Introduction

Question 1

What is equity, and why was it historically developed as a separate system of law?

Answer 1

Equity is a body of legal principles developed to address the limitations and rigidity of the common law. Historically:
1. Purpose:
* Mitigate injustice: Common law applied strict and universal rules that sometimes resulted in unfair outcomes. Equity focused on conscience and fairness to rectify this.

• Provide alternative remedies: Common law remedies were limited to damages, while equity introduced remedies like injunctions, specific performance, and rescission.

2. Current state:
   * While now administered together with common law, equity remains distinct in its conceptual focus on justice and fairness.

Question 2

What are the maxims of equity, and how do they reflect its principles?

Answer 2

The maxims of equity embody its guiding principles, such as:

1. “He who comes to equity must come with clean hands”: A claimant must act fairly and ethically to be granted equitable remedies. For example, a person engaging in fraud cannot claim equitable relief.
2. “Equity will not assist a volunteer”: Equity does not enforce gratuitous promises made without consideration, ensuring only legitimate claims are supported.
3. “Equity follows the law”: Equity respects legal principles but intervenes where fairness demands.

Question 3

What is the fundamental structure of a trust, and what roles are involved?

Answer 3

A trust is a legal arrangement involving:

1. Settlor:
   * Creates the trust, transfers property to trustees, and defines its terms in a trust deed or declaration of trust.
2. Trustee(s):
   * Holds the legal title to the property, manages it according to the trust terms, and acts in the best interest of the beneficiaries.
3. Beneficiary(ies):
   * Holds the equitable or beneficial title, receives the trust’s benefits, and can enforce the trustee’s duties.

Question 4

How is ownership divided in a trust, and what are the characteristics of legal and equitable ownership?

Answer 4

Ownership in a trust splits into:

1. Legal Ownership (Trustee):
   * Appears to the outside world as the owner.

• Can sign contracts, manage bank accounts, and handle property transactions.
• Is bound by trust terms and must act in the beneficiaries’ interests.

2. Equitable Ownership (Beneficiary):

• Holds the right to enjoy the property’s benefits (e.g., income, dividends).
• Has a proprietary interest in the trust property and can enforce trustee duties.

Question 5

What are the key differences between a trust and an outright gift?

Answer 5

1. Control:
   * In a gift, the donor relinquishes all control over the property.

• In a trust, the settlor can impose terms on how the property is managed and used.

2. Protection:
   * A gift transfers ownership outright, even if the recipient is too young, immature, or vulnerable.

• A trust protects such individuals by having trustees manage the property on their behalf.

3. Flexibility:
   * A trust allows for conditions and contingencies (e.g., delaying entitlement until a beneficiary reaches a certain age).

Question 6

What are the main duties of trustees in managing trust property?

Answer 6

1. Prudent investment:
   * Trustees must consider the trust’s duration and invest to preserve or grow its value. For example, investing in safer assets for short-term trusts and higher-risk assets for long-term trusts.
2. Adherence to trust terms:
   * Trustees must follow the instructions in the trust deed, such as when and how beneficiaries receive benefits.
3. Acting in beneficiaries’ best interests:

• Decisions must prioritize beneficiaries’ needs over any personal or external interests.

4. Accountability:
   * Provide regular updates and records to beneficiaries about the trust’s administration.
5. Impartiality:
   * Treat all beneficiaries fairly, balancing competing interests where necessary.

Question 7

What types of property can be held in a trust, and how can trust property change over time?

Answer 7

1. Types of property:
   * Cash, company shares, land, intellectual property, and personal possessions.
2. Changes over time:
   * Trustees may sell and reinvest assets to suit the trust’s objectives. For example, selling shares to buy property if it better serves the beneficiaries.

• The value and form of the property may evolve, but it remains collectively referred to as the “trust property” or “trust fund.”

Question 8

In what scenarios are trusts commonly used, and why are they important?

Answer 8

1. Private client work:
   * Estate planning and inheritance management to control the distribution of assets.
2. Land law:
   * Managing co-ownership of property (e.g., family homes).
3. Charities:
   * Ensuring funds are managed and used according to charitable purposes.
4. Pensions:
   * Holding funds for employees until retirement.
5. Investments:
   * Structures like unit trusts allow pooling of resources for collective investments.

Question 9

Why are trusts particularly useful for managing property for vulnerable individuals?

Answer 9

Trusts offer:
1. Financial management: Trustees handle funds for minors, the elderly, or incapacitated individuals.

2. Conditional benefits: Terms can specify conditions for receiving funds, such as age, education, or health milestones.
3. Protection: Safeguards assets from misuse, creditors, or external threats.
4. Flexibility: Trustees can adapt to the changing needs of beneficiaries, such as releasing funds for emergencies.

Question 10

What are contingent trusts, and how do they work?

Answer 10

Contingent trusts delay or condition beneficiaries’ entitlements. For example:

1. A trust might specify that a beneficiary only receives funds upon turning 25 or completing university.
2. In the meantime, trustees can use the trust property to meet immediate needs (e.g., tuition, living expenses).
   This ensures financial support while incentivizing responsible behavior.

Question 11

What legal and practical advantages do trusts provide for settlors?

Answer 11

1. Control: Settlors can dictate how and when assets are distributed.
2. Tax efficiency: Trusts can reduce inheritance tax liabilities and provide long-term wealth planning.
3. Protection: Trusts safeguard property from creditors or disputes.
4. Continuity: Trusts ensure that property is managed for the benefit of future generations or charitable causes.

Question 12

What are the main classifications of trusts, and how do they differ?

