Key Concepts And Creation Of Trusts

Question 1

What are the principal characteristics of a trust?

Answer 1

The principal characteristics of a trust are: trust property, a trustee, a duty, objects (usually a beneficiary or a trust purpose), and an equitable proprietary interest.

Question 2

What is trust property?

Answer 2

Trust property is essential for a trust. It must be identifiable, as stated in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, 705.

Question 3

What happens if trust property is destroyed without fault of the trustee?

Answer 3

A trust ceases to exist if the trust property is destroyed or consumed without any fault of the trustee.

Question 4

What is the role of a trustee?

Answer 4

A trustee owns the trust property and must exercise their rights for the benefit of the beneficiary. They are personally liable for breach of trust if they do not act accordingly.

Question 5

What are the objects of a trust?

Answer 5

A trust must have a beneficiary or be for a permitted purpose. Beneficiaries have rights correlative to the trustee’s duties.

Question 6

What is a purpose trust?

Answer 6

A purpose trust is a trust for a permitted purpose without a beneficiary, primarily for charitable purposes.

Question 7

How are trusts categorized?

Answer 7

Trusts can be categorized as express, resulting, or constructive.

Question 8

What is an express trust?

Answer 8

An express trust is deliberately created in response to a person’s intention, with the person creating it known as the ‘settlor.’

Question 9

What distinguishes trusts from contracts?

Answer 9

Trusts are created by equity without the need for an agreement, while contracts arise from mutual obligations between parties.

Question 10

What is the difference between a trust and a debt?

Answer 10

A trust is a duty relating to specific property, while a debt is merely an obligation to pay a sum of money.

Question 11

What is the difference between a trust and a charge?

Answer 11

A charge secures a debt and allows the chargee to compel a sale of property, while a trust grants beneficiaries full beneficial enjoyment of the trust property.

Question 12

How do trusts and agency differ?

Answer 12

A trustee cannot commit a beneficiary to a contract with a third party, unlike an agent who can create legal relations.

Question 13

What is bailment?

Answer 13

Bailment is the transfer of possession of chattels, whereas a trust involves the transfer of legal ownership.

Question 14

What is the key difference between trusts and companies?

Answer 14

A trust does not have legal personality and cannot bring legal actions in its name, unlike a company.

Question 15

What are the types of personal representatives in estate administration?

Answer 15

There are two types: executors (appointed by the deceased) and administrators (appointed by the court).

Question 16

How do trusts compare with gifts?

Answer 16

A gift involves absolute transfer of ownership, while a trust creates a new equitable interest for the beneficiary.

Question 17

What rights do beneficiaries have compared to contracting parties?

Answer 17

Beneficiaries have personal and proprietary rights, while contracting parties and others have personal rights only.

Question 18

What is an express trust?

Answer 18

An express trust is intentionally created and can be public or private.

Question 19

What are resulting and constructive trusts?

Answer 19

Resulting and constructive trusts arise by operation of law and are known as implied trusts.

Question 20

What are the methods of creating an express trust?

Answer 20

The methods include self declaration of trust and transfer on trust.

Question 21

What happens in a self declaration of trust?

Answer 21

The settlor becomes the trustee, retains legal title, and creates a new equitable title while transferring beneficial ownership to the beneficiary.

Question 22

What occurs in a transfer on trust?

Answer 22

The settlor transfers legal title to a third party trustee, ceases to have any interest, creates a new equitable title, and transfers beneficial ownership to the beneficiary.

Question 23

What are the requirements for the creation of express trusts?

Answer 23

The three certainties are certainty of intention, certainty of subject matter, and certainty of objects.

Question 24

What is the beneficiary principle?

Answer 24

The beneficiary principle states that a trust must have identifiable beneficiaries, with exceptions for charitable purpose trusts and non-charitable purpose trusts.

Question 25

What are the perpetuity rules?

Answer 25

Perpetuity rules govern the term of a trust.

Question 26

What formalities are required for a trust?

Answer 26

Formalities include declaration of trust and constitution of the trust.

Question 27

What is the significance of registration in trusts?

