3b. Probate - Trusts

Question 1

Introduction

What are the two categories of trust?

Answer 1

1. Express trust
2. Implied trust

Question 2

Introduction

What are the two types of express trust?

Answer 2

1. Private trust
2. Charitable trust

Question 3

Introduction

What are the three types of private trust?

Answer 3

1. Fixed trust
2. Discretionary trust
3. Purpose trust

Question 4

Introduction

What is a fixed trust?

Answer 4

A trust where the interests of the beneficiaries are defined by the settlor

Trustees have no discretion in relation to distribution of trust property

Question 5

Introduction

What is a purpose trust?

Answer 5

A trust set up for a purpose rather than people, and will normally fail because it does not have defined beneficiaries, subject to limited honorary trusts, e.g. to maintain an animal

Question 6

Introduction

What is a charitable trust?

Answer 6

A trust created for the benefit of an indefinite class of people, or the public in general, and it must fall under one of the recognised charitable categories to be valid

Question 7

Introduction

What are the two categories of implied trust?

Answer 7

1. Resulting trust
2. Constructive trust

Question 8

Introduction

In what three situations will a resulting trust arise?

Answer 8

1. Interest under an express trust fails
2. Express trust fails to exhaust the beneficial interest
3. Person makes a voluntary transfer or purchase in the name of another

Question 9

Introduction

What is the purpose of a constructive trust?

Answer 9

Imposed by the court to prevent unjust enrichment as a result of wrongful conduct

Question 10

Express private trusts

What are the three certainties required for a valid express private trust?

Answer 10

Certainty of:

1. Intention to create a trust
2. Subject matter i.e. property
3. Objects i.e. beneficiaries

Question 11

Express private trusts

When must a settlor’s intent to create a trust be expressly manifested?

Answer 11

When they own the property

Question 12

Express private trusts

However, whilst the intent must exist at the time the property is owned, what can arise later as evidence of this?

Answer 12

Subsequent conduct consistent with an earlier intent

Question 13

Express private trusts

When must the settlor intend the trust to take effect when they express their intent?

Answer 13

Immediately

Question 14

Express private trusts

What is a precatory expression and what is the effect of this?

Answer 14

A settlor’s mere hope, wish, or suggestion that property be used in a certain way is not sufficient to show intent to create a trust, i.e. impose a binding obligation on a trustee

I’m giving you £10,000 in the hope you will use it for your child’s education vs I’m giving you £10,000 to use for your child’s education

Question 15

Express private trusts

What happens when a trust fails for uncertainty of intention?

Answer 15

The property passes as a gift to the person who would be trustee

Question 16

Express private trusts

Whilst the subject matter must be certain, i.e. clear, when may an apparently uncertain description be valid?

Answer 16

When it is capable of objective definition, e.g. a reasonable income

Amount to be received by a beneficiary must be defined with sufficient clarity also

Question 17

Express private trusts

What factor determines whether a fractional share of property is valid?

Answer 17

Whether it is tangible or intangible.

Intangible, e.g. shares: Fractions, e.g. 50% or half are valid
Tangible: Not valid unless the fraction has been segregated for the trust, even if the property is identical, e.g. wine of the same type and vintage

Question 18

Express private trusts

Whilst a future interest can be held in a trust, what cannot be?

Answer 18

An interest not yet in legal existence, e.g. an expected interest in property

E.g. expected interest under a will where testator is still alive (they could change their mind up until death)

Question 19

Express private trusts

What happens when a trust fails for uncertainty of subject matter?

Answer 19

Property reverts to settlor

Question 20

Express private trusts

When a collective term for a class of beneficiaries is used, what must it be capable of? What are some examples of valid and invalid collective terms and why?

Answer 20

It must be capable of objective definition.

Nieces, nephews, brothers, sisters are valid because these can be defined by reference to the settlor’s actual family.

Friends, acquaintances are not valid because these are a fluid groups, changing all the time and over time.

This is conceptual certainty

Question 21

Express private trusts

Where a collective term is used for a class of beneficiaries, what are the two types of test used for (1) fixed trusts and (2) discretionary trusts?

Answer 21

1. Complete List Test - used for fixed trusts
2. Is / Is Not Test - used for discretionary trusts

Question 22

Express private trusts

What does the complete list test require for a fixed trust to be valid where a collective term is used for a class of beneficiaries?

Answer 22

Trustee must be able to draw up a complete list of beneficiaries, with evidence

Will fail for evidential uncertainty if not evidenced

Not all beneficiaries need to be in existence, as long as they are ascertainable by the time their interest vests

Question 23

Express private trusts

Under the complete list test, will a fixed trust fail if a beneficiary is known to exist but cannot be traced?

