Trusts Flashcards
complete
Term for the creator of the trust
Settlor
Term for a trust created during the settlor’s lifetime
Inter vivos trust
Term for a trust created in a will
Testementary trust
Type of trust which is created for the benefit of ascertainable persons and can be a fixed, discretionary, or purpose trust
Private trust
What are the two types of express trusts?
- Private trusts
- Charitable trusts
Type of trust where beneficiary’s interests are defined by the settlor
Fixed trust
Type of trust where trustee is given discretion in how to distribute trust property, usually among members of an identifiable class
Discretionary trust
A trust for a private purpose which does not have defined beneficiaries usually fails, what is the exception?
Honorary trusts (e.g. trusts for maintenance of specific animals)
Which type of trust is a purpose trust created to benefit an indefinite class of persons or the public in general?
Charitable trust
Which type of trust is created where the intention of the settlor is not expressed but a trust is presumed to ensure an equitable result is achieved?
Implied trust
Which type of trust arises when any of the following occur
- an interest under an express trust fails
- an express trust fails to exhaust the beneficial interest
- a person makes a voluntary transfer or purchase in the name of another
Resulting trust
Term for an equitable remedy imposed by court to prevent unjust enrichment of one person at the expense of another as the result of wrongful conduct, such as fraud, undue influence, or breach of fiduciary duty (e.g. receiving trust property with knowledge of breach of trust)
Constructive trust
What are the 3 certainties required for creation of a valid express trust?
- Intention
- Subject matter
- Objects
When must the settlor intend the trust takes effect from?
Immediately
What is precatory language?
A settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way
What is the usual inference from the settlor’s use of precatory expressions?
No intention to impose a binding obligation on the trustee
What happens to a gift when a trust is void for uncertainty of intention?
The gift passes outright to the person who would have been the trustee
How is a trust of a fractional share treated for
- intangible assets
- tangible assets
- Will not fail for lack of certainty
- Trust will fail unless the assets subject to the trust have been segregated
Which of the following can be held in trust?
- A future interest
- Interest not yet in legal existence
A future interest
e.g. a house is deeded to A for life and then to B. B has a future interest while A is alive which will vest in B’s possession after A’s death. The future interest can be vested property
What is the effect on the trust if the settlor fails to identify with sufficient clarity the amount the beneficiary is to receive?
Trust is void
What happens to trust property when the trust is rendered void for uncertainty of subject matter?
Reverts to the settlor
To ascertain certainty of objects in fixed trusts, when must beneficiaries be in existence to be a beneficiary?
At the time their interests are to come into enjoyment
What is the effect on trust validity if a beneficiary cannot be traced (ascertainability)?
Trust still valid
Trustees should apply to court for directions
What test is applied for certainty of objects in discretionary trusts?
Given Postulant Test
The test is satisfied if the trust instrument provides a clear mechanism or criterion for identifying beneficiaries, even if the list is not exhaustive - more flexible
What is the Given Postulant Test?
The test is whether it can be said with certainty that any given individual is or is not a member of the class
Whether the description of the class is clear enough
What test is applied for certainty of objects in fixed trusts?
Complete List Test
Term for a cause of discretionary trust failure due to too large a number of potential beneficiaries or there is nothing linking class members to enable trustees to make a sensible choice between them (cariciousness)
Administratively unworkable
What is presumed if a discretionary trust fails for uncertainty of objects?
A resulting trust in favour of the settlor or settlor’s successors
What does the Beneficiary Principle establish?
A trust must have ascertainable human beneficiaries
To which trusts does the Beneficiary Principle not apply?
Charitable trusts
Which situation would cause an attempted inter vivos trust to fail for lack of delivery?
The absence of a trustee at the creation of a trust
What is the minimum and maximum number of trustees required for a trust?
No minumum or maximum
How must trustee decisions be reached unless trust deed says otherwise?
By unanimous decision
What is the minimum and maximum number of trustees required for a trust of land?
2-4
Why are at least 2 trustees required for a trust of land?
At least 2 trustees are required to give a valid receipt for money received on the sale of land
What are the 2 Rules Against Perpetuity?
- Remoteness of Vesting Rule (125 years)
- Inalienability Rule (non-charitable purpose trusts, 21 years)
What is the Remoteness of Vesting Rule?
An interest under a trust is void if it does not vest within the perpetuity period of 125 years (for trusts taking effect from 6 April 2010)
In which situation does the Inalienability Rule apply?
In the exceptional case where a noncharitable purpose trust is valid
What is the term for the rest of an individual’s life?
Life in being
What is the Inalienability Rule?
