Equity and Trusts SBAQs Flashcards
Is this statement TRUE or FALSE?
Last week, a father declared that he was going to hold his shares in Betabuild plc on trust for his daughter until she should attain 25.
As a result, the father became the trustee, and the daughter became the beneficiary of the shares.
As trustee, the father continued to be the absolute owner of the shares but owed a duty to apply all profits and benefits for his daughter
The statement is FALSE!
A trustee is NOT an absolute owner!
Absolute ownership means outright ownership of the property in question.
Where a trust exists, the trustee holds the legal title to the property, but the equitable interest belongs to the beneficiary.
Two years ago, Xavier created a trust for his children. He appointed Sam, Tania and Victor to be the trustees. Six months ago, Sam was declared bankrupt and last month, Victor died.
Which ONE of the following statements is CORRECT?
A. On Victor’s death, part of the trust property will pass to his heirs under his will or intestacy.
B. The trust must come to an end as one of the appointed trustees has died.
C. On Sam’s bankruptcy, her creditors will be able to claim the trust property for it to be shared among her creditors.
D. The beneficiaries’ interest in the trust property means that it will still be held on trust for them by Tania and Sam, notwithstanding Victor’s death.
The correct answer is D
The beneficiaries’ proprietary interest in the trust property means it is still held on trust for them by trustees, notwithstanding Victor’s death and Sam’s bankruptcy.
A is not correct because on Victor’s death, the trust property does not pass to his heirs under his will or intestacy. Even though Victor has a part interest in the legal title, this is merely an administrative interest. In equity, the trust property belongs to the beneficiaries of the trust.
Trustees are joint tenants. Therefore, the trust property would have automatically passed by survivorship to the other two trustees. They will continue to act as trustees or can appoint another trustee to replace Victor, so option (B) is not correct.
On Sam’s bankruptcy, the trust property would not have been shared among her creditors even though she was a part-owner of the legal title. The trust property was not hers beneficially, so (C) is not correct.
Susan created a trust two years ago. She appointed Wayne as the sole trustee, asking him to hold £100,000 on trust for her two children, Emma and William. Last month, Susan discovered that Wayne has spent some of the trust fund buying a car for himself.
Is the following statement TRUE or FALSE?
Susan, as the settlor of the trust, can sue Wayne for the breach of his duty to the trust.
The statement is FALSE.
Wayne has clearly committed a breach of his duty to the trust; even though he has the legal title to the trust fund, he can only use it for the benefit of the beneficiaries. Buying the car has caused the trust to lose value and he can be made liable for that loss of value and can be sued for this breach.
However, it is the beneficiaries, Emma and William, who can bring any action against him rather than Susan.
Settlors lose control over trusts after they have been created (unless they appoint themselves to be trustees or reserve powers in the declaration of trust).
Susan’s will contains the following trust:
“I give £100,000 to my trustees to hold on trust for my husband, Ben for life remainder to my children, Nicholas and Jane.”
Susan is alive.
Is the following statement TRUE or FALSE?
Ben, Nicholas, and Jane have vested interests.
The statement is FALSE!
None of the beneficiaries have vested interests (or any interests at all) because a will has no effect until the testator dies.
In the meantime, the testator can revoke or change his will, or the prospective beneficiaries’ interests may fail because, for example, the beneficiaries might predecease the testator.
Harriet’s (validly executed) will contains the following gifts:
Clause 3 “I give £1,000 to Paul.”
Clause 4 “I give the residue of my estate after payment of all debts and legacies to Jenny’”.
Which ONE of the following statements is CORRECT?
A. If Paul’s legacy fails to have effect because Paul predeceases Harriet, the £1,000 will pass into Paul’s estate. If the gift to Jenny fails to have effect, the residue will pass on Jenny’s intestacy.
B. If Paul’s legacy fails to have effect because Paul predeceases Harriet the £1,000 will pass into residue. If the residuary gift fails because Jenny predeceases Harriet, the residue will pass to Jenny’s estate.
C. If Paul’s legacy fails to have effect because Paul predeceases Harriet, the £1,000 will pass into residue. If the residuary gift fails because Jenny predeceases Harriet, the residue will pass to Harriet’s next of kin on her intestacy.
D. If Paul’s legacy fails to have effect because Paul predeceases Harriet, the £1,000 will pass into residue. If the residuary gift fails because Jenny predeceases Harriet, the residue will pass to Jenny’s next of kin on her intestacy.
C is the correct answer
Legacies (such as the gift to Paul in Clause 3) fail if the beneficiary dies before the testator/testatrix. This is called lapse.
Legacies which fail pass as part of the residuary gift in the will (the gift to Jenny in Clause 4).
If a residuary gift fails because the beneficiary dies before the testator/testatrix and the will does not specify what is to happen, the residue will pass to the next of kin of the testator/testatrix (in this case Harriet).
A mother’s valid will contained the following clause, “I give £500,000 to my Trustees to hold for my husband for life, remainder to such of my children who attain the age of 25 if more than one in equal shares. If all of my children die before attaining the age of 25, then for the MS Society a registered charity.” When she died last year, the mother was survived by her husband and their three children, twin daughters aged 16 years and a son aged 17 years.
Which of the following statements best describes when the husband and the children could bring the trust to an end?
A. They will be able to bring the trust to an end when the son attains the age of 18.
B. They will never be able to bring the trust to an end as the trust was created by will.
C. They can end the trust at any time because the husband is an adult.
D. They will be able to bring the trust to an end when the twins are 18.
E. They will be able to bring the trust to an end when the son is 25.
Option E is correct.
If the son attains the age of 25, at least one of the children will have satisfied the contingency. The MS Society will no longer be a potential beneficiary under the trust. As such, as the husband and the children will all then be over 18; if they agree, they could bring the trust to an end under the rule in Saunders v Vautier.
Option A is wrong because, even though the son is 18, the twin daughters will only be 16. Also, the MS Society would need to be considered as no child has satisfied the contingency.
Option B is wrong, because the rule in Saunders v Vautier can be considered by beneficiaries of any trust regardless of the circumstances of its creation.
Option C is wrong because all the beneficiaries must be considered in any decision to bring a trust to an end, not merely those who are adults.
Option D is wrong because, even though all the children are legally competent, while the contingency remains unfulfilled, the MS Society is a potential beneficiary and would have to be consulted in any possible Saunders v Vautier arrangement to end the trust.
A trust deed contains the following provision:
‘My Trustees shall hold my house in Oxford on trust to permit my husband to live in the property for the remainder of his life and after his death to hold the property upon trust for such of my son and daughter who survive my husband and attain the age of 25 years.’
The son is aged 28 years and the daughter is aged 20 years.
Which of the following best describes the beneficial interests in the trust fund?
A. The husband, son and daughter all have vested interests.
B. The husband and the son have vested interests, but the daughter’s interest is contingent.
C. The husband has a vested interest, but the son’s and daughter’s interests are contingent.
D. The husband, son and daughter all have contingent interests.
E. The husband has a contingent interest, but the son’s and daughter’s interests are vested.
Option C is correct.
The husband has a vested interest. (Ordinarily, the life tenant will receive trust income – in the case of a residential dwelling, this would be any rent generated from letting the dwelling. Instead of receiving rental income, however, the life tenant can instead live in that dwelling rent- free for the rest of his life.). Remainder beneficiaries will have vested (albeit postponed) interests in capital, unless the trust makes it clear that their interests are in fact conditional on events that might not happen. In this case, there are two such conditions:
the children must reach the age of 25 years; and
they must still be alive when the husband dies (the husband’s death is a certainty – the children surviving him is not).
The son’s and daughter’s interests will only vest if they satisfy these two conditions. We do not currently know whether the son and daughter will survive the husband (and can only know that when he dies). Given the specific wording of this trust, their interests are still contingent.
Option A is wrong. The son’s and daughter’s interests are conditional, not vested.
Option B is wrong. There are two conditions that the son and daughter must satisfy before their interests vest: (i) they have to reach the age of 25 years; and (ii) they have to survive the husband. The son has satisfied the former but not the latter. His interest is therefore still contingent. (This option would have been correct had the wording been ‘on trust to permit my husband to live in the property for the remainder of his life and after his death to hold the property upon trust for such of my son and daughter who attain the age of 25 years’ – in that case, there is only one condition the children must satisfy, ie reaching the age of 25, which the son has. The wording of the trust must therefore be carefully scrutinised.)
