Memorise - Trusts Flashcards
What are the equitable rights of a beneficiary?
- Enforceable against 3ps.
- Protected against the insolvency of a trustee - beneficiaries enjoy priority and their property does not form part of the trustees estate for these purposes.
- If the trustee mistakenly transfers the trust property to someone who is not a beneficiary, the rightful beneficiaries have a right to recover that property.
- Cannot be enforced against a bona fide purchaser for value of a legal interest who does not have notice of the trust (not a donee)
- Beneficiaries can sell or give away their interest.
What is the difference between charges/agency/bailment and trusts?
Charges - Both beneficiaries and charges have a proprietary interest in trust property/charged property but unlike a trustee, a charegor can use charged property for their own benefit
Bailment - Only tangible personal property (chattels) can form the subject matter of a bailment whereas (with one or two exceptions) any asset or right can be held on trust. A bailor’s interest (generally) survives a misapplication of the bailed property to a third party because a bailee has a possessory right to the property but is not the legal owner.
Agency - Both agents and trustees are subject to fiduciary duties but trustees cannot commit a beneficiary to contract with a third party
What are the three certainties required for the creation of an express trust by a settlor?
- Certainty of intention
- Certainty of subject matter (trust property)
- Certainty of objects (beneficiaries)
What are the key requirements for certainty of subject matter?
(a) The trust property must be described with sufficient certainty so that it can be identified.
- Future property cannot be held on trust.
- Tangible assets must be individually identifiable.
- Intangible assets do not need to be.
(b) The beneficiaries’ interest in the trust property must be clearly defined.
- If unclear, trust will fail.
What are the key requirements for certainty of intention?
- Requisite intention to create a trust. Can be ascertained from words or conduct.
- No formalities for most trusts.
- Courts adopt an objective approach: if a person manifests an intention to impose or assume the duty which is characteristic of a trust, they intend to do so.
- Settlor need not know what a trust is.
- Precatory words expressing a wish, hope, or expectation do not create a trust and generally create a gift.
- Often when so vague, only sensible inference is that there was no intention.
What are the key requirements for certainty of objects in fixed trusts?
- Greater degree of certainty required for a fixed trust than for a discretionary trust
- In a fixed trust: the trustees must know exactly who is to benefit and how much they are to receive.
- If silent, presumption that beneficiaries will share the trust property in equal shares.
- If silent for some but not all, identifiable beneficiaries whose entitlement is not dependant on others will still be entitled to their intrests.
Requirements:
- Must satisfy ‘complete list test’
- Precise language must be used to define the class of persons intended to benefit.
- Must be sufficient evidence to identify all of the beneficiaries.
What are the key requirements for certainty of objects in discretionary trusts?
Trustees must ensure they are distributing to the correct people by carrying out a survey of the class which is appropriate to the particular trust.
- Is/is not test: trustee must be able to say with certainty whether ‘any given individual is or is not a member of the class’
- Conceptual certainty required: settlor must provide clear and objective criteria that define the class of beneficiaries.
- Evidential certainty: it is for the claimant to prove to the trustees satisfaction that they are within the class.
- Administrative unworkability: if objects are too wide
- Capriciousness: DT will be invalid if no rational reason for the trust, or trustees are required to consider individuals with no meaningful connection to the settlor or the trusts purpose.
- Should not be created arbitrarily, or require trustees to act without reasonable basis.
If no certainty of objects in DT, trust property will be held on resulting trust for the settlor and their estate.
What is the difference between income and capital in trusts?
Successive Interest Trusts
Such as life interest trusts where one beneficiary receives income during their lifetime and another being entitled to capital after death:
* Income: Earnings from the trust property, like interest or rent, paid to the beneficiary while the trust is active. Arise from investment of the capital and is usually paid out periodically.
* Capital: The original trust assets (the underlying value in the property) and their growth given to beneficiaries when the trust ends.
A beneficiary with an interest in the capital is usually referred to as having an absolute interest, whereas a beneficiary with interest in the income has a limited interest.
What are the powers of beneficiaries against trustees in discretionary trusts?
Potential objects have no equitable interest until the discretion is exercised in their favour
Objects have a right to ensure the trustees exercise their powers properly: e.g. to use their discretion, to act within a reasonable time
What are the powers of beneficiaries of a power of appointment?
