Large Group 1 Flashcards
The creation, management, and resolution of trust-related disputes. Trustees' duties, including impartiality, investment of trust property, and breach of trust. The roles of settlors, trustees, and beneficiaries. Legal vs. equitable ownership. Remedies for beneficiaries in case of breach. Contingent interests and discretionary trusts.
What is a trust?
A trust is an equitable obligation where a person, called a trustee, is required to manage property for the benefit of other people, called beneficiaries. The trustee must handle the property separately from their own private assets.
What happens if a trustee fails to follow the terms of the trust?
The beneficiaries can enforce the terms of the trust by taking legal action against the trustee, usually for a breach of trust. The court can compel the trustee to carry out their duties or compensate for any losses caused by failing to do so.
How does equity relate to trusts?
Trusts developed under equity, a system of law that was created to provide fairness when common law could not offer a remedy. Equity ensures that trustees act fairly and fulfil their obligations to beneficiaries, even if no contract or consideration exists.
What are the key roles in a trust?
Settlor - The person who creates the trust.
Trustee - The person or people who manage the trust property.
Beneficiary - The person or people who benefit from the trust property.
Testator/Testatrix - The person who creates a trust via a will (male = testator; female = testatrix).
What kinds of property can be part of a trust?
Trust property can include anything, such as land, houses, cash, company shares, or even intellectual property like copyrights. The property held by the trustee is referred to as the trust fund or trust capital.
What is the difference between an outright owner and a trustee?
An outright owner can do whatever they like with their property (e.g., destroy or sell it), whereas a trustee is required to manage the property for the benefit of others and cannot use it for personal gain.
How is a trust created?
Two steps are needed:
Declaration of trust: The settlor must specify the terms of the trust, including the property, beneficiaries, and trustee duties.
Transfer of property: The settlor must transfer the trust property to the trustee.
What is a declaration of trust?
A declaration of trust is a legal document that sets out the terms of the trust, including what property is held, who the beneficiaries are, and the duties of the trustees. It can also be called a trust deed or trust instrument.
What are a trustee’s duties?
Trustees must:
- Act in the best interests of all beneficiaries and manage the trust impartially.
- Follow the terms laid out in the trust declaration.
- Invest the trust property to ensure it grows and maintains its value.
- Distribute trust assets as required when beneficiaries reach a specified age or fulfil certain conditions.
What happens if a trustee breaches their duties?
Beneficiaries can take the trustee to court for breach of trust. Remedies may include compensation for losses caused by the trustee’s actions and orders to comply with the terms of the trust.
How long do trusts last?
Trusts may last for many years, depending on the terms of the trust. For example, a trust might last until a beneficiary reaches a certain age, like 21, at which point the trust property is transferred to them.
What is the benefit of creating a trust instead of making an outright gift?
Answer: Trusts allow the settlor to control how and when beneficiaries access the property, which is useful if the beneficiaries are young or vulnerable. It also ensures that the property is managed and invested by trustees, potentially increasing its value over time.
What is a contingent interest?
A contingent interest is a future interest in trust property that only becomes available when certain conditions are met (e.g., reaching a certain age). Until the conditions are fulfilled, the beneficiary does not have full rights to the trust property.
What is a discretionary trust?
A discretionary trust gives the trustee the power to decide which beneficiaries will receive the trust property and how much each will get. This is useful when the settlor wants flexibility in distributing assets to future beneficiaries.
What is the difference between legal and equitable ownership in a trust?
Trustees hold the legal title to the trust property, meaning they manage it, while beneficiaries hold the equitable interest, meaning they benefit from the property. The trustee is the “nominal owner” and manages the property for the beneficiaries.