Answer 23

No

Question 24

Express private trusts

What is required under the is / is not test for a discretionary trust?

Answer 24

Definition of class must be sufficiently clear to enable to the trustees to assess the potential range of beneficiaries and determine whether any person falls within the class

It is not necessary for the whole range of potential beneficiaries to be ascertainable.

Question 25

# Express private trusts Why will evidential uncertainty not cause a discretionary trust to fail?

Answer 25

Because a potential beneficiary who cannot prove they are within the class has no right to be considered by a trustee

Question 26

# Express private trusts Regarding objects, what one thing will cause a discretionary trust to fail despite the relaxed rules on class definition?

Answer 26

Where there are so many beneficiaries that the trust is **administratively unworkable** ## Footnote E.g. a trust of £400,000 to be divided among the residents of London

Question 27

# Express private trusts What happens when a trust fails for uncertainty of objects?

Answer 27

A **resulting trust** in favour of the **settlor** *or the settlor's successors is presumed*

Question 28

# Express private trusts Except for honorary and charitable trusts, what must the objects of an express trust be?

Answer 28

Human ## Footnote Trusts "to maintain freedom of the press" or "to maintain my home" will fail

Question 29

# Express private trusts Who may be a trustee?

Answer 29

Anyone with capacity to acquire and hold property for their own benefit, **even the settlor** e.g. a private individual, a professional person, or a trust company, **but not a minor**

Question 30

# Express private trusts Why is it not advisable to appoint too many trustees?

Answer 30

Because trustees must act with **unanimity**

Question 31

# Express private trusts What is the minimum and maximum number of trustees allowed?

Answer 31

Minimum of one. No limit on the maximum. ## Footnote A trust of land must have at least two *(one if trust corp)* and no more than four trustees.

Question 32

# Express private trusts What are the two rules against perpetuities?

Answer 32

1. Remoteness of vesting rule 2. Inalienability rule

Question 33

# Express private trusts What does the remoteness of vesting rule provide?

Answer 33

An interest under a trust is void if it **does not** or **will not** vest within **125 years**

Question 34

# Express private trusts What does the inalienability rule provide?

Answer 34

In the exceptional case where a **non-charitable purpose trust is valid**, it is valid for either: 1. **21 years** or 2. The rest of a living person's life *plus* 21 years

Question 35

# Express private trusts Where no perpetuity period is given in a non-charitable purpose trust, what is presumed?

Answer 35

That it is for no more than 21 years

Question 36

# Express private trusts What is a declaration of trust in an inter vivos trust?

Answer 36

Settlor's **irrevocable** demonstration by words or conduct **satisfying three certainties** and perpetuity, that they intend the trustee *(or themselves as trustee if it is transfer to self)* to be legally bound

Question 37

# Express private trusts How must a settlor **transfer** property to the trust?

Answer 37

In the same legal fashion as a PR does to a beneficiary ## Footnote Assent/transfer deed for land, then registered at HMLR; stock transfer form for shares; chattels delivered with intent

Question 38

# Express private trusts What is required for a declaration trust of land?

Answer 38

It must be evidenced in writing and signed by settlor ## Footnote If never evidenced in signed writing, the trust remains unenforceable, subject to anything rendering it unconscionable to deny the interest of the beneficiary (such as proprietary estoppel/imposition of a constructive trust)

Question 39

# Express private trusts Where a settlor is setting up a trust of land with a third party as trustee, what should be distinguished?

Answer 39

* Requirement for a signed writing to evidence the **declaration of trust**; and * Requirement for a **deed** registered at HMLR to make the **transfer**

Question 40

# Express private trusts What is the impact of the maxim *equity will not assist a volunteer / perfect an imperfect gift* on the process of setting up a trust with a third party as trustee, and what is the name given to the gift in this situation? ## Footnote What case does this equitable maxim come from?

Answer 40

If an individual attempts to make a gift of property to another but fails to transfer the legal title in the correct manner, equity will not normally enforce the gift (trust property not vested in trustees and trust is void) | Milroy v Lord ## Footnote The gift is **imperfect** and fails, because the donee has paid no consideration and is asking the court to enforce a gratuitous promise

Question 41

# Express private trusts What are the four exceptions to this rule that equity will not perfect an imperfect gift, which also apply to improperly constituted trusts?

