Equity & Trusts Flashcards
How can a purpose fall within the charitable exception? Explain each of the requirements
If it:
- Has charitable purposes
- Falls within s 3(1) CA 2011 - Has sufficient public benefit
- Must be of a benefit to a sufficient section of the public
- Will NOT have a sufficient public benefit if it passes the personal nexus test - Is exclusively charitable
- Political purposes are not charitable
What is the personal nexus test?
A class which only consists of persons descended from a common ancestor or who had a common employer
When can a non-charitable purpose trust arise?
- Re Denley Trust:
a) A group of ascertainable beneficiaries who will receive a tangible benefit from purpose
b) Purpose benefits the whole class of individuals and is not too vague
c) Trust complies with the perpetuity rules (be void if it cannot be alienable within 21 years) - Trusts for imperfect obligation
- Eg: trusts to maintain specific animals, gravestones or monuments
Explain when the presumption of resulting trust arises for voluntary transfers/purchase money case
Voluntary transfer = X transfers property to Y for no consideration, presumed Y holds property on resulting trust for X
Purchase money = Payment of purchase price/deposit
- Payment of outgoings or mortgage instalments will not give rise to a presumption of resulting trust
Describe the presumption of advancement/gift and the 3 situations where it arises
Person making the transfer/providing purchase money is regarded as being under an obligation to provide for the other party
- A father makes a voluntary transfer/purchases property in name of his child
- A parent in loco parentis makes voluntary transfer/purchases property
- Husband makes voluntary transfer/purchases property in name of wife/fiance
Explain how a resulting trust arises when there is an incomplete disposal of the trust’s equitable interest
Arises where:
- Settlor transfers property to trustee on trust but
- Does not dispose of all/part of their equitable interest, the trustees will hold property on resulting trust for settlor
When are constructive trusts imposed?
Imposed by the courts where it would be unconscionable for the legal owner of the property to deny the beneficial interest of the beneficiary
When will an express common intention constructive trust arise?
- There is a common intention that both parties are to have an interest
- Detrimental reliance on common intention
When will an inferred common intention constructive trust arise?
This can be evidenced by a direct contribution to the acquisition of the property
Should only take into account direct contributions to the purchase price, whether initially or by payment of mortgage instalments
When does proprietary estoppel arise?
Where there has been an assurance (passive or active), reliance and detriment so that it would be unconscionable to go back on the assurance
What are the 7 grounds in which a trustee can be replaced?
- Dies
- Out of UK for more than 12 months
- Desires to be discharged
- Refuses to act
- Unfit to act
- Incapable of acting
- Infant
Can beneficiaries force a trustee to retire?
Yes, they can give a written direction to retire if all beneficiaries:
1. Agree
2. Are of full age (18+)
3. Are together absolutely entitled to trust property
(s 19 TLATA 1996)
Describe trustees’ power of maintenance
Allows trustees to apply income of the trust for minor beneficiaries for their maintenance, education or benefit
- This is at the trustees’ discretion - they do not have to apply it
Must be to someone who is entitled to trust income (life tenant)
If they are 18, yet still have a contingent interest, trustees must pay the beneficiary income
Describe trustees’ power of advancement
Trustees are authorised to:
1. Pay capital
2. To beneficiaries with an interest in capital
3. If payment is for the beneficiaries’ advancement/benefit
What are the restrictions to trustees’ powers of advancement?
- Trusts created BEFORE October 2014: Max of 1/2 of beneficiary’s entitlement can be advanced
- Trusts created AFTER October 2014: can advance up to all of the beneficiary’s share
- Beneficiary must bring any advancement into account on becoming absolutely entitled
- Anyone with prior interest must be an adult and must consent in writing
What is the nature of a trustee’s power to invest?
Can make any investment as if they were absolutely entitled to assets of trust
- Can only purchase land in the UK
Must have regard to:
a) Suitability
b) Diversification
c) Advice
d) Review
- If trustees do not consider the first 3, they are in breach of trust
Under what circumstances can a trustee purchase an equitable interest of a beneficiary?
Must ensure they:
1. Disclose all the material facts to the beneficiary before the purchase
2. Transactions is fair and honest
3. Show they took no advantage and beneficiary exercised an independent judgement/was not subject to undue influence
Can a trustee charge a fee?
Can charge reasonable fees as long as:
- They act in a professional capacity
- There is more than 1 trustee in office
- The trustees’ agreement to charge fees is in writing
Professional capacity = acting in course of profession/business which consists of/includes administration of trusts generally or a particular aspect of trust work
What are the 3 certainties for a valid declaration of trust?
- Intention
- Subject matter = property must be (a) clearly defined (b) identifiable and (c) beneficial entitlement must be capable of determination
- Objects = beneficiaries must be certainly known
What is the rule in Strong v Bird?
