Liability of strangers to the trust

Question 1

What are the requirements for recipient liability?

Answer 1

Beneficiaries of a trust can bring a personal claim against a knowing recipient

• can only brought against persons who receive trust property beneficially
• can only be brought against persons who had knowledge of the circumstances which rendered their receipt ‘unconscionable’

Question 2

What knowledge is required of defendant to be liable for knowing receipt?

Answer 2

Fault based claim: defendant is only liable if they had the requisite degree of knowledge

• knowledge which makes it unconscionable to retain the benefit

Question 3

Example: a trustee purchasers a diamond ring for his wife using money from the trust fund. The wife regularly receives gifts from her husband and is unsuspecting of the source of funds

Answer 3

The wife is not liable for her receipt of the ring
- she has no knowledge or suspicion that would make it unconscionable to retain it