Option D is wrong. The husband has a vested interest – he does not have to satisfy any condition before being able to live rent- free in the house in Oxford.
Option E is wrong. The beneficial interests are the wrong way round.
A father transferred £100,000 and company shares to his son to hold on trust for the father’s granddaughter and grandson, who were aged 17 and 15 respectively when the trust was created. X signed a written declaration of trust in which he instructed the son to hold the property on trust for the granddaughter and grandson until they should attain the age of 21. The granddaughter has just had her 21st birthday. The grandson has just been killed in an accident.
Which of the following statements best describes the interests of the beneficiaries?
A. The granddaughter’s interest is contingent.
B. As the granddaughter and the grandson were under 18 when the trust was created, their interests are limited to income.
C. The trustee should transfer the granddaughter’s half of the trust property to her whereupon the trust for the granddaughter will end.
D. As the grandson has died, his share of the trust property will be paid to his estate.
E. The granddaughter and grandson had the legal interest in the shares and the £100,000.
Option C is the best statement.
The trust of the granddaughter’s half has become a bare trust on her 21st birthday; the granddaughter is now entitled to her share of the trust as she has satisfied the contingency. When the trustee transfers her half of the trust property to her the legal and equitable interests are no longer separated.
Option A is wrong because the granddaughter’s interest became vested when she attained the age of 21.
Option B is wrong because the fact that the beneficiaries are minors when the trust is created does not affect what they will receive – they have a contingent interest in both capital and income. This means that their interests are absolute and not limited to income only.
Option D is wrong because the grandson’s interest continued to be contingent until his 21st birthday. As he has died before reaching 21, his interest fails and would pass according to the terms of the trust declaration, or, if the declaration is silent, there will be a resulting trust for the father, as the settlor.
Option E is wrong because under the trust the beneficiaries own the equitable or beneficial interest in the trust property; the son, as trustee, holds the legal interest.
A dentist died last week. Their will contained the following provisions:
‘Clause 4: My Trustees shall hold ￡300,000 on trust for such of my children who before the age of 25 years successfully obtain an undergraduate 1st class degree …
Clause 15: Following the payment of my debts, funeral expenses, all gifts under this will and inheritance tax, whatever remains shall belong to my wife.’
There are two children: a son aged 24 years who graduated two years ago with a 1st class degree, and a daughter aged 17 years who has decided not to go to university.
The children have agreed between them to split the ￡300,000 in equal shares.
Which of the following statements provides the best advice to the children in relation to the trust under clause 4?
A. The trust can be brought to an end now because the children have agreed between them what should happen to the trust property
B. The trust can be brought to an end once the daughter has reached the age of 18 years, but not before then.
C. The trust can be brought to an end now, but only if the wife agrees.
D. The trust can only be brought to an end once the daughter has reached the age of 18 years, but only if the wife agrees.
E. The trust can only be brought to an end if and when the daughter successfully obtains a 1st class degree.
Option B is correct.
At present, the children cannot use the rule in Saunders v Vautier to bring the trust to an end because the daughter is under the age of 18 years. Once she reaches the age of 18 years, she and the son will be, between them, absolutely entitled to the trust fund under clause 4. Even if the daughter decides not to go to university and therefore does not satisfy the contingency in clause 4, the trust fund will be paid out to ‘such of my children’ who satisfy that contingency. As the son has satisfied that contingency, he would in those circumstances be entitled to the trust fund in full. There is no-one else, beyond the son and daughter, who could benefit from the trust fund in clause 4.
Option A is wrong because the daughter is under the age of 18 years and therefore the conditions in the rule of Saunders v Vautier have not yet been fully met.
Options C and D are wrong. Whilst it might be good from a family perspective for the wife to agree what happens, her consent is not required. She cannot under any circumstances have a beneficial interest in the trust. Even if the daughter does not go to university, the son will take in full. No trust property will fall into the residuary estate.
Option E is wrong. Whilst the dentist may have wanted both children to go to university, if the son and daughter agree next year to bring the trust to an end, they will be able to do so using the rule in Saunders v Vautier.
A man’s will gives £1 million to trustees to hold “for such of my children who attain the age of 21 and subject to this for Oxfam”. The man has five children.
Which of the following statements best describes the type of trust created by the man?
A. The man has not created a trust as he has not determined what each of his children is to receive.
B. The man has created a fixed trust for his children.
C. The man has created a fixed trust for his children for life, remainder to Oxfam.
D. The man has created a discretionary trust for his children and Oxfam.
E. The man has created a discretionary trust for his children.
Option B is correct
The trustees hold the money on trust with an obligation to distribute the trust fund among a class of beneficiaries and they are presumed to share the fund equally.
Option A is wrong because the class is such of the man’s children who attain the age of 21 and they are presumed to share the fund equally.
Option C is wrong because Oxfam will only become entitled to the trust fund if none of the man’s children attain the age of 21.
Option D and E are wrong because the man has determined who is to benefit and to what extent; the trustees have no discretion.
Four years ago, a mother created a lifetime trust of “£100,000 for my son if he attains 25”. When the trust was created, the son was aged 18 years. The son died before his 25th birthday, leaving his own surviving son.
Which of the following statements best describes the position with the trust fund?
A. The £100,000 will be paid to the son’s estate.
B. As the son was over 18 years when the trust was created, he was entitled to receive capital from the trust fund.
C. As the son has a vested interest in the trust, his interest in the trust will pass automatically to his surviving son.
D. As the son’s interest in the trust fails, the £100,000 will pass on resulting trust back to the mother (or her estate if she has also died).
E. As the son has died, his interest in the trust will pass automatically to his surviving son under the intestacy rules.
Option D is correct.
The son’s interest was contingent on his attaining 25. The son did not satisfy the contingency; this causes his interest to fail so the £100,000 will pass on resulting trust back to the mother (or to the mother’s estate if mother has also died).
Options A, C and E are wrong because the son had a contingent interest which failed when he died before attaining 25; he was not entitled to anything and so there was nothing to pass to his estate (whether determined by any will or by the intestacy rules). There is no substitution of beneficial interests to surviving children unless expressly provided for in the trust instrument when it was created in the mother’s lifetime.
Option B is wrong because the son had no entitlement (right) to capital when the trust was created. His entitlement was contingent.
Can these beneficiaries end the trust under Saunders v Vautier ?
A trust for ‘Harriet for life remainder to her children, Elizabeth and Laura’. Elizabeth and Laura are respectively aged 20 and 23.
Yes
No
Yes is the correct answer!
Harriet, Elizabeth and Laura could together end the trust under Saunders v Vautier. They can make the trustees transfer the trust capital to them in the shares which they agree. They are all adults and nobody else can become a beneficiary because they have vested interests - so their agreement is all that is needed.
Can these beneficiaries end the trust under Saunders v Vautier?
A trust created in a will ‘for such of my children who survive me and attain the age of 21, if more than one equally’. Three children survived the testator, namely, Anne (aged 22), Basil (aged 20) and Cara (aged 18).
Yes
No
Yes is the correct answer
The three children here can agree to end the trust under Saunders v Vautier and insist on the trustees transferring the trust property to them.
They constitute ‘all’ the beneficiaries – even if the two younger children do not attain 21, their shares will pass to Anne because it is to ‘such of the children who survive and attain 21’.
Therefore, nobody else can become a beneficiary. All the children are aged 18 or more.
Can these beneficiaries end the trust under Saunders v Vautier?
A trust for ‘my grandchildren whenever born in such shares as my trustees shall decide’. The settlor has a 45-year-old son and two grandchildren aged 21 and 18, respectively. Both wish to end the trust.
Yes
No
The correct answer is No
As this is a discretionary trust, the grandchildren do not have individual equitable interests; at this stage they merely have the right to be considered by the trustees.
However, there is authority (Re Smith) suggesting that between them, the class of beneficiaries under a discretionary trust own the whole of the equitable interest. Saunders v Vautier could then apply.
