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Wills and intestacy > Trust Law > Flashcards

Trust Law Flashcards

1
Q

What are the three certainties for valid express private trust?

A
  • Intention to create the trust
  • Subject matter (or property included in the trust)
  • Objects of the trust (the beneficiaries)
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2
Q

What does certainty of intention mean for valid express private trust?

A

Settlor must have shown intention to create the trust whilst they owned the property and intention must be that the trust takes effect immediately.

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3
Q

Will precatory words create a trust?

A

Precatory words (hope, desire, wish) are not usually sufficient to create a trust.

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4
Q

What happens if a trust is void for uncertainty of intention?

A

The property passes as an outright gift to the person who would have been the trustee.

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5
Q

What does certainty of subject matter mean for valid express private trust?

A

Subjective phrases ie most of my estate are not sufficiently certain to create a trust.

A trust of a fractional share can be sufficient ie 50% of my shares in X Ltd, but 20 bottles from my wine collection wouldn’t as it doesn’t specify which 20 bottles.

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6
Q

Does property need to be held for certainty of subject matter?

A

The interest placed in trust must presently exist, but does not need to be currently possessory so an existing future interest may be placed in trust.

However, can’t place property that is to be inherited under a living person’s will when they die in trust as the person could change their will before death.

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7
Q

What happens if a trust is void for uncertainty of subject matter?

A

The property reverts to the settlor

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8
Q

What does certainty of objects mean for a valid express private trust?

A

Beneficiaries under a trust can be identified by names or to a concept which defines a class of beneficiaries such as “my nephews and nieces”. Note: “my friends” typically wouldn’t be sufficient as not capable of objective determination.

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9
Q

In fixed trust what must be possible to do for certainty of objects?

A

The beneficiaries must be named or described sufficiently to enable the trustee to draw up a complete list of beneficiaries.

Note: if the concept is certain the trust won’t fail even if members of the class may be hard to track down ie “to former employees in equal shares” if records of this exists.

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10
Q

In discretionary trust what must be possible to do for certainty of objects?

A

Description of a class is sufficient if the trustees can determine whether any given person is a member of the class. Description doesn’t need to be sufficient to track down every member of the class ie wouldn’t need records to exist if “to former employees as trustee sees fit”.

Note: a discretionary trust will fail if the class is too wide so is administratively unworkable such as a trust for “all of Greater Manchester”.

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11
Q

What happens if a trust is void for uncertainty of objects?

A

A resulting trust in favour of the settlor or the settlor’s successors is presumed.

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12
Q

What are formalities to create express inter vivos trusts?

A

Created by the settlor during their lifetime by:
1. Declaring themselves trustee of property they own; or
2. Transferring property to one or more trustees

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13
Q

How do transfer land for valid express inter vivos trust?

A

Legal owner must execute a transfer deed which is then registered at HMLR, must evidence declaration of trust with a signed writing in addition to the transfer deed

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14
Q

How do transfer shares for valid express inter vivos trust?

A

Donor must sign a stock transfer form and register this with the company

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15
Q

How do transfer chattels for valid express inter vivos trust?

A

Owner must have intention to transfer the chattels and must deliver them to the recipient

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16
Q

How do transfer bank account for valid express inter vivos trust?

A

Providing a signed written notice of the transfer to the bank

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17
Q

What happens if an intending settlor declares that a third party is to hold property as trustee but fails to make the necessary transfer?

A

Equity will not enforce the trust and it will fail. Unless:
* under the every effort test settlor has completed the transfer to the trustees but trustees not yet registered the transfer with HMLR or a company as required;
* the intending settlor dies before the transfer is completed and the intended trustee becomes the settlor’s personal representative the transfer is complete in law; or
* if not executed with proper formality may be enforceable if the trustee can prove they reasonably relied to their detriment on assurance from the settlor that the gift would be made.

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18
Q

What is a testamentary trust?

A

Trust can be set out in a will to take effect on their death

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19
Q

When is property transferred under a testamentary trust?

A

No requirement to transfer the property before the settlor’s death, it will be transferred by the personal representative of the settlor’s estate.

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20
Q

How can testamentary trusts be set out in the will?

