TRUST Flashcards
man was a trustee of two funds. He put £15,000 of one fund (Fund A) into his own account, and two days later £12,000 of the other fund (Fund B) into the same account. The account had £3,000 of his own money. He withdrew £6,000 to buy betting tickets for a horse race, from which he won £1,700.
Which fund, if either, can claim the £1,700?
A. Neither fund, his own money was withdrawn and used to buy the betting tickets.
B. Both Funds A and B can make a claim on the basis that their money was mixed in the account.
C. Only Fund B because that was withdrawn first as it was put in after Fund A.
D. Neither fund can claim the £1,700 because it is not traceable.
E. Only Fund A.
E. ONLY FUND A
The “first in, first out” rule applies. When the trustee makes the withdrawal to buy the tickets, he is first withdrawing his own money (as that is considered withdrawn first) and then withdrawing the money of Fund A (a total of £3,000). That means only the beneficiaries of Fund A can trace the money. Can it be traced? We have a replacement asset in the form of the £1,700 winnings. So, although £1,300 has been dissipated, we can still trace to the £1,300 and a proprietary claim can be made against that.
A printing company has developed a new method of printing books that is more efficient than their competitors. However, one of the directors of the company has just recently stormed out over a disagreement with the company. The company has just been tipped off that the director is now developing his own printing company using the printing company’s new technology and is starting to try and win the printing company’s clients.
What should the printing company do?
A. Nothing at this stage.
B. Sue for breach of employment contract.
C. Apply for an interim injunction and a search order.
D. Sue for breach of director duties.
E. Apply for specific performance.
Answer: C. This question is in this bank because it is on equitable remedies, part of the Trusts module. Probably best to go for both a search order and an injunction: the search order to look through the director’s documents to get evidence of the IP infringement, and the injunction to prevent him from doing it. There is a cause of action that can eventually be brought to trial: breach of IP rights. In this scenario, the printing company has developed a new printing method that is more efficient than its competitors. However, one of the directors of the company has left and is now using the company’s new technology to develop his own printing company and attract the printing company’s clients. This situation raises concerns of intellectual property theft, infringement, and possibly a breach of the director’s employment contract. To protect its interests, the printing company should take immediate action. Applying for an interim injunction would seek to prevent the director from using the printing company’s technology, soliciting clients, or engaging in any activities that would harm the printing company’s business. Additionally, a search order could be sought to gather evidence of any intellectual property theft or breach of contract. By applying for an interim injunction and a search order, the printing company can take legal action to prevent further harm and protect its intellectual property rights and business interests.
An influencer wants to ensure that her Instagram account will survive after her death. She is proud of it, having worked on it all her life. She set up a trust for the purpose of maintaining the Instagram account. She states in the trust deed that the account is to be her “monument” to her after she passes. She sets the life of the trust for the life of her daughter plus 21 years.
Is this trust valid?
A. Yes, it is for a valid purpose and is for a life in being plus 21 years.
B. Yes, it is for the purpose of a “monument” and is within the perpetuity period.
C. No, it violates the perpetuity period.
D. Yes, it does not violate the rule against inalienability.
E. No, it does not have a valid purpose.
Answer: E. The general rule is that purpose trusts are void. There are only a few exceptions where it is allowed. One of them is the maintenance of monuments and graves, but this is for physical monuments and graves in a church, for example, not for Instagram accounts – that is bending the rules too much!
A couple decided to buy a house together. At the time of the purchase, the boyfriend stumped up the deposit, and the house was put in his sold name. The mortgage was secured against both their names. Initially, the boyfriend stayed at home and didn’t work or contribute to the household at all, and the girlfriend worked and solely paid the mortgage. After a year, the boyfriend got a job, paid a bit of the mortgage, and then moved out. The couple are no longer together, but the boyfriend is now wanting to evict the girlfriend on the grounds that he has full ownership of the property.
What would be the best claim for the girlfriend to make?
A. The house is held on express trust with both as trustees and beneficiaries.
B. Proprietary estoppel.
C. Purchase money resulting trust.
D. Common intention constructive trust.
E. She is unable to make a claim.
Answer: D. The most effective claim is a CICT, to rebut the presumption the boyfriend owns the property 100%. This is likely to be a successful claim since the boyfriend contributed so little. In this case, although the property is in the boyfriend’s sole name, there are circumstances that may give rise to a trust in favour of the girlfriend. The concept of a common intention constructive trust recognizes that even if legal ownership is in one person’s name, the parties may have intended to hold the property differently based on their common understanding or agreement. Several factors support the girlfriend’s claim: The girlfriend paid the full deposit price for the property. The mortgage was secured against both their names, indicating an intention for joint ownership.
