Trusts

Question 1

Express trusts are created by the express intention of the creator of the trust, known as the…?

Answer 1

Settlor

Question 2

What are the two ways in which a settlor creates trust in their lifetime (inter vivos)?

Answer 2

1. Declaring themselves trustee of a specific property that they own;
2. Transferring property to one of more trustees to hold on trust.

Question 3

What is the name for a trust created in someone’s will?

Answer 3

A testamentary trust.

Question 4

What are the characteristics of beneficiaries of a private trust?

Answer 4

They are certain, ascertainable persons.

Question 5

What are the three types of private trusts?

Answer 5

Fixed, Discretionary, Purpose.

Question 6

When does a fixed trust exist?

Answer 6

When the interests of the beneficiaries are defined by the settlor.

Question 7

When does a discretionary trust exist?

Answer 7

When the trustee is given discretion on how to distribute the trust property, usually amongst members of an identifiable class.

Question 8

What type of private purpose trust is usually recognised as valid and why?

Answer 8

Charitable trusts - because even though there aren’t defined beneficiaries, they are recognised as benefitting an indefinite class of people or the public in general (so long as it falls within the recognised heads of charity).

Question 9

When does an implied trust occur?

Answer 9

Where the intention of the settlor is not expressed, but a trust is presumed in order to ensure that an equitable result is achieved.

Question 10

What is a resulting trust and when does it arise?

Answer 10

A resulting trust is a type of implied trust and arises when:

1. an interest under an express trust fails; or
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.

Question 11

In a resulting trust, to whom does the beneficial interest revert to?

Answer 11

The beneficial interest reverts to the settlor or the settlor’s estate.

Question 12

When does a constructive trust arise?

Answer 12

A constructive trust arises when the court imposes an equitable remedy to prevent unjust enrichment of one person at the expense of another as the result of wrongful conduct.

Question 13

What are the 3 certainties required for an express private trust to be valid?

Answer 13

To be valid, a trust instrument must evidence certainty of:

1. Intention to create a trust;
2. Subject matter (trust property); and
3. Objects (beneficiaries).

Question 14

True or False:

A settler must have their intention to create a trust evidenced in writing?

Answer 14

False:
The settlor must show by written, spoken words, or by conduct, that they intend to subject the trustee to a binding obligation.

Question 15

True or False:
The beneficiaries of an intended trust need to have been communicated with about that intention in order for the trust to be valid.

Answer 15

False:

Communication of intent to the beneficiaries is not necessary.

Question 16

When must a settlor’s intention to create a trust be manifested?

Answer 16

An intention to create a present trust must have been externally manifested by the settlor at the time the settlor owned the property and prior to its transfer to another.

Question 17

True or False:
The conduct of parties subsequent to the conveyance of private trust property may be evidence of certainty of intent (prior to their passing).

Answer 17

True.

Question 18

True or False:

A future interest is not valid trust property.

Answer 18

False:
Whist the settlor’s intent must be that the trust take effect immediately, and the trust interest must be an existing interest, future interest can still be valid trust property (the right to that future interest, however, must be in existence and intended to be given immediately).

Question 19

What are precatory expressions, and what are their effect on an express trust?

Answer 19

An expression of hope, wish, or mere suggestion that the property be used in a certain way. They do not create a trust - however context is everything and the court will look at a professionally drafted deed in full to take a view ‘on the whole’.

Question 20

Is the word ‘trust’ needed to form a trust? Why?

Answer 20

No. Because of the equitable maxim that equity looks at the intention of the settlor, not the words used. However, if the language is ambiguous or capable of different meanings, a trust is likely not created.

Question 21

What happens to property if the intention to place it in a private trust is uncertain?

Answer 21

When a trust is void for uncertainty of intention, the property passes as an outright gift to the party who would have been trustee.

Question 22

True or False:

An uncertain description of property will always fail the certainty of subject matter test.

Answer 22

False:
If it can be objectively defined, through common legal language or otherwise (e.g. “a reasonable income”), then a court may find it valid and the beneficiary’s entitlement may be deemed certain.

Question 23

True or False:

“20 bottles of wine stored in X warehouse” will fail the certainty of subject matter test (and why).

Answer 23

True - because these assets are tangible property which have not been segregated from the rest of that tangible property, and so cannot be ascertainable.

Question 24

What happens to property if the subject matter of that property is too uncertain to place it in a private trust?

Answer 24

When a trust is void for uncertainty of subject matter, the property reverts to the settlor.

Question 25

If beneficiaries are defined by a concept in a fixed trust (e.g. ‘my friends’) what is the test to determine certainty of object?