The exception to the rule that equity will not perfect an imperfect gift
- Donor intends to make an immediate gift, but it is invalid as it fails to comply with the formalities
- Intention must be to make an immediate gift
- Intention to give must continue until donor’s death
- Donor dies and trustee is appointed as donor’s executor/administrator
What are the requirements for the creation of a valid express trust?
- 3 certainties
- Comply with the beneficiary principle
- Satisfy the rule against perpetuity
- Complete formalities for express declaration of trust
What is the beneficiary principle and what are the exceptions to it?
Trusts must have ascertainable beneficiaries
Exceptions:
1. Purpose is charitable
2. Eg: to maintain a pet
What are the rules against perpetuity?
- Rule against remoteness of vesting = will be void if interest cannot vest after 125 years
- Rule against inalienability = non-charitable purpose will be void if trust capital cannot be alienable within 21 years
What are the formalities for a creation of a valid trust?
Personalty = can be oral
Land = in writing, containing terms of the trust and signed by the person able to declare the trust
- Often need a separate trust deed as well as a transfer deed (which can be given to the trustee or sent straight ot the Land Registry)
What do the following terms mean regarding beneficial entitlement:
a) Vested
b) Contingent
c) In possession
d) In remainder
e) Absolute
f) Limited
a) Beneficiary does not have to satisfy any conditions from terms of trust
b) Beneficial interest in contingent on satisfying something (eg: age of 21)
c) Beneficiary can enjoy rights immediately
d) Wait until another beneficiary’s right to enjoyment expires
e) Entitled to capital
f) Entitled to income (for life = only entitled to receive income generated from trust)
What is the rule in Saunders v Vautier?
Beneficiaries can collapse a trust and take the property absolutely if all the beneficiaries are:
1. Adult
2. Have capacity
3. Are between them entitled to the trust property
As long as one remainder beneficiary has satisfied the contingency, the trust may be brought to an end
When can a beneficiary pursue a personal claim against a trustee?
If they can show there has been a breach of trust and that breach has caused a loss
What are the 3 defences for a personal claim for compensation against a trustee who is in breach of trust?
- Knowledge and consent of beneficiary
- Consent is given if beneficiary gave it freely and had full knowledge of relevant facts - s 61 TA 1925
- Court relieves a trustee if they acted honestly and reasonably - Limitations and laches
- Actions for breach of trust cannot be brought after 6 years from date which cause of action occurred
- Exceptions:
a) Fraudulent breach of trust, which trustee was party/privy to
b) To recover (proceeds of) trust property from trustee
c) Time for a minor beneficiary only starts when they turn 18
Personal claim against trustee: explain when contribution and indemnity are available
Trustee who is sued for the entire loss could either:
a) Claim a contribution from their co-trustees who are in breach of trust; or
b) Seek an indemnity from co-trustees who are in breach of trust
Indemnity if:
- Fellow trustee acted fraudulently; or
- Professional trustee exerted such a controlling influence on the other trustees that they did not exercise independent judgement
Proprietary claims against trustees: explain what happens if there is a clean substitution of trust property
Exchanged trust property for another asset, where there is no problem in tracing the asset
Beneficiary can choose to take property purchased or have an equitable lien over the property to secure amount due to the trust
Proprietary claims against trustees: explain a ‘mixed asset’ and the action that can be taken
Trust money represents part of the cost of acquiring the new asset
Foskett v McKeown: can choose to
a) Claim a proportionate share of the asset; or
- Exercise this option if the asset has increased in value
b) Sue trustee and enforce an equitable lien upon it
- Exercise this option if asset has decreased in value
Proprietary claims against trustees: what happens if the trust property is ‘mixed’ into a bank account?
Re Hallett: Trustees are deemed to spend their own money first
Re Oatway: Trustee can be deemed to have spent beneficiary’s money first if it is more equitable
Proprietary claims against trustees: what happens if two trust funds have been mixed?
Beneficiaries share ownership in same proportions as they contributed to the purchase
Clayton’s Case: first money in, first money out
- Exceptions:
a) It is impractical
b) Would result in injustice
c) Would be contrary to parties’ intentions
Equitable personal claims against strangers: what is needed to prove accessory liability/dishonest assistance?
Where a stranger dishonestly assists the occurrence of a breach of trust
Dishonesty test: how would a reasonable, honest person have acted (objective) in which the reasonable person has the particular knowledge and experience of the defendant (subjective)
Not necessary for the third party to have all the details of the transaction
Equitable personal claims against strangers: what is needed to prove ‘knowing receipt’/recipient liability?