Answer 41

1. *Re Rose* - individual has done everything in their power to transfer the property 2. Fortuitous vesting rule in *Strong v Bird* - obtains legal title through a different capacity 3. Death bed gifts (donatio mortis causa) 4. Proprietary estoppel - unconscionable to change mind

Question 42

# Express private trusts Under the rule in **Re Rose**, what must be done for equity to perfect an imperfect gift?

Answer 42

1. Settlor has used the correct method of transfer 2. Settlor did everything in their power to effect the transfer and has put the property outside their control 3. The documents ended up in the hands of the person/organisation capable of effecting the transfer. ## Footnote *Naturally will not apply if they retain possession.*

Question 43

# Express private trusts What are the three requirements for **donatia mortis causa***, i.e. death bed gifts*?

Answer 43

1. Gift made in contemplation (not necessarily expectation) of imminent death 2. Gift was conditional on death 3. Settlor parts with control of property by handing it/something representing title (not simply possession) to the donee.

Question 44

# Express private trusts What triggers the **fortuitous vesting rule** in *Strong v Bird* with regard to (1) gifts and (2) trusts, and what is the effect of the rule? ## Footnote *When does it not apply?*

Answer 44

**Triggered by donor/settlor dying before transfer is made.** Transfer is complete in law and enforceable if 1. Gifts - **Recipient** becomes the donor’s **personal representative** 2. Trusts - **Trustee** becomes the settlor’s PR ## Footnote Rule does not apply if there is evidence that donor changed their mind before they died, by doing something inconsistent with the original gift, e.g. selling it (i.e. must be intention for donee to have immediate gift and intion subsists until death)

Question 45

# Express private trusts What are the requirements for a **testamentary trust**, and why is there not a requirement for the testator to transfer the property? ## Footnote When does the trust take effect?

Answer 45

Trust must be: 1. Revocable until death, and 2. Be contained in a duly executed valid will | No requirement for T to transfer as PRs do this ## Footnote The trust takes effect upon death

Question 46

# Express private trusts What is a **limited interest** beneficiary?

Answer 46

A beneficiary who does not have an interest in the **capital** of the fund, but only in its income | E.g. a life interest holder

Question 47

# Express private trusts What are the two requirements for the beneficiaries to call for the termination of the trust and transfer of trust property under the rule in *Saunders v Vautier*, which trustees are obligated to comply with?

Answer 47

All beneficiaries must: 1. Together have an **absolute (vested) interest** in the property, i.e. an interest in the capital, and 2. Be of **full age** and **sound mind**

Question 48

# Resulting trusts What are the three situations in which a resulting trust will arise?

Answer 48

Where: 1. Property is transfered to another with no consideration or evidence of any reason; 2. Property is purchased using joint proceeds but legal title is not in the name of all parties 3. An express trust fails to dispose of all of the trust property ## Footnote In 1, the transferee holds property on trust for transferor. In 2, person with legal title holds a proportionate share on trust for the contributor. In 3, property reverts to the settlor.

Question 49

# Resulting trusts For the purchase money rules to apply, what must the would-be beneficiary's purchase money contribution actually go towards? ## Footnote When must the consideration be supplied?

Answer 49

Consideration for the **purchase of the property** | Insufficient if money just used to make improvements or pay taxes ## Footnote Consideration must be supplied **before** the purchaser takes legal title

Question 50

# Resulting trusts What is the standard of proof and who has the burden of proving a resulting trust?

Answer 50

The **would-be beneficiary** must prove by **clear and convincing evidence**

Question 51

# Resulting trusts If a presumption of resulting trust has arisen in a purchase money situation, what three things can the title holder suggest to rebut it?

Answer 51

Suggest the money used as consideration was: 1. A **gift** 2. A **loan** 3. Payment of a **debt**

Question 52

# Resulting trusts How may the provider rebut the presumption of advancement, i.e. argue that a resulting trust should be presumed?

Answer 52

Providing evidence of acts and declarations **before or at the time of purchase or transfer** to show they **intended to retain an equitable interest** | Before or at the time, **not after**

Question 53

# Trusts of the family home What is a declaration of trust, and is it conclusive even where there was unequal contribution to the purchase?

Answer 53

A document where the parties owning an asset declare they hold it on trust in for themselves and others | Conclusive, unless there is fraud or mistake ## Footnote Also available when only one party holds legal title, but others contributed

Question 54

# Trusts of the family home Where proprietary estoppel arises in the context where legal title is only in the name of one party, what will the claimant's remedy depend on?

Answer 54

1. The defendant made a clear promise (in relation to a proprietary right) to the claimant 2. The claimant relied on the defendant's promise 3. The claimant suffered detriment as a result of the reliance 4. It is unconscionable to let the defendant resile from their promise

Question 55

# Trusts of the family home What equitable interest is presumed where there is no declaration of trust, and why?

Answer 55

**Joint tenancy**, because *equity will follow the law* | Joint tenancy is the only way to hold a legal interest jointly

Question 56

# Trusts of the family home How is this **presumption that equity follows the law** with regard to an equitable interest in the **absence of a declaration of trust rebutted**?

