Express Trusts: Types Flashcards
what are the types?
fixed interest trusts and discretionary trusts
the trust can be a combination of these
give an example of a combination trust
‘i.e. I give my shares in ASDA for my wife, remainder to children that survive my wife (fixed trust: successive & contingent interest) as my trustees see fit (discretionary’)
what is capital?
underlying value of TP i.e. market value / balance in an account
what is income?
money (or equivalent) received on a regular basis from the TP i.e. rental income, dividends, interest paid, living in a property rent free
what is an absolute interest?
interest in capital and income
what is a limited interest?
interest in income only
what is a fixed interest trust?
- i.e. S has determined B’s entitlement/interest.
- B’s will either have a vested; contingent; or successive interest
- Ts must distribute the TP in accordance with the trust.
re: fixed interest trust
what type of interest can Bs have?
- B’s will either have a vested; contingent; or successive interest
re: fixed interest trust
what must Ts do?
- Ts must distribute the TP in accordance with the trust.
re: fixed interest trust
what is a vested interest?
- B has an absolute entitlement and is unconditional i.e. if B is over 18, they can demand the TP at any time.
re: fixed interest trust
is a vested interest limited or absolute?
- Unless the trust states otherwise, B’s interest will be absolute
re: fixed interest trust
what happens if B has a vested interest and they die before they receive the property?
- If B dies before they receive the TP, it will form part of their estate
re: fixed interest trust
when does a bare trust arise?
where B(s) has a has a vested interest and is absolutely entitled or where where B had a contingent or remainder interest which has now become vested
B can be an adult or a minor.
re: fixed interest trust
what power does B have over a bare trust?
- If B is an adult, T must deal with the TP as B dictates
re: fixed interest trust (bare trust)
what happens if B is a minor?
- If B is a minor, T will have active duties until B is aged 18
re: fixed interest trust
when are bare trusts common?
- BTs are common for stockbrokers and trusts for children
re: fixed interest trust (bare trusts)
why are bare trusts common with children?
it allows the child to benefit from the trust when they turn 18, but separates the money from S’s assets which can be important for IHT purposes
re: fixed interest trust (bare trusts)
why are bare trusts common for stock brokers?
because the stock broker would be the bare trustee. As they are the legal owner, they can deal the stocks.
However, the client is the beneficial owner so any profit is payable to them and they can instruct the stock broker as to how to use it
re: fixed interest trust
explain contingent interests
- B’s interest is conditional upon them satisfying something or B is not born yet
- Once the contingency is satisfied, B’s interest becomes a vested interest
re: fixed interest trust (contingent interests)
what happens once the contingency is satisfied?
Once the contingency is satisfied, B’s interest becomes a vested interest
Once it becomes vested, the TP will form part of B’s estate if they die
re: fixed interest trust (contingent interests)
what happens if B does not satisfy the contingency?
If B does not satisfy a contingency (i.e. they die), their interest will revert to S on resulting trust (RT) unless:
o S has provided for it go to someone else*; or
o S has died, then it will transfer under the will or intestacy rules (IR)
re: fixed interest trust (contingent interests)
explain ‘…S has provided for it go to someone else…’
This will depend on the terms of trust, i.e.:
o ‘…hold £300k on trust for such of my children who reach the age of 18’ the trust will only be distributed to those who have satisfied the contingency.
o ‘…hold £300k on trust for Amy and Sam who reach the age of 18’ if one child doesn’t meet the contingency, then their interest would transfer on RT to S or under the will/IR if they have died.
re: fixed interest trust (contingent interests)
will Bs interest be limited or absolute?
- Unless the trust states otherwise, B’s interest will be absolute
re: fixed interest trust
explain successive interests
- Where interests succeed each other on the occurrence of specified events
- There will be a ‘life tenant’ (LT) and ‘remainderman’ (R)
re: fixed interest trust (successive interests)
what does the life tenant receive and what interest do they have?
i.e. they will receive income generated from TP or live in a property during their lifetime or other expiry date specified in the trust
This is a vested limited interest which is in possession (i.e. she can enjoy the trust income now)
re: fixed interest trust (successive interests)
what interest does the remainder man have?
- R will either have a vested interest or a contingent interest (below)
re: successive interests
what is the name of a trust with this type of interest?
- Trusts that create this interest are called life interest trusts or interest in possession trusts
re: successive interests
what is the benefit of a life interest trust?
