Head 13: The Parties to a Trust

Question 1

Who are the parties to a trust?

Answer 1

The parties are the:
⁃ Truster
⁃ Trustee
⁃ Beneficiary

Question 2

Who are the trusters?

Answer 2

The truster is the person who creates the trust and provides the initial property to the trust. The truster must be in existence and must have capacity to act.

Express trusts are made by trusters who are natural or juridical persons. In mortis causa trusts (trusts created by will) testator/testatrix.

But no truster in: trusts created by statute, eg a trust for administering a sequestrated estate under the Bankruptcy (Scotland) Act 1985 or a fund for repairs to a tenement, Tenements (Scotland) Act 2004, Sch 1, para 3(4)(h); and trusts arising from circumstances - constructive trusts (see Head 25).

Question 3

What kind of relationship is a trust?

Answer 3

Although trusts are often described as tripartite relationships, it may be better to think of them normally as two consecutive bipartite relationships[ Truster and trustee followed by trustee and beneficiary.] because once the trust has been set up, the truster almost always drops out of the picture.

Question 4

What is the interest of the truster once a trust is set up?

Answer 4

Once a trust is set up, normally the only continuing interest of the truster (or his representatives) is
⁃ (1) the right to appoint new trustees in a lapsed private trust, Lord Glentanar v Scottish Industrial Musical Assn 1925 SC 226 and
⁃ (2) a contingent right to have the property reconveyed in the event of failure of private trust purposes.

⁃ NB there are some commercial trusts where the truster retains very considerable powers to direct the trustees what to do in certain cases (in this scenario there is a real tripartite relationship).

Question 5

What happens to the truster when a trust is set up in the event of bankruptcy?

Answer 5

Where trusts are created by law (e.g. Bankruptcy trusts), it isn’t helpful to think of a truster - there really isn’t one.

Question 6

Can you ever defeat creditors or your spouse?

Answer 6

One cannot defeat creditors by putting assets into trust (Bankrupty (S) Act 1985 s 45;

One cannot defeat you spouse by putting things into trust (Family Law (S) Act 1985 s 18:
⁃ DM v JM and the W Trustees Ltd 2011
⁃ Around £3-4m was placed into trust and the court ordered the trustees to pay some of the money to the husband so that he could pay his wife with it.

Question 7

Who is the trustee?

Answer 7

The trustee is the person who becomes owner and administrator of the trust property.

Question 8

Who can be a trustee?

Answer 8

⁃ To be a trustee you must be in existence and you must have capacity to act (so children under the age of 16 can’t be trustees and if you are a natural or juristic person you must have the capacity to act.)
⁃ Some categories of person are excluded for charity trusts including criminals and bankrupts, Charities and Trustee Investment (Scotland) Act 2005, s 69.

Question 9

Who is the Trustee ex officio?

Answer 9

⁃ The trustee can be the holder of an office - they don’t have to be a named individual. This is a trustee ex officio.
⁃ For example the Sheriff Principle of Lothian and Borders was an ex officio trustee in the Torrie Trust.

Question 10

What is a sine quo non trustee ?

Answer 10

⁃ A sine quo non trustee effectively has a veto because they must agree to any decision. It is not common because it can lead to stalemate. However it is occasionally useful:
⁃ e.g. in family trusts the widow is sometimes made a sine quo non trustee so that she can’t be outvoted by her children.

Question 11

Who are the beneficiaries?

Answer 11

The beneficiaries are the persons, natural or juristic, for whom the trustees hold the trust property. A public trust may have a purpose instead of beneficiaries.

Question 12

What happens where there are no beneficiaries?

Answer 12

If there are no beneficiaries[ E.g. for a future person (e.g. the trusters future children).] in existence see Head 23.
⁃ This is possible but there must be at least one beneficiary in existence at any one time otherwise the trust is revocable.
⁃ There is one exception to this revocability rule called an ‘anti nuptial marriage contract’ - this is where you set up a trust before marriage for yourself as a married couple and your future children (at the point when this trust is set up there are no beneficiaries but nevertheless there is an exception which allows this form of trust).

Question 13

Do beneficiaries require legal capacity?

Answer 13

Beneficiaries do not require legal capacity
⁃ Acceptance is not necessary. Someone can be beneficiary without knowing it.
- Unlike trusters and trustees, a beneficiary does not require active legal capacity - it is enough that they have passive capacity (all those with legal persona have passive capacity).
⁃ This leads to a theoretical problem with clubs etc because they are unincorporated associations which do not have legal personality. Strictly speaking they can’t be beneficiaries but common sense prevails and allows it on the basis that the property is being left to the trustees / officers of the club.

Question 14

Do beneficiaries “own” trust property?

Answer 14

The beneficiaries are not owners of trust property
⁃ The beneficiaries have a personal right - a bundle of remedies[ This includes:

1. Interdict a threatened breach of trust
2. An action of declarator or direction to tell trustees what the deed means or what their duties are etc
3. Action of count reckoning and payment requiring trustees to account for their intromissions with trust property and make good deficiencies this is useful where you know that something is wrong but aren’t sure what.
4. Action for damages/compensation for breach of trust - suing trustees personally for losses.
5. Application for removal of trustees
6. Action against third parties to recover property wrongly distributed via trustees.] - against the trustees as owners of the trust property (and sometimes third parties) to compel them to carry out the trust properly or make good any losses for which the trustees are liable, *Inland Revenue v Clark’s Trustees 1939 SC 1. No right of ownership of any part of the trust property.

