Trusts

Question 1

A woman paid £25,000 towards her nephew’s purchase of an apartment costing £100,000. The apartment was conveyed into the nephew’s name alone, and there was no declaration or evidence as to the woman’s intentions. The woman and her nephew are now estranged, and the nephew has sold the flat for £120,000. The woman wishes to claim as much as possible from the sale proceeds.

How much can the woman properly claim?

Answer 1

The woman may claim £30,000 under a presumed resulting trust. Where an individual contributes to the purchase of property in the name of another and there is no evidence that a gift was intended, the usual presumption is that the legal owner holds on resulting trust for himself and the other party in proportion to their respective contributions.

Question 2

Two women buy a house, contributing equally to the purchase price. The house is conveyed into the name of one alone to enable her friend to claim state benefits by concealing her assets. The women are now estranged, and the non-legal owner wishes to claim a share in the house. There is no written evidence to support her claim.

What is the likely result of the claim?

Answer 2

If a property transfer was made as part of an illegal or fraudulent transaction, the court must decide whether it is in the public interest to allow a claim.

The court would take into account all relevant factors, including the underlying purpose of the relevant law and the respective conduct of the parties. In these circumstances, the court would consider the seriousness of the fraud, the conduct of both parties, and the effect of allowing a claim

Question 3

Which interests don’t pass in intestacy?

Answer 3

Contingent interests

(vested interests pass in intestacy)

Question 4

When must a half secret trust be communicated?

Answer 4

Before the execution of the will (otherwise the trust fails)

Question 5

How is a trust in land declared?

Answer 5

A trust of land must be evidenced by signed writing, then constituted by transferring legal title by deed (only for express trusts and not implied trusts)

The title then must be registered in accordance with the requirements of the relevant statutory provision

Written declaration of trust is MUST

Question 6

A father makes an oral declaration that he holds 50% of his shares in X Co Ltd on trust for his daughter. He has 200 shares in X Co Ltd, all of the same type.

Is the father bound by his declaration?

Answer 6

The father is bound by his declaration because all the requirements for a valid declaration of trust are satisfied. The father is attempting to create a trust of personalty with himself as trustee and his daughter as beneficiary. Such a trust is binding provided that the three certainties are present and the beneficiary principle and perpetuity rules against remoteness of vesting are satisfied.

No special formalities are needed for a declaration of trust of personalty. Here, the words the father used show that he intends to be legally bound, the subject matter of the trust is clear (50% of the father’s shares in X Co Ltd), and the object is his daughter. The beneficiary principle is satisfied here as the trust is for an individual person (the father’s daughter). There are no perpetuity issues as there are no conditions attached to the daughter’s interest: her interest is vested.

Question 7

When does a declaration of legal title in property be made in writing?

Answer 7

When it is express trust in favor of a non legal owner

Question 8

When is a general charitable intention a must for applying the cy-pres doctrine?

Answer 8

At the initial failure of the trust

(no general charitable intention is required for subsequent failure)

Question 9

When can beneficiaries appoint trustees?

Answer 9

When:
1. No nominated trustee
2. Beneficiaries of full age and capacity
3. Absolutely entitled to the property (life interest is not absolute entitlement)
4. Unanimously decide

Same conditions for removal of trustees

Question 10

A settlor transfers property to two trustees to hold on trust for his grandchildren. The trust deed contains no express powers dealing with the appointment of trustees. One of the trustees wishes to retire.

Which of the following best describes the trustee’s power to retire?

Answer 10

The trustee may retire, but he and the continuing trustee must appoint a replacement.

A trustee may retire without replacement only if he leaves in office two trustees or a trust corporation, and his co-trustees consent by deed.

A trustee may be replaced where he desires to be discharged provided that a replacement trustee is appointed and the appointment is made in writing. The appointment must be made by the retiring and continuing trustees.

As there are only two trustees, so the power to retire without replacement does not apply

Question 11

In her will a woman appointed two trustees to hold all her estate on trust for her son for life with remainder to his children in equal shares. The son wishes to raise a capital sum, and one of the trustees has offered to purchase the son’s life interest.

Which of the following statements best describes the position of the trustee?