Answer 27

Trusts may require registration through an online trusts registration service.

Question 28

What are resulting and constructive trusts?

Answer 28

They are not the product of the settlor’s express intention but are imposed by equity in response to circumstances.

Question 29

How is certainty of intention established?

Answer 29

Certainty of intention is established through a person’s words and conduct, with an objective approach by the courts.

Question 30

What is the role of written documents in establishing intention?

Answer 30

Written documents help ascertain intention by interpreting the meaning of the words used, considering their natural meaning and context.

Question 31

Is the use of the word ‘trust’ conclusive?

Answer 31

The use of the word ‘trust’ is a good indicator but not determinative of intent to create a trust.

Question 32

What is the importance of segregating or earmarking assets?

Answer 32

Segregating funds can indicate an intention to create a trust but is not necessary or conclusive.

Question 33

What was the significance of Paul v Constance?

Answer 33

The case illustrated that intention to create a trust can be inferred from words and conduct, even without legal terminology.

Question 34

How does certainty of intention interact with other certainties?

Answer 34

There can be cases where vague subject matter or objects indicate no intention to create a trust.

Question 35

What is certainty of subject matter?

Answer 35

It requires the ability to identify the trust property and ascertain the beneficiary’s interest.

Question 36

What is the trust property requirement?

Answer 36

The trust property must be identifiable for the trust to be valid.

Question 37

What happens if trust property is identified by description?

Answer 37

If the description is not specific enough, the trust may fail for uncertainty.

Question 38

Can a trust be created over a specific number of items from a larger mass?

Answer 38

It can be problematic without identifying the specific items.

Question 39

What is the difference between fractional interests and specific items?

Answer 39

Fractional interests can be established without identifying specific items, while specific items require identification.

Question 40

How are tangible and intangible assets treated in trusts?

Answer 40

Tangible assets require specific identification, while intangible assets can be treated as fungible.

Question 41

What are fungible and non-fungible assets?

Answer 41

Fungible assets are identical and interchangeable, while non-fungible assets are unique and not interchangeable.

Question 42

What is the issue with tangible, non-fungible assets in trusts?

Answer 42

They require specific identification to establish a valid trust.

Question 43

What about tangible, fungible assets?

Answer 43

They can be declared in a trust without identifying specific items if they are identical.

Question 44

What are the three key factors that impact the value of diamonds?

Answer 44

Cut, clarity, and colour.

Question 45

Is it possible to declare a trust over a specified number of identical tangible assets?

Answer 45

No, it is not possible to declare a trust over a specified number of tangible assets forming part of a bulk without identifying them.

Question 46

What is the rationale for not being able to declare a trust over identical tangible assets?

Answer 46

Although the bottles of wine may appear identical, their contents may differ, such as some being corked.

Question 47

What is the beneficial entitlement requirement?

Answer 47

It must be possible to ascertain the nature and extent of the beneficiary’s interest in the trust property.

Question 48

What happens to a trust if the power to determine beneficial entitlement cannot be exercised?

Answer 48

The trust will fail if it is no longer possible to ascertain which beneficiary is entitled to which asset.

Question 49

What is the complete list test?

Answer 49

It requires that a complete list of all beneficiaries must be drawn up for fixed trusts.

Question 50

What is conceptual certainty?

Answer 50

It refers to the precision of language used by the settlor to define the class of persons intended to benefit.

Question 51

What is evidential certainty?

Answer 51

It refers to the extent to which evidence enables trustees to identify the objects of the trust.

Question 52

What is the ‘is/is not test’ in discretionary trusts?

Answer 52

It requires a trustee to be able to say with certainty whether any given individual is or is not a member of the class.

Question 53

What is the significance of the case Re Baden (No 2)?

Answer 53

It highlights the controversial nature of evidential certainty for discretionary trusts, with differing opinions among judges.

Question 54

What can cause a discretionary trust to fail?

Answer 54

A discretionary trust can fail if the class of objects is too wide, making it administratively unworkable.

Question 55

What is the summary of the requirements for certainty of objects?

Answer 55

The objects of a trust must be sufficiently certain for the court to regulate and enforce the trust.