Initially, the boyfriend did not contribute financially to the household, while the girlfriend solely paid the mortgage. Although the boyfriend started contributing later, it can be argued that it was a partial repayment of the initial financial contribution made by the girlfriend. Based on these circumstances, the girlfriend may have a valid claim for a common intention constructive trust, which would recognize her beneficial interest in the property despite it being in the boyfriend’s name. The court would consider the intentions and conduct of the parties to determine the fair division of ownership or financial interest in the property.
A young social media star helped out a friend of hers who was struggling to find a job. The influencer operated a very lucrative TikTok account that had millions of followers. Occasionally, she would let her friend operate the account and post videos, and the friend would take a cut of the advert revenue for every video she posted to keep her going. Meanwhile, the influencer kept sending new job vacancies to the friend, but she never bothered applying for any. The influencer then decided to get into law and dropped her social media presence. The friend is demanding the TikTok account be transferred to her name.
Does the friend have a claim to the account?
A. Yes, as equity does what ought to be done.
B. Yes, she has suffered a detriment with reliance.
C. Yes, there is a trust by conduct with the friend as beneficiary.
D. No.
E. Yes, provided that she comes with clean hands.
Answer: D. Definitely no trust. The friend’s involvement in operating the TikTok account and receiving a cut of the advertising revenue does not automatically grant her ownership or a claim to the account. The arrangement appears to be based on an informal agreement between the influencer and her friend, where the friend was given the opportunity to post videos and receive a share of the revenue. To establish a claim for ownership or transfer of the TikTok account, the friend would generally need to demonstrate a legally recognized basis, such as an express agreement, a trust arrangement, or a specific legal provision. However, no such basis is mentioned in the scenario. Additionally, the friend’s failure to apply for other job vacancies that were sent to her by the influencer may weaken any claim she might have had. It suggests that the friend did not diligently pursue other employment opportunities and relied heavily on the arrangement with the influencer. While equity (the principles of fairness) may play a role in some legal disputes, it is unlikely to be applicable in this case without further legal grounds or evidence. Therefore, the friend is unlikely to have a valid claim to the TikTok account based on the given information.
A farm labourer had worked on a farmer’s farm for many years. A few years before the farmer retired, the labourer agreed to work for no pay, on the basis that the farm was struggling financially, and the farmer told him there would be no farm for the labourer to have for himself if the labourer didn’t do this. The labourer therefore lived on any expenses he could get off the farm and didn’t take a wage in order for the farm to survive. After the farmer retired, he died shortly after. In his will, he gifted the farm to his son.
What should the labourer do?
A. Make a claim for common intention constructive trust.
B. Make a claim for rights arising via proprietary estoppel.
C. Make a claim under The Inheritance (Provision for Family and Dependants) Act 1975.
D. Make a claim under a resulting trust.
E. Nothing, the will has validly passed the farm onto the farmer’s son.
Answer: B. PE is likely to operate here: go through the criteria to see. We have a promise that the labourer would get the farm, intention to rely on, detriment in reliance (no wages) and it would be wrong for the farmer to go back on it considering what the labourer went through and sacrificed. The other options are all either incorrect or irrelevant. Proprietary estoppel is a legal doctrine that can be used to protect the rights of individuals who have relied on promises or assurances made by another person regarding property or land and have suffered a detriment as a result of that reliance. In this case, the labourer can argue that he worked on the farm for no pay based on the farmer’s assurances and promises that he would have a share in the farm in the future. Several factors support the labourer’s claim under proprietary estoppel: The labourer worked on the farm for many years, foregoing a wage and living on expenses from the farm. The farmer specifically told the labourer that there would be no farm for him to have if he didn’t work without pay. The labourer relied on the farmer’s assurances and promises to his detriment by working on the farm and not seeking alternative employment. Under proprietary estoppel, the court can enforce the labourer’s equitable right to a share in the farm if it is deemed necessary to prevent injustice. The exact remedy would depend on the specific circumstances and the court’s determination of what is fair and reasonable in the situation.