Question 15

*Inland Revenue v Clark’s Trustees 1939 SC 11

Answer 15

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Question 16

Does the beneficiary have a personal right in a private trust?

Answer 16

The personal right of a beneficiary in a private trust is part of his or her private patrimony.
⁃ It is assignable and can also be used as security, except for an alimentary provision.
⁃ Does not apply for public trusts - the interest in a public trust cannot be assigned etc.

It follows from the fact that beneficiaries are not owners that they don’t have any direct right in the trust property themselves and nor does an by assignee, creditor or heir of the beneficiary. All they are entitled to is the benefit under the trust deed. The trust property is owned and administered exclusively by the trustees.

Question 17

What are the permitted combinations of ‘role sharing’ in a trust relationship?

Answer 17

Same person may have more than one role in the trust. Permitted combinations are:
⁃ sole truster and sole trustee (a truster-as-trustee trust);
⁃ sole truster and sole beneficiary (a trust for administration);
⁃ sole truster, one of the trustees and sole beneficiary. 

⁃ But NOT sole trustee and sole beneficiary - extinguished by confusion (since you only owe obligations to yourself).

Question 18

Who is the truster in a truster-as-trustee trust?

Answer 18

In a truster-as-trustee trust the truster is same person as trustee and declares self to be trustee of own property. Can only be an inter vivos trust.

Question 19

*Allan’s Trs v Ld Adv 1972[ This was not lectured on - look up.]

Answer 19

This is where truster-as-trustee trusts were fully recognised. This was a life policy taken out by the truster who later declared that she held it as trustee for three beneficiaries. One of them knew about the declaration of trust but the other 2 did not. It was held that a mere declaration of trust was not enough to create the trust - it also has to be intimated to at least one beneficiary (see below). Since it had been intimated to one of the beneficiaries this was sufficient to form the trust.

Question 20

What are the rules about the formation of a truster-as-trustee trust?

Answer 20

⁃ A truster-as-trustee trust must be:
⁃ 1) Declared, and
⁃ 2) Intimated
⁃ The declaration must be in writing except for very exceptional circumstances (RW(S)A 1995).
⁃ If there is a sole trustee then the trust deed must be in writing (RW(S)A 1995 s 1(2)(iii))
⁃ Declaration must specify trust purposes, the beneficiaries and the property covered by declaration. It must then be intimated to at least one of the beneficiaries or agent[ E.g. if you intimate to an agent who acts for all the beneficaries then this is sufficient.] making trust is operative for all the beneficiaries:

Intimation must take place at same time or later than declaration of trust.

Question 21

Kerr’s Trs v Inland Revenue 1974

Answer 21

Two separate trusts for two families. In one, intimation was given to the mother for her children. This was not valid intimation since the mother was not the agent or at that time the legal representative of her children (the father was). In the other case intimation was given to the father which was a valid intimation since the father was the children’s legal representative.

Question 22

What was set out in Clark Taylor and Co Ltd v Quality Site Development (Edinburgh) Ltd 1981?

Answer 22

Initially the court’s were hostile to truster-as-trustee trusts but since they are so vital to commercial practice now the courts are no longer hostile. However four criteria[ In addition to declaration and intimation] were set out in the case of Clark Taylor and Co Ltd v Quality Site Development (Edinburgh) Ltd 1981 which are necessary to have a valid truster-as-trustee-trust:
⁃ 1) The asset must be in existence, but it may include the right to future acquirenda
⁃ However this is complicated because the Lord President also stated that intimation must come on or after??? the assets coming into existence. This leads to huge problems because if assets are constantly coming in and out and you want to put them into trust then you must intimate the new assets to the beneficiary since they weren’t in the trust when the trust was created.
⁃ Joint Administrators of Rangers Football Club plc, Noters 2012

⁃ 2) There must be a dedication of the asset to defined trust purposes
⁃ 3) There must be a beneficiary or beneficiaries with defined rights in the trust estate
⁃ 4) There must be a delivery of declaration or subject of trust or satisfactory equivalent to delivery, so as to divest truster and invest trustee.[ This concerns intimation which is dealt with in detail above.]

Question 23

Joint Administrators of Rangers Football Club plc, Noters 2012

Answer 23

The club assigned their rights to the money for future season tickets to a company called Ticketus who gave the club £15-20m. The club was then made Ticketus’s agent for selling the tickets. It was agreed that the club would hold the money from the tickets as trustee for Ticketus - the created a truster-as-trustee trust. This is fine as regards tickets that have already been sold but not as regards tickets for future seasons. The court held that this was not allowed in relation to tickets for future seasons because they are future assets that weren’t in existence at the time of the intimation - in order for this to be valid intimation would be necessary as they sold each lot of tickets.

Question 24

Example

Answer 24

“Declaration of trust
⁃ I, David Nichols, declare that I hereby hold the sum of £2,200 in trust for the following purpose:
⁃ To give to each member of the Succession and Trusts Ordinary Class who passes the May diet of the examination the sum of £10.”

Question 25

What are statutory truster-as-trustee trusts?

Answer 25

One example is a life policy taken out by a spouse or civil partner for the benefit of the other one or for children. The person setting up the policy is deemed to hold it in trust - you don’t need to separately create a trust because it is done automatically by statute. Thus no declaration of trust or intimation to the beneficiary is necessary. (Married Women’s (Policies of Assurance) (S) Acts 1880-1980.)

Look up 2006 Scottish Law Commission Discussion paper which is mentioned in Gretton and Steven.