Answer 56

Using evidence that the **parties intended otherwise**, either **before or after** the purchase | E.g. the parties intended a different split in the equitable interest

Question 57

# Trusts of the family home When does a **common intention constructive trust** arise, and what are the two criteria a claimant must establish?

Answer 57

When claimant attempts to **assert an equitable interest in the family home** *based on actual discussions between the parties*. Claimant must establish: 1. Parties had an express or inferred **common intention to own the property**, such that the claimant should have an equitable interest, and 2. Claimant **relied to their detriment**

Question 58

# Trusts of the family home What must a claimant show to establish express common intention?

Answer 58

Actual discussions between the parties, relating to **ownership of the property**, leading the claimant to this belief. Discussions of a "life together" are not sufficient.

Question 59

# Trusts of the family home In the context of express common intention, when will the court allow the legal owner to give an **excuse**?

Answer 59

If the excuse would cause a reasonable person to conclude there is some legitimate desire for not having two owners

Question 60

# Trusts of the family home In what four situations can the court infer a common intention?

Answer 60

1. Direct contribution to purchase price 2. Mortgage payments 3. Payment of household expenses *to enable legal owner to make mortgage payment* 4. **Substantial** renovations to the property ## Footnote *Note how this is different from a resulting trust in the property which requires the money to **directly** fund the purchase, and where only option 1 and not options 2-4 would suffice.*

Question 61

# Charitable trusts and other purpose trusts What are the three distinctive features of charitable trusts?

Answer 61

1. No requirement of ascertainable human beneficiaries 2. Cy-pres doctrine applies 3. May be **perpetual**

Question 62

# Charitable trusts and other purpose trusts What are the two requirements for a charitable trust?

Answer 62

1. Principal purpose(s) must be charitable and **exclusively** so 2. Must be for public benefit

Question 63

# Charitable trusts and other purpose trusts What are some of the charitable purposes under the Charities Act 2011?

Answer 63

- Poverty - Education - Religion - Health or saving lives - Community development - Arts, culture, heritage - Amateur sport - Human rights - Environment - Animal welfare

Question 64

# Charitable trusts and other purpose trusts What is the public benefit test for a charitable trust?

Answer 64

Trust must bestow **identifiable benefit** on the public or a section of the public

Question 65

# Charitable trusts and other purpose trusts What is the status of purposes which are not allowed under a charitable trust, e.g. politics or private purposes, but are merely incidental?

Answer 65

An otherwise valid charitable trust which incidentally advances politics or benefits some private individuals will not fail

Question 66

# Charitable trusts and other purpose trusts Where there is a mix of charitable and non-charitable principal purposes, what can the court do to prevent the charitable purpose trust from failing?

Answer 66

Sever the charitable from the non-charitable purposes

Question 67

# Charitable trusts and other purpose trusts Despite not having ascertainable beneficiaries, who is able to enforce a charitable trust?

Answer 67

The Attorney General, on behalf of the public

Question 68

# Charitable trusts and other purpose trusts What are the perpetuities rules and which ones apply to charitable trusts?

Answer 68

1. Remoteness of vesting rule – 125 years 2. Inalienability rule – 21 years (does not apply to charitable trusts) ## Footnote Therefore, the initial gift to a charitable trust must vest within 125 years, unless a charity to charity transfer

Question 69

# Charitable trusts and other purpose trusts When does the cy-pres doctrine apply, and what does it permit the court to do?

Answer 69

Cy-pres applies when the charitable purpose of a trust has become impossible or impractical, and it permits the court to direct trust property be applied for another charitable purpose as close as possible to the original one rather than allowing the trust to fail

Question 70

# Charitable trusts and other purpose trusts Is charitable intent of the settlor required if the gift fails (1) at the time the trust comes into operation, and (2) after the trust comes into operation?

Answer 70

**Initial failure**: Cy-pres requires general charitable intent of settlor **Subsequent failure**: No charitable intent needed

Question 71

# Charitable trusts and other purpose trusts What makes a *general* charitable intent difficult to infer?

Answer 71

When the testator has taken care to identify a specific named charity

Question 72

# Charitable trusts and other purpose trusts What are the four private purpose trusts which are valid in exception to the general rule, subject to perpetuity rules?

Answer 72

1. Denley trusts *and honorary trusts for the:* 2. Maintenance of particular animals 3. Saying of private masses, and 4. Erection and maintenance of monuments and graves ## Footnote The rule against perpetuity (21 years) applies to purpose trusts

Question 73

# Charitable trusts and other purpose trusts What is a Denley trust?

Answer 73

A trust which appears to be for a private purpose but is valid because it is actually for the benefit of ascertainable human beneficiaries, e.g. where beneficiaries are employees of a company, at any given time, there will be a record of every single person who is an employee

Question 74

# Charitable trusts and other purpose trusts What happens if the trustee refuses or fails to carry out an honorary trust?

