6.1 and 6.2 Express trusts and beneficial entitlement

Question 1

What is a settlor?

Answer 1

A settlor creates the trust. This can be done in their lifetime (“inter vivos”) or on their death via their will.

Question 2

Who are the trustees?

Answer 2

The legal owners of the trust property entrusted to protect it for the beneficiaries.

N.B: Trustees are in a fiduciary position. They can only benefit from the trust if they are also a beneficiary.

Question 3

Who are the beneficiaries?

Answer 3

For whose benefit the trust is established. They are the equitable owners of the trust assets.

Question 4

Name some examples of trust assets?

Answer 4

Cash
Shares
Residential Property
Commercial Property

Question 5

Describe the difference between express trusts and implied trusts?

Answer 5

Express trusts are deliberately created by the settlor.

Implied trusts arise by operation of law.

Question 6

What is a bare or absolute trust (fixed interest trust)?

Answer 6

The beneficiary is entitled to the trust income and capital as of right, or at least once they turn 18.

*Simple form of trust, often used for minor children

Question 7

What is meant by a discretionary trust?

Answer 7

Trustees are given discretion over the distribution of income and / or capital, within the class of beneficiaries

Question 8

What is meant by an ‘interest in possession’ trust? - Express trust

Answer 8

A beneficiary is given the right to receive trust income and occupy any trust-owned property for a specific period (life tenant)

Question 9

When does the remainderman receive the trust property?

Answer 9

The trust capital passes to the residuary beneficiary when the life tenant’s interest comes to an end

Question 10

What is meant by a charitable trust?

Answer 10

A charitable trust is created with the objective of furthering one or more charitable purposes for the benefit of the wider public

Question 11

What is a resulting trust?

Answer 11

A type of implied trust - the beneficial interest in the trust property is returned to the settlor

Question 12

What is a constructive trust?

Answer 12

A type of implied trust - imposed by the court as an equitable remedy

e.g some sort of unjust enrichment or breach of fiduciary duty has occurred

Question 13

What are the three certainties of trust that are required for a trust to be enforceable?

Answer 13

1) Certainty of Intention (I)

2) Certainty of Subject Matter (S)

3) Certainty of Objects (O)

I. S. O!

Question 14

How is certainty of intention established?

Answer 14

The settlor’s words should clearly indicate that the assets are to be held under trust and the trustees are under a binding equitable obligation.

N.B: if not established, this becomes a personal gift to the recipient

Question 15

How is certainty of subject matter established?

Answer 15

The trust property must be identified precisely.

After a nominal amount is identified, additional assets or cash can be added at a later stage.

Question 16

How is certainty of objects established?

Answer 16

The beneficiaries (objects of the trust) must be identifiable, either specifically or as an identifiable class

N.B: If the objects are uncertain, there is a resulting trust back to the settlor

Question 17

What is the law of perpetutities?

Answer 17

A trust created after 6 April 2010 cannot last for more than 125 years

Question 18

What is meant by constituting a trust?

Answer 18

Transfer of legal title

Once the settlor has done everything by law to transfer trust property to the trustees, the trust is completely constituted and irrevocable - unless there is an express power of revocation in the trust

Question 19

How can a trust be constituted?

Answer 19

In two ways:

1) S to T - The settlor transfers the trust property to the trustees, so that the trustees hold the legal title of the property - transfer formalities according to type of property

2) S –> B The settlor may hold the property on trust for the beneficiaries - no need for any legal transfer

Question 20

What are some examples of equitable maxims relating to trusts?

Answer 20

1. Equity will not perfect an imperfect gift
2. Equity will not assist a volunteer subject to certain exceptions

Question 21

How are different types of assets validly transferred in law?

Answer 21

Land - By Deed
Shares - Stock Transfer Form
Chattels - Deed / Gift / Actual Delivery

Question 22

Describe the rare instances when equity will assist a volunteer?

Answer 22

1. Completion being prevented by the actions of a third party will allow equity to assist
2. Fortuitous Vesting - Equity will allow obtaining the legal title by coincidence to perfect an imperfect gift
3. Proprietary Estoppel - another way to perfect imperfect gifts

Question 23

What is the doctrine of “Donatio mortis causa”

Answer 23

A gift is made conditional on the expectation of imminent death.
However, the rules for lifetime gifts or wills are not complied with.

N.B: There must be constructive or actual delivery of the asset

Question 24

What is a personal right for beneficiaries?

Answer 24

Beneficiaries have the right to enforce the trustee’s duties and seek compensation for any breaches

Question 25

What is a proprietary right for beneficiaries?

Answer 25

Beneficiaries have ownership interest in the trust property itself. The proprietary nature of the beneficiary’s interest means that it is itself an item of property.

Question 26

How are beneficial interests characterised?

Answer 26

Vested / Contingent
In possession / In remainder
Absolute / Limited

Question 27

What is a vested interest?

Answer 27

Beneficiary does not have to satisfy any conditions imposed by the trust before becoming entitled as of right to trust property

Question 28

What is a contingent interest?

Answer 28

Beneficiary’s interest is conditional upon the happening of some future event, or if the beneficiary is not yet in existence.

Question 29

What is the difference between a beneficiary being ‘in possession’ and ‘in remainder’?

Answer 29

In possession - beneficiary can enjoy the interest immediately.

In remainder - beneficiary has to wait until some other beneficiary’s right to enjoyment expires (remainderman/woman)

Question 30

What is the difference between absolute and limited interest?

Answer 30

Absolute interest - beneficiary is entitled to the capital of the trust

Limited interest - beneficiary is only entitled to the income generated by investing the capital held in the trust. Limited to her/his lifetime.

Question 31

What does it mean for a beneficiary to be ‘absolutely entitled’?

Answer 31

Absolute entitlement - the beneficiary’s interest is vested, in possession and not limited in enjoyment

Question 32

How can the rule of Saunders v Vautier end a trust for beneficiaries?

Answer 32

Beneficiaries can end the trust by calling for a transfer of trust property to themselves or to other trustees.

All beneficiaries under the trust who could possibly become entitled need to be:

1) in existence and ascertained;
2) 18 or older and of sound mind (sui juris)
3) in agreement

In agreement and absolutely entitled / 18 or older / full mental capacity

• Beneficiaries need to have an absolute, vested and indefeasible interest

Question 33

What caution should be exercised for a discretionary trust if the rule of Saunders v Vautier is considered?

Answer 33

The beneficial class may not be closed - there could be unborn beneficiaries

Where a trust contains a power to add beneficiaries, it is difficult to see how the current beneficiaries can be permitted to exercise that right without irretrievably damaging the interests of beneficiaries who might be added in the future.

Question 34

Can the rule of Saunders v Vautier be used to vary a trust?

Answer 34

Yes. The trustees can vary the terms and the beneficiaries can consent to the act.

Avoids the administrative burden of dissolving the trust and resettling it. However, the trustees must agree to the variation.