However, although the living grandchildren are over 18 and agree, more grandchildren could be born and so they are not yet ascertained. You cannot get their agreement. Therefore, Saunders v Vautier does not apply here.
Can these beneficiaries end the trust under Saunders v Vautier?
A trust for Barry for life, remainder to his daughter Henrietta provided she attains the age of 25. Barry is alive and Henrietta is currently 19.
Yes
No
The correct answer is No
Currently Henrietta’s interest in the trust is contingent on her attaining the age of 25. If she were to die before reaching this age, her interest would fail. There is no express provision as to what is to happen to the trust fund were Barry to die in these circumstances.
Consequently, there will be a resulting trust of the trust capital back to the settlor (or to the residuary beneficiary of his/her estate if the settlor has died in the meantime). To utilise the rule in Saunders v Vautier, even these potential beneficiaries would have to be considered.
Which ONE of the following instructions would be sufficient to create a trust?
In his will, the late Robert Carol provided:-
A. ‘I give my art collection to George Carol, hoping that he will give a painting to each of my children.
B. ‘I give my art collection to George Carol and express the wish that he will give a painting to each of my children.’
C. ‘I give my art collection to George Carol, trusting that he will give a painting to each of my children.
D. ‘I give my art collection to George Carol to distribute a painting to each of my children.’
The correct answer is D.
A trust can be created even if the settlor does not use the word ‘trust’. Settlors have an intention to create a trust if they impose a duty on the trustee to deal with the property in a certain way. ‘To distribute’ imposes a duty on George to give a painting to each child.
The other options contain precatory words which do not create trusts (Re Adams and the Kensington Vestry).
Which ONE of the following is MOST LIKELY to fail due to uncertain subject-matter?
A. £100,000 to be held on trust for my children equally.
B. £100,000 to be held on trust for my children
C. £100,000 to my trustees to hold on trust for such of my children and in such shares as my Trustees think fit.
D. A will gives trustees ‘the residue of my estate on trust to give my children the amounts which they deserve’
The correct answer is D
Here, the trust property is ‘residue’. This is what is left of the estate after debts and legacies have been paid and it is certain. However, the beneficiaries’ respective interests (‘the amounts which they deserve’) are uncertain and no discretion is given to the trustees. Therefore, D is likely to fail due to uncertainty of subject-matter.
In A, the trust property is £100,000, which is certain, and there is a formula for working out the children’s beneficial interests (“equally”).
In B, nothing is said about the size of each the child’s interest, but where property or money is held on trust for a group of people and nothing is said about their shares, they are assumed to share equally.
C is a discretionary trust where the trustees decide on the extent of each beneficiary’s share.
Sami wants to transfer £10,000 to Taj to hold on trust for his son, Banjul.
Which ONE of the following is CORRECT to achieve this?
A. Sami signs a cheque in favour of Banjul and hands it to Taj
B. Sami signs a cheque in favour of Taj and hands it to Taj.
C. Sami signs a cheque in favour of Taj and hands it to Taj, telling him to hold it on trust for Banjul.
D. Sami writes a letter to Taj as follows: “Please hold this cheque for £10,000 on trust for Banjul”, but forgets to sign a cheque and so does not include one with the letter to Taj
The correct answer is C.
To create a trust over personalty by transfer to trustee there are two stages. First, the intended trust property must be effectively transferred to the trustee.
This was achieved in answers B and C, but not in answers A and D.
Second, the trust must be declared i.e., the trustee must be instructed to hold on trust, and the trust property and beneficiary must be clear (the three certainties).
Only in option C is there both the necessary transfer of trust property and the required declaration of trust.his was done in answer C only.
At a family meeting, James makes an oral announcement, ‘From now on, I am holding all my shares in Delta Diggers Ltd on trust for Kimberley until she has her 21st birthday’. Kimberley is James’ nineteen- year-old daughter who is keen to get involved in the family company.
Which ONE of the following statements is CORRECT?
A. James has not created a valid trust because he has not transferred the trust property to the trustee by stock transfer form and registration of the trustee at the company.
B. James has not created a valid trust because he should have declared the trust in writing.
C. James has created a valid trust, but he can change his mind and reclaim the shares.
D. James has created a valid trust and it is too late for him to change his mind and reclaim the shares.
The correct answer is D.
The first step for you to take when answering a question on validity of a trust is to decide which of the three methods of creating the trust the settlor intended to use.
Here, James wanted to declare himself a trustee in his lifetime. The statement made by James satisfies the requirements for a valid declaration (there is certainty of intention, subject-matter, and object as well as compliance with the beneficiary principle and the relevant rule on perpetuity).
Lifetime trusts over personalty can be declared orally, so (B) is not correct.
A transfer of the shares was not required because James, who will now be the trustee, already holds legal title to the shares, so (A) is not correct.
Once a trust has been validly created, it is too late for the settlor to back out, so (C) is not correct.
Which ONE of the following clauses found in a will creates a valid trust?
A. I give my jewellery to Bridget Lloyd trusting that she will give my cousin, Patricia Powell, one of my rings
B. I give £10,000 to Bridget Lloyd hoping she will give some of the money to Patricia Powell.
C. I give £10,000 to Bridget Lloyd on trust to be divided equally between my closest friends
D. I give £10,000 to Bridget Lloyd to be divided equally between my employees.
The correct answer is D.
To be valid, the trust must satisfy the three certainties of intention, subject matter, and objects.
The testator has not used the word ‘trust’ but the phrase, ‘to be divided’, is sufficiently imperative to suggest certainty of intention.
The subject matter is £10,000. The test for certainty of objects depends on the type of trust. This is a fixed trust. Therefore, the complete list test applies. In Re Baden’s Deed Trust No 2 it was held that the word, ‘employees’, was certain.
The attempted trusts in (A) and (B) lack certainty of intention. ‘Trusting’ and ‘hoping’ are precatory words which do not create trusts (Re Adams and the Kensington Vestry). In (B), there is also lack of certainty of subject-matter.
The objects are uncertain in (C) - it is a fixed trust and you could not draw up a complete list of ‘my closest friends’ because the description is conceptually uncertain.
Is this statement TRUE or FALSE?
If the directors of a company create trusts for their new customers and then the company goes into insolvent liquidation, the trusts will be void because they will be unlawful preferences of creditors.
True
False
The correct statement is False
The statement is false as it is not entirely accurate. If the company creates trusts for existing customers who are already owed money/goods by the company, then the company is preferring existing creditors, and this is likely to be unlawful.
However, where the trust is created for money which customers will send in the future, there is no unlawful preference of creditors because these customers never become creditors; they are beneficiaries under a trust all along (Re Kayford).
Seatco Ltd has gone into liquidation. It holds many customer pre-payments and will now be unable to fulfil their orders.
In which ONE of the following cases is there likely to be a trust for customers?
A. Customer Green sent Seatco £2,000 with a covering letter saying that it was to purchase a black leather “Sofia” sofa.
B. Seatco has spent Customer Green’s £2,000 on overheads. It has three black Sofia sofas in its warehouse.
C. Customer Green stated that the £2,000 was not to be at the general disposal of Seatco but was to be held separately until the sofa was delivered to Green.
D. Seatco opened a bank account containing £30,000 and called it the “Loyal Customers’ Protection Fund.
The correct answer is C
In C the customer has indicated that the money is to remain in the customer’s beneficial ownership until the goods are delivered and this suggests a trust.
In A, there is simply a contract to buy the goods.
In B, there is no trust of the money because it has been dissipated. There is no trust of a sofa because there is uncertainty of subject-matter. Which of the three sofas is the subject of the trust? In D, any attempted trust could be void as a preference or due to uncertainty of objects.
Under the terms of a valid will, a woman appointed her son to hold her residuary estate on trust ‘for such promising young tennis players living in Wales and in such shares as my son thinks fit’. The woman was a past Chair of a tennis club and grew up in Cardiff. Her residuary estate was made up of money held in various UK bank accounts.
The woman’s son asks a solicitor whether this trust is valid. The son wants to carry out the woman’s wishes as much as possible and has already put together a list of people who he thinks should benefit from the trust.