Answer 74

A resulting trust is imposed for the settlor or their estate

Question 75

# Charitable trusts and other purpose trusts What is meant by the fact the court will **not** take judicial notice of the subject matter of an honorary trust for perpetuity purposes?

Answer 75

The court will not take into consideration the likely lifespan of a **particular** animal, so a gift for an animal's maintenance will fail unless **specific provisions** are made **limiting its duration**, *unless it is obvious the entire gift will be spent within the perpetuity period*

Question 76

# Charitable trusts and other purpose trusts Where a timescale is not specified, how can it be inferred *based on value* that a gift does not breach the vesting rule?

Answer 76

If the amount will likely be spent within 21 years, the gift is likely allowed

Question 77

# Appointment, retirement, and removal of trustees What is the minimum number of trustees?

Answer 77

One, but if trust property is land at least two trustees or a trust corporation is required to give valid receipt for capital money arising on the **sale of land**

Question 78

# Appointment, retirement, and removal of trustees What is the maximum number of trustees for (1) a trust of land and (2) a trust of all other property?

Answer 78

**Land**: Maximum of **four** **Other property**: No maximum

Question 79

# Appointment, retirement, and removal of trustees Once the trust is created, does the settlor retain power to appoint new trustees?

Answer 79

Not unless there is express provision in the trust instrument

Question 80

# Appointment, retirement, and removal of trustees Who has the power to appoint **additional** trustees?

Answer 80

All trustees, unless one is designated to have this power

Question 81

# Appointment, retirement, and removal of trustees Even where the trust is **not land**, what is the number of trustees which a trust must not exceed specifically through the trustees’ power to appoint new trustees?

Answer 81

Four. *If a trust already has four trustees, this power will therefore not be available.*

Question 82

# Appointment, retirement, and removal of trustees What four parties have the power to appoint **replacement** trustees, and in what order of priority?

Answer 82

1. Person named in the trust instrument*, or if silent:* 2. Surviving/continuing trustees*, or if none:* 3. Personal representative of the last surviving trustee*, or if none* 4. The court

Question 83

# Appointment, retirement, and removal of trustees Must the appointment of a replacement be in writing?

Answer 83

Yes, but it does not have to be made by deed

Question 84

# Appointment, retirement, and removal of trustees Even though a deed is not necessary, why is it usually used?

Answer 84

Because it will vest legal title to the trust property in the new trustee

Question 85

# Appointment, retirement, and removal of trustees Although beneficiaries generally have no power to control the trustees unless there has been a breach, they can select trustees if what three conditions are met?

Answer 85

1. No person is nominated in the trust instrument to have this power 2. The criteria of the rule in *Saunders v Vautier* are met (full age and sound mind, together they are absolutely entitled), and 3. Beneficiaries act unanimously

Question 86

# Appointment, retirement, and removal of trustees Where these criteria are satisfied, what can the beneficiaries do, and why when the general rule is that they cannot?

Answer 86

In writing, order one or more of the existing trustees to retire and order the remaining trustees to appoint a trustee/trustees of the beneficiaries' choosing. They can do this because the rule in *Saunders v Vautier* is satisfied, so they could elect to shut down the trust and take the property anyway if they wanted.

Question 87

# Trustees' duties and powers What are a trustee's eleven duties?

Answer 87

1. Of care 2. Of confidentiality 3. Not to profit from trust 4. Not to self-deal 5. To observe terms of trust 6. To act jointly 7. To act personally 8. To take possession of trust property 9. To keep accounts 10. To act impartially 11. To invest

Question 88

# Trustees' duties and powers What must a trustee who obtains remunerative employment by virtue of a trusteeship, e.g. directors fees for acting on the board of a company in which the trust holds shares, do with this money?

Answer 88

Hold it on constructive trust for the trust beneficiaries ## Footnote Same as a trustee who earns personal profit as a result of opportunities or information which came to them due to their trusteeship

Question 89

# Trustees' duties and powers When does this rule not apply?

Answer 89

If the trustee would have gotten the paid appointment anyway

Question 90

# Trustees' duties and powers What are the five exceptions to the general rule that a trustee may not charge for expenses other than out of pocket expenses?

Answer 90

1. Clause in trust allowing them 2. Professional trustee charges 3. Trust corporation 4. All beneficiaries agree 5. Court authorisation

Question 91

# Trustees' duties and powers Under the Trustee Act 2000, what three conditions must be satisfied for a professional trustee to charge reasonable remuneration?

