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FLK2 > Equity & Trusts > Flashcards

Equity & Trusts Flashcards

1
Q

What is an express trust?

A

A trust that has been created expressly- set up by the settlor.

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2
Q

What is an inter vivos trust?

A

A trust which is created and live whilst the settlor is still alive.

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3
Q

What is a testamentary trust?

A

A trust which becomes live once the settlor has died.

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4
Q

What are the formalities of a testamentary trust?

A

The will must be valid for the trust within the will to be valid.

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5
Q

What are the formalities of an inter vivos trust?

A

The declaration of a trust can be made orally, although this is not advised.

However, if the trust property includes realty (land) the trust must comply with Law of Property Act 1925 - must be in writing and signed by the settlor.

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6
Q

What is a fixed interest trust?

A

A trust where the trustees have no discretion as to how the trust property is distributed between the beneficiaries.

This is where the settlor has specified exactly who gets what.

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7
Q

What is a discretionary trust?

A

A trust where the trustees have discretion as to the amounts any person may receive and/or who are the beneficiaries.

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8
Q

What are the three certainties of a valid trust?

A

1) Certainty of intention - did the settlor intend to create a trust?

2) Certainty of subject matter - what property is being held on trust and how will it be shared?

3) Certainty of objects - who are the beneficiaries?

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9
Q

What is the importance of imperative and precatory words in relation to certainty of intention?

A

Precatory words: words such as wish, hope, expecatation. These words do not create a trust.

Imperative words: words such as must or shall. These words show an intention to create a trust.

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10
Q

What must happen for certainty of subject-matter for be satisfied?

A
  • The trust property must be identifiable (described clearly)
  • It must be clear how the trust property is to be divided.
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11
Q

What is the test for certainty of objects in relation to a fixed interest trust?

A

The list test.

It must be possible for the trustees to draw up a complete list of each and every beneficiary.

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12
Q

What is the test for certainty of objects in relation to a discretionary trust?

A

Conceptual certainty: is the description of the group of potential beneficiaries sufficiently certain?

Evidential certainty: is it possible to determine who is in and who is not in the group with sufficient certainty?

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13
Q

What is the beneficiary principle?

A

For a trust to be valid, the trust must be for the benefit of individuals.

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14
Q

What if the settlor is also the trustee?

A

The trust becomes valid so long as the 3 certainties are satisfied and, if the property involves land, the trust is in writing and signed by the settlor.

The settlor is a trustee and therefore holds the legal title but also must handle the property in a way that is beneficial for the beneficiary.

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15
Q

What if the settlor appoints a third-party trustee?

A

The settlor must take further steps before the trust is valid to transfer the legal title to the trustee.

But the steps required depend on the type of property involved:

a) Land

  • The settlor must execute a valid deed and give the deed to the trustee or send it directly to Land Registry.
  • Land Registry will register the trustee as the legal owner.

b) Money

  • the legal title usually passes with delivery (cash in hand, arrival of money in trustee’s account, cheque cleared)

c) Chattels

  • Tangible property (excluding money) passed by physical delivery of the asset to the trustee.

d) Shares

  • Shares in a public company - transferred within CREST system.
  • Shares in a private company - paperwork required - stock transfer form.
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16
Q

What is the general rule where the legal title has not been properly transferred to the trustee?

A

The trust fails.

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17
Q

What are the exceptions to the general rule that a trust will fail if the legal title is not properly transferred?

A

a) Every effort rule

  • Where the settlor has done everything in their power to make the transfer (e.g., settlor fills out required paperwork and hands to company to file and they do not)

b) Strong v Bird test

  • Where the trustee becomes the executor of the settlor’s will, they will have the legal title.
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18
Q

What if the settlor and a third-party are trustees?

A

The settlor must take steps to transfer the legal title from their sole name into joint names.

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19
Q

What is capital ?

A

Trust property that constitutes a pool of assets (e.g., a flat)

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20
Q

What is income?

A

Money earned on capital (assets) - e.g., the rent earned on a flat

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21
Q

What does it mean if a beneficiary had an absolute interest?

A

They have interest in capital which means that they also have an interest in the income.

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22
Q

What does it mean if a beneficiary had an limited interest?

A

They only have an interest in the income of the asset.

No right to capital.

23
Q

What is a vested interest?

A

The beneficiary does not have to satisfy any conditions to become entitled to the property.

24
Q

What is a contingent interest?

A

The beneficiary has to satisfy conditions to become entitled to the property.

If the beneficiary dies before satisfying the condition, their interest will go back to the settlor unless stated otherwise.

25
Q

What is a successive interest?

A

Where a trust distributed property over successive generations.

E.g., I leave my shares in Destiny to my wife for life, remainder to my son.

26
Q

Do beneficiary’s have an interest in a discretionary trust?

A

Not until the members of the beneficiary class have been selected.

Once selected they will only have an interest in the property allocated to them.

27
Q

What is a bare trust?

A

The beneficiary has an absolute right to both income and capital from the trust once they turn 18.

The beneficiary can bring the trust to an end at anytime once they have turned 18.

28
Q

What is the rule in Saunders v Vautier?