Answer 11

The trustee may purchase the son’s interest provided she pays the full market value and makes full disclosure of all material facts. The ‘fair dealing rule’ applies to the purchase by a trustee of a beneficiary’s interest.

the rule relating to the purchase of a beneficiary’s interest is less strict than the general rule (trustee cannot purchase under ANY circumstances) which applies to a trustee’s purchase of trust property

Exception: consent of beneficiaries on full disclosure of COI or profit, can be a possible defense against breach of duty

Question 12

Can trustees delegate discretion?

Answer 12

Yes. Only w.r.t to investment decisions (NOT held liable for loss as long as they followed the statutory steps)
because trustees are not liable for the actions of their duly appointed investment manager provided that they comply with the procedures laid down by statute and act with such care and skill as is reasonable in all the circumstances

Question 13

Can trustees delegate their whole office by PoA?

Answer 13

Yes, but only for a max of 12 continuous months

Question 14

When can the PRs of a trustee appoint a replacement trustee?

Answer 14

Only for sole trustee

Question 15

In 2013, a settlor transferred funds to trustees on trust for her son for life with remainder to her two grandsons in equal shares provided they attain the age of 25. The trust instrument contains no express powers. The elder grandson is now 21 and has asked the trustees to give him some of the capital to help set up a business. The younger grandson is 18.

Whose consent must the trustees obtain if they wish to comply with the elder grandson’s request?

Answer 15

Consent of the son only

Where a beneficiary has an interest in the capital of a fund, the trustees have power to advance capital for the beneficiary’s advancement or benefit. The trustees must obtain the consent of any beneficiary with a PRIOR interest in the income of the fund

Question 16

A trustee arranged to transfer trust funds in breach of trust into the name of a company based offshore. The trustee enlisted the help of an accountant to set up the company and arrange the transfer. The accountant was not aware of the breach of trust but believed that the transfer was being made to avoid money laundering regulations.

What possible claim or claims can be brought on behalf of the trust against the accountant?

Answer 16

A personal claim in equity only

Where a third party acts as an accessory to a breach of trust, he becomes personally liable as if he were a constructive trustee.

To establish accessory liability, it must be shown that the third party accessory was dishonest-that is, he did not act as an honest person would in the circumstances. It is not necessary to show that the third party knew that a breach of trust was committed

Question 17

What is a Denley trust?

Answer 17

a trust for an abstract purpose which is not charitable will fail. However, a trust which appears to be for a private purpose is valid if it is actually for the benefit of ascertainable human beneficiaries who may enforce the trust

Question 18

Can a trustee charge for their services?

Answer 18

The normal rule is that trustees may not profit from their trusteeship, so a trustee may not charge unless there is an express power in the trust instrument.

However, by statute, a professional trustee may charge their normal professional charges for their services in relation to the trust provided that:

1) they are not a sole trustee, and

2) their co-trustee(s) consent in writing to their charges.

The trustee has power to appoint a co-trustee and would therefore be able to charge if her co-trustee gave written consent

Question 19

What is the limitation period for suing a trustee for a breach of trust?

Answer 19

6 years from the breach

Question 20

A testator died leaving a will in which he appointed trustees to hold the residue of his estate on trust for his grandson provided he attains the age of 25. The will does not contain any express powers. During the grandson’s minority the trustees have been using the income for the grandson’s maintenance, education, or benefit and accumulating the surplus income. The grandson has just reached the age of 18.

what should the trustees should do with the surplus income accumulated during the grandson’s minority?

Answer 20

The trustees should hold the surplus income as capital until the grandson is 25 or dies under that age.

Where trustees have been accumulating surplus income during a child’s minority, the accumulated income accrues to capital once the child attains the age of 18. When the beneficiary’s interest in capital vests, he becomes entitled to the accumulated income as well as the capital.

In this case, the grandson’s interest in capital will vest when he is 25, and at that date he will become entitled to claim the income accumulated while he was under 18 along with the capital of the fund.

Question 21

Which trust can be declared w/o written evidence?

Answer 21

Trust of personalty (BUT it has to be either DELIVERED or by DEED)
Otherwise the trust will fail

There are no formal requirements for a declaration of trust of personalty (after 3Cs are present)

Question 22

A mother’s will contains a gift of £20,000 to her daughter. After signing the will, the mother wrote a letter to her daughter explaining that she was leaving her the money to hold on trust to transfer it to a named friend. The daughter received the letter but did not reply.

Which of the following best describes the position of the daughter?