Answer 91

1. Not the sole trustee 2. Co-trustees give their written consent 3. No express provision relating to trustee's charges

Question 92

# Trustees' duties and powers The duty not to self-deal prevents a trustee from purchasing trust property. What is the full extent of this prohibition?

Answer 92

It applies in **all circumstances**, even if they pay fair market price **or more**, and irrespective of good faith or benefit to the trust ## Footnote A purchase of trust property by a trustee is **voidable** by the beneficiaries, and may also be ratified by the court

Question 93

# Trustees' duties and powers Whilst a trustee cannot purchase trust **property**, what is there no prohibition on them purchasing?

Answer 93

A **beneficial interest** to this property from a beneficiary

Question 94

# Trustees' duties and powers What three conditions must be met for the purchase by a trustee of a beneficiary's **beneficial interest** to not be voidable?

Answer 94

Trustee must show they: 1. Paid a fair price 2. Made full disclosure of all material facts 3. In no way abused their position ## Footnote Trustee has burden of proof if the beneficiary who sold their interest challenges this

Question 95

# Trustees' duties and powers What are five further equitable duties on a trustee?

Answer 95

1. Enquire as to trust property 2. Take control of it 3. Ensure its preservation 4. Ensure legal title is vested in all trustees 5. Ensure trust property is segregated from the trustee's personal assets

Question 96

# Trustees' duties and powers What is a trustee's statutory duty of care, and when does it apply?

Answer 96

Trustees must exercise such **care and skill as is reasonable in the circumstances**, taking into account special knowledge the trustee either has or holds himself out as having, especially if they are a professional ## Footnote Applies when trustees are making investment decisions and appointing agents

Question 97

# Trustees' duties and powers When the statutory duty does not apply, what is the traditional duty of care?

Answer 97

Trustees must act with the prudence of an ordinary man of business acting in relation to their own affairs

Question 98

# Trustees' duties and powers How do the duty to act **personally** and the duty to act **jointly** not contradict each other?

Answer 98

In acting personally, the trustee must actually play their part and remain active in the trust. They do not have a general power to delegate. However, in playing their respective parts, the trustees must act unanimously in the exercise of their discretions. ## Footnote Clause in trust or court authorisation needed to *not* act unanimously

Question 99

# Trustees' duties and powers What are the three exceptions to the duty to act personally?

Answer 99

1. Administrative functions can be delegated 2. Delegation of certain investment decisions to an investment manager 3. Power of attorney for all functions for no more than 12 months *(trustee still liable)* ## Footnote For 1 and 2, trustee not liable if they supervise in accordance with statutory duty

Question 100

# Trustees' duties and powers Whilst a trustee may delegate administrative functions, what may they never delegate?

Answer 100

Exercise of discretion | *Subject to power of attorney 12 month exception*

Question 101

# Trustees' duties and powers What is the effect of the duty to take possession of trust property where there is more than one trustee?

Answer 101

It trust property is left in control of one of them only, the co-trustees will be liable if that trustee misappropriates the property

Question 102

# Trustees' duties and powers What are the four requirements of a trustee under the duty to invest?

Answer 102

Trustee must ensure: 1. Investments they select are authorised by statute or trust instrument 2. Take into account the standard investment criteria 3. Take any necessary advice*, unless unnecessary* 4. Keep investments under appropriate review

Question 103

What is a trustee's *general power of investment*?

Answer 103

Any investment they could make if the were absolutely entitled to trust assets

Question 104

# Trustees' duties and powers What was **investment** traditionally interpreted to mean, and what has the approach been in recent years?

Answer 104

Traditionally an income producing asset, but recently a purchase aimed primarily at capital growth has been acceptable #gains

Question 105

# Trustees' duties and powers What is not authorised unless the trust instrument expressly provides for it?

Answer 105

Purchasing land **outside the UK**

Question 106

# Trustees' duties and powers What are the two **standard investment criteria**, which trustees must consider?

Answer 106

1. Suitability of the investment in terms of time, cost, and risk 2. The need for diversification of trust investments

Question 107

# Trustees' duties and powers What type of advice must the trustees receive before exercising the power to invest?

Answer 107

Proper advice, which is the advice of a person the trustees **reasonably believe to be qualified** to give it based on their ability and experience ## Footnote Does not have to be a financial advisor, as long as experienced in such matters

Question 108

# Trustees' duties and powers What is required for trustees to delegate their duty/power to invest to an investment manager?

Answer 108

A written policy statement including details of the trust and the investment objectives must be incorporated into the contract between the trustees and investment manager

Question 109

# Trustees' duties and powers Is a trustee liable if assets go down in value or fail to appreciate?

Answer 109

Not as long as the trustee has **complied with their duties** as set out in these cards. It is understood that investing in anything does not guarantee returns, so failure to produce returns alone is not a breach of duty.