A

Secret, half secret or fully set out in the will.

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21
Q

What does half secret testamentary trust mean?

A

Terms of the trust are revealed in the will but beneficiary is not named.
Beneficiary can enforce the trust if their identity was revealed to the trustee at or before the making of the will and the language of the will is consistent.

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22
Q

What does fully secret testamentary trust mean?

A

Looks like an outright gift to the nominated person on the will as doesn’t include the terms of the trust or the beneficiary. Intended beneficiary can enforce it if they can prove the terms of the trust by clear and convincing evidence.

Communication describing the terms of the trust can be made before or after the will is executed.

But if legatee (person on will who seems to have been given the gift) either refused the gift or didn’t know about it until after the settlor’s death then the trust will fail and the legatee will take the gift outright.

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23
Q

What is a fixed interest trust?

A

Interests of the beneficiaries are defined by the settlor eg ‘to T on trust for my husband for life and at his death to my children in equal shares’

The trustees have no freedom as to how the trust property is to be distributed between the beneficiaries.

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24
Q

What is a discretionary trust?

A

The trustee is given discretion in how to distribute the trust property usually among the members of an identifiable class eg ‘to T on trust for my children as T shall in his absolute discretion decide’.

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25
Q

What is a vested interest in trusts?

A

Beneficiary has a vested interest if no conditions attached to a gift in a fixed trust.

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26
Q

What is a contingent interest in trusts?

A

Gift is a contingent interest if there are conditions a beneficiary must fulfil before being entitled to an interest under a trust.

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27
Q

What is the rule in Saunders v Vautier

A

The beneficiaries of a trust may terminate the trust if:
1. all the beneficiaries are adults at the time termination is sought and of sound mind;
2. all the beneficiaries agree; and
3. all the beneficiaries have an absolute interest.

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28
Q

What is a charitable trust?

A

A type of purpose trust which benefits a recognised charity for the benefit of an indefinite class of persons.

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29
Q

Are charitable trusts exempt from the perpetuity period?

A

As with other trusts the initial gift to a charity must vest within the perpetuity period. So an interest under a trust is void if it does not vest within 125 years. Note: a gift from one charity to another can take effect at any distance in time.

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30
Q

A trust will qualify as a charitable trust only if it is for a recognised charitable purpose including what?

A
  • advancement of education, religion, health, arts, science, amateur sports, etc. but not political views
  • prevention of poverty
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31
Q

What must a charitable trust do?

A

Must bestow (1) an identifiable benefit (2) to the public or a section of the public.

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32
Q

Under a charitable trust if the group which stands to benefit is defined by reference to the relationship of the group’s membership with a private individual or business what does this mean and what happens to the trust?

A

The trust is for a private group and will fail.

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33
Q

Who enforces charitable trusts and why is it necessary for them to enforce here?

A

Can only be enforced by the attorney general as charitable trusts don’t have ascertainable benefits

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34
Q

When can Cy-pres be used in Charitable trusts?

A

when the charitable purposes of a trust have become impossible or impracticable to carry out

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35
Q

What does Cy-pres in Charitable trusts permit?

A

the court to direct that the trust property can be applied to another charitable purpose as close as possible to the original one rather than allowing the trust to fail.

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36
Q

Notes related to Cy-pres and what happens if a charitable gift on trust is impossible or impracticable to carry out at the time it comes into operation what happens?

A

The court can only apply cy-pres if the settlor has shown a general charitable intention.

This is normally difficult to find if the testator has identified a specific named charity in their will unless the charity named never existed.

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37
Q

Notes related to Cy-pres and what happens if the settlors are not known such as gifts to collection box for new sports ground for village?

A

Then cy-pres can be applied even if failure is initial such as not enough money raised for the project.

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38
Q

Notes related to Cy-pres and what happens if the objectives of a charitable trust become impossible or impracticable to carry out after it has come into operation?

A

The funds may be applied cy-pres without any requirement to show general charitable intention on the part of the settlor for example if charity closes down after the testator’s death

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39
Q

What is a non-charitable purpose trusts?

A

A purpose trust is one set up for a purpose rather than for people eg a trust for the maintenance of a pet cat.