A. Yes, because the son has identified people he thinks would benefit from it
B. Yes, because it is not capricious.
C. Yes, because it is contained in a valid will.
D. No, because there is insufficient certainty of subject-matter.
E. No, because there is insufficient certainty of objects.
Option E is correct.
The trust is not valid because it lacks certainty of objects. The trust is discretionary and therefore must comply with the given postulant test. This requires that the description of the class of objects be conceptually certain. That is not the case here. For instance, it is unclear what is meant by ‘promising’ and ‘young’ (e.g., does the latter mean people under the age of 16, 18, 21 years or some other age?) The trust therefore fails.
Option A is wrong. Just because the son thinks he knows who might benefit under a trust does not mean that the trust is valid. If the son chooses incorrectly, he will be in breach of trust.
Option B is wrong. Whilst it correctly identifies that the trust is not capricious (there is a discernible link between the woman and the class she wants to benefit), this does not make the trust valid. If the trust is uncertain (as here), the fact that it is not capricious will not save it.
Option C is wrong. Whilst it correctly identifies that the trust is contained in a valid will, this does not make the trust valid. The declaration of trust must satisfy the three certainties (which it does not).
Option D is wrong because a trust over a residuary estate has certain subject-matter. The residuary estate can be calculated with certainty – it is whatever is left over once all debts, taxes and specific legacies have been met. This is not why the trust fails.
Last month, a woman wrote to a banker as follows, ‘You will hold my house in Edale for my nephew, who shall become entitled to the house when he reaches the age of 25 years’. The woman executed a TR1 in favour of the banker.
The woman died two weeks ago. In her will (executed five years ago), she appointed the banker to be her executor. Everything in the will was left to the woman’s daughter. When going through the woman’s belongings, the banker found the TR1 in the hall sideboard in the woman’s home. The Land Registry have confirmed that the woman was still the registered proprietor of the house in Edale when she died.
Is the house held on trust for the nephew?
A. Yes, because the woman executed a valid TR1 to transfer legal title to the banker.
B. Yes, because the woman made every effort to transfer legal title to the banker.
C. Yes, because the fact that the banker is the woman’s executor in this case constitutes the trust.
D. No, because the daughter is the sole beneficiary under the woman’s will.
E. No, because the woman failed to transfer legal title in the house to the banker while she was alive.
Option C is correct. The woman tried to create a valid lifetime trust with the banker as the trustee. This would usually require the woman to transfer legal title in the house to the banker while she was alive. However, as an exception to the rule that ‘equity will not assist a volunteer’, equity can constitute this trust using the rule in Strong v Bird.
This is because the woman intended to create an immediate trust; that trust was not immediately created due to a failure to comply with a relevant transfer rule; there is nothing to suggest that the woman’s intention did not continue up to her death; and the banker acquired legal title to the trust property by becoming the woman’s executor.
Option A is wrong. The mere execution of a TR1 is not sufficient by itself to transfer legal title in land.
Option B is wrong. In order to satisfy the every effort test, the woman would have had to put relevant documents beyond recall, i.e., she would have had to send the TR1 to either the banker or the Land Registry. She did neither.
Options D and E correctly set out what the general position should be given that the woman failed to transfer legal title to the house during her lifetime. However, given that the nephew can rely on the rule in Strong v Bird to constitute the trust in his favour, neither statement represents the best advice on the facts.
An artist writes a letter to her brother saying, ‘The two of us shall be trustees over the sum of money in my savings account for your daughter until such time as your daughter marries or turns 30 years of age (whichever is the earliest), when it will become hers’. The daughter is aged 21 years.
The artist dies two weeks later. The artist had taken no steps before her death to put the money into a joint bank account in the names of herself and her brother. In her will, the artist named the daughter as the executrix of her estate.
Which of the following statements best describes why the money in the savings account belongs beneficially to the daughter?
A. The money belongs beneficially to the daughter because the letter is a valid declaration of trust and it would be unconscionable for the trust not to take effect.
B. The money belongs beneficially to the daughter because the letter comprises a deed of transfer of that money to the brother, which constitutes the trust.
C. The money belongs beneficially to the daughter because the letter demonstrates that the woman made every effort to constitute the trust
D. The money belongs beneficially to the daughter because of the rule in Strong v Bird.
E. The money belongs beneficially to the daughter because the trust had already self-constituted prior to the artist’s death
Option A is correct.
The artist intended to create a trust with herself and her brother as trustees. Ordinarily, the artist in this situation would have had to take whatever steps were required to put the legal title to the money into the joint names of herself and her brother. However, having made a valid declaration of trust, it would have been unconscionable for the artist to back out of constituting the trust. As a result, the trust is valid in equity and the money belongs beneficially to the daughter.
Option B is wrong. The letter is not a deed (as it will not have been witnessed by a third party) and is not sufficient to constitute the trust.
Option C is wrong. The letter is not sufficient to satisfy the every effort test. The artist needed to take steps to open a joint account in the name of herself and her brother and transfer the money from her savings account into that joint account. The every effort test generally only applies in cases where land or company shares are being transferred.
Option D is wrong. The fact that the daughter is appointed to be the executrix is irrelevant to the operation of the rule in Strong v Bird. In order to constitute a trust using this rule, it is the trustee who must be appointed the executor/executrix, not the beneficiary.
Option E is wrong. The only trusts which self-constitute are those where the settlor appoints only themselves to be the trustee. This is not that kind of trust
Last month, having taken legal advice that he should start to transfer some of his wealth to lower his potential future inheritance tax bill, a man telephoned an ex-colleague to say, ‘I would like you to have my shares in Wright Stuff Limited in case you want to give some for such of my friends that stood by me whilst I was having treatment for my cancer and in such shares as you think is right’. Following the call, the man executed a stock transfer form over his Wright Stuff Limited shares and sent this to his ex-colleague together with his share certificate. The ex-colleague forgot to tell the man during the call that she was about to take her children on a long holiday to Florida, so was not around when the documents arrived at her house.
Last week, the man died. In his will, he appointed a solicitor as his executor and left his estate to the ex-colleague. The ex-colleague cut short her holiday to find the documents relating to Wright Stuff Limited on her doormat.
Do the shares belong absolutely to the ex-colleague?
A. Yes, because what the man said over the telephone did not satisfy the test for certainty of intention.
B. Yes, because although the man wanted to create a trust, he failed to manifest and prove the declaration of trust in signed writing.
C. Yes, because although the man correctly declared a trust, he failed to constitute that trust during his lifetime.
D. No, because the man satisfied the every effort test and the shares are therefore held on trust.
E. No, because the man clearly intended that the ex-colleague hold the shares on trust for other people.
Option A is correct.
Objectively speaking, the man intended to gift the shares to the ex-colleague. The rest of the wording – ‘in case you want to give some shares’ – is precatory wording only and evidences no intention that the ex-colleague should hold the shares on trust for other people. As there was no lifetime trust, the ex-colleague takes the shares absolutely. (It should be noted that there are also problems with other certainties of subject-matter and objects.)
Option B is wrong. As the trust is one of personalty (anything other than land), the declaration of trust does not need to be manifested and proved in signed writing. This requirement only applies to declarations of trust over land.
Option C is wrong. There was no trust to constitute.
Option D is wrong. Whilst this option correctly applies the every effort test, it fails to consider the fact that the trust cannot be valid due to the imperfect declaration of trust. (Had the declaration of trust been valid, the man would have satisfied the every effort test. The man executed all the documents that were required and put all documents beyond recall by sending them to the ex-colleague. He had done everything he could to transfer legal title to the shares while he was alive.)
Option E is wrong. The man may have hoped that the ex-colleague might distribute shares to other people, but ultimately there was insufficient intention to create a trust over those shares.
Three years ago, an estate agent sent a letter, enclosing a cheque for £10,000, to a paramedic that said, ‘As agreed, cash this cheque and give most of it to your daughter and then the rest to your son when they reach the age of21years’. The daughter was then aged 18 years and the son was aged 12 years. The paramedic cashed the cheque.
The daughter has now reached the age of 21 years and has found the letter. She wants the paramedic to transfer at least a half share of the money to her (she has not discussed this with her brother). The estate agent has recently fallen out with the paramedic and has written to the paramedic demanding that she return the money to him.