Where a noncharitable purpose trust is valid, the trust period is limited to 21 years OR for a person’s life in being plus 21 years
How is certainty of intention established where a settlor declares themselves as trustee?
By words or conduct that they intend to be legally bound
Which 2 elements must be satisfied in the transfer of property to a trustee?
- The settlor must transfer the trust property to the trustee(s) in the appropriate legal fashion
- The settlor must make a declaration of trust
What does a declaration of trust demonstrate?
Demonstrate settlor’s intention for trustee(s) to be legally bound, satisfying requirements of certainty, the beneficiary principle, and perpetuity
What are the declaration of trust requirements for an enforceable trust of land?
Written evidence of the declaration of trust, signed by the settlor
What is the term for transferring legal title to property from one party to another?
Constitution
‘Equity will not assist a volunteer’ applies when which action has not been completed?
Constitution (transfer of legal title from settlor to trustee)
What are the 4 exceptions to the ‘Equity will not assist a volunteer’ maxim?
- Every Effort Test
- Donatia Mortis Causa (gift by reason of death)
- Fortuitous Vesting - the rule in Strong v Bird
- Proprietary Estoppel
How would a trust for land or shares be valid where all necessary processes have been completed except the registration has not yet been completed?
Every Effort Test
NB: does not apply if settlor keeps possession
Donatio Mortis Causa will only apply if the donor has which objective belief?
Their death is imminent
What are the 3 conditions for the enforcement of Donatio Mortis Causa?
- The donor delivers property to donee while in contemplation of imminent death
- Donor’s intention is the gift is conditional on their death
- The donor dies
Which rule applies to make a trust valid if settlor dies before transfer on trust AND trustee becomes settlor’s PR on settlor’s death?
The rule in Strong v Bird (Fortuitous Vesting)
Which rule applies to make a trust valid if donee establishes they reasonably acted to their detriment in reliance on an assurance?
Proprietary Estoppel
Which 3 categories of requirements must be satisfied for inter vivos and testementary trusts?
- Three certainties
- Beneficiary principle
- Perpetuity rules
Why is property transfer not a requirement for testementary trusts?
The property will be vested in the trustees by the testator’s PRs after death
What is the difference between a secret and half secret trust?
A half secret trust mentions that a trust exists but keeps the beneficiary’s identity secret, a secret trust does not mention that a trust exists
How does the intended beneficiary of a secret trust enforce it?
By proving the terms of the trust with clear and convincing evidence
Can a secret trust be enforced if the communication describing the trust was made after the will was executed?
Yes
What is the effect on a (half) secret trust if the legatee/trustee expressly refused to accept the trust, or did not know of the intended trust until after the testator’s death?
There is no trust and the legatee/trustee will take the property free from any trust
What is implied upon estate administration if the legatee/trustee failed to respond to the communication describing a secret trust?
The trust is accepted
When must the trustee be notified of
- a secret trust
- a half secret trust (including beneficiary’s identity)
- Anytime before testator’s death
- On or before will execution
What is the term for interests where
- no conditions are attached
- conditions are attached
- Vested
- Contingent
A beneficiary with vested interest cannot claim property until they reach what age?
Why?
18
Minors cannot give trustees a valid receipt
Term for a beneficiary’s interest that does not give them the right to the capital of the fund
What is the beneficiary usually entitled to?
Limited interest (including life interest)
The income of the fund
Term for a beneficiary’s interest that gives them the right to the capital of the fund
Absolute interest
Term for a type of trust which includes both a fixed and discretionary element
Mixed trust
Which rule allows the termination of the trust by all beneficiaries?
The rule in Saunders v Vautier
What are the requirements for the rule in Saunders v Vautier to be enforced?
- All of the beneficiaries have an absolute interest in the trust
- All of the trustees are over 18
- Unanimous decision
What type of trust is implied by law based on the presumed but unexpressed intention of the settlor?
Resulting trust
What happens to the equitable interest in a resulting trust?
Reverts back to the settlor, or settlor’s estate if he’s dead
What are the 2 main ways resulting trusts may arise?
- Trusts arising following a voluntary transfer or purchase in the name of another
- Trusts arising on failure to exhaust the beneficial interest under an express trust
What intention does equity presume of someone who transfers property title without evidence of any reason?
No intention to make a gift, transferee holds property on resulting trust for transferor
What is the presumption if X provides purchase money on the purchase of real or personal property but the legal title is transferred to Y?
Y holds the legal title on resulting trust for X
If X and Y both contribute to the purchase money but the property is transferred to Y’s name alone, what is the presumption?
Y holds the property on trust for himself and X in proportion to their respective contributions
For a contribution towards a property to create a resulting trust, what must the consideration specifically be for?
