Trusts Flashcards
The 3 certainties for creating of a trust
The three certainties:
1. Certainty of intention. It must be clear that settlor intended to make trust. Not necessary to use the word trust, but a wish or hope is not enough (precatory wording indicates a gift). The settlor does not have to know that what he has created is in fact a trust. Actions can also constitute a trust.
- Certainty of subject-matter. Property that is to be held on trust and can only include the settlors current property. The trust property must have been separated from other property, so it’s clearly identifiable (note: not from the property of other beneficiaries in the same trust). Intangible property e.g. shares, does not require segregation as this by nature would be difficult. Tangible property, such as wine bottles must be clearly identified and separated from other property (London Wine).
- Certainty of object (who the beneficiaries are). For a fixed trust, the beneficiaries must be clearly identified. May include unborn children. Boyce v boyce: Maria was entitled to the house and Charlotte to the house Maria didn’t choose. Maria died before the trust took effect and Charlotte was not entitled to anything, as Maria couldn’t choose. It was then held on resulting trust for the testator’s residuary beneficiaries.
Beneficiary principle: a trust must be for the benefit of individuals.
A trust must last for a certain period and cannot be for perpetuity. For trusts after 1 April 2010 the max length is 125 years.
Formalities related to the declaration of trust:
Will trust: contained in a valid will in writing signed and witnessed by people.
Lifetime trust: can be made orally
Trust over land: must comply with Law of property Act LPA s. 53(b) hence in writing and signed by the settlor.
Formalities to create express inter vivos trusts
Inter vivos trust: created during the settlor’s lifetime. Vs. trusts created on their death in their will. Will trusts take effect upon someone’s death by testator/testatrix (valid declaration of trust that complies with wills act + direction that title to the property is in the hands of the trustees)
Formalities: make a valid trust declaration + ensure that the property is put into trust.
If a settlor attempts to create a lifetime trust but something goes wrong and the settlor dies with a will, the equitable interest will pass to the beneficiaries of the settlor’s residuary estate (what remains of settlors property upon death after debt, tax and specific legacies are paid).
If a settlor attempts to create a lifetime trust but something goes wrong and the settlor dies without a will, the equitable interest passes to the settlor’s statutory next of kin under the rules of intestacy.
Fixed interest trust requirement - certainty of object requirement
FIxed interest trust: must include a complete list of beneficiaries to be included in the trust
Discretionary trust requirement - certainty of object requirement
Discretionary trusts: no need to make a list of beneficiaries, but the trustees must be able to allocate property to the right type of people + administrative unworkability (where the group is too wide) must be avoided.
Who can be trustees of inter vivos trusts + hav is legal title transferred to trustees?
Settlor can declare themselves + third parties to be trustees
The settlor must take steps to transfer the legal title from their sole name to the joint name of them + the trustees.
If appointing third-party trustees, the legal title to the trust property must be transferred to the hands of the trustees.
Land: settlers must execute deeds (LPA 1925 s. 52) and give the executed deed to the trustees (who passes it to the Land Registry) or the Land Registry
Shares: In the CREST system for shares in public quoted companies or outside CREST system for others. (stock transfer form and share certificate is given to trustees or the company)
Money: cash in hand, electronic transfer or cheque
Chattel: physical delivery
What does the expression “Equity will not assist a volunteer” mean?
Equity will not assist a volunteer: volunteer is someone that doesn’t pay consideration for a gift, such as beneficiaries. If the transfer rules for trusts are not followed, there will be no trust.
Exceptions:
“Every effort” test: Settlor did everything they could to transfer the legal title and all that remained was a third party act. Useful for land and shares.
Strong v Bird:if a settlor wanted to create a trust but didn’t get around to it before he died and the same person that was supposed to be trustee i the executor/administrator, it is a trust if: the settlor intended to create a trust with a third party trustee, the trust was not created due to failure to comply with a transfer rule, the settlors intention continued until death and the trustee acquired legal title as executive/administrator.
Fixed interest trusts def.
Fixed interest trusts include vested, contingent and successive interests. The interest of beneficiaries under fixed trusts are fixed by the settlor.
Vested interst in trust def.
Vested interest: a beneficiary has a vested interest if the beneficiary does not have to satisfy any conditions before being entitled to trust property. If the beneficiary dies before the trust property is transferred to them, the trust property belongs to the beneficiaries estate. Will be held on trust until 18+. A sole adult beneficiary can also require that the trust property is conveyed to them, bringing the trust to an end.
Saunders v Vautier
the rule in Saunders v Vautier.
Bare trust: a trust for a sole adult, mentally capable beneficiary that gives the beneficiary a vested interest called a bare trust as absolutely entitled. The trustees must handle trust property as the beneficiary dictates (common for investments).
