11. Trust creation Flashcards
How may trusts be created?
Orally or in writing (with a trust deed). Inter vivos (during the lifetime of settlor) or upon settlor's death.
What should a settlor understand before setting up a trust?
- the concept of a trust;
- the type of trust required;
- the consequences of setting up a trust and transferring assets into the trust; and
- that a trust is the right vehicle for the settlor and their own personal circumstances and requirements.
Who cannot be a trustee?
- minors
- interdicts
- some persons who may be considered undesirable i.e. wife/husband
- specific exclusions in the deed
What the ways in which a trust can be created (i.e. classification of trusts)?
- Express - created intentionally by settlor inter vivos or upon death
- Resulting - arises where the trust that was intended has failed (i.e. one of the 3 certainties is missing)
- Implied - not created intentionally but implied through circumstance (from presumes intentions of parties)
- Constructive - arises by order of the court
When might a constructive trust be created?
- Trustees making a secret profit, using the trust for their own gain;
- Property acquired fraudulently;
- Property transferred as a breach of trust may be help in a constructive trust for the real beneficiaries; or
- Directors failing to declare conflicts of interest.
What are the 3 certainties of a trust?
- Object
- Subject
- intent
Other than the 3 certainties, what must happen for a trust to be valid?
- Settlor must have legal capacity to transfer the assets to the trustee (i.e. not a minor)
- Settlor must have owned the assets at the time they pass ownership to the trustee
- Trust must be completely constituted (established by law)
What happens is a settlor fails to transfer the assets properly to the trustee?
The potential beneficiary is known as a ‘volunteer’. The intended transaction would leave an imperfect gift.
There is no equity in court to perfect an imperfect gift.
What is a void trust?
A trust which is created under duress or fraudulent purposes.
-A voidable trust is valid but can be declared void in certain circumstances (i.e. if the trust is created by a minor who then changes their mind and no longer wishes to create the trust)
Certainty of object
-Must be certain of whom/what the trust will benefit (i.e. ‘gifts to dependents’ or ‘for the benefit of people I like’ are too vague)
Certainty of subject
-Property must be identifiable and must remain through the trust period
[Initial settle funds and additional settled funds]
Certainty of Intent
-There must be no doubt that the settlor had the intention to create the trust. (serious step for a person as they are divesting themselves of all ownership)
What are charitable purpose trusts subject to?
Cy-près doctrine - this provides that if the trust finds itself without beneficiaries, the court can make an order that the property be applied for similar charitable purposes.
What are the advantages of a trust?
- Tax avoidance
- Preserving confidentiality
- Placing assets in a safe jurisdiction
- Estate planning
- Avoidance of forced heirship rules
- Providing for minors
- Protecting family property from dissipation
- Asset protection
- Providing for those whoo cannot look after themselves
- Employee benefits
- Charitable purposes
What are the disadvantages of a trust?
- Cost of creation
- Separation of equitable and legal ownership not always recognised in some jurisdictions
- Settlor no longer owns the trust property
- Trustees may be unwilling to take the same risks as the settlor
- Settlor’s circumstances may change, and a trust may no longer be appropriate