Must the paramedic return the money to the estate agent?
A. Yes, because whilst the estate agent tried to create a trust in favour of the paramedic’s children, that trust failed due to uncertain intention.
B. Yes, because whilst the estate agent tried to create a trust in favour of the paramedic’s children, that trust failed due to uncertain subject-matter.
C. Yes, because whilst the estate agent tried to create a trust in favour of the paramedic’s children, the trust offended the relevant perpetuity rules
D. No, because the daughter has reached the age of 21 years and her entitlement to the money has vested.
E. No, because the estate agent created a valid trust. Given that the declaration of trust did not specify the shares that each child would get, the law presumes that each child gets an equal share.
Option B is correct. The estate agent tried to create an express fixed trust to benefit the two children. The reason that trust is ineffective is due to the beneficial interests being uncertain (which is an aspect of the second certainty – certainty of subject-matter).
The paramedic does not know how to separate the trust property between the daughter and son. All she knows is that she must give the daughter more than the son, but beyond that the distribution between the two is unclear.
The estate agent has not given her any discretion to decide for herself. The paramedic therefore holds the legal title in the money on resulting trust for the estate agent. As that resulting trust is a bare trust and the estate agent is absolutely entitled, he can call for that money back.
Option A is wrong. There is certainty of intention – it is clear that the paramedic had to hold the money on trust for other people.
Option C is wrong. Had the trust been valid, the contingent interests were clearly capable of vesting within the perpetuity period of 125 years (being the perpetuity period relevant to trusts for individuals).
Option D is wrong. As the express fixed trust fails, the daughter has no beneficial interest in the money, whether she reaches the age of 21 years or not.
Option E is wrong. This is not a case where the law can presume that each person should get an equal share as this runs counter to the estate agent’s intention in setting up the trust (the only thing we know for certain is that he wanted the daughter to get more than the son).
Which ONE of the following is VOID because it offends the beneficiary principle?
A. ‘On trust to advance equality and diversity in the United Kingdom’.
B. ‘On trust to improve the standard of politeness in the town of Reading.’
C. ‘On trust to build a swimming pool for use by the employees of Geronimo Ltd.’
D. ‘On trust to maintain my horse, Flash, for 21 years after I die.’
The answer is B.
This is a purpose trust with no ascertainable beneficiaries (and a purpose that is not charitable).
A- is charitable (s3(1)(h) Charities Act 2011) and therefore, is not subject to the beneficiary principle.
In C, the employees are ascertainable beneficiaries who could enforce the trust (Re Denley).
D is an exception to the beneficiary principle (Re Dean).
A valid will includes the following provision: “I give my shares in Morris Ltd to my executor on trust to use the income to provide tuition in choral singing for anyone living in Manchester.”
Which ONE of the following statements is CORRECT?
A. The trust will not succeed as a charitable purpose trust because it does not satisfy the rule against inalienability of capital.
B. As singing is not a charitable purpose, the provision cannot be valid as a charitable purpose trust.
C. The trust will be valid as a charitable purpose trust as there is public benefit to a sufficient section of the public.
D. The trust will be valid as a non-charitable purpose trust.
The answer is C.
A charitable purpose trust must have an identifiable charitable purpose which it does (advancement of education), and it must be for the public at large or a sufficient section of the public. There is no personal nexus, and the class description is potentially wide enough; inhabitants of a large city such as Manchester would be sufficient.
A is not correct because the rule against inalienability does not apply to charitable purpose trusts.
B is not correct because this purpose would probably fall within the advancement of education (or the advancement of the arts, culture, heritage, or science, a charitable purpose within s3 Charities Act 2011).
D is not correct because the clause provides that only income is to be used and gives no end to the trust within the (21 year) perpetuity period. This will not succeed as a non-charitable purpose trust because of the rule against inalienability of capital.
When considering whether a trust is valid as a non-charitable purpose trust under the principle from Re Denley, which ONE of the follow statements is CORRECT?
A. The trust only needs to provide a tangible benefit to an ascertainable group of beneficiaries to be valid.
B. A non-charitable purpose trust could be valid under the principle from Re Denley provided the group of beneficiaries receiving a tangible benefit from the purpose are not linked by a personal nexus.
C. For a trust to be valid under the principle from Re Denley, there must be certainty of both the purpose and objects.
D. Unlike trusts intended to benefit specific individuals, a non-charitable purpose trust does not have to consider the issue of perpetuity
The correct answer is C
To be valid under Re Denley, a non-charitable purpose trust must satisfy all the required four elements.
There must be a group of ascertainable people who will receive a tangible benefit from the purpose. That group of people must be described with sufficient certainty. (It is thought the relevant test is the given individual test requiring conceptual certainty.) The purpose must also be described with certainty, so the trustees know what they are expected to do.
A is not correct because there are other conditions which must be satisfied under the principle from Re Denley – compliance with the rule on alienability and certainty of purpose and objects.
B is not correct as personal nexus is not a relevant consideration for non-charitable purpose trusts. It is only relevant when considering public benefit matters in charitable purpose trusts.
D is not correct as a non-charitable purpose trust must also satisfy the perpetuity rule on inalienability – the purpose must be capable of being fulfilled on a one and for all basis or the trust will come to an end in 21 years.
A trust “for the relief of poverty” is void for uncertainty of object and because it offends the beneficiary principle.
Is this statement TRUE or FALSE?
The statement is false. The “relief of poverty” is a charitable purpose (s3(1)(a) Charities Act 2011) and such a purpose is accepted as being for the public benefit. Such a trust would, therefore, be charitable; charitable trusts are not subject to certainty of object rules or the beneficiary principle.
A valid will contained the following provision:
“I give £100,000 to my trustee to be held on trust for as long as the law allows to provide grants to children of employees of X Industries Ltd who go to university.”
Which of the following statements best explains why the provision will be valid or not?
A. The trust will be void as a purpose trust because it lacks certainty of object.
B. The trust will be void because this is a purpose trust, and it does not satisfy the rule on alienability.
C. The trust will be void because it lacks sufficient public benefit.
D. The trust will be valid because the children of the employees of X Industries will be able to enforce it.
E. The trust will be valid because advancement of education is a charitable purpose.
The correct answer is Option D.
The children derive sufficient tangible benefit from the purpose. Both they and the purpose are sufficiently certain (Re Denley). The children will, therefore, have standing to enforce the purpose so satisfying the beneficiary principle. The provision will therefore be valid as a non-charitable purpose trust.
Option A is wrong because there is both certainty of object in the description of the group of people to benefit from the purpose (children) and the purpose itself is sufficiently certain.
Option B is wrong because the wording of the trust indicates that the trustees can spend the capital on the purpose and the trust is only to last as long as the law allows. Therefore, it will not offend the rule against inalienability.
Option C is wrong because although the trust will not succeed as a charitable purpose trust because it lacks public benefit (there is a personal nexus of employment between the people benefiting from the purpose, Oppenheim v Tobacco Securities Trust), the trust could be valid as a non-charitable purpose trust (Re Denley).
Option E is wrong because although the advancement of education is a charitable purpose within the Charities Act 2011, this provision will not be valid as a charitable purpose trust. However, it will be valid as a non-charitable purpose trust, given the tangible nature of the educational benefit to the children.
A man’s will trust contains the following provisions:
‘Clause 8: I give £25,000 to my Trustees to maintain the changing rooms and shower blocks at the Rushcliffe swimming club’s site in Nottingham …
Clause 12: Following the payment of my debts, funeral expenses, all gifts under this will and inheritance tax, whatever remains shall belong to my wife.’
The Rushcliffe swimming club is a non-charitable organisation.
Does clause 8 create a valid trust?
A. Yes, because it satisfies the three certainties.
B. Yes, because the members of the Rushcliffe swimming club can enforce its terms.
C. No, because the Trustees are holding the money to achieve a purpose, and all-purpose trusts are void.
D. No, because the Rushcliffe swimming club is not a charity.
E. No, because the trust locks capital away for too long.
Option E is correct.