The extended rule of Saunder v vautier: the above about bare trusts can be extended to trusts with more than one beneficiary, where the beneficiaries can end the trust as long as all the beneficiaries that could be entitled are over 18, exist and are ascertained, agree to the proposition (ending the trust).
Contingent interest in trust def.
Contingent interest: beneficiaries interest is conditional upon a future event or the beneficiary doesn’t yet exist. If a beneficiary dies before the event, the trust interest reverts back to the settlor unless the settlor has provided that the beneficial interest should go to someone else.
Successive interest in trust def
Successive interest: used to distribute property over generations. A life tenant receives income from the trust property for their lifetime/use or enjoyment of property etc.
Discretionary trust: the settlor identifies the class of people they would like to benefit, but leaves the decision of who will in fact benefit to the trustees. No person in the group has a beneficial interest in the trust fund until the trustees decide so.
Purpose trusts def. and conditions
Purpose trusts: set up to carry out a purpose or cause, rather than for benefit of a person.
Beneficiary principle: Must have a beneficiary (person or legal personality).
Perpetuity rule:
- Trust established before 6 April 2010: interest must vest no later than 21 years
- Trust established before 6 April 2010: property must vest within 125 years
The rule against inalienability: property must not be made non-transferrable for a life presently existing +21 years.
Exception to beneficiary principle:
- charitable trusts
- non-charitable trusts with limited scope enforced by AG
Charitable trusts def
Exempt from the beneficiary principle and the rule against inalienability
Charities Act 2011 conditions:
Charitable purpose e.g. prevention of poverty, education or religion.
Sufficient public benefit and (identifiable benefit + benefit must accrue to the public or a sufficiently large section of the public. What is enough to be the public depends on the purpose.
People linked by e.g a company or family are not the public
Class within a class test: Sport in one area is fine, but only methodists that do sport in one area was not the public)
Must not exclude the poor
Exclusively charitable (no political purpose and profits must be ploughed back into the trust)
How can a non-charitable purpose trust be valid?
Valid non-charitable purpose trusts - can only overcome the beneficiary principle and the rule against inalienability if
It’s a Re Denley trust, or
If the beneficiaries are identified in the declaration of trust, the issue regarding the beneficiary principle can be mitigated. In Re Denle a purpose trust for employees in a company to enjoy a sports ground was sufficiently clear and tangible to allow employees to go to court to enforce the trust.
Conditions: purpose of the trust is sufficiently clear and rise to a tangible benefit, the persons that benefit must be ascertainable and the trust must not be over 21 years (offend the rule against inalienability)
It’s a trust of imperfect obligation: includes trusts to take care of specific animals and graves and tombs. The trusts are valid, but unenforceable as the beneficiaries (dogs and dead) cannot enforce it.
how are resulting trusts created?
Resulting trusts are a type of implied trust. Implied trusts: resulting and constructive trusts.
Constrictive trusts are implied to receive a fair result between involved parties e..g implied trust in home after the wife has contributed to mortgage payments over the last 20 years. Resulting trusts are created when it is presumed that the settlor would have intended that such a trust was created.
Resulting trusts are automatically created if:
1. No declaration of trust
2. Failure of express trust
3. Excess property not included in trust.
Resulting trusts are presumed if: transfer of property fails + no reason to assume that it was a gift:
1. failure of voluntary gift
2. purchase of property in another persons name
3. contribution to the purchase price.
Presumption of advancement: when there is an equitable presumption is rebutted and the transferred is a gift: e.g. between parent or guardian and child, husband to wife and fiance (male) to female.
Rebutting the presumption of advancement: evidence to the contrary that something else was the transferor’s intention before or at the time of the transfer.
Possible trust-options for a family home
Joint ownership: when 2+ people own land, the land is held on trust, for husband and wife they are both generally legal and beneficial owners. Joint tenants: they are equally entitled to the family home. Tenants in common: they each own a share and it does not have to be equal shares.
Express trust over land is made in writing to comply with LPA 1925 and the ownership should be expressly stated here.
Sole ownership: one partner is the registered owner of the legal title, but may hold it on trust for them and their partner
Separating couples: in a divorce, a married couple is subject to the family courts redistributional powers. If they are not married, property held on trust must be redistributed subject to the normal rules of trust law
Family home may be held on express trust if there is a written declaration complying with LPA 1925. If not, an implied trust could still have been created.
Resulting trust: focus is on the contributions made to the purchase price before or at the time of the purchase. Payment of ancillary items e.g. stamp duty does not give rise to a resulting trust, nor does contributions after the purchase or other contributions than monetary (e.g. labor).
how are common intention constructive trusts created?
Implied based on the parties “common intent”.