Answer 22

The daughter holds the money on trust for the friend. The usual rule is that a trust which is to take effect on death and is to be revocable until then must be contained in a valid will.

However, a secret trust arises where the testator, at any time before death, communicates to the apparent beneficiary her intention that the apparent gift should be held on trust for some third party and the apparent beneficiary agrees, either expressly or impliedly (by silence). The apparent beneficiary holds on trust as instructed by the testator. Here, the terms of the trust have been communicated to the daughter, and she did not refuse the trust, so she holds the money on trust to pay it to the friend

the rule that communication must take place before the date of the will applies only to half-secret trusts

Question 23

Can a trustee be responsible for the breach of another trustee?

Answer 23

Yes

As the trustee has failed to supervise the other trustee (which results in another breach of trust)

Question 24

What is the type of test related to the certainty of object rule for a fixed trust?

Answer 24

Complete list test (trustee must be able to draw up a complete list of beneficiaries)

[given postulate/is or is not test if for discretionary trust (to say with certainty that a beneficiary is or is not a member of the class)]

Question 25

What are the elements of a valid private trust?

Answer 25

1. Certainty of intention
2. Certainty of sub matter
3. Certainty of objects
4. Trustee (inter vivos trust only; a testamentary trust will not fail for lack of trustee)
5. Ascertainable human beneficiaries (beneficiary principle)

Question 26

What are the exceptions to the rule ‘equity will not assist a volunteer’ in cases where a gift is unenforceable?

Answer 26

1. Every effort tests (donor has done everything to put the gift out of their control)
2. Donatio mortis causa (gift by reason of death)
3. Fortuitous vesting -the rule in Strong v Bird (the donee becomes PR and the transfer then completes)
4. Proprietary estoppel (donee relied and did something to their detriment)
5. Unconscionability (unconscionable for the donor to change their mind and go back on their intention)

Question 27

When can beneficiaries terminate a trust?

Answer 27

When ALL of them agree and ALL are of full age

Question 28

What happens when a secret trust fails?

Answer 28

The trustee can keep the money

(if a half secret trust fails then there is a resulting trust)

Question 29

When can beneficiaries appoint a trustee?

Answer 29

When ALL of them agree and ALL are of full age

Question 30

Can trustees buy trust prop?

Answer 30

No (void)

May purchase beneficial interest from beneficiary for full price and by full disclosure of all material facts

Question 31

What is the difference b/w a knowing recipient and a dishonest accessory w.r.t to trust prop?

Answer 31

Knowing recipient: Person who RECEIVED trust money with requisite knowledge of breach (it is the conscience of the recipient which is at issue)

Dish acc: Person who FACILITATED breach with ‘dishonest’ intention

(BOTH are liable as constructive trustee)

Question 32

What is the no self dealing rule?

Answer 32

Absolute bar on trustee in purchasing trust prop

(conditional possibility to purchase beneficial interest)

Question 33

Do beneficiaries have power to appoint/retire trustees?

Answer 33

Yes

IF they are ADULT and ABSOLUTELY ENTITLED (not contingent interest) to the trust prop

Question 34

To what kind of trusts does the statutory power of advancement not apply?

Answer 34

To discretionary trusts

(it ONLY applies to fixed trusts)

Question 35

Is a trustee allowed to keep profits made from their position as a trustee

Answer 35

No

The general rule is that a trustee may not profit from their position, and that a trustee holds any profit received as a result of their trusteeship on trust for the beneficiaries. The rule does not apply where the profit would have been received regardless of the trusteeship.

Question 36

A fund is held on trust by two trustees. They decide to sell some of the trust investments and place the proceeds in the trust bank account pending reinvestment. The account permits either trustee to withdraw funds. One of the trustees withdraws the money from the bank and disappears.

What is the liability of the remaining trustee?

Answer 36

The remaining trustee is liable because he has failed to retain control of the trust property. A trustee is not vicariously liable for the actions of their co-trustee but is liable for loss caused by their own breach of trust. Trustees must act jointly and must keep the trust property in their joint control. This trustee is in breach of trust because they should have ensured that the bank account required the consent of both trustees to the withdrawal of funds.

Question 37

A minor beneficiary has an absolute vested interest under a trust of which they are the sole beneficiary. The beneficiary wishes to use the income for the payment of school fees.