The testator has tried to create a non-charitable purpose trust. Clause 8 can overcome the beneficiary principle – the trust provides a clear and tangible benefit for an ascertainable group of individuals (the members of the swimming club). However, as the Trustees must maintain the changing rooms and swimming blocks, which is an ongoing obligation, the trust capital might be locked away in perpetuity. The trust is therefore void for offending the rule against inalienability of trust capital. The trust fund (£25,000) will therefore fall into residue for the benefit of the wife.
Option A is wrong. Whilst this option correctly identifies that clause 8 satisfies the three certainties, that is not by itself sufficient to create a valid trust. As clause 8 is seeking to create a purpose trust, the declaration of trust must overcome the beneficiary principle and the rule against inalienability of trust capital. It does not overcome the latter.
Option B is wrong. Whilst this option correctly identifies that the trust can overcome the beneficiary principle (as the members of the swimming club can enforce its terms), that is not by itself sufficient to create a valid trust. As this trust is non-charitable, clause 8 must not offend the rule against inalienability of trust capital. Unfortunately, it does.
Option C is wrong. Not all-purpose trusts are void – some are, but many are effective.
Option D is wrong. Just because the club is not a charity does not mean that the trust must be void – some non-charitable purpose trusts can be effective
A woman’s will contains the following provisions:
‘Clause 3: I give £200,000 to my Trustees to educate the young people of Cornwall about the importance of water safety …
Clause 17: Following the payment of my debts, funeral expenses, all gifts under this will and inheritance tax, whatever remains shall belong to The British Red Cross Society.’
Which of the following statements provides the best advice to the Trustees about clause 3?
A. Clause 3 does not create a valid trust because ‘the young people of Cornwall’ is not conceptually certain.
B. Clause 3 dos not create a valid trust because the purposes are not exclusively charitable.
C. Clause 3 does not create a valid trust because the section of public who will benefit from the purpose are bound by a personal nexus.
D. Clause 3 creates a valid trust because the purposes are charitable, and the benefit accrues to a sufficiently large section of the public.
E. Clause 3 creates a valid trust as there is a clearly ascertainable class of people who can enforce the trust.
Option D is correct.
Clause 3 creates a valid charitable trust. The purpose (education and/or the saving of lives) falls within the list of charitable purposes under s 3(1) of the Charities Act 2011; the benefit accrues to a sufficiently large section of the public; and the purposes are exclusively charitable. If the Trustees do not know how to apply the money, they could seek further guidance from the Charity Commission.
Option A is wrong. Whilst this option correctly states that the ‘young people of Cornwall’ is conceptually uncertain, as they are not the object of the trust (the object is the charitable purpose of educating them about water safety), this is irrelevant.
Option B is wrong. The trust is exclusively charitable. There is no suggestion that the woman wanted the Trustees to engage in political activities.
Option C is wrong. The young people in Cornwall are not linked by relationships to a particular individual or company. Therefore, they are not linked by a personal nexus.
Option E is wrong. The ‘young people of Cornwall’ is not conceptually certain – there will be legitimately different views about when people stop being ‘young’. It cannot be said therefore that there is a clearly ascertainable class of people who can enforce the trust. However, option E is also irrelevant given that the trust is charitable.
A valid will contains a series of provisions.
Which of the provisions is likely to create a valid purpose trust?
A. I give £30,000 to my Trustee to use the income to provide students at Twycombe High School with educational outings to museums around England and Wales.
B. I give £30,000 to my Trustee to provide annual garden parties for the next twenty-five years for all the students and staff at the Twycombe University.
C. I give £30,000 to my Trustee to provide a shelter for ill-treated dogs in the Twycombe area and to exert pressure on the authorities to increase penalties for animal cruelty.
D. I give £30,000 to my Trustee to encourage all my family living in Twycombe to cycle to work.
E. I give £30,000 to my Trustee to campaign against local government’s proposed development of a wind farm in the Twycombe area.
The correct answer is Option A.
This would likely be valid as a charitable purpose trust There is a charitable purpose (advancement of education). It is exclusively charitable. Both limbs of public benefit are satisfied - the provision of museum outings would be a benefit and the benefit is to a sufficient section of the public. Here the purpose is for the benefit of the students at a specific high school. Benefits can be restricted to a particular geographical area provided it is not too small (IRC v Baddeley); benefits could also be restricted to the young if the aim of the trust is to educate young people which it appears is what is intended. As a charitable purpose trust, the fact that only income can be used to fund the outings is irrelevant.
Option B is wrong because although the students and staff at the University will derive tangible benefit from the purpose so as to enable them to enforce the trust, the rule against inalienability of capital is not satisfied as the trust is to last longer than law allows.
Option C is wrong because although establishing the shelter could be classed as a charitable purpose (animal welfare), exerting pressure to change the law is political. The purpose is, therefore, not exclusively charitable (Attorney General V McGovern) and therefore not valid as a charitable purpose trust. The purpose also does not succeed as a non-charitable purpose as it is not to maintain a specific dog but relates to general canine welfare.
Option D is wrong because although the purpose might be charitable (advancement of health, or amateur sport), there is insufficient public benefit due to the personal nexus arising from the common family connection (Re Compton). It would not succeed as a non-charitable purpose trust due to the rule against inalienability of capital.
Option E is wrong because this is a purpose trust. The purpose is political (campaigning for a change in the law) so the purpose cannot be charitable. The purpose does not provide tangible benefit to an identifiable group of people to enable them to enforce the trust (Re Denley); it is, therefore, not valid as a non-charitable purpose trust as it offends the beneficiary principle.
A company’s main supplier threatened to cease trading with the company because it had experienced delays in payment. The father of one of the directors of the company lent the company £50,000 specifically to pay the supplier. This money was paid into the company’s general account at the bank. The company went into liquidation before the money was spent.
Which of the following best explains whether the director’s father might be able to recover the £50,000?
A. He will be unable to recover the £50,000 because he is merely an unsecured creditor of the company.
B. He will be unable to recover the £50,000 because the company’s liquidator will be able to claim the money in priority.
C. He will be unable to recover the £50,000 because it was paid into the company’s general account at the bank.
D. He may be able to recover the £50,000 because the money was loaned to the company for a specific purpose which can no longer be achieved.
E. He may be able to recover the £50,000 because he is connected to a director of the company.
Option D is the correct answer.
The father could argue that he created a Quistclose trust as the money was lent for an exclusive purpose which can no longer be achieved because of the company’s liquidation. In Barclays Bank v Quistclose, money was lent for the sole purpose of paying dividends to shareholders. It was held that the money had been lent on trust for this purpose and, when the purpose could not be carried out, due to the borrower’s insolvency, the money should be held on a resulting trust and returned to the lender.
Options A and B are wrong because while the father will rank as an ordinary unsecured creditor on the company’s liquidation, if he can establish that the company held the loan money on trust for him, he could recover the £50,000 in full, ahead of the other creditors. As the company would then be holding the money as a trustee, it would not be available to the liquidator.
Option C is wrong because while paying the loan into a separate bank account (as in Quistclose) could suggest that a trust was intended, not doing so is not necessarily fatal to the father being able to establish the trust (Twinsectra).
Option E is wrong because the father’s relationship to a director of the insolvent company is not going to impact on his ability to recover the loan.
Which ONE of the following is MOST LIKELY to give Ann an interest under a resulting trust?
A. Ann pays the conveyancing fees incurred on the purchase of a house bought in the sole name of her boyfriend, Bob.
B. Ann has paid the monthly mortgage instalments on a house purchased three years ago in the sole name of her boyfriend, Bob.
C. Ann pays for a conservatory to be added a house purchased three years ago in the sole name of her boyfriend, Bob.
D. Ann pays £10,000 towards the deposit on a house purchased in the name of her boyfriend, Bob.
The answer is D.
A resulting trust arises when a claimant contributes to the initial purchase price of a house conveyed into the name of another.
A is not correct because conveyancing fees are not considered as part of the payment of the purchase price of the property which could give rise to a trust interest.
B and C are not correct because subsequent payments of mortgage instalments and paying for subsequent works are not relevant when seeking to imply a resulting trust.
Which ONE of the following statements about common intention constructive trusts is CORRECT?
A. A constructive trust arises if there was an express common intention that the claimant should have an interest whether or not the claimant acted to her detriment.
