Trusts

Question 1

Express Trusts

Answer 1

Express trusts are created by individuals for a specific reason such as a charity, fixed, discretionary, hybrid and testamentary

Question 2

Essential Elements

Answer 2

Intention, Subject matter and Object (Knight v Knight). A trust must also be for the benefit of persons or for charitable purposes. Leahy v Attorney General (NSW): A gift

Question 3

Three indicia of a trust:

Answer 3

1. Legal title is vested in the trustee. Trustee may be an individual, several people or a corporation
2. There must be a cestuique trust or beneficiary. This can be a person or
   purpose, one or many, alive or unborn. Beneficiary does not need to know of the trust creation. A trustee can be a beneficiary but not the sole beneficiary
3. Personal obligation is attached to the property and breach of that obligation attracts proprietary remedies in equity. If it is an express trust then the beneficiary has both personal and proprietary remedies against the trustee. Personal remedies allow the beneficiary to seek out in personam orders against the trustee. Proprietary remedies allow the beneficiary to secure/retrieve any trust property wrongfully used, taken or lost by the trustee

Question 4

CAPACITY TO BE A TRUSTEE

Answer 4

Person
Corporation
Trustee Company
NSW Trustee and Guardian
Lack of capacity

Question 5

Doctrine of Powers

Answer 5

The doctrine of powers holds that a trustee must exercise his or her powers both in good faith and for a proper purpose.

Question 6

Byrnes v Kendle (2011) 243 CLR 253

Answer 6

Mr K as trustee did not collect rent owing on a leased property held on trust. Although the trust deed was silent as to his duties, the High Court held that both the statutory duties and those implied in equity must be carried out by the trustee.

Question 7

Duties

Answer 7

‘Duties’ are all the acts that the trustee must do (“positive duties”) or refrain from doing (“negative duties”) in the administration of the trust. Failure to carry out any duty amounts to a breach of trust, irrespective of whether the trustee was careful/negligent, honest/dishonest.

Question 8

BENEFICIARY

Answer 8

Any beneficiary who has reason to believe that the trustee is about to do an act not authorised by the trust instrument and/or statute and/or is contrary to equitable principles, the beneficiary may apply for an injunction to restrain the trustee: Balls v Strutt (1841) 1 Hare 146; 66 ER 984

Question 9

Trust powers

Answer 9

Where the trustee is directed/obliged to exercise that power, it is a “trust power.”

-The “object” of a trust power (such as a beneficiary of a discretionary trust) has the right to be considered and the right to compel the proper administration of the trust (a personal equity). Gartside v IRC [1968] AC 553

Question 10

Mere/bare powers

Answer 10

Where the trustee is authorised but not obliged to exercise a
power, it is a bare or mere power. In other words, it is discretionary.
-Identifying the nature and effect of a power is a matter of construction of the instrument which confers the power. Hourigan v Trustees Executors and Agency Co Ltd (1934) 51 CLR 619.

Question 11

Rule in Barnes v Addy

Answer 11

 This rule allows an object of a fiduciary duty to claim against a third party who has assisted the fiduciary to breach their duty
 Only applies when the third party has either received property from the fiduciary or has assisted them with breach

Question 12

Lord Selborne LC stated the basis for the liability of third parties as a constructive trust of the property: (barnes)

Answer 12

[The responsibility of a trustee] may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as agents in transactions within their legal powers, transactions perhaps of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

Question 13

Charitable Trusts

Answer 13

A charitable trust is a trust for purposes that are considered by law to be “charitable”. A trust for charitable purposes is a trust which confers benefit on the public and which falls within the spirit and intendment of the Preamble of the Statute of Charitable Uses 1601 (Statute of Elizabeth)

Question 14

Two ways to create a charitable trust

Answer 14

 by inter vivos settlement

 by testament (testamentary charitable trust)

Question 15

A trust is charitable if it satisfies two conditions:

Answer 15

o where the purpose falls within the spirit and intendment (intention) of the Preamble of the Statute AND
o where it is of public benefit

Question 16

Four divisions of charitable trusts: Special Purposes of Income Tax v. Pemsel [1891]

Answer 16

[1] trusts for the relief of poverty (and of the aged and sick);
[2] trust for the advancement of education;
[3] trusts for the advancement of religion; and
[4] trusts for other purposes beneficial to the community, not falling under any of the preceding heads.”

Question 17

Resulting Trusts

Answer 17

Resulting and constructive trusts are created by the court, in some instances irrespective of the intentions of the parties. This is in contrast to express trusts, which can only be created if it is the settlor’s intention that property be held on trust.

Question 18

A resulting trust will be imposed when:

Answer 18

(a) there is a failure of one of the three certainties which leads to a failure in the
beneficial interest (automatic resulting trust); or
(b) one person has purchased property and placed it in the name of another (presumed resulting trust).
In both types of resulting trust, the beneficial interest results in (goes back to) the settlor, the testator’s residuary estate or the person who purchased the property.

Question 19

Categories of resulting trust

Answer 19

a) automatic

b) presumed

Question 20

An automatic resulting trust

Answer 20

In Re Vandervell’s Trusts (No.1) [1967] 2 AC 291, Lord Upjohn described the differences between them:
(a) An automatic resulting trust is imposed to fill what would otherwise be a gap in the beneficial interest in property and takes effect by operation of equitable principles. An automatic resulting trust therefore concerns the incomplete disposition of an equitable interest in property.

Question 21

A presumed resulting trust arises

Answer 21

. . . where A transfers [or directs a trustee for him/her to transfer] the legal estate to B otherwise than for valuable consideration: it is a question of A’s intention whether B to take beneficially or on trust.

Question 22

A trust may fail or be terminated (determined) in several ways and for a number of reasons:

Answer 22

(i) Public policy

(ii) Illegality of Purpose

Question 23

(i) Public policy

Answer 23

A trust which is contrary to public policy, or promotes immorality or interferes with the sanctity of marriage (e.g., placing absolute restriction on a beneficiary in regard to marriage) will be struck down on the grounds that the courts will not lend assistance to acts or provisions which are contrary to public policy.

Question 24

Public policy case

Answer 24

Re Ayles’ Trusts (1875) 1 Ch D 282, a trust in favour of future illegitimate children was struck down on the grounds that it was contrary to public morality. Today, such an action by a court would be considered as being contrary to public policy in itself.

Question 25

(ii) Illegality of Purpose

Answer 25

A trust for an illegal purpose will be void. The court will not assist persons trying to carry out what is contrary to the provisions of the law. Hamilton v Waring (1820) 2 Bligh 196; 4 ER 300

Question 26

Illegality of Purpose Case

Answer 26

Nelson v Nelson (1995) 184 CLR 538

Thrupp v Collett (No. 1) (1858)

Question 27

TERMINATION BY THE BENEFICIARIES (Saunders v Vautier rule)

Answer 27

The rule in Saunders v Vautier (1841) 4 Beav 115; 49 ER 282 provides that when a beneficiary is sui generis (one of a kind), sui juris (has the legal capacity to hold property) and are absolutely entitled (has an equitable proprietary interest in the trust property), s/he may call upon the trustee to transfer the legal title to the property to them. If there are two or more beneficiaries, and all are sui juris and absolutely entitled, provided they unanimously agree, they may also call for the termination of the trust. Gosling v Gosling (1859) 70 ER 423