Creation Of Testamentary Trusts

Question 1

What is a testamentary trust?

Answer 1

Trusts which take effect on the death of the testator and are revocable until death

Question 2

What are the formalities for a testamentary trust?

Answer 2

Must be contained in a valid will and satisfy 3 certainties, beneficiary principle and perpetuity rules.

Question 3

What is a fixed interest trust?

Answer 3

Trusts where the interests of beneficiaries are clearly defined by the settlor. Trustee has no choice. They must do what the settlor tells them to do.

Question 4

In a fixed trust, what does the settlor have to define?

Answer 4

Who the beneficiaries are
And how much each beneficiary gets

Question 5

What is vested interest?

Answer 5

Beneficial interest where no condition is needed to be satisfied before the beneficiaries can benefit from the trust.

Question 6

What is a contingent interest?

Answer 6

A condition needed to be satisfied before the beneficiary’s interest becomes vested. Usually this is an age requirment.

Question 7

What is a limited interest?

Answer 7

If the interest does not confer a right to capital onto the beneficiary then it is a limited interest. Eg a life interest/ remainder.

Question 8

What is absolute interest?

Answer 8

The interest is vested in the beneficiary absolutely so they need to share their interest with others.

Question 9

When can a beneficiary enforce a fixed trust?

Answer 9

Beneficiary can enforce a fixed trust when they do not recieve what they are entitled to or if the trust obligation is improperly exercised by the trustee.

Question 10

What is a discretionary trust?

Answer 10

Trustee has discretion as to how to distribute the property among members of an identifiable class. Eg to be held on trust in such shares as the trustees see fit.

Question 11

2 ways a beneficiary can enforce a discretionary trust?

Answer 11

1. Members of the class will have the right to ask the trustee to execrise their discretion.
2. They may sue the trustee for breach of trust and seek an injunction if they distribute the property to someone who does not fall within the class of beneficiaries.

Question 12

What is the rule in saunders and vautier?

Answer 12

Beneficiaries that meet specific criteria can consent to terminating the trust early and recieving legal title to the property held.

Question 13

3 requirments for terminating the trust early?

Answer 13

1. The beneficiary are absolutely entitled to the trust property
2. Consent is mutual and unanimous among all beneficiaries.
3. All are over 18 with mental capacity.

Question 14

What trusts can saunders v vautier rule be used

Answer 14

Both fixed and discretionary trusts.