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40
Q

What is the maximum perpetuity period for a non-charitable purpose trusts?

A

Limited to 21 years or for the rest of a person’s life plus 21 years.

Note can’t be for a particular animal’s life so must have careful wording for a gift for an animal’s maintenance to limit its duration

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41
Q

Non-charitable purpose trusts are valid but as don’t have ascertainable human beneficiaries what does this mean?

A

No one is in a position to enforce them so are honorary trusts

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42
Q

Examples of non-charitable purpose trusts?

A
  • Trusts for the maintenance of specified animals
  • Trusts for the saying of private masses
  • Trusts for the erection and maintenance of monuments and graves
43
Q

What are resulting trusts?

A

Trust may be implied in equity when settlor has not expressed a desire to create a trust but a trust should be presumed in order to ensure that an equitable result is achieved.

Under a resulting trust the equitable interest reverts back to the settlor or to the settlor’s estate if the settlor is dead.

44
Q

When do resulting trusts arise?

A
  1. An interest under an express trust fails;
  2. An express trust fails to exhaust the beneficial interest; or
  3. A person makes a voluntary transfer or purchase in the name of another.
45
Q

What happens if someone transfers property to another without consideration?

A

A resulting trust will be implied if there’s no evidence of the reason for the transfer. Person is transferred to will be expected to convey back to transferor if requested.

46
Q

If person X gives another Y money to purchase real or personal property but the legal title is taken in the name of Y then what happens?

A

Y is presumed to hold the legal title on resulting trust for X.

Note:
* If both contribute financially will be presumed they hold in proportion to their respective contributions.
* X will have to prove by clear and convincing evidence that they supplied the money.
* Y may rebut the presumption by submitting evidence that no trust was intended, and the money used was a gift, loan or payment of debt from X to Y.
* No presumption of trust arises if X is Y’s spouse or fiancé, X is Y’s parent or X stands in loco parentis to Y.

47
Q

How can the presumptions of resulting trust can be rebutted?

A

By acts or statements of a person before or at the time of the transaction (but not after)

48
Q

How do courts determine how to divide family assets including a shared home on separation of cohabitees not married?

A

The courts have less discretion but will apply legal and equitable principles to determine how to divide family assets

49
Q

Under trusts of the family home common intention constructive trust will be imposed if a claimant can establish what?

A
  • The parties had a common intention either express or inferred that the claimant should have an equitable interest; and
  • The claimant relied to their detriment on the common intention.

The claimant must show that there were actual discussions between the parties which led the claimant to this belief. The parties’ common intention has to relate to ownership of the land not merely sharing a home or life together.

50
Q

Under trusts of the family home what happens if legal title in the name of both parties?

A

They may have executed a declaration of trusts which will be used as conclusive to their interests unless evidence of fraud or mistake.

If legal title is registered in the names of both parties but there is no express declaration of trust it will be presumed that the parties hold equally. A party can rebut this presumption to claim more of an interest if they can prove that the parties intended otherwise. Court will look at the entire course of conduct between the parties especially:
* Any children for which the parties have a responsibility to provide a home
* How parties arranged their finances – separate bank accounts or joint
* How the parties paid bills and other outgoings in relation to the property
* The reason one party was authorised to give a valid receipt for capital monies

51
Q

Under trusts of the family home what happens if legal title in the name of sole party?

A

The non-owning party can attempt to establish that the legal owner actually holds the property on trust for both parties.

52
Q

Under trusts of the family home what happens if express declaration or agreement as to equitable ownership?

A

If there’s a single legal owner a declaration of trust will control if it’s in writing signed by the legal owner. Declaration can be made on the date of conveyance or after. This usually conclusive unless a party can show fraud, mistake, undue influence or facts establishing proprietary estoppel.

53
Q

Under trusts of the family home what are direct contribution?

A

Includes to the purchase price.

Payment of household expenses made specifically to enable the legal owner to make mortgage payments.

54
Q

What are requirements to establish proprietary estoppel?

A

Claimant must demonstrate that the other party gave the claimant an assurance which they relied on to their detriment.

