TRUST Flashcards
Quistclose trust
Combines debt & trust.
Indicator: separate bank account.
Recipient is paid to monies to its bank account for a specific purpose AND free disposal of these monies is prohibited.
Therefore R’ is the trustee, and can ONLY apply the money for that specific purpose.
It will be a breach of trust, if used for any other purpose.
Is a bank trustee of money deposited by customers?
NO
Bank is the debtor.
Customer is the creditor.
Liability:
- NOT liable regarding money’s application.
- LIABLE for the sum deposited.
Quistclose trust conditions
1- money advanced for a particular purpose, purpose is sufficiently certain.
2- mutual intention that money could only be applied for a purpose.
3- money is not at the free disposal of the borrower.
if used within the purpose= relationship debtor-creditor
if used outside= trustee-beneficiary
if cannot be used within the purpose= must return the monies
Validity requirements ‘certainty’ for express trust:
1- certainty of intention = trust arrangement is intended
> requires ‘requisite’ intention to create T and duty.
> Must be more than a desire; intention to impose a duty for the benefit of Bs.
2- certainty of objects = beneficiaries (except purpose trusts)
3- certainty of subject matter = trust property AND beneficiaries’ entitlement
> IDENTIFIABLE TRUST PROPERTY
- specific item or sufficiently described
> IDENTIFIABLE BENEFICIAL ENTITLEMENT
- specific quantity
- fractional interest
> clear mechanism as to distribution
Do beneficiaries of a discretionary trust have proprietary rights?
NO
Bs cannot assert their rights against Trust property (TP).
BUT can sue for breach of trust.
FIDUCIARY POWER OF APPOINTMENT
Held by TRUSTEES
Must periodically consider whether to exercise the power, does not have to exercise.
PERSONAL POWER OF APPOINTMENT
Held by a third party.
Not required even to consider.
- Does not have to exercise.
- Gift-over indicator.
SUCCESSIVE INTEREST TRUST
LT - interest vested in possession (current enjoyment)
Remainderman - vested in interest (future enjoyment)
If sole beneficiary of T is a minor, the income must be [_]
accumulated - attached to the capital interest.
(if adult sole B, intermediate income must be paid when received even if the T is contingent)
Resulting Trusts
by operation of law [implied T]
1- automatic trust
- initial or subsequent failure of trust
- legal title/ownership will be held as trustee
- beneficial ownership reverts back to the settlor[’s estate]
2- presumed trust
- presumption can be rebutted by evidence.
- two types:
(1) gratuitous transfer
> no consideration
> no evidence as to intention to make a gift
> exceptions: parent to child, othusband to wife, or laco-parentis to a minor
(2) contribution to the purchase price
> does not apply to family home
> legal owner will hold shares on trust for equitable beneficiary
> applies to shares, land, building
> if for land equitable ownership will be tenancy in common reflecting proportionate contributions to purchase price.
CONSTRUCTIVE TRUST
1- INSTITUTIONAL
> in response to a triggering event
> for profits made in breach of trust - fiduciary duty
> to prevent fraud
> perfecting imperfect gift
> compel parties to perform/enforceable contract
2- AS REMEDY
> misapplication of T property
> traceable proceeds of breach of T
3- COMMON INTENTION
> unmarried cohabitees, dispute
STATUTORY TRUST
- Co-owners of the land TLATA 1996
- intestacy
How can the beneficiary severe its interest in trust other collapsing it?
If beneficiaries with vested interest are entitled to distinct interests; it can be SEVERED without impacting others.
Any benef’ can exercise independently without collapsing the trust. For other Bs trust continues.
What are the conditions for exercising S v V rights in a successive interest trust?
ALL ADULT BENEFICIARIES WITH SOUND MIND MUST AGREE.
- all beneficiaries are adults & of sound mind
- all Bs have a vested interest
- all beneficiaries agree
What are the conditions for exercising S v V rights in a CONTINGENT trust?
When contingent, beneficiaries haven’t been vested interest.