- Trustee transferred trust property to stranger in breach of trust
- Stranger received property for their own benefit
- Stranger had requisite degree of knowledge that transfer was in breach of trust or later acquired such knowledge
Proprietary claims against strangers: what happens if the stranger is a bona fide purchaser?
Takes property free of interest
=> No proprietary claim can be made
Proprietary claims against strangers: what happens if the stranger is liable for recipient liability/knowing receipt?
Can bring proprietary claim as their conscience has been affected
Harsher tracing rules apply
Proprietary claims against strangers: what happens if the stranger is an innocent volunteer?
Innocent volunteer = had no knowledge and gave no consideration
Proprietary claim can be brought and the nicer rules apply
Clean substitution = no difficulty in bringing proprietary claim
Mix of trust and innocent volunteer’s money = shares assets rateably in proportion to contributions to purchase price
- Cannot elect a lien as innocent contributors must be treated equally
Defence: if the innocent volunteer can show that tracing and the resulting proprietary claim would produce an inequitable result
Define the every effort test
Exception to the maxim that equity will not assist the volunteer
The settlor must have done everything which was necessary to be done to transfer the property and render the settlement binding
What is the process for transferring the legal title for:
a) Land
b) Shares
c) Chattels
a) Execute a deed, which must be given to the trustee OR sent directly to the Land Registry to register the transferee as the new legal owner
b) Outside CREST system: transferor signs stock transfer form and sends it to the company along with share certificate and the new shareholder is registered on the Register of Members
Within CREST system: Transfers are recorded electronically => legal transfer is immediate
c) Passes by physical delivery of the asset
How many trustees should be appointed to a trust?
Land = at least 2 (or sole trust corporation) max 4
Personalty = can have a sole trustee (but it is advised to have at least 2) and there is no limit on how many trustees can be appointed
Under what circumstances can a trustee delegate their function?
Trustees should consider delegating their function to a power of attorney if they are away for more than a few weeks
Can delegate for max 12 months
Must give written notice of the power of attorney to the co-trustees within 7 days of date of appointment
The trustee will be automatically liable for the acts/defaults of the attorney as if they were the acts/defaults of the trustee
What trust documents are beneficiaries entitled to see and under what circumstances may trustees be obliged to give reasons?
Beneficiaries are entitled to see trust documents, but not documents containing trustees’ deliberations on a discretion of power
Trustees are not obliged to give reasons, except:
1. Where beneficiary has a legitimate expectation that a discretion will be exercised in their favour
2. Trustees of pension schemes
What processes must the trustees comply with when delegating their investment powers to an agent?
- Must select a suitably-qualified agent to carry out asset management functions
- Retain them by written agreement
- Trustees must provide the agent with a written policy statement
- Trustees must regularly review the agent’s actions
If the trustees follow the above, they will not be liable for the defaults of the agent, but they can remain liable for breach of the above appointment/process duties
If a trustee breaches their fiduciary duties, what is the time limit for bringing a claim?
6 years from date of the breach
Fiduciary duties: explain under what circumstances a trustee can be a purchaser and the effect if a trustee breaches this rule?
Self-dealing rule = Where the trustee sells trust property to themselves
- The sale is voidable by any beneficiary
If a trustee is purchasing an equitable interest from a beneficiary, they must ensure they:
- Disclose all material facts to the beneficiary before purchase
- The transaction is fair and honest
- Show they took no advantage and the beneficiary exercised independent judgement/was not subject to undue influence
What is the authorisation defence if a trustee secures a personal profit from their position as a trustee?
- Changing a clause in the trust instrument
- Beneficiaries’ consent (all beneficiaries must be 18+ and must be fully informed of the material facts)
- Court order
Personal claims against strangers: define intermeddling and the effect of being liable as an intermeddler
A third party/agent acts as if they were expressly appointed as a trustee
The effect is that the third party will be liable for any losses caused by their actions as if they were a trustee
Under what circumstances can a trustee retire?
A trustee who wishes to retire can only do so if 2 or more trustees remain
- May be the case that the continuing trustee will need to appoint a replacement trustee
Consent must be sought from the other trustees
The retiring trustee can help appoint a new trustee if they are willing to do so
Retirement must be done by a deed
How can additional trustees be appointed to a trust?
A trustee may be appointed by:
- Trust instrument may contain an express power to appoint a trustee
- Person nominated in the trust/continuing trustee in writing
- The court if it is expedient to do so
- The beneficiaries can serve a written direction on the trustees
As long as there will not be more than 4 trustees after additional appointment
Explain the doctrine of laches
Will prevent a claimant from asserting a personal claim where:
- Claimant knows that there has been a breach of trust
- Claimant delays in bringing an action for a breach of trust; and
- This delay is either deemed to constitute a waiver of breach or prejudice to the trustee
