16: Trust law

Question 1

who are the three principal actors of a trust?

Answer 1

settlor, trustee, beneficiary

Question 2

what are the roles of each person in an express private trust? (i.e role of settlor, trustee and beneficiary)

Answer 2

settlor - place the trust property and set the terms of the trust

trustee - have control over the trust property and ensure the benefit of the trust accrues to the beneficiaries

beneficiaries - benefit from the trust

Question 3

there are 3 types of express private trusts. what are their names?

Answer 3

bare trust
interest in possession trust
discretionary trust

Question 4

are there both express and implied terms in an express private trust?

Answer 4

yes

Question 5

what is a bare trust

Answer 5

a trust that leaves the trustee with no active duties

Question 6

what are bare trusts sometimes known as?

Answer 6

nominee arrangements

Question 7

what is an interest in possession trust?

Answer 7

this is where a settlor allows the beneficiaries to enjoy interest in possession over all or some of the trust property

Question 8

can more than 1 beneficiary enjoy the interest in possession over the same property?

Answer 8

yes

Question 9

what does it mean when an interest in possession trust can continue successively?

Answer 9

meaning when the time for one beneficiary’s IIP ends, another beneficiary starts IIP

Question 10

In an IIP, does a beneficiary have immediate enjoyment to the gross income produced by the trust property?

Answer 10

No.

The beneficiary has immediate ENTITLEMENT to the NET income produced by the trust property

Question 11

Bob is a beneficiary to Dan’s (settlor) IIP trust. Bob is using all the income from the trust property to buy a lambo, even though he has a lot of debt. Rob, the trustee believes he is being irresponsible with the income and should pay off some creditors. Does Rob have the authority to stop him?

Answer 11

no. the beneficiary cannot be prevented by the trustee from enjoying the income of the trust property

Question 12

where a beneficiary enjoys interest in possession for their own life, the IIP is called ___ ____

Answer 12

life interest

Question 13

where a beneficiary enjoys interest in possession for as long as someone else is alive, this is called ____ ___ ___ ___

Answer 13

interest pur autre vie

Question 14

where a beneficiary enjoys an IIP for a specified amount of time or until a specific event, this is called ___ ___

Answer 14

fixed interest

Question 15

what is a remainderman?

Answer 15

a remainderman is a beneficiary of the trust that the property from the IIP reverts back to.

Question 16

during the interest in possession, the remainderman is said to have ______ ____

Answer 16

reversionary interest

Question 17

what two types of reversionary interest are there?

Answer 17

absolute interest

contingent interest

Question 18

Bob has three kids: Billy, Barbara and Bonnie. Bob settles property on trust in favour of Barbara for life and then for Billy and Bonnie absolutely. Billy has one child, Barbara has no kids, Bonnie has two kids.

1. Who is the life tenant for the life interest?
2. If Billy and Bonnie die before the end of the life interest is over, what will happen?

Answer 18

1. Barbara is the life tenant

2. Billy and Bonnie’s kids will inherit the trust property

Question 19

what is the difference between absolute interest and contingent interest?

Answer 19

absolute interest is where the trust property under the interest in possession reverts back to the remainderman at the end of the interest in possession.

contingent interest is where the trust property under the interest in possession reverts back to the remainderman at the time that a condition is satisfied (e.g. at the time the remainderman reaches the age of 30), then the interest will vest in them

Question 20

what is a discretionary trust?

Answer 20

a discretionary trust is one where the beneficiary enjoys no interest or income from the trust property and is up to the discretion of the trustees via the trust deed to allow benefits to flow to the beneficiary

Question 21

in a discretionary trust, can a beneficiary force a trustee to exercise their discretion?

Answer 21

no

Question 22

what are the two types of discretionary trusts?

Answer 22

exhaustive disccretionary trust

non-exhaustive discretionary trust

Question 23

what is the difference between an exhasutive discretionary trust and non exhaustive discretionary trust?

Answer 23

exhaustive discretionary trust - where the trustees have a duty to distribute ALL of the net income from the trust, and have a discretion to distribute it to selected beneficiaries

non-exhaustive discretionary trust - where the trustees have a discretion whether or not to distribute all net income and if so, have the discretion of which beneficiaries they may distribute to.

difference tldr:
exhaustive = discretion is to who it goes to

non-exhaustive = discretion of how much AND who

Question 24

what is an accumulation trust

Answer 24

a trust where the trustees accumulate the income and manage trust properties. they pay the remainderman the income at the end of the trust period

Question 25

in a discretionary trust, the beneficiaries enjoy no more than a ____

Answer 25

hope (‘spes’)

Question 26

in terms of ownership of property in a trust, how is the legal and equitable ownership split?

Answer 26

the legal ownership of the property vests in the trustee

the equitable ownership of the property vests in the beneficiaries

Question 27

how is the ownership divested in an interest in possession trust?

Answer 27

equitable ownership is vested in the beneficiaries

legal ownership is vested in the trustees

Question 28

how is ownership divested in a discretionary trust

Answer 28

equitable ownership is in abeyance until the trustee allows the beneficiaries to benefit from the trust property, at which point the equitable ownership is passed to the beneficiaries

Question 29

when the trust is ended, the legal and equitable ownership will be vested in the _______ and they will become absolute owners of that property

Answer 29

remainderman

Question 30

if somebody has a history of getting into financial difficulties, a ____ trust might be of benefit

Answer 30

protective

Question 31

what is a resulting trust? (2)

Answer 31

a trust where no person has been EXPRESSLY identified in the trust deed

property reverts to the settlor