Question 110

# Trustees' duties and powers Whilst trustees are not generally subject to the control of beneficiaries, what two rights do the beneficiaries have?

Answer 110

1. Right to compel exercise of duties, *via court application* 2. Right to inspect trust documents*, other than documents detailing trustee's exercise of discretion*

Question 111

# Trustees' duties and powers What must the beneficiaries show of trustee behaviour for it to be excepted from the rule that trustee behaviour within their powers cannot be challenged/controlled?

Answer 111

That it was irrational and capricious

Question 112

# Trustees' duties and powers Although not generally required, in what situation may a trustee be required to provide an explanation to the beneficiaries?

Answer 112

If trustees have given beneficiaries a legitimate expectation that discretion will be exercised in a particular way, they are expected to warn the beneficiaries if they decide to change their mind

Question 113

# Trustees' duties and powers What are the two additional powers beneficiaries have when they are full age and capacity, and absolutely entitled to the entire interest between them?

Answer 113

1. Bring trust to an end and require trust funds be transferred to them *(Saunders v Vautier)* 2. Require trustees to retire and appoint new ones of their choice *(extension of S v V rule)*

Question 114

# Liability for breach of trust What is the question to ask in assessing whether a trustee breached a duty, and what is the situation if the answer is no?

Answer 114

Was the act one that the trustee was **authorised to perform** or omission one that they were **not required to perform** under the trust instrument or by law? If the answer is no, the trustee is in breach of duty regardless or good faith, skill, diligence, or benefit to the trust. If yes, consider whether trustee acted in accordance with the relevant standard of care *(statutory duty for investing and appointing agents; traditional duty for everything else)*

Question 115

# Liability for breach of trust Who has the burden of proof where the trustee is accused of causing loss?

Answer 115

The beneficiary, and if they cannot prove loss, the trustee has no liability

Question 116

# Liability for breach of trust What is the consequence of the rule that gains from one breach cannot be used to offset losses of an earlier breach *(unless part of a linked investment scheme)*?

Answer 116

The beneficiaries can keep the gain from the profitable breach, but still sue for the loss

Question 117

# Liability for breach of trust Whilst a trustee is **not vicariously liable** for the acts of co-trustee, what could they be liable for?

Answer 117

Their own separate breach of trust, e.g. failure to supervise the actions of the trustee in breach

Question 118

# Liability for breach of trust What is the liability of breaching trustees where more than one is in breach?

Answer 118

Joint and several ## Footnote Court can apportion liability so that it is just and equitable

Question 119

# Liability for breach of trust What are the three main defences available to trustees?

Answer 119

1. Consent of beneficiaries *(full age and capacity, with full knowledge of what they are consenting to)* 2. Limitation period 3. Exclusion clause ## Footnote Trustee still liable to any beneficiary who did not consent

Question 120

# Liability for breach of trust What are the three considerations which affect the six year limitation within which an action for breach of trust must be brought?

Answer 120

1. The six year clock does not run for a beneficiary with a **remainder interest** until the interest vests 2. No limitation where trustee was a party to **fraud** 3. No limitation to **recover trust property** or proceeds from a trustee

Question 121

# Liability for breach of trust Whilst clauses purporting to exclude trustee liability are strictly construed, they will generally be enforceable in the absence of what four things? ## Footnote What is the extent of breaches which can be excluded?

Answer 121

1. Bad faith 2. Intentional breach 3. Fraud 4. Recklessness ## Footnote Up to and including gross negligence

Question 122

# Liability for breach of trust What is the difference between (1) a personal claim and (2) a proprietary claim?

Answer 122

1. Personal: Claim for breach of trust against the trustee personally 2. Proprietary: Claim against trust property or proceeds when it is known to be in the trustee's possession **(equitable tracing)**

Question 123

# Liability for breach of trust Why is a proprietary claim advantageous?

Answer 123

1. Personal claims are a waste of time if trustee is insolvent 2. In proprietary claim, beneficiaries have priority over other creditors 3. In proprietary, if value of property increases, beneficiaries get this value

Question 124

# Liability for breach of trust In a proprietary claim, (1) what can the beneficiaries do if the original trust property is in the hands of the trustee, and (2) what are their two options where the trustee has substituted the property?

Answer 124

1. Original trust property: **Claim it back** 2. Substituted: Either **claim that asset** or a **charge over it** covering the loss

Question 125

# Liability for breach of trust What are the beneficiaries' options when the trustee combines trust funds with their own to purchase an asset?