- The benefit of this type of interest is it allows someone to enjoy the trust without giving them outright ownership of the TP
re: life interest trusts
when will R have a vested interest?
explain this
- If R does not have to satisfy any conditions, they will have a vested interest in the trust capital from the creation of the trust
- This is postponed until the LT’s death/right to enjoyment expires
- If R dies before the LT, R’s interest will form part of their estate
re: life interest trusts
when will R have a contingent interest?
explain this
- If R has to satisfy any conditions, they will have a contingent interest
- This will become a vested interest once the conditions are satisfied
- i.e. ‘I give my shares in ASDA to hold on trust for my wife, remainder to my son Adam should he survive my wife and reach 25 years old’
o Two conditions i) reach 25 years old ii) survive his wife.
re: life interest trusts
if R has a contingent interest and this is not satisfied, what happens?
- If the condition(s) aren’t satisfied, their interest will fail and will revert back to S on resulting trust
what is a discretionary trust?
i.e. Ts have discretion to distribute the TP as they see fit
o Bs are called ‘objects’ until chosen by T
re: discretionary trusts
what are Bs called?
o Bs are called ‘objects’ until chosen by T
re: discretionary trusts
how do these operate?
an object will only become a B once selected by T, then their interest (usually) becomes vested
re: discretionary trusts
what rights do objects have?
- Objects have no right to the TP, only a right to be considered by T
- They have no beneficial entitlement until chosen by T
- Once selected by T, their interest will usually become vested
what is a purpose trust?
a trust to achieve an objective which does not identify any individuals. These can be:
o Charitable (called a ‘charitable trust); or
o Non-charitable (often called a ‘purpose trust’)
what are the types of purpose trust?
o Charitable (called a ‘charitable trust); or
o Non-charitable (often called a ‘purpose trust’)
give examples in relation to a purpose trust
- I give £400k on Trust for residents in Bath > individual trust because the TP is for a class of Bs.
- I give £400k on Trust to promote good citizenship > purpose because the TP is to promote a purpose.
- I give £400k on Trust to promote good citizenship amongst my relatives > purpose because Bs are identified, but the TP is not directly for them. It is to advance a cause.
re: non-charitable purpose trusts
why do these often fail? what is the exception?
NCPTs often fail due to the beneficiary principle and rule against alienability
re: non-charitable purpose trusts
what is the rule against alienability?
- i.e. TP cannot be locked in trust for more than 21 years
re: non-charitable purpose trusts
when will the trust not offend the rule against alienability?
A NCPT will offend RAA, unless:
o It stipulates an end date within 21 years / ‘as long as the law allows’; or
o Ts are able to spend all the TP in order to end the trust
they key is to look out for ‘income’ and ‘maintenance’ as this suggests ongoing obligation
re: non-charitable purpose trusts
Give some examples in relation to the rule against alienability
‘I give £40k to Ts to use the income to maintain the hall’ > Ts would need to lock capital away to do this. The trust does not specify an end date within 21 years. The trust would be void.
‘I give £40k to Ts to use build a hall’ > Ts can spend the TP and bring the trust to an end at any time. Trust will be valid.
re: non-charitable purpose trusts
when will this type of trust not offend the beneficiary principle?
if it is a Re Denley Trust or a trust of imperfect obligation
re: non-charitable purpose trusts
what are the requirements for a Re Denley trust?
give an example
Requirements:
o Trust’s purpose is sufficiently clear and gives rise to a tangible benefit;
o Persons due to benefit are ascertainable (use: given individual test)
o The trust does not offend the rule against alienability
i.e. ‘I give £50k on trust for building a gym for use by employees of ASDA’
re: non-charitable purpose trusts
what is the effect of a re Denley Trust?
- If satisfied, those who will benefit are given standing to enforce T’s duties
re: non-charitable purpose trusts
why do these trusts often fail the beneficiary principle?
because there is no specific beneficiary to enforce them
re: non-charitable purpose trusts
what is a trust of imperfect obligation?
i.e. trusts for care of specific animals and trusts to maintain tombs and graves
re: non-charitable purpose trusts
explain trusts of imperfect obligation
- These trusts will not offend BP and will be valid, but if Ts did not fulfil their duties (i.e. distributing TP), the trust could not be enforced
o S would need to go to court and claim the property for themselves
- Trust must comply with rule against alienability
re: charitable trusts
how do these trusts come about? what are the requirements?
