Introduction to Equity & Trusts

Question 1

Settlor

Answer 1

• Person setting up the Trust
• Once trust is set up, has no role to play unless a trustee

Question 2

Trustee

Answer 2

• Legal title holder – duty and obligations in relation to the property
• Power to how assets are used and invested and to whom they are transferred
• Active duties regarding what is done with assets

Question 3

Beneficiary

Answer 3

• equitable title holder who the legal title will be passed to when of age
• right to enjoy and benefit from the property
• ultimate control of the trust assets
• proprietary rights

Question 4

Saunders v Vautier [1841]

Answer 4

• The beneficiary is entitled to the property of the trust if:
  
  • they are absolutely entitled to the property,
  • an adult and
  • of full mental capacity.

Question 5

What is a Trust?

Answer 5

Method of dividing ownership rights in property

• Legal ownership – trustees - entails responsibilities but no beneficial enjoyment
• Equitable ownership – beneficiaries

Question 6

Choses in Possession

Answer 6

tangible assets, e.g. furniture, cars, books, jewellery, pets

Question 7

Choses in Action

Answer 7

intangible assets, e.g. shares, cheques, debts, insurance policies and intellectual property

Question 8

Real Property / Realty

Answer 8

Freehold land

Question 9

Personal Property / Personalty

Answer 9

All property other than freehold land. For historical reasons, leasehold land is technically personalty.

Question 10

Pure Personalty / Chattels Personal

Answer 10

All personal property other than leaseholds and divided into choses in possession and choses in action

Question 11

Implied Trusts

Answer 11

A trust set up without the knowledge or consent of the settlor or trustee e.g. resulting or constructive trusts

Where no valid express trust exists, but it would be inequitable for the defendant to deny that claimant has some particular beneficial interest in property

Question 12

Express Trusts

Answer 12

Trust expressly created by a settlor

Trustee must agree to act in his capacity before they are bound by comprehensive trustee duties

Question 13

Resulting Trusts

Answer 13

When the property returns to the settlor, e.g. trusts for life or where property is vested to another for a period of time

Question 14

Constructive trusts

Answer 14

Imposed by operation of law, e.g. to remedy some fault or inequitable situation or to facilitate a transaction.

Question 15

Re Smith (1928)

Answer 15

• Extends rule in Saunders v Vautier to trusts with multiple beneficiaries.
• In discretionary trusts, if there is a closed beneficiary group, and all the discretionary beneficiaries are absolutely beneficially entitled to the whole equitable interest, then they can do as the please with the equitable interest.

Question 16

Gartside v IRC (1968)

Answer 16

Where potential beneficiaries in a discretionary trust have no proprietary interest in the trust property, they merely have a hope that they will be selected to receive some trust property.

Question 17

Fixed Trusts

Answer 17

• Where settlor has already determined in the trust deed the beneficial interests which each beneficiary is to take.
• The beneficiaries and their individual entitlements are fixed and certain.

Question 18

Life Interest

Answer 18

The right to the income generated by the trust property

Question 19

Interest in Remainder

Answer 19

Capital interest in a trust where the beneficiary’s possession and enjoyment of the trust assets is postponed by a prior interest in the same assets.

Question 20

Vested interest

Answer 20

Unconditional interest, i.e. a beneficiary does not have to satisfy any requirements

Question 21

Contingent interest

Answer 21

Interest subject to a condition

e.g. to T1 and T2 on trust for A for life, remainder to B if he survives A’

Question 22

Discretionary Trust

Answer 22

• Trustees will be given some kind of discretion. This is usually to decide:
  
  • Whether to pay the income out
  • To whom and when
  • To decide to whom to pay out the capital on termination of the trust
• Discretionary power must be exercised by trustee.

Question 23

Power of Appointment

Answer 23

• Authority to deal with somebody else’s property
• Power at holder’s discretion / optional

Question 24

General Power

Answer 24

The donee of the power may exercise it in favour of anybody in the world

Question 25

Special Power

Answer 25

Class of potential beneficiaries donee may exercise in favour of is limited by the terms of the power.

Question 26

Hybrid Power

Answer 26

Where the class is general but has an exclusion