Which of the following best states the legal position with regard to such use?

Answer 37

Under the power of maintenance, trustees have the power to pay or apply the income of the trust for a minor beneficiary’s maintenance, education, or benefit. The power is discretionary. Because a minor is not capable of giving a valid receipt, the income must be applied directly to the purpose required or to a parent or guardian for use in the beneficiary’s interest. Therefore, the trustees may, at their discretion, pay the minor beneficiary’s school fees, but they must give the income directly to the school or to a parent or guardian. the power of maintenance is discretionary and applies to minor beneficiaries with vested or contingent interests. the trustees must give the income to the school or to a parent or guardian, not to the minor beneficiary. the power of maintenance is discretionary and because there is no requirement for the beneficiary to demonstrate financial need.

Question 38

In his will a testator left £100,000 to trustees “to be divided between all my employees and former employees living at my death”. The testator has died. The current employees can all be clearly identified, but the company records are not detailed enough to identify all the former employees.

Which of the following best describes the position of the trustees?

Answer 38

The trustees hold on resulting trust for the testator’s estate. The testator has attempted to create a fixed interest trust as the trustees are to divide the fund between all the beneficiaries and are not given any discretion to choose between them. The test of certainty of objects in a fixed interest trust is the ‘complete list’ test. The trust fails for lack of certainty of objects if it is not possible to make a complete list of all the beneficiaries. trustees would only apply to the court where there was uncertainty as to the effect of the wording of the will, which is not the case here. the terms of the trust do not give the trustees discretion to choose between the beneficiaries.

Question 39

In his will a man appointed two trustees to hold his residuary estate on trust for his widow for life with remainder to his children. The trust fund includes a holding of 30% of the shares in a family company. One of the trustees holds 20% of the shares in the same company. The trustee is unanimously appointed to be a director of the company and is paid £5,000 in director’s fees.

Which of the following best describes the position of the trustee in relation to the director’s fees?

Answer 39

The trustee may keep the director’s fees. The general rule is that a trustee may not profit from their position, and that a trustee holds any profit received as a result of their trusteeship on trust for the beneficiaries. The rule does not apply where the profit would have been received regardless of the trusteeship. Here, the trustee was unanimously appointed as director. This means that he would have been appointed even if the 30% vote attached to the trust shares had been cast against his appointment. Therefore, he is not receiving a profit from the trusteeship and may keep the fees

Question 40

What happens when a trust is void?

Answer 40

A gift is presumed to be made to the beneficiary

Question 41

What is a measure of liability w.r.t to trusts?

Answer 41

Restoring to the trust the full losses that were incurred

Question 42

What are statutory trusts?

Answer 42

A trust that arises on an intestacy where the issue of the deceased are entitled to the whole or part of the estate.

The terms of such trusts are set out in section 47 of the Administration of Estates Act 1925, which provides for a child’s share to be held in trust until the age of 18 on a per stirpes basis.

(if minor marriers or enters civil partnership then the trust will vest before 18)

Question 43

In what kind of trusts can a trustee NOT be a beneficiary?

Answer 43

Testamentary trusts (in inter vivos trust a trustee can be a beneficiary)

Question 44

What kind of interest can a trustee NOT hold?

Answer 44

Only equitable interest

(trustees generally hold the nominal/legal to prop for the trust)

Question 45

What is the time limit for bringing a claim against a breach by a trustee?

Answer 45

6 years

No time limit for fraud by trustees (sub to doctrine of laches)

Question 46

What is a trustee de son tort?

Answer 46

When a trustee is not formally appointment but by their conduct has created a constructive trust

Question 47

What is the difference b/w common law and equity based tracing?

Answer 47

Common law can only trace property when there is a clean substitution of property, but it cannot trace through a mixed fund in case of money.

Equity, on the other hand, can trace into mixed funds, provided a fiduciary relationship can be established

Question 48

What powers can a trustee not delegate?

Answer 48

Power to distribute (includes advancement) or dispose of trust assets,
allocating fees or other payments,
appointing a trustee or further delegating duties

Question 49

Can a trust for maintenance of tombs and monuments be enforceable?

Answer 49

No

It is VALID but NOT enforceable (because the beneficiary in whose memory the trust is established is dead and thus cannot enforce it)

Question 50

What happens if one of the purposes of a charitable trust is not charitable?