The trust will need to be established as a charity by the Charity Commission:
o It must be for charitable purposes;
o It must have sufficient public benefit; and
o It must be exclusively charitable
re: charitable trusts
how are these different from non-charitable purpose trusts?
- CTs are exempt from the beneficiary principle and rule against alienability
re: charitable trusts
explain the decision tree
1) Does it have a charitable purpose?
2) Is it for public benefit?
a. Is there an identifiable benefit?
b. Is it for the public or restricted group?, i.e.:
i. Prevention or relief of property
ii. Advancement of religion
iii. All other charitable purposes
1. Sufficient number of people
2. Personal nexus
3. Class within a class
4. Do not exclude the poor
3) Is it exclusively charitable?
a. Charitable purposes only?
b. Political activity incidental?
re: charitable trusts
explain charitable purposes
It must seek to promote / attain at least 1 of the following purposes:
1. Prevention or relief of poverty
2. Advancement of education
3. Advancement of religion
4. Advancement of health or saving lives
5. Advancement of citizenship or community development
6. Advancements of arts, culture, heritage or science
7. Advancement of amateur sports
8. Advancement of human rights, conflict resolution, promotion of religious and racial harmony
9. Advancement of environmental protection / improvement
10. Relief of those in need become of youth, age, ill-health, disability, financial hardship or other disadvantage
11. Advancement of animal welfare
12. Promotion of efficiency for the emergency services
Analogous charitable purposes
re: charitable trusts
give an example of prevention or relief of poverty
Grants, payment for services i.e. meal on wheels
re: charitable trusts
give an example of advancement of education
School, prize funds, research, DoE
re: charitable trusts
give an example of advancement of religion
Missionary work, providing places of worship
re: charitable trusts
give an example of advancement of health or saving lives
Medical treatment/research/facilities
re: charitable trusts
give an example of advancement of citizenship or community development
Promotion of civic responsibility, regeneration
re: charitable trusts
give an example of advancements of arts, culture, heritage or science
Art galleries, festivals, theatres, national history
re: charitable trusts
give an example of advancement of amateur sports
Local sports clubs, sport centres
re: charitable trusts
give an example of advancement of human rights, conflict resolution, promotion of religious and racial harmony
Promotion of restorative justice
re: charitable trusts
give an example of advancement of environmental protection / improvement
Conservation projects
re: charitable trusts
give an example of relief of those in need become of youth, age, ill-health, disability, financial hardship or other disadvantage
Care homes, apprenticeships, drop-in centres
re: charitable trusts
give an example of advancement of animal welfare
Animal sanctuaries
re: charitable trusts
give an example of promotion of efficiency for the emergency services
Memorials, support units, recruitment
re: charitable trusts
give an example of analogous charitable purposes
Provision of facilities for social welfare, public works, agriculture, promotion of ethical standards
re: charitable trusts
explain public benefit
The purpose must have sufficient public benefit, i.e.:
o It must have identifiable benefit(s); and
o Benefit the public or a sufficient section of it
re: charitable trusts (public benefit)
explain identifiable benefit
- Benefit must be clear and relate to the purpose of the charity
- Any harm/detriment must not outweigh the benefit (i.e. a pickpocket school)
re: charitable trusts (public benefit)
explain benefit for a particular ground
- Prevention or relief of poverty
- Advancement of religion
- Other charitable purposes which satisfy certain requirements
re: charitable trusts (public benefit - benefit of a particular group)
explain prevention or relief of poverty
this has a wider scope than others due to importance:
o Named individuals not charitable
o ‘my family’ or ‘my relatives’ chartable
re: charitable trusts (public benefit - benefit of a particular group)
explain advancement of religion
o Places of worship open to all, even if low attendance charitable
o Places of worship not open to all, but all members ‘live in this world and mix with their fellow citizens’ charitable
o Contemplative religious groups not charitable
re: charitable trusts (public benefit - benefit of a particular group)
in relation to ‘3. other charitable purposes’, what requirements must they satisfy?
