Intro to Trusts, Powers + Certainty of Intention Flashcards
Key parties of a trust
Settlor - Beneficiary - Trustee
Settlor transfers the res they own to trustee, who holds it on trust for the beneficiary.
Settlor may state the terms on which it is held on trust, can choose the trustee, and if and how much they will be paid among other decisions
Duties owed by trustee
Fiduciary duties - loyalty, no-conflict, no profit etc
As well as trustee duties: They must comply with trust deed/instrument, invest, do research before investing etc.
Beneficiary’s rights
Right to use/enjoy the fruits of the trust res, subject to the trust instrument.
In personam rights against trustee (can sue trustee for breach/not utilising funds properly)
Proprietary rights against strangers who intermeddle with the trust fund subject to bona fide purchaser rule.
Bona fide purchaser
They are ‘equity’s darling’ - if trustee sells something in breach to a BFP, that is beyond the reach of equity - you cannot follow it, the way you would normally follow property.
Beneficiary principle (Morice)
The exercise of a trust is under the control of the court, so it can be reformed when there is maladministration.
This is not possible where the subject and objects cannot be ascertained.
Authority that we need at least one human beneficiary, trusts that are too vague must be declared void and a trust will fail if it is vague about whether trustees are under a duty or power.
Constitution
The trust once made cannot be unmade by the settlor (Re Bowden)
Settlor cannot bring proceedings against trustee for breach if he has no beneficial interest or reserved power
Saunders v Vautier
Stocks held on trust for an infant, with the capital to be accumulated until he reaches 25.
Once he was 21, he asked for ownership.
Held: The legatee, if he has an absolute indefeasible interest in the legacy, is not bound to wait until expiration, but may require payment the moment he is competent.
Provided you are of adult and of sound mind, and have an interest which is indefusable, you can extinguish the trust.
Rule against perpetuities
Time limit of when the beneficial interest must vest - future dealings must occur within a time limit.
CL rule - within a life in being + 21 years - mostly overturned by Perp Act except for non-charitable purpose trusts
Perpetuities and Accumulations Act s5 - Max duration of a trust is 125 years
If possible that it may vest within 125 years, use wait and see rule. If certain it will not, beneficial interest will be void
Policy reasons for rule against perpetuities
Although law respects freedom of disposition, we should not allow ‘the dead-hand’ to control wealth indefinitely.
Bad for market as the asset is withdrawn from other users for too long
Creates scarcity
Bad for public purse
Types of express trust: The fixed trust
Where the settlor fixes the beneficial interest each beneficiary receives at the date the trust is created.
Discretionary trust
Trustee is given a discretion under trusts’ terms.
May decide whether the capital or income should be paid out, how much, and to whom it shall be paid.
Helps where one party mentally incapacitated or unsure if they will be able to make certain decisions eg gambling habit.
Massively discretionary trust (Smith)
Where the trustees’ discretions effectively displace the beneficial interests.
T has power of distribution over income and capital among objects, can add or remove objects etc.
Accumulation and Maintenance Trust
Trustees may decide whether to accumulate income or to distribute it, may decide when to pay out income and how much.
May also have discretion over advancing capital or changing beneficiaries’ shares before the vesting date.
Bare Trust
Trustee holds asset subject to a trust for a single beneficiary, no conditions or qualifications.
Eg stockbrokers holding shares on trust for the real purchaser.
Power v Trust
Trusts are an obligation - exercise is mandatory.
Powers are permissions conferring discretion - exercise is optional.
Trusts are enforced by the courts, but courts will not compel the performance of a power (although they will ensure proper exercise).
Saunders v Vautier applies to trusts, not powers since there is no indefusable interest in a power.
How can we differentiate between powers and trusts?
Equity looks to the substance, not the form, language not decisive.
Accountability for powers
Fraud on a power: Ensures powers are used for the intended purpose of the trust - cannot use it for personal gain or purposes outside the trust’s scope.
Ultra vires: Court will not compel exercise of powers, but will intervene if trustees exceed their powers, or if they exercise it capriciously.
Eg if you are told you have the power to deliver the whole trust fund, but you give only half, that can be outside your powers.
Capricious = irrational, perverse or irrelevant to any sensible expectation of the settlor.
Failure to consider: If they do not consider using their power - you cannot ignore your power, courts may direct you to consider it.
Certainty of intention
Did the giver intend to create a trust? Or did they not at all, or did they intend to give a power or make an outright gift?
Tito v Waddell
Use of the word ‘on trust for’ compelling evidence but not always conclusive.
Comiskey
Settlor left property to wife ‘in full confidence’ she would devise it to one of my nieces as she may think fit, and in default of any disposition by her of this will, I hereby direct that all my estate and property acquired by her shall be divided.
Held: This was a trust - the entire instrument must be construed, later words indicated a trust was the intention. He later said he directs that the property should be held on trust.
Use of precatory words are not indicative therefore.
Sham trusts
Intention must be genuine, not a sham device, eg to put property out of reach of creditors
Lamb v Eames
Property ‘at her disposal in any way she may think best, for the benefit of herself and her family’
Held: No intention to create a trust, no real obligations placed. Imperative words must be used.
Types of power
General power of appointment - Can be exercised in favour of anybody in the world. Trustee owes fiduciary duty to named or class of beneficiaries.
Special power - can be exercised in favour of named individuals or limited class.
Hybrid power - Can be exercised in favour of anybody in the world, subject to exceptions ie settlor and his partner.
Personal (or mere) power - Given to the donee (not necessarily a trustee) in their personal capacity. Optional for X to use the power.
Fiduciary power - Power given to donee in their fiduciary capacity. Must be exercised in best interests of the beneficiaries.
