Public policy + Express private trusts

Question 1

Freedom of alienation

Answer 1

You can put limits on trust property that will restrict the new owner. If you can do this, you are said to have freedom of alienation that the new owner will not.

Question 2

5 types of restricted gift

Answer 2

1. Life interest
2. Interest under discretionary trust
3. Conditional gift
4. Determinable interest
5. Gifts contrary to public policy

Question 3

Life interest

Answer 3

E.g. To Bob for life, remainder to Fred
→ So long as trust is up and running, Bob cannot just take money and run off
→ Does not have full ownership of assets - B’s could club together and end trust under Saunders v Vautier

Question 4

Interest under discretionary trust

Answer 4

E.g. To Bob, Fred, Alice in such shares as my trustees see fit
→ Set up to prevent creditors getting to assets
→ Collectively own everything, not individually
→ When income comes in, trustee has to distribute it straight away
→ Can apply to the court for a power to accumulate. This plus discretion makes assets bankruptcy proof
→ But NO individual entitlement - treat all B’s equally

Question 5

Letter of wishes

Answer 5

Settlor can create a letter of wishes to direct trustee how to allocate trust property under discretionary trust - BUT is still T’s discretion

Question 6

Types of conditional gift

Answer 6

Condition precedent (positive action, subject to something happening first)
Condition subsequent (gift UNLESS something happens)
→ Need to be conceptually certain

Question 7

Re Barlow

Answer 7

Gift subject to condition precedent - paintings if they can classify themselves as friends in class of B's
Certainty: is or is not test

Question 8

Jenner v Turner

Answer 8

Condition subsequent - asset held on trust for testator’s brother - has life interest on condition he did not marry a domestic servant. He married maid, so was held void

Question 9

What happens if condition subsequent condition is invalid?

Answer 9

Ignore condition and treat as absolute gift

Question 10

Can’t do with conditional gift

Answer 10

Can’t stop your family doing things e.g. selling the family home if it restricts new owners rights to deal with property, condition will fail and they will keep property absolutley

Question 11

Determinable interest

Answer 11

E.g. to Bob UNTIL he becomes a law professor
→ Similar to condition subsequent
→ Gift that by definition will come to its natural end when condition happens. Limited gift, rather than a gift that will be prematurely terminated

Question 12

Gifts contrary to public policy

Answer 12

Jenner v Turner? General policy that says gifts or trusts which undermine the institution of marriage are void, but in this case, not void as it didn’t stop him from marrying completely

Question 13

What is a protective trust?

Answer 13

To prevent creditors of a B from claiming either capital or the interest to satisfy debts

Question 14

Brandon v Robinson → 3 elements of protective trust

Answer 14

1) Determinable interest; interest someone will have for their lifetime otherwise it will end (determine)
2) Forfeiture clause, specifying the determining events; these are the circumstances that will mean the interest does determine and come to an end
3) Discretionary trust kicks in after forfeiture

Question 15

Statutory protective trusts

Answer 15

S33 Trustee Act 1925
E.g. to Bob, on protective trust for Clive
→ Don’t have to use these words, as long as it is clear

Question 16

Re Platt

Answer 16

Uses phrase ‘a protective life interest’ - obviously meant statutory protective trust, so was allowed
→ Won’t impose where not intended → Re Trafford’s Settlement

Question 17

S33 1(2) Trustee Act 1925

Answer 17

If forfeiting event happens, tells us the nature of the discretionary trust. If this disc trust kicks in, the B’s comprise the original holder of that interest and his spouse/children

Question 18

S33 2 Trustee Act 1925

Answer 18

Subject to any variation - settlor can vary these provisions. May want to vary by setting up a series of protective trusts, give offspring more than one chance

Question 19

Examples of forfeiting event

Answer 19

Re Walker - historic bankruptcy
Court order requesting assets
B who executed deed to relinquish right to part of income
Order of divorce - charge over Bs assets

Question 20

General Accident, Fire and Life Assurance Corporation Ltd v IRC

Answer 20

Held: when determining the extent of the forfeiture clause - use narrow construction

Question 21

Re Mair

Answer 21

Orders of the court should override any protective trust because undermines jurisdiction of court otherwise

Question 22

Re Allsopp’s Marriage ST (1959)

Answer 22

Order of court might not just cause forfeiture in any case but may cause entire endeavour to collapse.
Marriage settlement, dissolved, extinguished rights of husband and so discretionary trust did too → extreme case

Question 23

Interplay with general insolvency law

Answer 23

Any payments you receive during that time go straight to trustee in bankruptcy subject to a few objections (food/clothes)

Question 24

Can you use a trust to deprive your own creditors?

Answer 24

Not really - few things we have are limited

1. Protective trust for settlor’s benefit? No, void against trustee in bankruptcy
2. Pure discretionary trust?
3. Gift to another, to be reclaimed at a later date
4. Transaction defrauding creditors → Insolvency Act 1986
5. Transactions at an undervalue in years preceding bankruptcy
6. Offshore trusts

Question 25

Trust to deprive creditors? Protective trust for settlor’s benefit

Answer 25

Void against trustee in bankruptcy
Re Burroughs-Fowler → If trust is for your own benefit, perfectly valid between you, T and potentially B of discretionary trust, but not valid against trustee of bankruptcy
→ Exception: Valid against trustee of bankruptcy id you set up a protective trust for your own benefit, some other determining event causes your determinant interest to come to an end and then you subsequently go bankrupt - trustee in bankruptcy will not be able to get anything

Question 26

Tinsley v Milligan

Answer 26

→Trust to deprive creditors → Gift to another to be reclaimed at later date
→ Someone has prop, transfer to someone else to make it look like they have no connection with prop - to avoid creditors/defraud someone (illegal). Later want prop back. → Interest in family home - if you transfer your house to someone, presumption they are holding it on result trust for you
→ Cohabiting same-sex couple, buy house together, T reg as sole legal owner so M can make fraudulent claims. T moves out after argument. T sues for possession of home, M counterclaims asking for declaration that T hold on trust for both in equal shares
→ HoL said if reason for the transfer has been done to achieve something illegal, everything rests on whether you have to mention illegality
→ Presumption of resulting trust or advancement?
Held on RT

Question 27

Tribe v Tribe

Answer 27

Father was transferring property to son in order to keep it away from predators. Presumption of advancement. Here, aim was to defraud predators who never came knocking so dad decided he wanted shares aback. Court said yes, but presumption you gave assets to son to advance his position for life, and is illegal to rebut this. But was ALLOWED to do so → WEAK argument

Question 28

Patel v Mirza (contract case) (2016)

Answer 28

Said Tinsley v Miligan is wrong - illegality shouldn’t turn on whether there is a presumption of advancement or resulting trust - illegality should make it void, not allowed

Question 29

S423 Insolvency Act 1986

Answer 29

Transactions defrauding creditors - entered into at an undervalue (less than market price) e.g. virtuous gift or RT for the purpose of putting assets beyond creditors, then that can be set aside
→ Covers voluntary settlements regardless of when it took place. Can go back as far as you like

Question 30

S339 and 341 Insolvency Act 1986

Answer 30

Transactions defrauding creditors at an undervalue →This time, not interested in purpose but whether you are BANKRUPT and the effect
→ Don’t need to prove what the transaction was