A testator stated in their will “my residuary estate to my husband subject to the provision of my residue of a substantial income on trust for my gardener”.
Is this a valid trust?
A. Yes, “substantial” can be assessed.
B. No, we do not know who the gardener is.
C. Yes, “substantial” can be measured.
D. Yes, the three certainties are satisfied.
E. No, “substantial” cannot be assessed using reasonable criteria.
Answer: E. If the wording was “reasonable”, there may be a valid trust as we can determine what “reasonable” would be according to the gardener’s income and lifestyle. But “substantial” is a higher threshold and more difficult to assess. Unlikely there would be a trust. For a trust to be valid, it must satisfy the three certainties: certainty of intention, certainty of subject matter, and certainty of objects. In this case, the provision lacks certainty of intention and certainty of subject matter. The term “substantial income” is subjective and lacks clarity in defining the specific amount or criteria for determining what constitutes a substantial income. Without a clear and objective measure, it would be difficult for the court to ascertain the testator’s exact intention and enforce the provision effectively. Additionally, the provision refers to “my gardener,” but there is no information provided about who this person is. Without a clear identification of the beneficiary, the certainty of objects is also not satisfied. Therefore, it is likely that the provision does not create a valid trust due to the lack of certainty in defining “substantial income” and the ambiguity regarding the gardener’s identity.
A trustee of the funds of their local rugby club takes £2,000 out of the funds and uses it to buy a car.
Can this payment be traced by the club?
A. No, there is no equitable relationship.
B. No, there has been dissipation.
C. No, the car has been sold by a purchaser for value without notice.
D. No, the car is held by a trustee.
E. Yes, the club can trace the funds into the car.
Answer: E. This is a simple tracing case: the trustee has taken trust property and exchanged it for an asset. The club is the beneficiary so can trace. It can trace to a replacement asset – the money is in the form of the asset so has not been dissipated. It can make a claim against that car so that it possesses it and can sell it if it chooses. The trustee will have to recoup the club for any difference in sale.
A young lawyer moved in with his partner. She had bought the flat they lived in a few years ago and it was in her sole name. She was also a lawyer. A couple of years into their relationship, she made partner. He decided to quit his job to stay at home. They hired cleaners to clean the flat, but he bought the groceries and made sure the bed was made. A year later, they broke up. He is now arguing that he should have a share in the flat.
Which of the following statements is the most accurate in relation to whether a common constructive trust would be imposed by the courts?
A. A trust will be imposed as there was clearly an intention to share ownership in the flat.
B. No trust will be imposed as the intention was for sole ownership.
C. No trust will be imposed as there is insufficient evidence to rebut the presumption of sole ownership.
D. A trust will be imposed as he helped out around the flat and therefore contributed to their livelihoods.
E. A trust will be imposed because he gave up his job for her, therefore suffering a detriment.
Answer: C. He is a scrounger! He hasn’t done enough to deserve a share in the flat. Remember two things: Follow the law. The woman owns it 100%, so it is up to him to rebut the presumption that that is the case. Then, remember that a CICT can only be imposed if just and fair. Not likely here – he has done F all. In cases where a property is owned by one person in their sole name and the other party seeks to establish a beneficial interest in the property, they would need to show evidence of a common intention that they have a share in the property. This can be done through express agreements, contributions to the purchase price or mortgage payments, or other forms of evidence indicating a mutual understanding of shared ownership. In this scenario, the young lawyer moved into his partner’s flat, which was in her sole name. While he contributed by buying groceries and making the bed, these contributions alone may not be sufficient to establish a common intention of shared ownership. The fact that they hired cleaners further suggests that his role in the household was not financially significant. To impose a common constructive trust over the flat, there would typically need to be stronger evidence demonstrating an intention to share ownership. Without such evidence, it is unlikely that a trust will be imposed, and the presumption of sole ownership by his partner would likely prevail.
A will trust over a car collection was set up for the testator’s two children. The trust had no conditions. When the trust was set up, the two children were 10 and 8 years old. Eight years later, and the children are 18 and 16.
Can the children take full legal ownership of the car collection?