Answer 50

It fails

ALL purposes of a charitable trust need to be exclusively charitable

(exception: if the non-charitable purpose is ancillary to the charitable purpose or the funds are separated into charitable and non-charitable purposes)

Question 51

what are defences to tracing rules?

Answer 51

Estoppel by representation (relied on false representation of another)
Passing on (passed the property to another in return for nothing that can be traced into)

Question 52

What is the power of appointment?

Answer 52

to appoint (assign) capital on different terms to those laid down by the testator

(it is NOT a statutory power and must be in the trust instrument)

Question 53

Can the statutory power of advancement be excluded by a settlor?

Answer 53

Yes, the statutory power of advancement can be validly excluded by the settlor

Question 54

What is an interest in possession trust?

Answer 54

When a beneficiary is entitled to income of the trust prop or to use the prop during their lifetime

(such beneficiary is NOT entitled to the capital)

Question 55

Are there any limits to the number of trustees appointed?

Answer 55

No

ONLY for trusts of land, the number cannot exceed 4
Exception: Trusts for ecclesiastical, charitable or public purposes (unlimited number of trustees even for land)
or
not more than 4 for a trust that originally had 3 or less than 3 trustees)

Question 56

What gives trustees a right to remove another trustee?

Answer 56

If the trustee is:
Dead
Retirement
Being unfit to act
Outside the UK for more than 12 months

Question 57

What kind of interest do not affect the power of advancement?

Answer 57

Contingent interests
(but life interests are to be considered)

Question 58

What payment are professional trustees entitled to?

Answer 58

Statutory right of payment for services even when the expertise is not required AND all trustees consent in writing

Question 59

What is the rule in Saunders v Vautier?

Answer 59

As long as

ALL beneficiaries are in existence,
over 18 and have mental capacity,
all agree
Absolutely entitled to the WHOLE property

They can bring an end to a trust

Question 60

In which case can a professional trustee NOT charge for their services?

Answer 60

When they are sole trustee

A prof trustee needs the consent (in writing) of co-trustees to charge

Question 61

In his will a man appointed two trustees to hold his residuary estate on trust for his widow for life with remainder to his children. The trust fund includes a holding of 30% of the shares in a family company. One of the trustees holds 20% of the shares in the same company. The trustee is unanimously appointed to be a director of the company and is paid £5,000 in director’s fees.

Can the trustee keep the director’s fees?

Answer 61

The trustee may keep the director’s fees.

The general rule is that a trustee may not profit from their position, and that a trustee holds any profit received as a result of their trusteeship on trust for the beneficiaries. The rule does not apply where the profit would have been received regardless of the trusteeship.

Here, the trustee was unanimously appointed as director. This means that he would have been appointed even if the 30% vote attached to the trust shares had been cast against his appointment. Therefore, he is not receiving a profit from the trusteeship and may keep the fees.

Question 62

A trustee, contrary to an express prohibition in the trust deed, invested in land in France as part of the trust investment portfolio. The purchase was completed on 6 June 2018. The property was sold on 12 March 2020 for a price 40% lower than the purchase price. The beneficiaries wish to sue for breach of trust.

When will the limitation period to issue the claim expire?

Answer 62

The limitation period expires on 6 June 2024. The limitation period for bringing an action against a trustee for breach of trust is six years from the date on which the breach was committed. Here, the breach was committed on 6 June 2018, the day the trustee purchased the land in France and not on the day it was sold at a loss

(limitation pd starts from when the breach is committed)

Question 63

When can a professional trustee charge for their services?

Answer 63

a professional trustee may charge reasonable remuneration for their services, provided that:
(1) they are not the sole trustee,
(2) the co-trustees give their written consent, and
(3) there is no express provision in the trust instrument relating to the trustees’ charges.

Question 64

A testator died leaving a will in which he appointed trustees to hold the residue of his estate on trust for his grandson provided he attains the age of 25. The will does not contain any express powers. During the grandson’s minority the trustees have been using the income for the grandson’s maintenance, education, or benefit and accumulating the surplus income. The grandson has just reached the age of 18.

What should the trustees do with the surplus income accumulated during the grandson’s minority?

Answer 64

The trustees should hold the surplus income as capital until the grandson is 25 or dies under that age.

