Trusts Flashcards
A man makes a will in which he gives £50,000 to a named friend and the rest of his estate to his wife. He subsequently tells his friend about the gift and instructs the friend to hold the money on trust for his infant son. The friend agrees.
Which of the following best describes the position of the friend following the man’s death?
He holds the money on trust for the son.
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(B) The friend holds the money on trust for the son. The usual rule is that a trust to take effect on death must be declared in a valid will. However, where the testator tells an apparent beneficiary that he is to hold a gift in a will on trust and the apparent beneficiary agrees, a valid secret trust arises and the apparent beneficiary is bound. The principle applies whether the communication took place before or after the making of the will. (A) is incorrect because a secret trust is an exception to the general rule. (C) is incorrect because the requirement that communication must take place before the date of the will applies only to half-secret, not fully secret, trusts. (D) is incorrect because the secret trust is valid. (E) is incorrect because there is no requirement that a secret trust should be communicated in writing.
A man died in 2016 leaving a will in which he left the residue of his estate to trustees on trust for his grandson. The trust instrument contains no express powers. The grandson is 13 years old. The grandson’s parents have requested the trustees to release part of the capital to them to pay the grandson’s school fees.
Which of the following best describes the position of the trustees?
They may advance capital to the parents provided they ensure that any advance is used for the child’s advancement or benefit.
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(D) The trustees may advance capital to the parents provided they ensure that any advance is used for the child’s advancement or benefit. 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. This power applies where the beneficiary is under the age of 18, but the trustees must take care to ensure that any advance made for the advancement or benefit of a child under 18 is indeed used for the benefit of the child and not, for example, for the child’s parents. (A) is incorrect because the power does apply to a beneficiary under the age of 18 provided that he has an interest in the capital of the fund. (B) is incorrect because the limit of half the beneficiary’s share does not apply to trusts created on or after 1 October 2014. (C) is incorrect because the power of advancement is statutory and applies in the absence of express provisions in the will. (E) is incorrect because the payment of school fees falls within the definition of advancement or benefit.
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.
Which of the following best describes the liability of the remaining trustee?
The trustee is liable because the trustee failed to retain control of the trust property.
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(D) 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 (making (E) incorrect) 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. (A) is incorrect because the trustee has committed a breach. (B) is incorrect because joint and several liability applies when it has been established that more than one trustee is in breach. (C) is incorrect because both trustees are in breach, and they are jointly and severally liable to make good the loss to the beneficiaries. As between trustees who are in breach, a non-fraudulent trustee may claim an indemnity against the fraudulent trustee, but this does not affect liability to the beneficiaries.
A settlor transfers property to three trustees to hold on trust for her children who are all under 18. The trust deed contains no express powers dealing with the appointment of trustees. One of the trustees dies.
Who has power to appoint a replacement trustee?
The surviving trustees only.
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(B) The surviving trustees have the power to appoint a replacement trustee. In the absence of express provisions in the trust instrument, statutory rules on the appointment of new trustees apply. Where a trustee dies, the surviving trustees have power to replace him. (A) and (D) are incorrect because the settlor retains no further power to appoint trustees once the trust has taken effect unless the trust instrument makes express provision, and the facts state that there are no express powers dealing with the appointment of trustees. (C) is incorrect because the personal representative of a deceased trustee only has power to appoint new trustees where a sole trustee dies. (E) is incorrect because beneficiaries only have the power to select trustees where: (1) there is no person nominated in the trust instrument to appoint new trustees, and (2) the beneficiaries under the trust are of full age and capacity and, taken together, are absolutely entitled to the trust property.
A trust of successive interests has been created with one minor life tenant and one remainderman.
When is the minor life tenant entitled to receive the income of the trust?
The life tenant is entitled to receive the income once they reach the age of 18.