55
Q

Liability of strangers to the trust if bona fide purchaser?

A

Person who acquired the legal title to trust property for value and without notice of the trust.

Has no liability.

56
Q

Liability of strangers to the trust if innocent volunteer?

A

Person who came into possession of the trust property with no knowledge or suspicion of the breach.

Whilst no personal liability the beneficiaries may be able to make a proprietary claim using equitable tracing process.

57
Q

Liability of strangers to the trust if knowing recipient?

A

Person who received trust property with requisite degree of knowledge of the breach will be liable and treated as a constructive trustee.

58
Q

What happens if a third party has facilitated a breach of trust?

A

They are liable as if they were a trustee if their assistance was dishonest.

Once set out the beneficiaries can sue the accessory personally for the losses as if they were a constructive trustee. This is unlikely to involve accessory receiving the trust property so proprietary claim not relevant.

59
Q

What are required when establishing accessory liability of strangers to the trust?

A
  • Typically require a positive act of assistance by the third party but passive assistance would suffice e.g. found out about it but does nothing.
  • Dishonest accessory need not have known they were participating in a breach of trust merely that scheme they were facilitating was in some way illegal
60
Q

What is duty not to profit from fiduciary position if a trustee is paid for activities undertaken on behalf of the trust?

A

(eg if the trustee is appointed as a director of a corporation because the trust controls enough votes to have the trustee appointed)
the trustee holds the payment on a constructive trust for the benefit of the beneficiaries of the trust.

An exception applies if the trustee can show they would have been appointed to the paying position even if they didn’t control the trust.

61
Q

What happens if trustee makes a personal profit as a result of opportunities or information gained from being a trustee?

A

they hold the profit on constructive trust for the beneficiaries even when there is no obvious conflict between the interests of the trust and the trustee.

62
Q

Generally a trustee isn’t entitled to be paid for serving as trustee unless the trust instrument so provides what are the exceptions?

A

A professional trustee (eg accountant) may charge reasonable remuneration for their services provided they are not the sole trustee and the other trustees give written consent.

A trust corporation may charge reasonable remuneration for its services even if it acts as a sole trustee.

63
Q

What are the rules regarding trustee purchasing any property owned by the trust?

A

Trustee may not purchase any property owned by the trust even if pays full value or purchase is made in the open market.

Any such purchase by a trustee is voidable (may be set aside) at the instance of the beneficiaries.

Note: a trustee may purchase a beneficiary’s interest so long as the trustee pays a fair price, made full disclosure of all material facts to the beneficiary and in no way abused their position.

64
Q

What happens if the trustee dies, refuses to accept appointment or resigns?

A

A trust will not fail because the trustee dies, refuses to accept appointment or resigns. The Court will appoint a successor trustee.

65
Q

Who can be a trustee?

A

Anyone who has capacity to acquire and hold property for their own benefit may be a trustee. A minor cannot be a trustee. A settlor can appoint themselves as trustee.

66
Q

What are minimum or maximum number of trustees?

A

No minimum or maximum number of trustees. Exception for trust of land which will usually have at least two trustees (or a trust corporation) so that valid receipt can be given on the sale of the land and may not have more than four trustees.

67
Q

What happens if a settlor sets up a trust without naming a trustee?

A

A court can appoint a trustee.

68
Q

What options does a potential trustee have with accepting the position?

A

Trustee can disclaim or refuse to accept the position before accepting position. Acceptance is all or nothing.

69
Q

Can new trustees be appointed once a trust has been created?

A

The settlor doesn’t have any power to appoint new trustees unless there’s an express provision in the trust instrument providing this power

70
Q

What happens if trust doesn’t designate a person with the power to appoint additional trustees?

A

The existing trustees have this power. But cannot use this to increase the number of trustees to more than four (even if no land involved).

71
Q

What happens if trust doesn’t designate a person with the power to appoint replacement trustees?

A

if trustee dies, refuses to act, wishes to be discharged etc. then existing trustees have this power.

Note: if no remaining trustees the personal representative of the last surviving trustee may appoint a replacement trustee or if not the court may do so.

72
Q

Typically, beneficiaries have no power to select trustees unless what?

