Head 14: Trust Purposes and the Trust Patrimony

Question 1

Why must a trust have valid purposes?

Answer 1

?

Question 2

Thomas v Tennant’s Trs (1868)

Answer 2

A liferent was given and the document said that the who the liferenters were to deliver the trust to on the death of the liferenter was to be found in a later will - the trouble was that the later will was revoked without putting anything in its place. Thus there were no directions for what the trustees were to do after the liferenter died (thus no purposes) so the property went back to the trusters estate.

Question 3

What happens if the purposes are too vague?

Answer 3

the trust is void ‘by reason of uncertainty’.

Question 4

Anderson v Smoke (1898)

Answer 4

⁃ Money was given to two sisters to provide for a disabled brother. They were to pay such sums as they thought fit during his life but then they were given the power to use the money as they thought fit after he died. This was held to be too vague and thus the trust was void.
⁃ If there are unlawful purposes, see Head 20.

Question 5

What is a bare trust?

Answer 5

⁃ A bare trust is where the trustees hold the property for the trustees until return is demanded.
- If these were simply to hold for the beneficiary or beneficiaries, then every trust would be a ‘bare’ trust.

Question 6

What is a trust for administration?

Answer 6

⁃ This is where property is handed over to a trustee to administer it for the trustee.

Question 7

What is a secret trust?

Answer 7

• Where the trust purposes are known only to the trustee. Such trusts are also invalid.If a private trust fails then the trust property is returned to the truster or if dead to his or her estate. This is often referred to as a ‘resulted trust’ - this is not a new type of trust, it is the final longstop provision implied by law in any private trust.

Question 8

What happens if a trust has no substantial human benefit?

Answer 8

These trusts are void.

Question 9

McCaig v University of Glasgow

Answer 9

Asked for his heritable property to be let to tenants rather than sold and the income used for the purpose of erecting monuments and statutes for himself, brothers and sisters on the tower or circular building called the Stuart McCaig Tower in Oban by Scotch sculptors…

• His sister, Catherine, sought reduction of the trust and succeeded. Held: trusts must have beneficiaries, and this trust had none.
• So trusts contrary to public policy were held by Lord Kyllachy as “to lay the truster’s estate waste, turn income of estate into money and throw the money into the sea….”

Question 10

What is the double patrimony?

Answer 10

In a trust, the trustee has two patrimonies. There is the ordinary patrimony and the special patrimony of the trust. Each has its own assets and liabilities. The trustee is under a duty of segregation to ensure that the two patrimonies remain distinct.

The property subject to the trust must be specified. It can be heritable or moveable, corporeal or incorporeal. It may also be the trusters rights as the beneficiary of another trust - you can ‘resettle’ the benefits you get as a beneficiary of another trust into another trust.

Question 11

Livingston and Shaw v Lord Forrester and Creditors of Lord Grange 1664 Mor 10200.

Answer 11

The trustees are the owners of the trust property, but this is immune from diligence by private creditors of trustees

[Look up summary if you want.].

Question 12

Is trust property part of a bankrupt estate?

Answer 12

Trust property is also not part of bankrupt trustee’s estate, Bankruptcy (Scotland) Act 1985 s 33(1)(b).

It is difficult to explain this immunity, since trustees are the owners of the property. The best solution is the double patrimony theory of Gretton and Reid.

Question 13

What is a patrimony?

Answer 13

A patrimony is a person’s assets minus liabilities. Everybody has a patrimony, but a trustee has a second patrimony – the trust patrimony.

Question 14

What is a trust patrimony?

Answer 14

The trust patrimony is the aggregate of trust assets and liabilities. Owned by the same legal person – the trustee – as a separate fund from trustee’s private patrimony. Separate in law and in fact (separate trust bank account).

Question 15

Does real subrogation in trust patrimony apply?

Answer 15

Real subrogation in trust patrimony applies too (so if you sell trust property t(e.g. shares in RBS) then the proceeds go into the trust patrimony not their private patrimony).

Question 16

Who is the trust patrimony liable to?

Answer 16

The trust patrimony is liable to trust creditors; it may be attached or bankrupted. Trust creditors cannot claim against the trustee’s private patrimony. It is unusual for an into vivos trust to go bust but it is not uncommon for a mortis causae trust to go bust.

Question 17

Who can claim on the trustees private patrimony?

Answer 17

⁃ Beneficiaries claim on trust patrimony, private creditors of the trustee on private patrimony. So the beneficiaries’ rights are not superior to those of the private creditors of the trustee, they are claims on a different patrimony. They are kept distinct. The beneficiaries have an interest in the trust patrimony whereas the trustees private creditors cannot claim agains the trust patrimony.

Question 18

What happens when a creditor transacts with a trustee as an individual rather than a trustee?

Answer 18

However in some cases creditors who supply goods or services transact with a trustee as an individual, not as a trustee - when this happens the trustee is personally liable. Yet as long as this is a proper expense of administration (one that the trustees are authorised to carry out) they can use the trust patrimony to pay this (as damages), which will come out of the trustees personal patrimony.
⁃ While this looks like a breach of the dual patrimony theory since the trust creditors are getting at the trustees private patrimony, it isn’t really a breach at all because they aren’t really trust creditors - they are actually creditors of the trustees as individuals - this is covered in more detail in head 17.

Question 19

What happens if you interact with trustees as individuals?

Answer 19

The trustees are personally liable but they can recover the cost of the breach from the trust patrimony.

Question 20

What happens if you are the trustee of more than one trust?

Answer 20

You have as many patrimonies as trusts + 1 private patrimony and 1 for each trust. e.g. Private client solicitors may have one patrimony hundreds of trusts.

Question 21

What happens if there are 2 trustees?

Answer 21

They own the trust patrimony jointly [as opposed to co-ownership — this is used loosely as it really means co-ownership]. This is one of the few examples of joint ownership - this means that they own the whole thing jointly, there is not a severable share, so they cannot give away half the property etc.

Question 22

What about truster-as-trustee trusts?

Answer 22

There are two patrimonies here too. They have their own private patrimony and a separate trust patrimony over which a trust has been declared. A delivered declaration of trust shifts the specified property from the person’s private patrimony into the newly created trust patrimony.

NB creditors can only get at the trust patrimony???