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(B) A minor beneficiary is entitled to receive trust income once they reach the age of 18. (A) is incorrect because a minor is not entitled to receive income regardless of whether their interest is vested or contingent. (C) and (E) are incorrect because the trustees have a discretionary power to use the income for the minor’s maintenance, education, or benefit. The minor is not entitled to the income and, if the trustees exercised this power, would not be paid the income directly. (D) is incorrect because a minor is not entitled to receive income, whether it is current or accumulated.
A father gave his daughter £20,000 as a deposit towards the purchase of a house.
Which of the following best states the legal position with regard to the £20,000?
The £20,000 is presumed to be an advancement for the daughter.
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(B) The £20,000 is presumed to be an advancement for the daughter. Generally, when two people contribute to the purchase of property but the property is in one person’s name alone, it is presumed that the person holds the property on trust for themselves and the other person in proportion to their respective contributions. However, this presumption of resulting trust does not apply when the person providing the money is treated as being under a moral obligation to make financial provision for the other person, such as the case of father-child relationships. Instead, the presumption of advancement applies, and it is presumed that the father intended to make a gift to his child. (A), (C), and (D) are therefore incorrect. (E) is incorrect because the father is presumed to provide the money as an advancement for his daughter and not to maintain any beneficial interest in the property purchased with it.
A testator appointed a trustee and declared a trust of his residuary estate for his wife for life, with a direction that such part of it that is not needed by his wife shall be held in equal shares for his children.
Is this trust valid?
The trust is partly void for uncertainty of subject matter because it is not clear what part is to be held for the children.
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(B) The trust is partly void for uncertainty of subject matter because it is not clear what part of the residuary estate is to be held for the children. It must be clear what property is to be bound by the trust, and “such part of it that is not needed by his wife” is too uncertain to create a trust. (A) is therefore incorrect. (C) and (D) are incorrect because certainty of intention requires merely that the settlor intends to create a trust. Here, it is clear that the testator intends to create a trust. (E) is incorrect because trust beneficiaries can be identified by their names or by reference to a concept which defines the class of beneficiaries. “Children” is a concept that can be objectively defined, and it satisfies the certainty of objects.
In breach of trust, a trustee takes £10,000 from a trust fund and deposits it into his personal bank current account which already contains £10,000 of the trustee’s own money, raising the balance on the account to £20,000. The trustee then removes £10,000 from the account and uses it to purchase an oil painting, which subsequently doubles in value. The trustee then spends the remaining money in the account on rent and general living expenses. The trustee has been declared bankrupt. A beneficiary instructs a solicitor to advise them as to their rights.
Which of the following presents the best advice?
The beneficiary can claim the painting or a charge over it to recover the amount taken from the trust.
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(D) The beneficiary can claim the painting or a charge over it to recover the amount taken from the trust. When a trustee places trust funds into a bank account with the trustee’s own money, the beneficiaries can claim a charge over the account for the amount of trust funds in it. If the trustee has drawn money out of the account, the basic rule is that the trustee is treated as withdrawing their own money first. However, if the trustee withdraws money from the account to purchase an asset and then dissipates the balance, the beneficiaries may claim the asset or a charge over it. Therefore, the beneficiary can claim the painting (and the benefit of its increase in value) or take a charge over it for £10,000. Accordingly, (A) and (B) are incorrect. (C) is incorrect because the beneficiary can either take a charge over the painting or claim the painting itself. (E) is incorrect. The beneficiary is not limited to a claim that would not generate a windfall to the trust; the beneficiary can claim the painting and take advantage of it doubling in value.
A testator recently died. In his will, he left £20,000 with the trustees of a private members’ society, of which the testator had been a member, with directions to maintain his tomb after his death for as long as there should be funds available to do it. He instructed that the tomb should be kept in good repair, that his name should be legible on the headstone, and that it should be rebuilt if required. The family of the testator have challenged the validity of the bequest.
Which of the following is the best ground on which the bequest can be challenged by the family?
The disposition is void as, at least in theory, the tomb could be maintained forever.