If ALL beneficial interest beneficiaries and contingent beneficiaries act together [INCLUDING OBJECTS OF GIFT-OVER].
Can Bs interfere with the administration of T while it subsists?
NO
But can sue for improper exercise and breach of T. They can also collapse using SvV rights.
Rights of beneficiaries of DISCRETIONARY trust
- They have NO proprietary rights.
- Can seek the return of misappropriated trust property.
- can agree to terminate the trust if ALL beneficiaries agree.
- they have personal rights they can enforce:
> right to be informed
> right to sue Ts for breach of trust
> right to compel the exercise of discretion!
Rights of beneficiaries of FIXED trust
- equitable properietary rights
- proprietary rights can be exercised even zhen contingent
- can asser proprietary rights on TP against 3rd Pts
- can dispose of interest
- right to compel administration
- right to be informed
- right to sue Ts for breach
Can a trust be established solely by CONDUCT?
YES
1- use words indicating a trust structure ‘yours as much as mine’
2- the way the account used (joint use and withdrawals)
3- ordinary ppl can be unfamiliar with terminology - does not need to use the word trust
Certainty of beneficial interest:
- 20% of 5-carat 6 diamonds
- 1 of 6 of the 5-carat diamonts
- fractional: certain
- 1/6: uncertain VOID
Is it possible to declare trust on specified number of tangible assets?
eg. 20 out of 30 rings
NO
Is it possible to declare trust on the specified number of golden bars?
NO
even though they are tangible and identical, they are NOT interchangeable.
‘20 out of 100 ordinary shares’ - valid trust?
YES
‘20 out of 100 vine bottles of the same brand’ - valid trust?
NO
VOID
Test for discretionary trust certainty of objects?
IS/IS NOT test
–> must still be conceptually certain, permitting Ts to survey class of beneficiaries
certainty of objects = beneficiaries
Discretionary trust for all people in the UK - is it valid?
NO.
IS/IS NOT test applicable. BUT bcs it is virtually uncertain for administration purposes, it is not valid.
Power of appointment for all people in the UK - is it valid?
YES.
Does not need to exercise. Therefore valid.
Test for certainy of objects
- fixed trust
- discretionary trust
- powers of appointment
For fixed: COMPLETE LIST TEST
for discretionary and power: IS/IS NOT
[discretionary - must still be able to survey the class of people]
What happens if T cannot identify all beneficiaries of a fixed trust?
T fails:
- partly: if not dependent upon uncertain objects
- complete failure: if dependent
Discretionary trust for ‘relatives’ - is it valid?
YES
‘descendants from a common ancestor’
Fixed trust for ‘relatives’ - is it valid?
NO
Bcs cannot satisfy ‘complete list’ test.
Discretionary trust for ‘friends’ - is it valid?
NO
CONCEPTUALLY UNCERTAIN.
BoP to establish whether falls within objects of the Trust?
On the claimant alleging that they fall within class of the objects.
CSQ of the uncertainty of a lifetime transfer on trust?
1- if no transfer of legal title = no change in beneficial ownership unless all certainties are satisfied.
2- if legal title transferred =
> uncertainty as to intention: presumption of resulting trust
> clear intention for transferee to be a trustee: automatic resulting trust
CSQ of the uncertainty of the testamentary trust?
1- If no certainty of intention to establish trust = gift
2- uncertain object/subject matter= trust fails, revert/falls into the residue.
constitution of trust
- for intervivos: legal title moves
- for testamentary: either gift or transfer on trust – depending on type of property.
validity of testamentary trust by a will
1- compliance with s9 WAE 1837
> in writing
> signed by the testator
> intend to give effect to will by signature
> acknowledged/attested by 2 or more witnesses
> attested/acknowledged in the presence of the testator
2- testamentary capacity at the time of execution of the will
3- certain
Trust of land requirements
(or trust of interest in land)
1- manifested and proved
> signature and writing need not be contemporaneous
2- by some writing
> evidences intention to create the trust
> and evidences the terms of trust
3- signed by the declarant/testator
> Settlor if not seek directions from the court
4- by will (if testamentary)
> validly executed will in compliance with s9 WA 1837
[if transfer on trust inter vivos - legal title must still be transferred to the trustee]
Non-compliance with formalities renders the trust UNENFORCEABLE [not void], bcs the trust will exist.