Answer 25

Complete list test.

The trustee can draw up a complete list of ascertainable beneficiaries, even if they are not in existence yet.

Question 26

What is the name of the test used in a discretionary fund to ascertain certainty of objects, and what does the test consist of?

Answer 26

The ‘Given Postulants’ Test is whether it can be said with certainty that any given individual is or is not a member of the class (e.g. “the employees and ex-employees of X co Ltd, their relatives and dependants”).

The definition of the class is sufficiently clear to enable the trustees to assess the range of potential beneficiaries and make decisions as to how to distribute the funds.

Question 27

If the beneficiaries of a discretionary trust are described but not named (e.g. my nieces and nephews), what is required of the description?

Answer 27

The description must be conceptually certain.

Question 28

True or False:

Evidential uncertainty will cause a discretionary trust to fail.

Answer 28

False. Because any potential beneficiary who cannot prove that they belong to the class described will not be taken into the trustees’ discretion.

Like fixed trusts, the fact that trustees are aware of their potential as a beneficiary, but cannot trace them, will not render the trust invalid.

Question 29

True or False:

A discretionary trust for “all or some of the inhabitants of West Yorkshire” will fail. Why?

Answer 29

True - because it is administratively unworkable for the trustees, and is capricious.

Question 30

What happens to trust property if objects are deemed uncertain?

Answer 30

If a trust is void for uncertainty of objects, a resulting trust in favour of the settlor or their successors is presumed.

Question 31

What is the Beneficiary Principle, and what are its exceptions?

Answer 31

A trust must have ascertainable human beneficiaries to enforce it, meaning that abstract trusts for a purpose are unenforceable unless they fall into the category of honorary trusts (or Charitable trusts, which are enforceable by the Attorney General).

Question 32

What happens when a trustee dies, refuses to accept appointment, or resigns?

Answer 32

The trust does not fail, instead the court appoints a successor trustee (unless it is clear that the settlor intended the trust to continue only so long as a particular trustee served).

Question 33

What happens if there is an absence of a trustee at the creation of a trust?

Answer 33

It may cause an attempted inter vivos trust to fail for lack of delivery.

Question 34

What is the maximum number of trustees that a trust can have (not trusts for land)?

Answer 34

No maximum.

Question 35

True or False:

Trustees are required to act with unanimity.

Answer 35

True. Which is why it’s practical not to have too many.

Question 36

How many trustees must a trust of land have?

Answer 36

Usually at least two (or one trust corporation), because a receipt for money for a valid sale of land requires at least two trustees.

A trust of land may have no more than four trustees.

Question 37

What is the remoteness of vesting rule?

Answer 37

An interest under a trust is void if it does not vest within the perpetuity period.

Question 38

What is the date from which trusts that take effect have a vesting period of 125 years?

Answer 38

6 April 2010.

Question 39

A settlor conveys land to a trustee “on trust for the benefit of A so long as the existing house on the land remains standing, and then for the benefit of the then living descendants of A.” Is the equitable interest valid? Why?

Answer 39

The equitable interest to the descendants of A is void because it is possible that the house could remain standing on the land for more than 125 years after the life of any person living at the time the trust was created.

Question 40

What are the acceptable perpetuity periods for noncharitable purpose trusts?

Answer 40

• A human life in being + 21 years;
• A fixed period of up to 21 years;
• A period expressed as being “for as long as the law allows” (which will be 21 years); and
• A period assumed to be 21 years when no period is permitted (e.g. it is assumed a statue to be erected of the deceased will be done so within the 21 year perpetuity period).

Question 41

When is a settlor legally bound as a trustee?

Answer 41

When they have demonstrated by words or conduct that they intend to be legally bound, and the requirements of certainty, the beneficiary principal, and the perpetuity rules are satisfied.

Question 42

How can a settlor retract their status as a trustee?

Answer 42

They can’t.

Question 43

What two elements must be satisfied in a transfer of property to a trustee?

Answer 43

1. The settlor transfers the trust property to the trustee in the appropriate legal fashion; and
2. The settlor makes a declaration of trust (intention through words or conduct to be legally bound - certainty, beneficiary principal, perpetuity all satisfied).

Question 44

What are the formal requirements for a trust of land to be valid?

Answer 44

There is written evidence of the declaration of trust signed by the settlor.

Question 45

What is the act of ‘Constitution’?

Answer 45

If a settlor is not holding property in trust themselves as trustee, the process of transferring legal title to property from one party to another in order to constitute the trust.