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(E) The most viable ground on which the bequest can be challenged is that the disposition is void as, at least in theory, the tomb could be maintained forever. Noncharitable purpose trusts, such as trusts for the maintenance of tombs, may not continue beyond the perpetuity period of 21 years. Here, the testator did not include any language limiting the duration of the trust. Although he said it should last for as long as there are funds available, this language is not sufficient because the £20,000 could theoretically last longer than 21 years. (A) is incorrect because, although it is true that the private members’ society is not a charitable entity, the trustee of a noncharitable purpose trust does not have to be a charitable organisation. (B) is incorrect because it is clear what the testator meant by the maintenance of his tomb. (C) is incorrect. Noncharitable purpose trusts are valid despite the fact that there is no beneficiary to enforce the trust. This trust fails because it is not limited to the perpetuity period. (D) is incorrect because there is certainty of subject matter; it is clear that the testator wanted the full £20,000 to be used for the maintenance of his tomb.
A man signs a document in which he names a trustee and declares “I give my 500 shares in X Ltd to my trustee to hold on trust for my children in equal shares”. On the man’s death, a signed transfer of the shares to the trustee is found among his papers, but the title remains registered in the man’s name.
Which of the following statements best describes the status of the trust?
The trust fails because the share transfer was not delivered to the trustee.
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(A) The trust fails because the share transfer was not delivered to the trustee. The settlor was attempting to create a trust of personalty with a third party as trustee. He needed to declare the trust with certainty, which he has done. His words show that he intended to create a binding obligation, the subject matter is certain (“my 500 shares in X Ltd”), and the objects are the settlor’s children. A declaration of trust of land must be evidenced by some writing, signed by the settlor. In this case the trust property consisted of personalty (the shares in X Ltd) and so signed writing was not essential. However, the settlor also needed to transfer the trust property to the trustee in the appropriate legal manner. In the case of shares, a stock transfer form must be completed and lodged with the company. Legal title passes when the trustee is registered as legal owner of the shares in the company books. The usual rule is that ‘equity will not assist a volunteer’, and if legal title has not passed, the trust will fail. An exception to this rule is the ‘every effort’ test, which applies where the settlor has done everything required of him to transfer the legal title and has put the property beyond his control, but that is not the case here. (B) is incorrect because, as explained above, in addition to making a valid declaration of trust, the settlor needed to transfer the trust property to the trustees. (C) is incorrect because, although the settlor did sign the necessary form, by retaining it in his possession he failed to put the shares outside his control. It was open to the settlor to destroy the transfer. This means that the ‘every effort’ test does not apply. (D) is incorrect because the trust was declared in the settlor’s lifetime and did not need to appear in his will. (E) is incorrect because the trust has failed for the reasons stated above.
In his will a man gave a legacy of £10,000 to his son “to hold on trust on such terms as I may communicate to him”, and he left the residue of his estate to his wife. Before he signed the will, the man explained to his son that he wished him to hand the £10,000 to a named friend and his son agreed.
Which of the following best describes the reason why the trust fails?
The communication was not consistent with the wording of the will.
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(C) The trust fails because the communication was not consistent with the wording of the will. The usual rule is that a trust which is intended to take effect on death and is to be revocable until then must be declared in a valid will. However, where a will contains a declaration that a gift is to be held on trust but does not disclose the identity of the beneficiaries, a valid half-secret trust arises provided that the identity of the beneficiary is disclosed to the trustee before the date of the will, and that disclosure is consistent with the wording in the will. Here, the wording of the will (“on such terms as I may communicate to him”) points to a future communication and will be regarded as inconsistent with the actual communication which has already taken place when the will is made. (A) is incorrect because a half-secret trust may be valid even though its terms are not set out in the will. (B) is incorrect because there is no need for the communication to be in writing; all that is required is evidence that the communication took place. (D) is incorrect because a half-secret trust may be valid even though the beneficiary is not named in the will. (E) is incorrect because where a valid trust is created in a will it is the role of the executors to transfer the legal title to the trustees.