Donees have absolute discretion as to which member(s) of the class of objects should benefit from its exercise.
- The objects of a power therefore have even more limited rights than the objects of a discretionary trust.
- They cannot compel the exercise of the power but can constrain an improper exercise.
- The key difference between a power of appointment and a discretionary trust is that there is no obligation on the donee to exercise a power of appointment, whereas the trustees of a discretionary trust must exercise their discretion.
- A gift-over is what happens to property if a power is not enforced
- Indicates a power of appointment but is not determinative. E.g., if the power is not enforced, the gift may go to charity.
- The number of objects do not affect the validity of PoA.
The Rule in Saunders v Vautier
A sole adult beneficiary of sound mind with a vested interest in the trust property giving them absolute entitlement to the property is entitled to direct the trustee to transfer the legal title to them, thereby terminating the trust.
Can be extended to cases involving multiple bens:
- If each ben has a distinct interest which can be served without impacting others.
- A group of bens can do this if over 18 and in agreement.
- Also can be enforced in successive interest trusts if all bens agree.
- Bens with contingent interests can if in agreement with all other persons who share the ben interest.
How to create a trust of registered land transfers/shares/choses in action/chattels and cheques for lifetime or inter-vivos trusts?
Registered Land Transfers
- Must be made by deed under s52(1) LPA 1925
- Registered with the land registry under s27 LRA 2002
- Legal title passes on registration
Shares in a private company
- Transferred by transferor signing a stock transfer and sending it to the company
- Legal title passes when transferee is registered in register of members
Choses in action (debts and money in a bank account)
- Transferred by notice in writing to the debtor or bank (s136 LPA 1925)
- Legal title passes on notice receipt
Chattels
- May be transferred by deed of gift OR
- Physical delivery of the chattel with evidence of intention to transfer it
Cheques
- By the transferor signing their name on the bank according to the Bills of Exchange Act 1882
- Legal title passes upon endorsement
Exceptions to the general rule that equity will not perfect an imperfect gift.
General Rule: Equity will not perfect an imperfect gift. The donor must do everything necessary to effect the transfer.
Re Rose Principle: An imperfect gift or trust can be perfected if:
- The correct method of transfer is used.
- The transferor has done everything within their power to effect the transfer (e.g., delivering share transfer documents to the company registrar).
- The documentation reaches the person capable of completing the legal transfer.
- The donor holds the property on constructive trust for the donee once the transferor relinquishes control (e.g., Mascall v Mascall).
- Pennington v Waine: Extends this principle to cases where it would be unconscionable to retract the transfer.
Fortuitous Vesting: Failure to perfect a gift may be cured if the donee obtains legal title through another route, often by becoming the transferor’s personal representative (PR).
Strong v Bird, Conditions:
- Immediate intention to gift.
- Intention continues until the donor’s death.
- Donee becomes executor or PR of the estate.
- Applies when the trustee, not the beneficiary, becomes the PR.
Donationes Mortis Causa (DMC): A gift made in contemplation of imminent death, with conditions:
Gift made with death in mind.
Gift is conditional on death.
Donor parts with dominion (control) of the property, e.g.:
Chattels: Delivery with intent.
Other property: Parting with title representation (e.g., passbook, deeds, house keys, share certificates, third-party cheques).
How to delegate trustee duties?
- The delegation must be made by deed in the prescribed form under s 25 of the TA 1925.
- The delegation can last for up to 12 months.
- Written notice of the delegation must be given to all other trustees and anyone with the power to appoint new trustees within seven days.
- The delegating trustee remains automatically liable for the acts or defaults of the attorney as if they were the trustee’s own acts or defaults.
Limitation Period for bringing personal claims against trustees.
o Six-years legal limitation period (s21(1)(a) Limitation Act 1980) from breach
For beneficiaries with future interests, the limitation period only starts to run when their interest vests in possession.
o The limitation period does not apply to fraudulent breaches or proprietary claims against the trustee (i.e. claims to recover trust property or its traceable proceeds from trustee).
o If the trustee is also a beneficiary and receives an unfairly large distribution from the trust, only the excess can be recovered after the normal six year period
