Trust Creation And Rules Flashcards
What is a fully secret trust and why used?
Where no trust appears in the terms of the will
Main objective to preserve identity of person on who benefit is conferred
What is a half secret trust?
Trust appears in will but terms of trust are not disclosed
Conditions for a fully secret trust
🤫 Legatee holds property for intended beneficiary (Legatee = trustee)
🤫 Testator must communicate trust terms to legatee before death can be made any time during lifetime
🤫 All terms must be clearly communicated - sealed letter??
🤫Testator must communicate legally binding obligation on legatee and legatee must accept trust
What happens if secret trust fails?
🤫From outside looking at the will looks like property has been given to legatee
🤫If fails legatee can keep and benefit from property
What happens if half secret trust fails?
Property distributed in accordance of residue it a will or intestacy
What are the three certainties for a valid trust?
📚Words - unmistakably show trust was intended, must be imperative
🏠 Subject - Property to hold on trust, specified and clearly identified
👩👩👧👦 Objects - Beneficiaries must be certain, named or class description
What is a charitable trust and how does it differ from a private trust?
Wholly and exclusively of a charitable nature for public benefit
🤔 Can’t be void for uncertainty
🙄 Not subject to general law on perpetuities
🌝 Can continue indefinitely
🩴 Won’t fail for being impractical - can apply property to purpose as close to original (cy-pres doctrine)
🤑Can accumulate income 21 years or for the life of the settlor unless Charity commission provides for different period
💰 Investment income exempt from tax
💰 Gains exempt from CGT
Charitable trust categories
💰 Prevention or relief of poverty
🥇Advancement of
Education
Religion
Health
Citizenship
Arts, culture, heritage, science
Amateur sports
Human rights
Environmental protection
Animal welfare
😅 Relief of those in need
👮♂️Promotion of effciency of armed forces, police, fire, rescue, ambulance
❓ Any other purpose currently recognised as a charity
Who and what does the mental capacity act govern?
😶🌫️ Decison making on behalf of adults who lose mental capacity at some point in life or at birth
👍💲Decisons on personal welfare and financial matters
👍 Everything in best interests of individual
Key principles of mental capacity act 2005
🤯 Capacity until proved otherwise
🤯 Supported to make own decisions
🤯 Not treated as lacking capacity for making an unwise decision
🤯 Must be done in best interest
🤯 Least restrictive option - decisions made in a way that interferes least with rights and freedom of individual
Absolute interest means..
Beneficiary has full equitable ownership - capital and income
Ownership can’t be removed
Life interest means..
Entitled to income from trust property for life
No capital entitlement
Called a life tenant
Remainderman means..
Who trust property passes to on death of life tenant
Reversionary interest = future interest
Contingent beneficiaries mean…
Interest depends on a particular event occurring
No beneficial interest if event doesn’t occur
Example = John dies and leaves his estate to David provided David reaches age 21
What is the legal definition of a trust?
An arrangement where the settlor creates a legal obligation over property to transfer the property to trustees over which the trustees have control for the benefit of the beneficiaries any one of whom may enforce the obligation.
How are trustees appointed when trust is created?
By deed that creates the trust
Where trust is created by a will
Under the laws of intestacy
By the court
What is Knight v Knight?
Sets out rules for a valid trust.
Three certainties
Words/intention
Subject matter property to be held must be certain
Objects - the beneficiaries must be certain
Who has the legal ownership of trust assets?
Trustees are the legal owners of trust assets
Assets registered in trustee names
Trustees can’t benefit from trust assets use for benefit of beneficiaries
Who has beneficial ownership of trust assets?
Beneficiaries have beneficial ownership
Entitled to economic benefit or use of trust assets
Income and gains from trust belong to beneficiaries
What are the main duties of a trustee?
Adhere to trust deed
Protect trust property
Ensure everything they do with trust property is done for benefit of the beneficiaries
Act impartially among beneficiaries
Register as legal owners of trust assets
Must adhere to Trustee Act 2000 legislation
What is a bare trust?
Created for benefit of fixed beneficiaries which can’t be changed - % shares can’t be changed
PETs = no periodic/exit charges
No immediate lifetime IHT even if gift exceeds NRB
If settlor survives 7 years gift is not liable for IHT
Taper relief applies after 3 years which reduces IHT liability
Part of beneficiaries estate for IHT
Beneficiary absolutely entitled to their share of trust at 18
Beneficiaries liable for income tax/capital gains incurred by trust
Parental settlement rule = different taxation rules when gift made by parent
What is a constructive trust?
Imposed by law/courts when their has been a breach of trust, regardless of intentions/ presumed intentions of parties involved
If an individual has taken trust property not permitted under trust law and in the knowledge that it was a breach of trust law.
The profit made from the breach of trust would be held on a constructive trust for the beneficiaries
What powers does an appointer of a trust have?
Power to appoint new trustees
Power to remove/replace trustees as ,omg as min no. remain/if land can’t increase trustees over 4
Can become a trustee in place of one retired/removed
No statutory power enabling an appointer to become a trustee - trust deed needs to say so
Power of veto of trustee decisions/block trustees decisions
How can trustees delegate powers under trustee delegation act? For example if moves abroad for 6 months
Delegate some or all trustee powers to an attorney under a general POA
Can delegate for no longer than 12 months
Written notice must be given to other trustees and appointer if there is one
Give the reason and within 7 days of it being in place
Liable to acts and defaults of attorney as if their own.
Can also transfer responsibility to others and appoint an agent but not all powers and can’t:
Have power over distribution/deal with fees/appoint new trustees/delegate.
If exercised duty of care in appointment not liable for loss due to acts of person appointed.
What are choses in action and choses in possession
Choses in action = Intangible assets (not physical)
Life insurance policies/investment bonds/capital redemption polices/Debts/Reversionary interests/Shares in a company/collective investments
Choses in possession = Tangible objects (Can be handled)
Works of art/furniture/cars/jewellery
What is a protector of a trust?
Usually for offshore trusts
Power to veto certain decisions of trustees
Remove trustees
To Ensure settlors intentions are followed
Not usually a trustee
Ensure trustees administer trust effectively
What are the investment powers of a trustee?
Take account of standard investment criteria - suitability/diversification
Keep investments under review
Obtain and consider proper advice unless concludes has skill/expertise or small trust
Take account of tax position
Keep proper accounts
Utmost due diligence to avoid loss
Avoid conflict of interest
Legislation relating to trusts?
Trustee Act 1925
Law of property act 1925
Admin of estates 1925
Recognition of trusts act 1987
Trusts of land and appointment of trustees Act 1996
Trustees delegation act 1999
Perpetuities and accumulations act 1964 and again 2009
Inheritance and trustees powers act 2014
Variation of trust act 1958
What is effect of Saunder v vautier?
A trust can end
If all beneficiaries:
Are ascertained
Aged 18 or over
Sound mind
Unanimous agreement of all beneficiaries
How long is accumulation period?
No restriction - as long as trust period a shorter period could have been choses and incorporated into trust deed
Charities = 21 years from creation
Accumulation trusts created prior to 6/4/210?
No longer than:
Life of settlor
21 years from death of testator/settlor
Duration of minority (ies)of any persons living at death of settlor testator
Duration of minority (ies) of any person entitled under trust
21 years from date of disposition
Minority of any person in being at that date
How is an Immediate post death interest trust dealt with for IHT and income tax
Aligned to the life tenant and added to estate.
Trustees will pay IHT on trust
Income tax on life tenant/beneficiary so can use all allowances
If iip On death of life tenant would be taxed on remaindermen as they become absolutely entitled and stay in trust while minors. Same rules as above apply.