Answer 12

1. Express Trusts:
   * Created intentionally by the settlor with a clear declaration of intent.
   * Subcategories:
   * Beneficial Trusts: Designed to distribute property to individuals (e.g., bare trusts, life interest trusts, contingent trusts, discretionary trusts).
   * Purpose Trusts: Created to achieve specific objectives (e.g., building a community gym or improving education).
2. Implied Trusts:
   * Arise without explicit intention, based on law or equity.
   * Subcategories:
   * Resulting Trusts: Property reverts to the settlor when trust conditions fail.
   * Constructive Trusts: Imposed by equity to prevent unfair enrichment or injustice.

Question 13

What are the key features of resulting trusts, and when do they arise?

Answer 13

A resulting trust arises in two main situations:

1. Failure of Conditions: When a trust fails due to unmet conditions or lack of beneficiaries.
2. Presumed Intention: When equity presumes the settlor intended property to revert to them or their estate.

Example:
* Robert creates a trust for Susan and Tia, contingent on them reaching 30. If neither reaches 30, equity presumes Robert intended the property to return to him or his estate via a resulting trust.

Question 14

What are constructive trusts, and what is their purpose?

Answer 14

Constructive trusts are imposed by equity to:

1. Imposed by the court when it would be unjust or inequitable for the legal owner retain full beneficial ownership, even if no formal agreement exists.
2. Recognize contributions made by individuals without legal title.

Example:
* Ulrich and Vivienne contribute equally to a house, but it is in Ulrich’s name. Equity imposes a constructive trust, granting Vivienne an equitable interest to reflect her financial contributions.

Question 15

What are lifetime trusts (inter vivos trusts), and how are they created?

Answer 15

Lifetime trusts are established during the settlor’s lifetime and require:

1. A valid declaration of trust: Clearly expressing the settlor’s intent
   .
2. A transfer of property to the trustee unless the settlor is also the trustee.

Example:
* A settlor declares, “I hold my shares in trust for my daughter.” If the settlor is also the trustee, no further action is needed to create the trust.

Question 16

How are will trusts created, and what is their purpose?

Answer 16

Will trusts are created to take effect upon the settlor’s death and require:

1. A declaration of trust in a will compliant with the Wills Act 1837.
2. Directions for transferring property to the trustee.

Example:
* A will states, “I leave £100,000 in trust for my grandson until he turns 25.” The trustee manages the funds until the condition is met.

Question 17

What happens to a failed trust if the settlor has died

Answer 17

If a trust fails posthumously:

1. The equitable interest becomes part of the settlor’s residuary estate, which is inherited by the residuary beneficiary named in the will.
2. If no valid will exists, the property passes to the statutory next-of-kin under intestacy rules.

Example:
* William creates a trust for Caitlyn, contingent on her reaching 25. Caitlyn dies at 22, and William’s residuary beneficiary inherits the trust property.

Question 18

What is the residuary estate, and who is the residuary beneficiary?

Answer 18

1. The residuary estate consists of property remaining after payment of debts, taxes, and legacies.
2. The residuary beneficiary is the person named in the will to inherit this residue.

Example:
* William’s will:
* Paintings go to Yasmin (specific legacy).
* £5,000 to Anita (pecuniary legacy).
* Bernard inherits the residuary estate.

Question 19

What is the role of statutory next-of-kin when a settlor dies intestate?

Answer 19

If a settlor dies intestate (without a will) and a trust fails:

1. The equitable interest in the property forms part of the intestate estate.
2. The statutory next-of-kin inherits the property according to intestacy rules in the Administration of Estates Act 1925.

Example:
* William creates a trust, but both he and the beneficiary die. Without a will, the property passes to William’s closest relatives under intestacy laws.

Question 20

What are purpose trusts, and how are they validated?

Answer 20

Purpose trusts are designed to achieve specific objectives rather than directly benefit individuals.
1. They must comply with legal requirements, including:

• Certainty of purpose: The objective must be clear and achievable.
• Enforceability: Someone must have standing to enforce the trust’s terms.

2. Charitable trusts are common examples, as they are legally valid if they serve public benefit.

• A trust is created to fund education programs in a specific town. Its charitable purpose ensures validity.

Question 21

What are the benefits and purposes of using a trust?

Answer 21

Trusts provide:
1. Asset management: Protect property for minors, vulnerable individuals, or beneficiaries unfit to manage their inheritance.

2. Control: Allow the settlor to impose conditions (e.g., age, education) for distribution.
3. Flexibility: Adapt to changing circumstances (e.g., trustee discretion to release funds for emergencies).
4. Protection: Safeguard property from creditors, legal disputes, or misuse.
5. Tax efficiency: Reduce inheritance tax liabilities and facilitate long-term estate planning.

Question 22

How do implied trusts ensure fairness in property disputes?

Answer 22

Implied trusts address equity’s goal of fairness by:
1. Resulting Trusts: Returning property to the settlor or their estate when the trust fails.

2.	Constructive Trusts: Granting equitable interests to parties who contributed to property but lack legal title.

Examples:
* Resulting Trust: If a trust fails due to unmet conditions, the property reverts to the settlor.

*	Constructive Trust: A partner contributing to a home owned by another gains equitable rights to prevent unjust enrichment.

Question 23

What are the key differences between legal title (held by the trustee) and equitable title (held by the beneficiary) in a trust and what are the trustee repsonsbilities?

Answer 23

Legal Title (Trustee):
1. Responsibilities:
* Trustee manages the trust property for the benefit of the beneficiary.

2. Onerous Duties:
   * Must invest and grow the trust property responsibly, avoid speculative investments, and comply with trust terms.

• Must compensate for any loss caused by a breach of duty.

Equitable Title (Beneficiary):
1. Rights:
* Can enforce proprietary rights against third parties (e.g., recover property wrongly transferred or protected in bankruptcy).

2. Flexibility:
   * Beneficiaries can sell or gift their equitable interest, similar to property ownership rights.