INTRODUCTION TO TRUSTS

Question 1

Equity and property ownership

Answer 1

• Equity adds another dimension to property ownership
  
  • There can be 2 people who interests that seem like ownership in the same thing. One at law and the other at equity

Question 2

Equitable ownership

Answer 2

The trustee is the legal owner of property that somebody else has an equitable interest in, meaning that they cannot do whatever they like with it.

Equity limits the legal owners ability to do what they want with their own property

Common law does not see this trust at all

Question 3

Lord Simonds in Chapman v Chapman

Answer 3

• “it is the function of the court to execute (carry out) a trust, to see that the trustees do their duty and to protect them if they do it, to direct them if they are in doubt and, if they do wrong, to penalize them”

Question 4

Why do trusts matter?

Answer 4

• A trust matters because it “is a concept which imposes important obligations and confers important rights” [Sir Robert Megarry V-C, in Re Snowden]
  
  • The legal owner, as trustee, has important obligations based on them, and the beneficiary (the equitable owner) will have important rights conferred upon them
  • The trust gives you rights in respect to the property and as against the trustee if they do wrong

Question 5

Priority in insolvency

Proprietary claims

Answer 5

• If you can say that the money in somebody’s bank account was being held in trust for another, that money is not part of the bank’s assets in the case of insolvency
• By segregating the funds and ensuring that the money is ringfenced against any problems, regardless of whether or not the language is formal or not, a trust will be made and the funds will be protected against any insolvency
  
  • Mills v Sportsdirect.Com Retail

Question 6

Beneficiary principle

Answer 6

• For there to be a trust, there must be someone who owns the equitable interest
  
  • “No principle perhaps has greater sanction or authority behind it than the general proposition that a trust by English law, not being a charitable trust, in order to be effective, must have ascertained or ascertainable beneficiaries.” [Lord Evershed in Re Endacott]
  • Charity trusts are an exception
• A fundamental principle of the law of trusts
• If you say you are doing something in trust

Question 7

Saunders v Vautier

FACTS

Answer 7

There was a will which left stock to investors, who were asked to accrue the interests in the dividends until Mr Vautier reached 25, which is when he was to receive them. At 21, Mr Vautier requested the funds be transferred to him

Question 8

Rule in Saunders v Vautier

Answer 8

A beneficiary of full age and capacity (sui iuris) may direct the trustee to wind up the trust and convey the property to them

Question 9

The Hague Convention

Answer 9

Incorporated into English law by the Recognition of Trusts Act 1987

Defines a trust for the purposes of private internationl law

A trust has the following characteristics

• “**(a) the as_sets constitute a separate fund_ and are not a part of the trustee’s own estate;
• (b) title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee;
• (c) the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law.”

[art2]

Question 10

When does a trust exist?

Answer 10

• A person (the trustee)
• Holds a right (the subject) and
• Is required by equity to use that right for the benefit of
• Another person (the beneficiary) or
• A particular purpose (the objects)

Question 11

Trusts for persons

Answer 11

• Objects are beneficiaries – can be either named people or a class of people (e.g. grandchildren)
  
  • Particularly for a will
• Enforced by beneficiaries

Question 12

Trusts for purposes

Answer 12

• Objects are purposes
• Enforced by Crown (Charity Commission)

Question 13

Can a trustee be a beneficiary?

Answer 13

• A trustee can also be a beneficiary
• But, the sole trustee cannot be the sole beneficiary

Question 14

What is the essence of the trust ?

Answer 14

The essence of the trust is the relationship that involves the separation of legal and beneficial ownership

Question 15

In Personam or In Rem

Answer 15

• In personam - a personal right
• In rem - a proprietary right
  
  • You sue for property where the property is

Question 16

Webb v Webb

Answer 16

• A father bought a flat for himself in the name of the son. The son was holding the property on trust for the son, but the father was living in the flat. After they fell out, the father wanted the court to recognise that he was the beneficiary of the trust and the son as the legal owner. He wanted to become the legal owner of the property and commenced proceedings in England, even though bringing claims in property in private international law must be done in the place where the property is
  
  • However, it was a claim against the son as trustee, and thus in personam, and could be tried in England
  • “The father does not claim that he already enjoys rights directly relating to the property which are enforceable against the whole world (a right in rem), but seeks only to assert rights as against the son (a right in personam)”

Question 17

Creation of trusts

Answer 17

• Most trusts are created by intention
  
  • The person setting up the trust manifests an intention to set up the trust
  • The trustees must undertake to perform the trust
• Trusts may also arise by operation of law: arise because the law defines certain circumstances in which there will be the creation of an equitable interest of a thing that somebody else is the legal owner of. In cases of fraud, something that has gone with an express trust, etc.
  
  • Constructive trusts
  • Resulting trusts

Question 18

Standard duties of express trustees

Answer 18

• Obey the trust
• Account to the beneficiaries
• Take care of trust assets
• Exercise powers for proper purposes
• Avoid conflicts of interest or duty

Question 19

Common uses for trusts

Answer 19

• Family settlements
• Testamentary trust in wills
• Pension funds
• Charities
• Corporate finance
• Mortgage lending
• Tax planning
• Ownership of family home – somebody who does not appear on the legal documents of the home may have an equitable interest in it

Question 20

Varieties of ownership

Answer 20

• It can provide for complex ownership
  
  • A legal owner and an equitable owner (a beneficiary)
• It can provide for co-ownership
• It can provide for successive ownership
• Because the trust enables us to recognise different interests in the same thing, it allows for greater variety and greater complexity of ownership relationship. And the more complexity, the more scope there is to do clever things
  
  • This flexibility explains why trusts are so useful

Question 21

Property management

Answer 21

• Conferral of management powers over property
  
  • It makes property management much easier
• Pooled investments
• Pension funds
• The trust is a mechanism that allows us to achieve things that are not allowed in law