Where trustees have been accumulating surplus income during a child’s minority, the accumulated income accrues to capital once the child attains the age of 18. When the beneficiary’s interest in capital vests, he becomes entitled to the accumulated income as well as the capital.

In this case, the grandson’s interest in capital will vest when he is 25, and at that date he will become entitled to claim the income accumulated while he was under 18 along with the capital of the fund. If the grandson dies before he is 25, his interest in the capital will fail. In the absence of any substitutional gift in the will, the fund will pass, together with the income accumulated while the grandson was under 18, on resulting trust for the testator’s estate.

Question 65

A settlor transfers property to two trustees to hold on trust for her two children in equal shares provided they attain the age of 21. The trust deed contains no express powers dealing with the appointment of trustees. The children are aged 18 and 20, and they do not agree with the trustees’ investment policies. They would like to replace the trustees.

What best describes the power of the beneficiaries?

Answer 65

The beneficiaries have no power to control the trustees because their interests are contingent.

In the absence of special provisions in the trust instrument, the usual rule is that the existing trustees have the power to appoint new trustees and the beneficiaries do not have control over the composition of the trusteeship. However, if all the beneficiaries are of full age and capacity and between them absolutely entitled, the beneficiaries may by agreement direct the trustees to retire and appoint new trustees of their choice

Question 66

A settlor transfers £300,000 to trustees to hold on trust for her son for life and on his death to a named charity. The trustees are considering how to invest the money.

What best describes the considerations the trustees should take into account when choosing investments?

Answer 66

The trustees should invest so as to take into account the differing interests of the beneficiaries. The trustees owe a duty to act impartially between the beneficiaries and must balance their interests. This means they must take into account the son’s interest in the income as well as the interest of the charity in capital growth

Question 67

The two trustees of a discretionary trust frequently cannot agree on how to administer the trust or distribute the trust funds. Each trustee has asked the other to resign, but they both refused. An adult beneficiary, frustrated by the trustees, applies to the court and asks the court to replace the trustees.

Does the court have the power to replace the trustees in this situation?

Answer 67

The court has the power to appoint or replace trustees whenever it is expedient to do so, and it is found inexpedient, difficult, or impracticable to do so without the court’s assistance.

Question 68

A woman died intestate three months ago. She was unmarried and had three sons. The sons are age 20, 15, and 14. The 14-year-old died tragically last week, whilst the woman’s estate was yet to be administered. The father of the woman’s sons is still alive.

Which of the following best describes the beneficiaries’ interests in the woman’s estate following the death of the 14-year-old son?

Answer 68

The 20-year-old son has a vested interest in one-half of the estate. The 15-year-old son has a contingent interest in one-half of the estate.

When a person dies intestate without a spouse or civil partner, the intestacy rules’ strict order of entitlement applies to determine who will inherit the estate. As the woman was unmarried at the time of her death, her estate will pass to her issue on statutory trusts. The woman’s issue are her three sons.

Therefore, each son is entitled to one-third of the estate. As only the 20-year-old is over 18, only he has a vested interest. The 15- and 14-year-olds have contingent interests, as they are under 18 and unmarried.

When the 14-year-old dies before reaching the age of 18, his contingent interest fails, and it is divided equally between the other two sons, leaving both with half interests in the estate.

The interest of the 20-year-old remains vested, whilst the interest of the 15-year-old remains contingent. The 14-year-old’s father has no entitlement to the estate.

Question 69

A man’s will appointed two trustees to hold the residue of his estate in equal shares for his two daughters. At the man’s death, his daughters were 14 years old and 12 years old. The will contains no express powers. The trustees have, for the past two years, been using all the income to pay the elder daughter’s school fees. The younger daughter brings a claim against the trustees for breach of trust.

If the court determines the trustees have committed a breach of trust, what is the most likely reason?

Answer 69

The trustees have committed a breach of trust because they had power to use only half the income for the elder daughter’s benefit.

When a beneficiary under the age of 18 has an interest in the income of a fund, the trustees have a statutory power to pay or apply the income for the child’s maintenance, education, or benefit and must accumulate any surplus income.

When a fund is held for two beneficiaries equally, each has an interest in half the income, and the trustees have no power to transfer income between the beneficiaries. The trustees are in breach of trust because they have used the younger daughter’s share of the income to pay the elder daughter’s school fees.