Common examples:
1. Profits from unlawful acts: e.g. a bribe accepted by a fiduciary is held on constructive trust. property obtained by fraud is held on constructive trust for original owners.
- Unauthorised profits: profit made by fiduciary is held on constructive trust for their beneficiaries
- Property:
- property is held on one persons name in land Registry, but the parties can demonstrate an agreement that the property is held on trust.
- Rebuttable presumption for family homes that equity follows the law: if both partners are registered owners to a property they hold the legal title equally and jointly. If they have not created an express trust, it is still presumed that each partner’s beneficial interest in the home is joint and equal in a common intention constructive trust. this is the case if the property is held as joint tenants, even if the parties contributed with unequal purchase sums. Evidence to the contrary could be intention, agreements etc.
Requirements for priorietary estoppel
Prevents someone from going back on their word in relation to property when it would be unfair to do so.
- Establishing the estoppel
Assurance by the legal owner that the claimant would be entitled to the land, either passive or active
Detriment does not have to be money but e.g. work without remuneration, giving up a job or looking after someone ill.
Reliance: the claimant must have acted to their detriment because of the reliance.
- Satisfying the equity (remedies)
Remedies are awarded at the courts discretion e.g.: transfer of legal ownership, grant of lease, right to occupation, financial compensation or beneficial share to the home.
Differs from a constructive trust as a constructive trust guarantees the claiming partner a beneficial share in the home, whilst a proprietary estoppel gives the court wide discretion over what is awarded.
What is Equitable personal recipient liability (under recipient liability) and how is it established
Equitable personal recipient liability (knowing receipt)
Claim: value of received trust property + interest
Conditions:
1. Third party has received property in breach of trust or fiduciary duty
2. For their own benefit, and
3. While in receipt of the property, the third party has knowledge that makes it unconscionable for them to retain or deal with the property as if it were their own.
Knowledge must be such that it is unconscionable for him to retain the property e.g. positive knowledge that its trust property, shuts their eyes to the obvious, has suspicion but does not ask questions.
What is Equitable proprietary claims (under recipient liability) and how is it established
The trust can assert a property claim against the third party to recover the property
Must assess what kind of third party it is:
Bona fide purchaser for value without notice takes the property free of any equitable interest (equity’s darling)
Wrongdoing receipt: if the third party’s conscience is affected, a proprietary claim can be brought.
Innocent volunteer: no knowledge or notice of the breach of trust and there was no consideration for the transfer of property, a proprietary claim can still be brough
Tracing rules for wrongdoing third party
If held in original form, beneficiaries can assert the proprietary claim to recover the property
If used to buy something new, the beneficiaries can assert the proprietary claim to recover the new property (clean substitution)
If trust funds are mixed with the third party’s money to purchase property, the beneficiaries can claim a proportionate share
If trust funds are mixed with the third party’s money in a bank account, before making withdrawals, the beneficiaries can claim use Re Hallett or Re Oatway
Tracing rules for innocent third party
The same tracing rules as above are used, but for mixed money in a bank account, the innocent volunteer can have the Re Diplock defence: if the money is used to improve buildings they already own because the improvement has not increased value of the land or it has increased but it would be inequitable to ask them to sell their property to realize the beneficiaries interest.
Re Diplock defence is not available against wrongdoing recipients, for mixed assets, even those purchased by innocent third parties
What is Equitable accessory liability (under recipient liability) and how is it established
Equitable personal accessory liability (dishonest assistance)
A third party assisting a trustee with breach of trust or fiduciary duties, it could be possible to bring a personal claim against them.
Conditions:
Breach of trust or fiduciary duty (not necessary to be dishonest or intentional act)
Assisted in a breach and (positive act)
Acted dishonest (test: whether the ordinary person would have acted differently knowing what the defendant knew. Objective test. The third party does not need to know that they are breaching a trust or fiduciary duty, some form of illegal activity is enough.
Claims from breach of fiduciary duties: not just beneficiaries, but also principals in other fiduciary duties.
The different types of beneficiary interest in a trust
- Fixed beneficiary: fixed entitlement to income + capital and holds an equitable interest to the trust property
- Discretionary beneficiary: potential beneficiaries, depending on the trustees discretion
- Vested interest: has or will transfer to the beneficiaries on the occurrence of a specific event
- Contingent interest: entitlement subject to occurence of an event that is not certain to happen.
What are fiduciaries?
Fiduciaries are someone that undertakes to act for or on behalf of another in a particular matter in circumstances that give rise to a relationship of trust and confidence e.g. trustees, company directors, business partners, agents, solicitors and senior employees.
They must not put themselves in a position where their interest conflicts with others or make an unauthorized profit from their position, e.g. sell to or buy property from the trust, as transactions involving self-dealing can be set aside.