CSQ of non-compliance with formalities of trust of land
UNENFORCEABLE
Trust exists but unenforceable.
EXCEPTION to trust of land requirements
- constructive trust
- statutory trust
Transfer of title:
- registered land:
- shares:
- chattels:
- cheques:
- registered land: title passes on registration at the Land Registry
- shares: beneficial title by execution of stock transfer form, legal title when registered as a member.
- chattels: (inc. cash) either by deed, by delivery with evidence of intention.
- cheques: transferred by transferor endorsing the cheque (signing their name on the back)
Once trust is constituted, disposition is irrevocable,
constitution of self-declaration of trust
automatically constituted
for land: trust exists without formalities BUT to be enforceable, must be evidenced by writing manifesting the intention to form a trust.
CSQ of non-compliance with formalities to affect a gift intervivos
donee will hold as trustee (resulting T)
To perfect an imperfect gift, the donor must put beyond power of transferor:
- docs must be in the hand of the person with control to pass/register/complete the transfer
A donee of DMC did not part with dominion but other conditions are satisfied:
can ask the PR to complete dominion, or can establish constructive trust
To perfect an imperfect gift of shares, everything necessary must be done by the transferor. If established, the gift will be held on constructive trust for intended beneficiary.
Re Rose CONDITIONS
1- Everything necessary in his power to effect the gift.
2- The correct method of transfer must be used.
3- The docs necessary for transfer must have ended up in the hands of the person capable of effecting the legal transfer.
(ie. put beyond control)
[MUST NOT BE TRANSFEROR’S OWN AGENT]
How can an imperfect gift by will can be perfected for a PR (executor or administrator)/
CONDITIONS
FORTIOUS VESTING
- obtains legal title via will
- intention to make an IMMEDIATE gift
- intention CONTINUES until the donor’s DEATH
- intended donee becomes PR of the estate
Imperfect gift can be perfected if ‘UNCONSCIONABLE PRINCIPLE’ applies.
When & how??
Can perfect the gift to remedy unconscionability. It would be unconscionable to revoke/change their mind.
- intended to make & made a gift
- told the transferee and the transferee signed/consented
- transferee has been told no further action is required
- was necessary to transfer/make the gift to exercise the consented act
- donee relied upon and believed that the gift would be made
- transferee believed that gift is effected
- already executed deed (whether defective or not - indicative factor)
- transferor acted for its own benefit (indicative)
Rule against remoteness of vesting - perpetuity
(objects: either ppl or charity)
Interest must vest within the recognised perpetuity period = 125 years.
Wait & see rule applies –> trust can subsist until it becomes apparent that interest cannot vest within 125 years. Anything done up to 125 years remains valid.
Class-closing rule –> excludes objects who may collapse the trust BCS it would vest outside of the perpetuity period.
Limits the class of Bs at the end of the perpetuity period.
Remoteness rule applies only to trusts with beneficiaries or charitable purposes as objects.
Rule against remoteness of vesting - perpetuity
FOR NON-CHARITABLE PURPOSE TRUST
Max duration of a period: Life plus 21 years
(or just 21 years if no specified life)
The duration of non-charitable trust must be EXPRESS on the will. If not, the non-charitable trust is void. Must draft a perpetuity clause.
Life => must be human life in being, and 21 years would begin when that person dies. This person must be specified or ‘Royal Lives’ can apply.
Life must refer to a human’s life, not an animal’s.
When can a charitable trust for alternative or holistic methods of medical treatment be valid?
Under advancement of health charitable purpose provided that there is SUFFICIENT EVIDENCE for the benefits of the method used.
When can a charitable trust for art be valid?