B. A common intention that the claimant should have an interest cannot be inferred.
C. A common intention that the claimant should have an interest can be inferred from the whole course of dealings.
D. The whole course of dealings is relevant only to quantifying the claimant’s interest under a constructive trust.
The answer is D.
The court will not look at the whole course of dealings in order to infer a common intention (so C is not correct). However, the whole course of dealings is relevant to the second stage of quantifying the claimant’s interest.
A is not correct because detriment is required as well as a common intention.
B is not correct because the court can infer a common intention from the fact that the claimant contributed to the purchase price or made a significant contribution to the mortgage payments (Lloyds Bank v Rosset).
Which ONE of the following statements is CORRECT?
A. Liam gives his son Peter £5,000 as a marriage gift. The marriage is extremely short-lived. There is a resulting trust back to Liam.
B. Andrew transfers £20,000 to Tom to hold on trust for James if he attains 30 and if he does not, then for Kim absolutely. James dies aged 27. Kim is alive. Tom holds the £20,000 on a resulting trust for Andrew.
C. Jessica’s will contains a legacy of £10,000 to Tim on trust to give Jessica’s children “fair amounts”. Jessica has died. The £10,000 will be held on a resulting trust.
D. Kestrell Bank enters into a contract to give Frances a loan of £10,000. Frances spends the money straightaway and then goes bankrupt. There is a resulting trust for Kestrell Bank.
The answer is C. The trust fails because the subject matter is uncertain and, therefore, there must be a resulting trust.
In A, Liam did not create a trust for Peter. It was an outright gift. The marriage was the motive for the gift, no more. The £5,000 belongs to Peter.
In B, the express trust fails because the beneficiary does not satisfy the contingency, but the settlor has said what is to happen in this event. A resulting trust will only arise where a settlor creates an express trust which fails, and there is no direction as to the trust property on such failure.
In D, Kestrell Bank has not created an express trust, and this negates the possibility of a resulting trust. The money was advanced under a contract and the Bank may have contractual rights to recover the loan but cannot claim a resulting trust.
When considering how the court quantifies a claimant’s interest in a family home under a constructive trust, which ONE of the following answers is CORRECT?
A. The courts award an interest proportionate to the claimant’s financial contribution to the purchase price.
B. The courts will award the share intended by the parties or, if the parties’ express or inferred intention cannot be ascertained, the share which would be fair having regard to the whole course of dealing between the parties.
C. The courts always award a half share in the property.
D. The courts award the same share which the claimant would obtain under a resulting trust.
The answer is B.
The courts try to discover what shares the parties intended. If the intended shares cannot be ascertained, the court will award shares that would be fair.
A is not correct because the share in the property under a constructive trust need not be in direct proportion to the financial contribution made to the purchase.
C is not correct because, while in jointly owned property the starting presumption is equal shares, this presumption can be displaced (see Stack v Dowden) and in claims involving a solely owned property, if the trust is established, the share will be determined in accordance with the parties’ intentions or by the court which may or may not be a half share.
D is not correct because under a resulting trust the share will always be in direct proportion to the financial contribution to the purchase price. This is a significant difference between resulting trusts and constructive trusts.
Bert transfers £30,000 to his solicitor, Samantha, to hold on trust for “those people who have helped my wife and me the most, in equal shares”. The trust fails because the objects are uncertain.
Is the following statement TRUE or FALSE?
Samantha holds the £30,000 on resulting trust for Bert.
The statement is TRUE.
Samantha holds the £30,000 as trustee; it is not her money. As the original trust has failed, it is presumed that the settlor, here Bert, would want the money back. Samantha, therefore, holds the £30,000 on a resulting trust for Bert.
Hayden’s will included a legacy of £30,000 to Kristen to hold on trust for “such of my grandchildren as attain the age of 21 and if more than one in equal shares”. The will gave the residue to Victoria. Both his grandchildren were killed in a skiing accident when they were 19 and 17, respectively. Hayden has just died.
Is the following statement TRUE or FALSE?
The £30,000 will be held on a resulting trust for Hayden’s next of kin under the Intestacy rules.
The statement is FALSE.
The trust will fail because neither grandchild satisfied the contingency (they both died before attaining the age of 21).
Kristen holds the £30,000 as trustee and it is presumed that the money will result back to the estate.
However, the £30,000 will be held on resulting trust for Victoria, the residuary beneficiary. The next of kin would only benefit if the will contained no valid gift of residue.
Is this statement TRUE or FALSE?
It is only possible to bring a claim for proprietary estoppel over a disputed interest in land.
The statement is FALSE. A claim for proprietary estoppel can be brought in relation to a disputed interest in personalty as well as land.
Is this statement TRUE or FALSE?
Payment of household expenses will never be considered as a contribution to the purchase price when inferring a common intention constructive trust.
The statement is FALSE.
Lord Bridge’s comments in Lloyds Bank v Rosset, suggested that the courts would only infer a common intention from direct contributions to the purchase price (e.g., payment of part of the deposit or a contribution towards mortgage repayments). He doubted whether anything less (such as payment of household expenses) would do.
However, it may be possible, in very specific circumstances, for indirect financial contributions such as the payment of household expenses to be sufficient to infer a common intention. The household expenses must be substantial and enable mortgage payments to be met by the legal owner (see Le Foe v Le Foe).
Is this statement TRUE or FALSE?
A common intention constructive trust only deals with the existing interest in property. However, proprietary estoppel can relate to an entitlement to an interest in property at some point in the future.
The statement is TRUE.
Under the trust, the claimant’s interest arises at the time of the parties’ common intention to share ownership upon which the claimant then relies to his detriment. Under proprietary estoppel, the claim can relate to an interest in the property which is only to arise at some point in the future, e.g., when the legal owner dies.
Four years ago, a woman bought a house in her sole name with the aid of a mortgage loan but had no other financial assistance. The following year, her boyfriend moved in with her and agreed to spend £40,000 on building an extension to the house, doing a lot of the work himself. The woman admits that she knew that the boyfriend did this thinking he would get some kind of interest in the house. The woman has now asked the boyfriend to leave because he refuses to marry her. The boyfriend is claiming an interest in the house.
Which of the following best sets out the basis upon which the boyfriend should claim that interest?
A. The boyfriend should claim an equitable interest under a resulting trust.
B. The boyfriend should claim an equitable interest under an inferred common intention constructive trust.
C. The boyfriend should claim an equitable interest under the presumption of advancement.
D. The boyfriend should claim an equitable remedy under proprietary estoppel.
E. The boyfriend should claim an interest in the house as the couple have lived together for more than two years.
Option D is the best answer.
If the woman allowed the boyfriend to spend the £40,000 and work on the extension knowing that he believed he would have an interest in the house as a result, this passive assurance by failing to correct his mistake could be sufficient to establish a proprietary estoppel given that the boyfriend has acted to his detriment. Note that it is not guaranteed that the boyfriend will secure an equitable interest in the house even if his claim for proprietary estoppel is successful (the court having a broad discretion as to the remedy which should be ordered). Nevertheless, this option still represents the boyfriend’s best possible claim on the facts.
Option A is wrong because the boyfriend will not get an interest under a resulting trust because he did not contribute money at the time of the purchase.
Option B is wrong because for an inferred common intention, Lloyds Bank v Rosset said there had to be a contribution to the purchase price at the time of the purchase or payment of a substantial number of mortgage installments. Neither occurred here.
Option C is wrong because there has been no voluntary conveyance or the provision of purchase money to give rise to a presumption of advancement, which in any case, does not operate between unmarried couples.
Option E is wrong because unmarried cohabitants have no property rights over the assets of the other merely by virtue of their co-habitation regardless of the length of time involved.
A father of two children was the chairman of a private company and the sole owner of all five shares in the company. Three years ago, his children started work in the business, and the father transferred one share in the company to each of them, using the correct formalities. Last year, the father remarried, and he made a will which gave all his estate to his new wife. The father told his new wife that his estate included all five shares in the company including those nominally held by his children. The father has now died.
Which of the following statements best describes the position in relation to the disposal of the shares?
