Introduction and Key Concepts Flashcards
What is a trust?
It is an equitable duty relating to property. Must have a property and obligation component
What benefits are there to the use of trusts?
Separation of ownership vs management, trustee expertise, ringfencing on insolvency, tax benefits
What is an express trust?
One which is deliberately created
Which trusts arise by operation of law?
Resulting and constructive trusts (aka. implied trusts)
What is a testamentary trust?
Made by a will
What is an inter vivos trust?
Created during an individual’s lifetime
What is the difference between a fixed and discretionary trust?
Fixed - trustees know what they need to give to each beneficiary
Discretionary - trustees know who the beneficiaries are, but not what they get.
What can be held on trust?
Almost anything - but not nothing (e.g. if trust property is destroyed, it no longer exists)
Why does a trust give a stronger right than a contract?
Creates an equitable proprietary interest in the trust property, as opposed to a personal right to payment
What is a Quistclose trust?
A device combining a debt or a trust; where property is transferred to a person whose use of the property is restricted to a specified purpose - where it is not the free disposal of the transferee. This must be the mutual intention that the money could only be applied for this purpose.
What is the difference between a trust and a charge?
A chargor can use charged property for their own benefit.
What is the difference between a trust and a bailment?
Only tangible personal property can form the subject matter of a bailment vs any asset or right can be held on trust
Why can bailed goods be recovered from a purchaser of a legal interest without notice, but shares sold by a trustee not be?
Bailor - has a legal proprietary interest in the bailed goods
What are the two different methods for creating an express trust?
Self-declaration of trust - legal title is held, but in a new capacity
Transfer on trust - third party becomes trustee
What requirements are there for the creation of express trusts?
Three certainties: intention, subject matter, objects
Perpetuity rules
Beneficiary principle (except charity / NCPT)
Formalities: declaration of the trust, constitution of the trust
Registration - online trusts registration service (private express trusts)
When do resulting trusts occur?
When a legal owner has transferred ownership of their property to a 3rd party, but for some reason, equity recognises that they should retain or regain the beneficial interest in that property.
When do automatic resulting trusts arise?
Default trusts which arise when a transfer on trust either wholly or partly fails. Trustee holds property on trust for the settlor.
When a person makes a gratuitous transfer of property to a third party.
When do constructive trusts arise?
Broadly, they arise to correct unconscionability.
Sometimes they arise as a remedy
Or CICTs - used to resolve disputes as to the beneficial ownership of land.
What is the certainty of intention?
An express trust must have been brought into existence by an intention to create it.
How do courts approach certainty of intention?
Courts adopt an objective approach - if someone manifests an intention to impose / assume a duty which is characteristic of a trust, they intend to create a trust - no requirement to actually understand what a trust is
Word ‘trust’ itself is not determinative
Key feature - segregation / earmarking of assets
Words / actions always considered in context
What does the certainty of subject matter require?
Must be able to identify the trust property
Must be possible to ascertain the beneficiary’s interest in the trust property.
Give examples where attempts to identify trust property by description has failed
‘the bulk’
‘net assets’
Over which type of assets is it possible to declare a trust over a specified number of assets without identifying the specific assets?
Fungible, intangible (e.g. ordinary shares)
None of the other types of asset will qualify.
Why must a trust have a clear power to determine beneficial entitlement?
Otherwise it may fail for certainty of subject matter, as it is not clear who decides where trust property goes.
Which vague phrase does case law confirm will not fail for certainty?
“Reasonable income”
What is certainty of objects?
The people who will benefit from the trust
What must be known for a fixed trust to have certainty of objects? What test must be applied?
Complete list test -
Who and how much each person is receiving
Why does a discretionary trust / power of appointment not matter if they cannot identify all objects?
Trustees are not required to divide property between all objects - power of appointment does not need to be exercised.
What test should be applied to consider whether a power of appointment is valid?
The is / is not test - trustee must be able to say with certainty whether any given individual is or is not a member of the class.
What test should be applied to consider whether a discretionary trust is or is not valid?
Is or is not test - conceptual certainty
Which labels / classes pass the is / is not test?
Employees - yes
Children - yes
Relatives - yes
Friends - no
How does evidential certainty operate for the is / is not test?
If a claimant can prove they are in a class, they are in it - if not, they are not.
When may a discretionary trust fail for administrative unworkability?
If the objects are so wide as to form nothing like a class - however, this would not invalidate a fiduciary power of appointment because the donee of a fiduciary power has no obligation to exercise the power.
What is the consequence of uncertainty for an inter vivos trust?
If title has been transferred gratuitously - must consider if there was intention. If no intention, presumption of resulting trust applies.
If there is intention, and transfer of legal title, but no certainty of subject matter / objects - automatic resulting trust for the settlor.
What is the consequence of uncertainty for a testamentary trust?
If trust fails - will form part of the residue of the estate