A
  • No person is nominated in the trust instrument to appoint new trustees;
  • Beneficiaries are of full age and capacity and together absolutely entitled to the trust property; and
  • The beneficiaries act unanimously.
73
Q

Trustee may be removed without their consent if what?

A
  • They become bankrupt or incapacitated
  • By the beneficiaries if of full age and capacity and together absolutely entitled to the trust property; and the beneficiaries act unanimously
  • By court order
74
Q

Trustee may retire from office without being replaced provided that what?

A
  1. They obtain the consent by deed of all their co-trustees and the person given powers to appoint new trustees by the trust instrument (if there is one); and
  2. They leave at least two trustees or a trust corporation in office.

Or can retire on basis that desire to be discharged if can procure the appointment of a new trustee.

75
Q

Who are Trustees under a fiduciary duty to manage the trust property for?

A

The benefit of the beneficiaries.

76
Q

What trustee duty if more than one trustee?

A

Must act jointly and unanimously

77
Q

Trustees must act personally and have no general power to delegate their functions except for when?

A

Administrative functions such as preparing tax/legal documents.
Can delegate all functions to another individual or a trust corporation via a power of attorney for a fixed term not exceeding 12 months – trustee will remain liable for the delegates actions.

78
Q

Duty for trustees to act impartially regarding beneficiaries except when?

A

Trust provides otherwise e.g. if trust gives income to someone for life and capital interest to another on their death the trustees must balance investments so that income and capital.

79
Q

Statutory duty of care imposed when trustees making investment decisions and appointing agents that requires trustees to do what?

A

Exercise such care and skill as is reasonable in the circumstances taking into account any special knowledge the trustee has/holds themselves out as having.

80
Q

When making investment choices the trustees must consider what?

A
  • Suitability to the trust of the type of investment proposed
  • Need for diversification
  • Must obtain proper advice with regard to the investment, but need not be from a professional investment advisor. Don’t need proper advice if trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate.

May delegate the choice of investments to an asset manager.

If complied with investment requirements above then trustees will not be liable to the beneficiaries for losses or failure to increase in line with inflation.

81
Q

What is a Trustees’ duty to invest?

A

Duty to invest trust funds to produce an income, may make any kind of investment except in land. But may acquire freehold or leasehold land in the UK.

82
Q

What is a Trustees’ statutory powers of maintenance?

A

Power of maintenance gives trustees discretionary power to use trust income for a minor beneficiary as minor beneficiary has no right to the income. Must pay or apply the income for maintenance, education or benefit as see fit. Cannot pay to beneficiary directly must apply direct to purpose or to parent/guardian. This ends on 18th birthday.

83
Q

What is a Trustees’ statutory powers of advancement?

A

If the beneficiary has an interest in the capital of a trust fund then the trustees have discretionary power to advance trust capital up to the amount of the beneficiary’s presumptive entitlement. Trustees may pay or apply capital sums at their discretion.

When doing final distribution will deduct any advancement.

If an advancement will prejudice any beneficiary entitled to a prior interest then this power only applies if that beneficiary is of full age and capacity and gives their written consent.

No age restriction for powers of advancement but as beneficiary under 18 cannot give valid consent then must be applied for required purpose directly or paid to parent/guardian for specified purpose.

84
Q

What is Presumptive entitlement?

A

Beneficiaries presumed share if contingencies are satisfied i.e. if trust for benefit settlor’s 3 children who reach age 25 the presumed share of each is 1/3 while each is alive and under 25.

85
Q

What are Trustees’ liability for breach of trust?

A

Beneficiaries can bring a personal claim against a trustee for losses resulting from trustee’s breach of trust.

86
Q

In Trustees’ liability for breach of trust what happens if more than one breach and one causes a gain and one a loss?

A

A gain that resulted from one breach cannot be used to offset a loss from the other ie the beneficiaries can keep the gain and sue for the loss.

87
Q

In Trustees’ liability for breach of trust what happens if a third party involved in a breach of trust?

A

the beneficiaries may be able to bring a personal or proprietary action against the third party.

88
Q

In Trustees’ liability who has the burden of proving loss?

