Introduction to the trust Flashcards
What is a trust?
A trust is made of two things
1- A property component with a legal and beneficial interest.
2- Obligation component; binding someone to it - trustees.
What is a trustee?
The person who holds legal interest; capable of controlling the asset (sell, invest ..)
What is a beneficiary?
The person who holds equitable interest; enjoying the value of the asset but cannot manage it.
What are the trustees duties?
the trustees owe an equitable duty to the beneficiaries; exercising their legal right for the benefit of the beneficiaries.
P.S! The functions and duties of trustees are not unitary. they vary depending on the nature of the trust.
What is a trust without beneficiaries?
A purpose trust; charitable trusts are a good example, as well as a small category of non charitable purpose trusts (see purpose trust chapter)
Benefits of using a trust?
reasons such as..
- separation of ownership and management of property
- Expertise; fund manager
- Future interests; Protection of property for minors.
- Flexibility: Property can be held by several owners concurrently
- Minimise tax liability
- Ringfence insolvency
Beneficiary’s ability to enforce a trust?
- beneficiaries can enforce their equitable ownership and reclaim (ex a property) if the trust falls in the hands of a third party.
- Good example a proprietary interest as it binds third parties.
Key uses of trusts
- Commercial arrangement (pension funds, investment funds, corporate tax avoidance etc…)
- private arrangements (testamentary planning, land ownership (i.e joint ownership), tax planning (IHT) )
- Charitable purpose
What are the categories of trusts?
- Express trusts;
a) Intervivos (settlor) or
b) Testamentary trust (testator or testatrix) - Implied/imputed trusts
law imposed trusts even when there isn’t a conscious act or declaration or intention to create.
- The resulting trust
- Constructive trust
What is an express trust?
A deliberately created trust; conscious declaration of the owner of an asset
Can be declared during..
a) Inter vivos: the settlor’s life time
b) Testemantary: in their will
What is an Implied/Imputed trust?
A trust arising by an operation of law.
a) Resulting trust; legal owner has transferred ownership of their property to a third party but for some reason EQUITY recognises the transferor should retain or regain the beneficial interest of said property.
i) Automatic resulting trust
ii) Presumed resulting trust
b) Constructive trust; arises to correct unconcsionability
i) Institutional; prevent fraud or to perfect an imperfect gift or trust
ii) Remedy: awarded by the court
iii) Common intention used on disputes over the beneficial owners of
land occupied by unmarried cohabitees
Other kinds of trusts?
- Statutory trusts: neither resulting or constructive
- Fixed and discretionary trusts
- Charitable and non-charitable purpose trusts
- Bare trusts (when the trustee has no discretion and no active management duties; following the instructions of the beneficiary).
PS! ALL these categories are mutually exclusive; meaning a trust can be more than one.
What is the quits close trust?
When there is a loan with a specific purpose and the purpose is fulfilled - the trust comes to an end and the relationship shifts to an ordinary creditor relationship.
BUT if the trust fails before this purpose is carries out, then a resulting trust in favour of the lender arises.
If an express trust fails the trustee cannot keep the assets to themselves but by law has to hold them on a resulting trust for the settlor.