In his will, a man left the residue of his estate to trustees on trust to enable more people from deprived backgrounds to attend university by making grants and campaigning for changes in the law to reduce tuition fees.
If a court held the will did not validly establish a charitable trust, what would be the most likely reason?
The objects are not exclusively charitable.
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(E) The trust is not a valid charitable trust because the objects are not exclusively charitable. A charitable trust must be for a charitable purpose as defined in the Charities Act 2011, it must be for the public benefit, and its objects must be exclusively charitable. Here, the trust includes a political purpose – to campaign for changes to the law on tuition fees. A political purpose cannot be charitable and so this trust fails as its objects are not exclusively charitable. (A) is incorrect because those who stand to benefit from this trust – “people from deprived backgrounds” – do form an adequate cross-section of the public. (B) is incorrect because the advancement of education is a charitable purpose. (C) is incorrect because the rule against inalienability does not apply to charitable trusts (and, in any event, is not relevant where the trustees are able to spend the capital of the fund, as here). (D) is incorrect because the requirement for certainty of objects does not apply to charitable trusts.
A settlor transfers property to two trustees to hold on trust for his children, all under the age of 18. One of the trustees is a solicitor. The trust deed contains no express powers dealing with trustees’ powers to charge for their services.
Which of the following best describes the solicitor’s power to charge his normal professional charges for the time he spends on trust matters?
He may charge providing his co-trustee consents in writing.
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(C) The solicitor may charge for his services providing his co-trustee consents in writing. 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 they are not a sole trustee and that their co-trustees consent in writing to their charges. (A) is incorrect because once the trust has come into existence the settlor retains no further control unless there are express provisions in the trust instrument. (B) is incorrect because the statutory power applies. (D) is incorrect because there is no requirement for the beneficiaries to consent under the statutory power. (E) is incorrect because a professional trustee may only charge with their co-trustees’ written consent.
A testator died three years ago, leaving a will in which she appointed trustees to hold the residue of her estate in equal shares for her son and daughter. Both children are under the age of 18. The will contains no express powers. During the last two years, the trustees have been using all the income to pay the son’s school fees. The 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?
The trustees had power to use only half the income for the son’s benefit.
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(C) The trustees have committed a breach of trust because they had power to use only half the income for the son’s benefit. Where 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. Where 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 daughter’s share of the income to pay the son’s school fees. (A) is incorrect because the trustees have the power to ‘pay or apply’ income, which includes paying income directly to a third party for the child’s maintenance, education, or benefit. (B) is incorrect because the trustees may not pay the income directly to the beneficiaries because minors are not capable of giving a valid receipt. (D) is incorrect because the power may be used for the beneficiaries’ education, or benefit, not just for their maintenance. (E) is incorrect because the trustees only have a duty to accumulate surplus income which was not paid out under their power.
Trustees are holding a fund on trust for a woman for life with remainder to her two sons in equal shares. The woman has just died, and the sons discover that 10 years ago the trustees paid the mother £50,000 from the capital of the fund to assist her to buy a house in the UK.
Do the sons have a viable claim against the trustees for breach of trust?
Yes, because the trustees had no power to pay capital to the mother.
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(B) The sons can bring a claim against the trustees for breach of trust because the trustees had no power to pay capital to the mother. Trustees have power to advance capital for a beneficiary’s advancement or benefit provided that the beneficiary has an interest in capital. Here, the mother was a life tenant with an interest in the income only, and so the trustees were in breach of trust when they paid capital to her. (A) is incorrect because, although the purchase of land in the UK is an authorised investment, the trustees did not buy land for the trust. They handed trust funds to the mother. (C) is incorrect because for limitation purposes time does not run against a beneficiary under a trust until the beneficiary’s interest falls into possession, which happened only on the mother’s death. (D) is incorrect because the purchase of land as a residence is an authorised investment, and, in any event, these trustees were not buying land for the trust. (E) is incorrect because the trustees only have power to advance capital to a beneficiary with an interest in capital.