o The number of people intended to benefit must not be negligible
o ‘personal nexus’ test
o ‘class within a class’ test
o It must not exclude the poor from the benefit
re: charitable trusts (public benefit - benefit of a particular group)
explain the ‘personal nexus test’
give an example
Bs cannot be connected to a person / company
i.e. ‘I give £10k on trust for the education of children of employees of Red Anchor Limited’ not charitable as Bs are linked by a personal nexus, i.e. their parents to the company
re: charitable trusts (public benefit - benefit of a particular group)
explain the class within a class test
o class of people can be limited so long as the limits are legitimate, proportionate or rational i.e. it must not be arbitrary
Geographical limits are often ok.
re: charitable trusts (public benefit - benefit of a particular group)
re: ‘must not exclude the poor’, when can fees be charged?
i.e. charitable institutions (i.e. schools, hospitals) can charge fees so long as:
The money is put back into the charity (i.e. not profit);
They attempt to include poor people i.e. bursaries, enabling state school children to attend classes/summer school
If the fees are so high only rich people can afford them, they will likely need to do more to show the benefit to the wider public
re: charitable trusts (exclusively charitable)
how can charitable trusts be involved in politics?
a charitable trust cannot be for a political purpose, but a charitable organisation can undertake political activity which is incidental to their charitable purpose.
This activity cannot become their dominant work/purpose
re: charitable trusts (exclusively charitable)
explain this
- Trusts with charitable and non-charitable purposes (inc. political) are not CTs
re: charitable trusts (exclusively charitable)
what is a political purpose?
o Political purposes = supporting a political party or campaigning for a change in the law/policy/decisions
re: charitable trusts (exclusively charitable)
give examples in relation to charitable trusts and political activity
o i.e. Amnesty international sought to set up a trust for these purposes: 1) relief of needy persons 2) attempting to release prisoners 3) abolition of torture and 4) research. Purposes 2 & 3 would have involved campaigning for a change in law, this is a political purpose and so charitable status was not given.
o i.e. Oxfam sets up a trust to eradicate poverty. As part of achieving this main aim, they seek to persuade governments to change their law. This is permissible, so long as it doesn’t become their main aim.
re: charitable trusts (exclusively charitable)
what must happen if they charge fees?
- The body can charge fees, but any profit must be put back into the charity and not paid to individuals
re: bringing an end to the trust
what automatically brings a trust to an end?
- Transfer of TP from the trust to B(s) brings the trust to an end
re: bringing an end to the trust
when can a B direct a trust be ended?
where there is a bare trust with one adult B, B can direct T transfers the TP to them which would end the trust
re: bringing an end to the trust
apart from bare trusts with one adult B, how can trusts be ended?
using the Saunders v Vautier rule
explain the Saunder v Vautier rule
Bs can end the trust or change the terms of the trust where all Bs who could possibly become entitled:
Are in existence and ascertained;
Are aged 18 or over and have mental capacity; and
Agree to what is being proposed
Taken together, the Bs are absolutely entitled
re: bringing an end to the trust
what is meant by ‘all Bs who could possibly become entitled’?
anyone with a potential interest in the trust
how can the terms of a trust be changed?
using the Saunder v Vautier rule
can the Saunders v Vautier rule be used where 1 B has a vested interest and the others have a contingent interest?
yes, so long as they all agree and are over 18.
can the Saunders v Vautier rule be used where all the Bs have a contingent interest?
yes, but anyone who would inherit under a resulting must also satisfy the Saunders v Vautier requirements
This is because if B(s) died, their interest would fail and pass onto someone else under a RT. Therefore, until one Bs’ interest is vested, the person who would receive under an RT will need to be consulted.
can the Saunders v Vautier rule be used where there is only 1 B with a contingent interest?
yes, but anyone who would inherit under a resulting must also satisfy the Saunders v Vautier requirements
This is because if B(s) died, their interest would fail and pass onto someone else under a RT. Therefore, until one Bs’ interest is vested, the person who would receive under an RT will need to be consulted.
what does ‘taken together, Bs are absolutely entitled’ mean?
give an example to explain
i.e. ‘…such of my children that reach the age of 21’
the trust will be divided between any of S’s children that satisfy the contingency. The Bs only have a contingent interest until the contingency is satisfied (upon which it becomes a vested interest).
Where the interest is contingent, if Bs die, the TP will be held on RT for someone else (see below). Therefore, someone else may potentially be entitled.
When one of the B’s interest becomes vested, they become absolutely entitled to the property.
The effect is that no one else outside of the children can become entitled, and so ‘taken together, the Bs are absolutely entitled’
