations of trust be made orally?
Yes, but it is not advised.
Why is it not advised to make oral declarations of trust?
Because it may be difficult to refer back to the declaration in case of disputes.
What is required for declarations of trust over land?
Compliance with s 53(1)(b) of the Law of Property Act (LPA) 1925.
What does s 53(1)(b) of the LPA 1925 require?
A declaration of trust must be evidenced in writing and signed by the settlor.
What happens if a declaration of trust over land does not comply with s 53(1)(b)?
The trust will be unenforceable.
How does s 53(1)(b) apply to emails?
An email can be considered a written document for the purpose of s 53(1)(b).
What constitutes a signature in an email declaration of trust?
Typing the settlor’s name at the end of the email.
What variations of the settlor’s name can be considered a signature in an email declaration of trust?
Full name, last name with initials, initials only, first name only, or a known nickname.
When is an email considered signed in an email declaration of trust?
When the settlor has previously inserted a signature block into their email settings and it is applied to all outgoing mail.
What can strengthen the argument that an email declaration of trust is signed?
If the settlor has typed a common salutation above the signature block, such as ‘yours sincerely’ or ‘kind regards’.
Is the email address of the settlor alone considered a signature?
No, it is insufficient to comply with s 53(1)(b).
