Creation of a trust Flashcards
What is the difference between legal title and equitable title in relation to a trust?
A full legal owner does not have equitable title because they do not need it. They have the full legal and beneficial interest in the property. In a transfer on trust, legal title is transferred to a third party trustee, and a new equitable interest is created for a beneficiary.
What are the different categories of trusts?
Trusts can be categorized as express, resulting, or constructive. Express trusts are intentionally created, while resulting and constructive trusts arise by operation of law.
How is an express trust different from resulting and constructive trusts?
An express trust is deliberately created, while resulting and constructive trusts arise by operation of law and are imposed by the courts.
What are trusts created by operation of law?
Trusts created by operation of law are not intentionally created but instead are a response to particular circumstances which the law considers should give rise to a trust. There are three broad categories of trusts arising by operation of law: resulting trusts, constructive trusts, and statutory trusts.
Who can be a beneficiary in a trust?
The beneficiary in a trust can either be a third party or the settlor.
What are the requirements for creating an express trust?
To create a valid express trust, it is necessary to comply with the three certainties: certainty of intention, certainty of subject matter, and certainty of objects. Additionally, there may be further formalities depending on whether there is a self-declaration or a transfer on trust.
How can a settlor create an express trust?
A settlor can create an express trust through a self-declaration of trust or a transfer on trust. In a self-declaration of trust, the settlor manifests an intention to hold one of their assets on trust for the beneficiary. In a transfer on trust, the settlor transfers property to a third party trustee with the intention that the trustee holds the property on trust for the beneficiary.
What are the two types of resulting trusts?
Resulting trusts can be further subdivided into two key categories: automatic resulting trusts and presumed resulting trusts.
What happens in a self-declaration of trust?
In a self-declaration of trust, the settlor remains the legal owner of the asset but is divested of their beneficial interest in it. The settlor becomes the trustee, holding legal title in a new capacity, while a new equitable interest is created for the beneficiary.
How do automatic resulting trusts and presumed resulting trusts differ?
Automatic resulting trusts are default trusts that arise when a transfer on trust fails, either wholly or partly. Presumed resulting trusts arise when a person makes a gratuitous transfer of property to a third party, and equity raises a presumption that the property should be held on trust for the transferor.
What happens in a transfer on trust?
In a transfer on trust, the settlor transfers property to a third party trustee with the intention that the trustee holds the property on trust for the beneficiary. The trustee becomes the legal owner of the property, and a new equitable interest is created for the beneficiary, who becomes the equitable and beneficial owner.
What is the purpose of automatic resulting trusts?
Automatic resulting trusts ensure that the property returns to its original owner when it is otherwise unclear what should happen to it. They are a default trust that does not respond to the actual intention of the settlor.
Under what circumstances do presumed resulting trusts arise?
Presumed resulting trusts arise when a person transfers their property to someone else, and equity presumes that they intended for the recipient to hold it on trust for them. This presumption can be rebutted by evidence that the transferor did not intend the property to be held on trust for them.
What are the different ways to categorize trusts?
Trusts can be categorized as lifetime or testamentary, fixed or discretionary. Lifetime trusts can be both fixed or discretionary, as can testamentary trusts. It is important to note that not all categories are mutually exclusive, and there can be overlap between different categories.
How does a self-declaration of trust differ from a transfer on trust?
In a self-declaration of trust, the settlor remains the legal owner of the asset and becomes the trustee, while in a transfer on trust, the settlor transfers legal title to a third party trustee. Additionally, in a self-declaration of trust, a new equitable interest is created for the beneficiary, whereas in a transfer on trust, the trustee becomes the legal owner and a new equitable interest is created for the beneficiary.