Head 12: Trusts: An Introduction Flashcards
What are the sources of Trust Law?
Mainly common law. But certain matters, especially trust administration, are governed by the Trusts (Scotland) Acts 1921 and 1961. The Charities and Trustee Investment (Scotland) Act 2005 makes special provision for trusts that are registered charities.
What is a trust?
It is a legal construct, not a juristic person, creating obligations between the parties and also having effects in property law.
⁃ The main use of a trust is to allow the ownership and management of property to be separated from its use and enjoyment.
- The main benefit is the ‘insolvency effect’ which means that trust property cannot be touched by the trustee’s personal creditors. Since the right as a beneficiary defeats the rights of creditors.
There is no statutory definition. Section 2 of the Trusts (S) Act 1921 does not define a trust - it merely states what trusts are covered by the act.
Leven Penny Savings Bank, 1948
This was set up by resolution at a public meeting of the people of Leven in 1879 and a committee of management was appointment shortly afterwards. It ran very successfully until around the 1940s where the spread of branches by the large banks put local banks like this out of business. The ‘trustees’ applied to the court for confirmation that the bank could be wound up and the surplus funds given back to the depositors. The Inner House held that they couldn’t help them because they could only give directions to trustees who were acting under a trust deed - they only had a resolution at a public meeting. [So this is an interesting example of something which looks like a trust but isn’t quite a trust.]
What kind of relationship is a trust?
A trust is technically a three party legal relationship, but operational trust is generally a two- party affair (trustees-beneficiaries). The ‘truster’ is the person who sets up the trust.
Trustees hold property for the benefit of another person or set of persons, the beneficiaries. A trustee is an example of fiduciary, someone must act int eh interests of someone else.
What are some similar relationships which are not trusts?
Some relationships with a fiduciary or quasi- fiduciary character which are not trusts:
⁃ Agency
⁃ The administration of a child’s property by parent(s)
⁃ Financial guardians of the mentally incapacitated
⁃ Local authorities holding property for the common good e.g. Portobello Park Action Group Association v City of Edinburgh Council 2012
Portobello Park Action Group Association v City of Edinburgh Council 2012
Edinburgh city council wanted to rebuild Portobello High School and attempted to build it upon Portobello park. The people of Portobello objected since the park was given to the council inalienably for use as a park. The court held that the council had no authority to switch it from the common goods fund to the education section of their landholding.
- By contrast, company directors have no title to the company’s assets. Thus they are fiduciaries, not trustees. Trustees are fiduciaries in whom title is vested.
What distinguishes trusts from these other examples?
What distinguishes trusts from the others is:
⁃ (a) compliance with certain rules of constitution (Head 15);
⁃ (b) that ownership of the property is vested in the trustee;
⁃ (c) that there is a special system of rights and duties in relation to the property.
What are not trusts?
Some so-called trusts are not trusts, eg NHS Trusts in England are bodies corporate with boards of directors, NHS and Community Care Act 1990, s 5. Investment trusts are companies - not trusts.
How can trusts be classified?
Trusts can be classified in a number of different ways. The most important are:
(a) Inter vivos trusts and mortis causa trusts
⁃ Inter vivos trusts made by a living or existing truster and take effect during that person’s life or existence.
⁃ Can be oral or in writing.
⁃ Mortis causa trusts made by an individual to come into effect on his or her death.
⁃ Must be created by a living individual through their testament- they take effect on that person’s death.
- In such cases the executor may be the trustee, or may be directed to make over money or property to someone else, who is to be the trustee.
⁃ Must be in writing.
(b) Private trusts and public trusts.
⁃ In a private trust the beneficiaries are specified individuals or persons.
⁃ The beneficiaries of a public trust will be the general public or a specified subset of the general public or a public trust may be established to carry out a public purpose
⁃ *University of Edinburgh v The Torrie Trustees 1997
- Templeton v Burgh of Ayr 1910
(c) Trusts can be divided by what interest the beneficiary has:
⁃ Fixed interest - beneficiaries have defined interests in the trust property; or
⁃ E.g. a trust where the spouse gets a liferent and the children get the fee, both the spouse and children have a defined interest.
⁃ Discretionary - benefits are at the discretion of the trustees; the beneficiaries have no fixed interest. Some private and nearly all public trusts are discretionary.
Templeton v Burgh of Ayr 1910
Templeton left money for the repair of the old bridge at Ayr - this was a purpose trust.
*University of Edinburgh v The Torrie Trustees 1997
⁃ This case shows that the difference between public and private trusts is not always that clear. Torrie left a collection of fire art to his brother and then to the University to lay a foundation for an art gallery. Trustees were appointed and around the 1990s the university tried to argue that either the collection had been gifted to them back in the 19th century and the trustees had simply been appointed to oversee the transfer from the brother to the university, or it was a private trust in which the university themselves were beneficiaries, in which case it was now vested in the university. The inner house disagreed and held that this was a public trust since the will stated that the purpose was to set up a collection so that the public could go and see it.
What are the main differences between public and private trusts?
⁃ What happens if trust falters or fails;
⁃ Truster can appoint new trustees in a private trust; Law looks more kindly on public trusts.
⁃ Public trusts can in turn be divided into (i) charity trusts and (ii) non-charity trusts. Charity trusts are heavily regulated by the Charities and Trustee Investment (Scotland) Act 2005 subject to monitoring by public officials (see Head 20).
What are the 3 P’s to trusts which must be specified?
There are 3 ‘P’s’ to trusts which must all be specified or stated how they are to be specified:
⁃ Parties
⁃ Property
⁃ Purpose