A. The 18 year old can, but not the 16 year old yet.
B. Yes, both can collapse the trust.
C. They already have legal ownership.
D. Not yet.
E. Yes, they can request the trustees collapse the trust.
Incorrect
Answer: D. This question is about whether the beneficiaries can exercise their Saunders v Vautier rights, collapse the trust and take full (equitable and legal ownership) of the trust property. At the moment, they have equitable ownership, but the trustees have the legal title. In order for Saunders rights to be exercised where you have more than one beneficiary, each beneficiary needs to consent and they must be 18 or over and be sui juris and have vested interests. Because one of the beneficiaries is still a child, the 18-year-old has to wait until that beneficiary is 18 before they can collapse the trust.
A bank has lent money to a small business for the purpose of acquiring a competitor. The business however has used that money to buy back shares.
What are the bank’s best options?
A. Sue for breach of contract.
B. Make a claim in insolvency.
C. Sue for breach of contract and take action for breach of trust.
D. Take action for breach of trust.
E. Nothing, the money belonged to the small business on transfer of the loan.
Incorrect
Answer: C. The bank has the right to sue under the loan agreement (a contract) for breach of terms. The terms of the loan would have contained the purpose: to buy a competitor, and any breach of this is a breach of the loan document. In addition, we also have a Quistclose trust: a loan of money for a specific purpose that has been breached. The bank is the beneficiary under the trust, so can take action against the small business for breach of trust.
A trustee holds £25,000 of trust money in the trust account for the benefit of two beneficiaries, which was set up on trust for them until they reach 25. In breach of trust, the trustee decides to give the money to her sister, who uses it to buy a caravan. A few weeks later, the caravan caught on fire and was destroyed.
What could the beneficiaries do?
A. Make a claim against the trustee for breach of trust.
B. Make a claim against the trustee for breach of trust and against the sister for knowing receipt.
C. Make a claim against the trustee for breach of trust and against the sister for dishonest assistance.
D. Trace the proceeds of purchasing the caravan to the seller of that caravan.
E. The beneficiaries have no remedy because the trust money has been dissipated.
Answer: B. The trust money has been dissipated. We presume that the seller of the caravan has received the money as a bona fide person without notice, so the proceeds cannot be traced any further. The caravan has been destroyed so we cannot make a claim against a replacement asset. We are therefore only left with potential personal claims. DA is not applicable: the stranger actually receives the asset. So, we go to knowing receipt. We would need to know more about her level of knowledge; if it is enough to be unconscionable, we could make a claim. We can also of course claim against the trustee for breach of trust who would have to personally account to the beneficiaries for any loss.
In the testator’s will, he left on trust his house to his widow as life tenant and his two children as remaindermen. Under the terms of the will trust, the house is to go to the children “if they survive my wife”.
What kind of interest do the children hold?
A. Vested interest.
B. None.
C. Life interest.
D. Conditional interest.
E. Contingent interest.
Answer: E. If the will had said “to my wife until her death, then to the children” this would be an unconditional, vested interest because the widow will die one day and, even if the children do pre-decease, their estate will be entitled to the remainder interest. But this interest is contingent because they now have to survive the widow, which is not guaranteed.
A father wanted to set up a trust over his property portfolio, with his financial advisor acting as the trustee and the daughter as the beneficiary. The father orally instructed the trustee to hold the property on trust and registered the transfer of ownership to the trustee successfully at the Land Registry.
Is this a valid trust?
A. No, there is no transfer of legal title.
B. No, the three certainties are not satisfied.
C. Yes, the transfer has been successfully registered at the Land Registry.
D. No, formalities have not been complied with.
E. Yes, the father has done all in his power to establish the trust.
Answer: D. We do have the three certainties, so that isn’t the issue. The issues are formalities and constitution. Constitution is fine: legal title has been effectively transferred at the Land Registry. Formalities however are not: for land, we need to comply with s53(1)(b) for this to be a valid and enforceable trust. This hasn’t been done.
A woman sets up a trust for the maintenance of her garden. Under the trust deed, the trust is to last “for the life of King Charles III plus 21 years”.
Is this a valid trust?
A. Yes, the purpose can be for anything and there is no rule against inalienability.
B. Yes, King Charles III is an identifiable life in being and only 21 years has been added.
C. No, the purpose is invalid.
D. Yes, as the purpose is valid.
E. No, as 21 years on top of the life of King Charles III exceeds the perpetuity period.
Answer: C. PPTs can only be set up for very limited purposes (saying mass, maintenance of graves, pets) – a garden does not count. Note that the rule against inalienability is not breached here, but that’s irrelevant as the PPT won’t stand anyway. Note: not a charitable trust: there is no public good to maintaining your own garden.