A. The new wife will be able to claim all five of the shares in the company under the presumption of resulting trusts.
B. The new wife will be able to rely on the father’s will and his statements last year to rebut the presumption of advancement and claim all the shares.
C. In order to retain the shares, the children will have to rebut the presumption of resulting trust.
D. The new wife will be able to claim all five of the shares as the contents of the will are conclusive.
E. When the father transferred the shares to the children, the presumption of advancement applied.
The correct answer is Option E. This was voluntary transfer of the shares from a father to his children; the presumption of advancement, that it was a gift, applies and the children have owned the shares outright since they were transferred.
Option A is wrong because the presumption of resulting trust did not apply to the transfer of the two shares to the children. They were validly given away three years ago. Therefore, the father only owned the three remaining shares at the time of his death.
Option B is wrong because the new wife will be using the evidence to rebut the presumption of advancement which arose three years ago. The will and the statements last year are evidence of the father’s own actions and not contemporaneous to the initial transfer. They will not be admissible to support her case (Shephard v Cartwright).
Option C is wrong because the presumption of advancement arose when the transfer was made three years ago, and this works in the children’s favour. They have nothing to rebut.
Option D is wrong because the contents of a will are conclusive only in respect of property owned by the deceased at the date of death. Because of the application of the presumption of advancement and the correct transfer of the two shares three years ago, the father only owned three shares in the company when he died, and these are what the new wife will inherit.
A son owned a house. His father came to live with him four years ago. Two years ago, the son and his wife separated. The son was worried that his wife might divorce him and was worried about what that might mean for the house. He therefore transferred the house into the father’s sole name. No money exchanged hands between father and son. The son and wife have now reconciled, and no divorce proceedings are ongoing.
Throughout the past four years, the father and son welcomed paying lodgers into the house. The money from these lodgers was only ever paid to the son.
The father has recently died and, in his valid will, left the house to his daughter.
Which of the following statements best describes why the son has a beneficial interest in the house?
A. The son has a beneficial interest because he continued to live in the house.
B. The son has a beneficial interest because a presumption of resulting trust arose in the son’s favour that has not been rebutted on the facts.
C. The son has a beneficial interest because a presumption of advancement arose in the son’s favour that has not been rebutted on the facts.
D. The son has a beneficial interest because a resulting trust can be inferred on the facts.
E. The son has a beneficial interest because a presumption of advancement arose in the father’s favour but this has been rebutted on the facts.
Option D is correct.
When the son transferred the house into the father’s sole name, he was making a voluntary transfer of realty. In most cases, when a son voluntarily transfers property to a father, a presumption of resulting trust will apply. However, the position seems to be different for realty (land); in these cases, it seems that no presumption of resulting trust will apply simply because one party has voluntarily transferred land to another. Having said that, a resulting trust is likely to be inferred in this case, given that the son continued to profit from the income being generated from the house. This additional evidence indicates an intention that the son retained a beneficial ownership in the house even when he transferred the legal interest to his father.
Option A is wrong. The mere fact that you live in a house does not by itself give you a beneficial interest in that house.
Option B is wrong. Whilst there is some doubt, the effect of s 60(3) of the LPA 1925 appears to prevent a presumption of resulting trust arising merely by the fact that one person has voluntarily transferred land to another. This option therefore is not the best description of why the son has a beneficial interest in the house.
Option C is wrong. Whilst a presumption of advancement would have arisen had the father voluntarily transferred land to his son, no similar presumption arises when a son voluntarily transfers land to his father. The transfer is the wrong way round.
Option E is wrong. A father can never benefit from the presumption of advancement. Victorian morality dictates that a father is financially responsible for his children. In the right situations, the presumption of advancement may benefit his children, but never him
A man bought shares in a company. His son’s name was listed as the owner of the shares in the company’s register of members. The son was aged 25 years. On the same day as the purchase took place, the son emailed the man to say, ‘Hi Dad. When I get the share documents, I will send these over to you as agreed. As we also agreed, if any dividends are paid on these shares, I will forward those on to you as well.’
A year later, the man instructed a solicitor to draw up a will for him. He said that the value of the shares had doubled over the last year and that he wanted to leave them to his wife.
Does the man have a beneficial interest in the shares?
A. Yes, because he paid for the shares.
B. Yes, because the email from the son a year ago is sufficient to rebut the presumption of advancement that would have otherwise applied.
C. Yes, because the fact that he instructed a solicitor to draft a will leaving the shares to the wife is sufficient to rebut the presumption of advancement that would have otherwise applied.
D. No, because the presumption of advancement applies and can never be rebutted.
E. No, because his name is not listed in the company’s register of members.
Option B is correct.
The man has purchased shares in the name of his son. Whilst the presumption of advancement applies whenever a father transfers property to, or purchases property for, his child, here there is likely to be sufficient evidence to rebut that presumption. That evidence is the email contemporaneous with the purchase recording an agreement that the man would hold the share certificate (which indicates an intention that the man should continue to have some kind of interest in the shares) and that future dividends would be paid to the man (which indicates some kind of entitlement to the shares). It is likely therefore that the man has retained a beneficial interest in the shares.
Option A is wrong. Just because the man paid for the shares does not necessarily mean that he will retain an interest in them.
Option C is wrong. Whilst the presumption of advancement initially arose on the purchase of the shares, this cannot be rebutted by the instructions the man gave to the solicitor. The man would want to use those instructions as evidence that he retained an interest in the shares. However, evidence of words and conduct after the purchase had taken place would only be admissible against the man’s case and could not be used in support of his case. As a result, the instructions to the solicitor are not sufficient by themselves to rebut the presumption of advancement.
Option D is wrong. Whilst it is correct to say that the presumption of advancement initially arose on the purchase of the shares, it is not correct to say that this presumption can never be rebutted. The presumptions of resulting trust and advancement are just presumptions and are often readily rebutted in the light of contrary evidence.
Option E is wrong. Whilst the man does not own legal title to the shares given that his name is not listed in the register of members, he can still own the beneficial interest in the shares.
An elderly aunt asks her niece to move in and look after her. The niece loves her aunt but expresses reservations about whether such a move would be possible. She has a child who goes to school near to where she lives; she works full-time and there is talk that she might get a promotion. To persuade the niece to change her mind, the aunt promises that when she dies, she will leave the house to the niece. The niece agrees to move in. She provides her aunt with round-the-clock care for no pay (other than the aunt meeting all her living expenses), quits her job and takes her child out of school, home-schooling him whenever there is a free moment.
Eight years later, the aunt dies. The niece finds out that the aunt has left her house to a friend.
Which of the following statements best describes why the niece might have an interest in the house?
A. The niece should have an interest under a common intention constructive trust arising out of the express understanding that she was to have an interest in the house.
B. The niece should have an interest under a common intention constructive trust arising out of an inferred understanding that she was to have an interest in the house.
C. The niece should have an interest because she can establish proprietary estoppel arising out of an active assurance, which automatically guarantees her an interest in the house.
D. The niece should have an interest because she can establish proprietary estoppel arising out of an active assurance, which means it is likely that she will get an interest in the house.
E. The niece should have an interest because she can establish proprietary estoppel arising out of a passive assurance, which means it is likely that she will get an interest in the house.
Option D is correct.
The aunt actively assured the niece that the house would belong to her, and the niece appears to have relied on that assurance to her detriment. Whilst the court has a discretion about what remedy to award, it is likely that the court will award the niece an interest in the house. (Indeed, on the facts, it is likely that that interest would be an absolute ownership right to the entire house. The court would therefore transfer the house to her.)
Options A and B are wrong. Common intention constructive trusts are used to establish present interests in property (ie when two partners share a house together). They are not used to establish future interests in property, as in this scenario. The niece will need to assert proprietary estoppel. Proprietary estoppel prevents the aunt from backtracking on her assurance that in the future the house will belong to the niece.
Option C is wrong. Whilst proprietary estoppel can be established in this case, that does not automatically guarantee the niece a proprietary interest in the house. The remedy is ultimately within the discretion of the court.
Option E is wrong. The assurance in this case was active not passive. This is not a case where the aunt stood back and allowed the niece to think that she was getting some kind of proprietary interest – the aunt had actively suggested this.