Answer 125

The beneficiaries may: 1. Claim a proportionate part of the asset, or 2. Claim a charge over the asset for the amount of trust property used

Question 126

# Liability for breach of trust Where a trustee places trust money into a bank account with the trustee's own money, how are subsequent transactions treated, and what are the beneficiaries' options?

Answer 126

Trustee is treated as **spending their own money first**, and the beneficiaries may claim a charge over the bank account for the amount of trust funds in it

Question 127

# Liability for breach of trust What occurs when the trustee uses mixed money to purchase an asset and then dissipates the balance, and why is it considered an exception to the *spend own money first* rule?

Answer 127

If trustee uses mixed money to purchase an asset and then dissipates the balance, the beneficiaries can claim a share or charge over the asset up to the value of the trust property taken, as if the trustee had actually spent trust money first. *Any shortfall at this stage is the subject of a personal claim against the trustee.*

Question 128

# Liability for breach of trust If after this, the trustee tops up their account with their own money, is this treated as replacing trust money?

Answer 128

Not unless the trustee shows a clear intention that this is the case

Question 129

# Liability for breach of trust What is the **lowest intermediate balance** in this situation and what is the effect of it?

Answer 129

It is the account balance after the last payment out but before the next payment in topping up the account, and it is the limit that the beneficiary can claim in a proprietary claim

Question 130

# Liability for breach of trust Where a trustee mixes funds from two or more funds in the trustee's personal account, what determines how the funds are treated?

Answer 130

The type of bank account, i.e. current or savings

Question 131

# Liability for breach of trust What is the rule where the trustee's personal account is a **current account**?

Answer 131

The general rule is first in first out

Question 132

# Liability for breach of trust What is the rule where the trustee's personal account is a **savings account**?

Answer 132

The proportionate rule is the default rule

Question 133

# Liability of third parties What is a bona fide purchaser for value without notice?

Answer 133

A third party who acquires legal title to trust property for **value** and **without notice of the trust** | Beneficiaries have no proprietary or personal claim against a BFP for V

Question 134

# Liability of third parties What is an **innocent volunteer recipient**?

Answer 134

Similar to a bona fide purchaser for value without notice, except **instead of purchasing for value, they were gifted it or otherwise came into possession** | Beneficiaries may have a **proprietary** claim against an IVR

Question 135

# Liability of third parties What are the three conditions for a beneficiary to bring a **proprietary** claim against an innocent volunteer recipient?

Answer 135

1. Property was subject of fiduciary relationship 2. Property or proceedings identifiable using equitable tracing rules 3. Property is **not** in the hands of a bona fide purchaser for value without notice

Question 136

# Liability of third parties In a proprietary claim against an innocent volunteer recipient, what is the beneficiary's option when: (1) Property is in its original form or has been substituted for another asset; (2) Property is mixed with the volunteer recipient's own property to purchase an asset?

Answer 136

1. Beneficiaries can claim the asset 2. Beneficiaries can claim a proportionate share of the asset

Question 137

# Liability of third parties In a proprietary claim against an innocent volunteer recipient when property is mixed with the volunteer recipient's own property to purchase an asset, why is there no option for the beneficiary to claim a charge over the asset like they can with a trustee, and what is the effect of this?

Answer 137

Because the volunteer is an innocent party, and there can be no charge against them. Loss in value is therefore shared proportionately between innocent volunteer and trust beneficiaries.

Question 138

# Liability of third parties What is subrogation?

Answer 138

The process whereby upon an innocent volunteer using the trust funds to discharge a secured debt, the beneficiary can trace the money into the repayment and bring the debt back to life, making the beneficiary the creditor on the original terms

Question 139

# Liability of third parties What is a knowing recipient, and what claim is available against them?

Answer 139

A third party who receives money or property traceable to a breach of trust if they **knew or should have known of the breach** will be treated **as if they were a trustee**, and as such a **personal claim** will be available ## Footnote Claimaint must show it would be unconscionable for the third party to retain the property

Question 140

# Liability of third parties What is a dishonest accessory?

Answer 140

A third party who facilitates a breach of trust will be treated as if they were a trustee if their assistance was **dishonest**, i.e. a constructive trustee liable for a **personal claim** ## Footnote Passive assistance can qualify

Question 141

# Liability of third parties What is the conscious impropriety requirement for dishonest accessory and what is the highly examinable effect of it?

Answer 141

**Dishonesty** requires not acting as an honest person would in the circumstances. The dishonest accessory **does not need to know they are participating in a breach of trust**. They must merely know that the scheme they are involved in is somehow dishonest or improper.

Question 142

# Liability of third parties Why is a proprietary claim not usually relevant in the case of a dishonest accessory?

Answer 142

Because the accessory is unlikely to have received trust property in the course of facilitating the breach of trust, which is the basis of a *proprietary* claim