A

Beneficiaries

89
Q

In Trustees’ liability who will be liable?

A

Only the trustee liable for the breach and loss will be liable, however, other trustees may have committed a different breach such as failing to supervise the actions of the trustee in breach.

90
Q

In Trustees’ liability who will be liable if more than one trustee committed a breach?

A

They are jointly and severally liable (means any one trustee could be held liable for the whole loss).

Among the trustees the court has the power to apportion liability as it deems just and equitable in the circumstances.

91
Q

What protection do trustees have over trustees’ liability?

A

If a beneficiary of full age and capacity has consented to the action that gave rise to the breach with full knowledge of all material facts they may not later sue the trustees in relation to that breach.

92
Q

In Trustees’ liability what is the limitation period?

A

General limitation period for bringing an action against trustees is six years. Time doesn’t begin to run against a beneficiary with an interest in remainder until their interest falls into possession.

93
Q

In Trustees’ liability when isn’t there a limitation period?

A

No limitation period if the trustee was party to a fraud.

No limitation period to an action to recover trust property or its proceeds from the hands of a trustee.

94
Q

How do equitable remedies operate?

A

as a supplement to the common law where a right exists but the common law remedy of damages will not suffice to give justice for the applicant.

95
Q

When are equitable remedies available?

A

Only where there is no adequate remedy at law. Enforcement of an equitable remedy must be feasible for it to be imposed ie the court must have power to hold person in contempt for non-compliance and it must not be difficult to supervise compliance.

96
Q

When determining whether to award an equitable remedy what will the court look at?

A

The balance between the likely hardship caused to the defendant by the grant of the award and that caused to the claimant if the award is not granted.

Equitable remedies are discretionary.

97
Q

For equitable remedies what must claimant not be guilty of?

A

Any inequitable conduct in relation to the case (must come to equity with clean hands) and must not have been guilty of any unreasonable delay in bringing their claim.

98
Q

Under tracing when may the beneficiaries make a proprietary claim to the property?

A

If trust property or its proceeds can be identified in the hands of a trustee.

This is advantageous where the trustee is insolvent as the beneficiaries can claim the trust property from the trustee ahead of other creditors.

99
Q

Under tracing what happens if the original trust property is in the hands of the trustee?

A

The beneficiaries may simply claim it back. Or if the trustee has directly substituted the trust property for another asset the beneficiaries may claim that asset or claim a charge over the asset up to the amount of their loss.

100
Q

Under tracing what happens if the Trustee has combined trust funds with their own funds to buy an asset?

A

The beneficiaries may claim a proportionate part of that asset or may claim a charge over the asset for the amount of trust property used.

101
Q

Under tracing if trustee places trust funds into a bank account with the trustee’s own money the beneficiaries may claim a charge over the account what are the basic rules?

A
  • Basic rule that if the trustee withdraws money they are withdrawing their own money first.
  • If trustee withdraws money from the account to buy an asset then dissipates the balance the beneficiaries may claim a share of the asset or a charge over it
  • If the trust money has been dissipated then subsequent payments of the trustee’s own money into the account are not treated as replacing the trust money unless the trustee shows a clear intention to be repaying the trust money. This means the limit of the beneficiaries claim is the lowest intermediate balance.
  • If a trustee mixes funds from two or more trusts in the trustee’s personal bank:
    o if mixed in a current account typically first money in is first money out (although court could divide proportionately)
    o if mixed in a savings account court usually divides the money proportionally
102
Q

Rule for when can’t reclaim trust property from third party?

A

If a third party acquires the legal title to trust property for value and without notice of the trust they take it free of the equitable interests of the beneficiaries (means beneficiaries cannot recover the property from the third party).

103
Q

Rule if a third party has come into possession of trust property but did not pay value for the property but had no knowledge that a breach of trust has occurred?

A

The beneficiaries can’t bring a personal claim against the recipient but may be able to make proprietary claim to recover the property or its product using the equitable tracing process if the property is identifiable and can be traced back to trust property.

104
Q

Rule if a third party received money or property traceable to a breach of trust with knowledge of the breach?

A

They will be treated as if they were a trustee

Wills and intestacy (4 decks)

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