The art must be of MERIT.
May require expert evidence, and investigation by the charity commission.
Which purpose trust can be legally enforceable?
ONLY charitable trust.
Conditions of a charitable purpose trust
1- for a charitable purpose
(heads of charity)
> must not benefit the rich (only poor – not both or not rich)
> poor covers temporary hardship too
> can be inferred
2- satisfy public benefit test
(1) identifiable benefit
(2) public or section of public (ie. not negligible in number) in the UK
(3) must not depend on relationship to a particular individual
(4) must not exclude poor
(5) must not be for political objectives (ie. politically neutral) [political step can be a way of achieving charitable purpose only]
3- wholly and exclusively charitable
ie. all its purpose must be charitable, if not void.
–> non-charitable purpose does not invalidate the charitable trust if it is incidental. If it is both for c# and non-c# purposes, the court will sever if possible and only charitable remains valid but only if the language in the will allows severance.
CY-PRES APPLICATION
If charitable purpose fails
1- INITIAL failure: only if genuine charitable intention which has general mode of charity. (eg. for advancement of education, relief of property)
2- SUBSEQUENT failure: surplus fund applied to another charitable purpose by way of a scheme established by Charity commission or court
Non-charitable purpose trust
Endacott principles
Can only be for:
1- particular animal/pet [welfare and care]
2- monuments and graves for a private individual [maintenance and erection]
3- private masses
Can only be written/created in a will.
Perpetuity period must be inserted [max life plus 21 years].
They are valid but unenforceable.
If the trustee is unwilling: can give an undertaking to comply with trust or residuary legatees can sue the trustee appointed.
Best/strongest evidence to establish equitable joint tenancy via constructive common intention trust?
Express discussions as to beneficial ownership.
There must also be detrimental reliance of the spouse/civil partner.
How to determine respective beneficial interests for dissolution of civil partnership?
STATUTORY DISCRETION OF COURT
under CPA 2004
Comparing trusts with debts - Interests
- B of a trust has an equitable proprietary interest in the trust property.
- Creditor has a mere personal right to payment.
When is it possible to impute common intention in the absence of express common intention?
FAMILY HOME
ONLY AT THE QUANTIFICATION STAGE
(Cannot impute common intention at the acquisition of property)
Is redecoration or repainting of house enough to infer a common intention?
NO
Bcs it does not add any significant value to the property.
The man describes the property as ‘our home’, is it enough to establish common intention?
NO
there must also be detrimental reliance.
proprietary estoppel elements:
- qualified assurance
- reasonable reliance (relied upon due to assurance - depends on the apprehension of the claimant)
- detrimental reliance (detrimental conduct suffice if assurance is etsablished)
-unconscionable to resile from promise
Limit to proprietary estoppel remedies?
cannot exceed the promise.
Farepak ran a Christmas savings scheme. It agreed with its customers that, in return for eleven monthly payments, it would obtain retail vouchers for customers and distribute them in November. Farepak went into administration in October.
Customers argued that the money was held in trust.
Is there a valid Quistclose trust?
NO.
Bcs there is no suggestion that the money ought to have been put on one side by Farepak pending the transmutation from credited money to goods or vouchers. If there were a Quistclose trust then that obligation
would have been inherent in it, but the
business model would have made no
sense.
What can create a quistclose trust?
- loans
- transactions
- property transaction to a person whose use of the property is restricted to a specified purpose: to any case where the property is not at the free disposal of the transferee.
Quistclose trust:
When the lender advances the money to the borrower, the borrower holds the money on trust for the lender, with a power to use it for a specified purpose.
1- To the extent that the borrower uses the money for the purpose [____]
2- To the extent that the borrower applies the money for any other purpose, [____]
3- If it becomes impossible to apply the money for the purpose, [____]
1- lender’s equitable interest is extinguished. Relationship changes to creditor-debtor,
2- breach of trust: lender can assert their equitable proprietary interest in the misapplied money or its traceable proceeds.
3- borrower must return the money to the lender.