A

Allows for trusts that have more than one beneficiary to end a trust at any time so long as all beneficiaries:

a) Are in existence and ascertained
b) Are aged 18 or over and have mental capacity
c) Agree to what is being proposed

29
Q

What is a purpose trust?

A

A trust created for the the fulfilment of purpose, not for the benefit of a person.

30
Q

Does the beneficiary principle impact a non-charitable purpose trust?

A

Generally, purpose trusts are void/invalid, unless:

a) it is a Re Denley trust
b) it is a trust of imperfect obligation

31
Q

How long can a non-charitable purpose trust be active for?

A

No longer than 21 years.

32
Q

Are charitable trusts exempt from the beneficiary principle and the rule against perpetuities?

A

Yes.

33
Q

What are the requirements of a charitable trust?

A

a) Must be for a charitable purpose
b) Must have sufficient public benefit
c) Must be exclusively charitble

34
Q

What are examples of a charitable purpose?

A

a) prevention or relief of poverty
b) advancement of religion
c) advancement of education
d) advancement of health or saving lives

35
Q

What does a ‘sufficient public benefit’ mean?

A

1) Must have an identifiable benefit

2) The benefit must be available to a sufficient section of the public

36
Q

What does ‘exclusively charitable’ mean?

A

The trust must not have any political purposes and any profits must be ploughed back into the trust rather than paid to private individuals.

37
Q

What is the effect of a Re Denley trust?

A

Allows a non-charitable purpose trust to satisy the beneficiary principle.

38
Q

What are the requirements of a Re Denley trust?

A

a) purpose of the trust must be clear
b) people who benefit must be ascertainable
c) trust must be limited to 21 years in duration or the trustees must be able to spend all of the capital and bring it to an end.

39
Q

What is a trust of imperfect obligation?

A

Trusts which require either:

a) care for specific animals
b) maintenance of graves

In both cases, the beneficiary principle is offended, but the trust is valid.

However, such trusts are UNENFORCEABLE.

Limited to 21 years or the trustees must be able to spend all capital and bring trust to an end.

40
Q

What is a resulting trust?

A

An implied trust where a person transfers property to another and it is unclear who owns the beneficial interest.

41
Q

When will there be a presumption of resulting trusts?

A

a) The voluntary transfer of personalty - automatic rebuttable presumption that the transferee holds the propery on resulting trust for the transferor.

b) The voluntary transfer of land (unlikey for the presumption to apply unless there is clear evidence)

c) Purchase Money Cases - where a person buys a property but instead of becoming the owner of the property, arranges for the property to be put in the name of another person.

In this situation, there is a presumption that the property is held on trust for the buyer.

42
Q

What is a presumption of advancement?

A

Where it is presumed that the transferor has gifted the property to the transferee.

43
Q

When will a presumption of advancement apply?

A

a) Voluntary transfer of realty;or
b) Purchase money cases

SO LONG AS, the transferor is under a moral obligation to provide for the transferee:

  • Father to child
  • Guardian who has taken responsility to a child (until child turns 18)
  • Husband to wife
  • Fiance (male) to fiancee (female)
44
Q

Who has the burden of proof in relation to rebutting a presumption of resulting trusts or advancement?

A

The person claiming that they are entitled to the beneficial interest

45
Q

What is an automatic resulting trust?

A

Where the settlor has attempted to create an express trust and fails, the legal title is held by the trustees and the equitable title is transferred back to the settlor.

46
Q

Why might an express trust fail?

A

a) Beneficiary does not meet condition

b) Trust lacks certainty

c) Trust offends the rules against perpetuities

d) Trust offends the beneficiary principle

47
Q

Entitlements to the family home as joint tenants.

A

Both partners hold the legal and equitable rights in the property.

If one partner dies, the surviving partner is automatically entitled the the other half.

48
Q

Entitlements to the family home as tenants in common.

A

Both partners only hold a beneficial interest.

Each partner only entitled to their defined share.

49
Q

What is needed for a court to consider amending the shares a partner is entitled to if they own the family home as joint tenants.

A

The court is very unlikely to amend the shares where the family home is jointly owned.

To do so, the court will need strong evidence that another agreement was reached between the parties and that this agreement was relied on by the claiming party to their detriment.

50
Q

What are the two stages to determining whether a partner is entitled to share in the family home where the home is solely owned.

A

1) establish a common intention constructive trust

2) quantify the beneficial interests

51
Q

How do you establish if a common interest constructive trust exists?

A

a) Was there a common intention betweent the two parties that both partner were to have a beneficial interest?

b) Did the claiming partner act to their detriment in reliance on that common intention?

52
Q

What are the three key elements of proprietary estoppel?

A

1) Assurance - legal owner must have made a representation.

2) Detriment - claiming party must have acted to their detriment

3) Reliance - the assurance and the detriment must be connected.

53
Q

What is the key difference between proprietary estoppel and common intention constructive trusts?

A

CICT guarantees that the claiming party will receive a beneficial share.

PE allows the court discretion as to what remedy should be awarded.

54
Q

If a trustee dies, who appoints the replacement trustee?

a) The remaining trustees
b) The settlor
c) The beneficiaries

A

a) the remaining trustees will appoint the replacememnt.

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