Purchase
Sums paid for property improvements or to pay taxes do not give rise to a resulting trust
When must consideration be supplied in Purchase Money cases for a resulting trust to be created?
At or before the time title is taken
When a resulting trust is being claimed in a Purchase Money case, the alleged trustee can rebut the presumption by showing the money was for any of which 3 purposes?
- Gift
- Loan
- Payment of debt
What is the exception to the presumption of a resulting trust in Purchase Money cases?
Term
Presumption of Advancement
In which 3 cases does the Presumption of Advancement apply?
- Husband or fiance
- Father to son
- Transferor is in loco parentis (transferor has taken on parental duties)
What presumption does Presumption of Advancement make?
A gift was intended
How is the Presumption of Advancement rebutted?
By the transferor providing evidence they did not intend to make a gift but intended to retain an equitable interest in the property
What duties does a trustee have under a resulting trust?
To convey title back to the settlor or settlor’s estate
No management duties
When there is a single legal owner but another has contributed to the purchase price and seeks their equitable share, what document gives the non-legal owner an enforceable beneficial interest?
A signed Express Declaration of Trust
What are the 3 requirements for a claimant to establish proprietary estoppel?
- A representation was made or an assurance was given to the claimant
- The claimant relied on the representation or assurance
- The claimant incurred some detriment as a consequence of their reliance
What are the 2 requirements for a claimant to establish a Common Intention Constructive Trust?
- The parties had a common interest that the claimant should have an equitable interest in the property
- The claimant relied to his detriment on the common intention
What actions may the court infer common intention from? (for the establishment of a constructive trust)
Asserts equitable interest in the property. An inference to share ownership of the property
- Direct contribution to purchase price
- Mortgage payments
- Payment of household expenses to enable the legal owner to make mortgage payments
- Substantial property renovations
Which type of trust need not have a human beneficiary ?
Purpose trust
Term for a purpose trust for private purposes
Noncharitable purpose trust
What does the cy-pres doctrine allow the court to do to a charitable trust when it is impossible to give effect to the settlor’s intention?
Redirect the trust to a purpose as near as possible to the charitable purpose initially designated by the settlor
Which type of trust is not subject to the Rule Against Perpetuities?
Charitable Trust
Which type of trust must bestow an identifiable benefit to the public or a section of the public?
Charitable Trust
Is a trust for the settlor’s poor relations charitable?
Yes
Is a trust for the maintenance of a sports field for one family or a group of named beneficiaries charitable?
No
How can a private school maintain charitable trusts status?
With a scholarship programme, or if it makes its facilities available to the public
When are noncharitable purposes permitted in a charitable trust?
When they are merely incidental to the principal charitable purpose
Which type of trust does not require ascertainable beneficiaries?
Charitable trust
Who enforces trusts on behalf of the public?
Attorney General
When is general charitable intention not required to apply funds cy-pres?
If the gift has already vested, i.e. gift fails after testator’s death
Can trustees of a Denley Trust terminate the trust using the rule in Saunders v Vautier?
No
Do Denley Trusts confer a beneficial interest on identifiable individuals?
No
But beneficiaries have the power to enforce trust by injunction
What can beneficiaries of a Denley Trust do if the trustees are in breach?
Enforce the trust by injunction
What type of trust is used for the maintenance of specific animals, the saying of private masses, and maintenance of specific graves?
Honorary Trusts
Who can enforce an Honorary Trust by bringing an action against the trustees?
No one
What is the consequence of a trustee failing or refusing to carry out the terms of an Honorary Trust?
A resulting trust will be imposed for the settlor or settlor’s estate
What is the perpetuities period for an honorary trust?
21 years or life in being plus 21 years
What happens to a noncharitable trust which may continue for more than 21 years (or life in being +21) ?
It fails from the outset
What is the minimum and maximum number of trustees for
- a trust of land
- a trust of pure personalty
- 2-4
- No minimum or maximum
When can a settlor appoint new trustees?
If there is an express provision in the trust instrument giving the settlor such power
Without such a provision statutory rules apply, settlor has no appointment powers
In any trust, trustees have the power to appoint additional trustees up to which number of trustees?
4
Which 4 parties can appoint trustees, in order if none?
- The person named in the trust instrument
- The surviving or continuing trustees
- The PRs of the last surviving trustee
- The court
What are the 3 requirements for beneficiaries to exercise their power to select trustees?
- There is no person nominated in the trust instrument to appoint new trustees
- The beneficiaries are over 18, have capacity, and are absolutely entitled to the trust property
- The beneficiaries act unanimously
If beneficiaries have the power to appoint trustees, what other power do they have towards the trust?
To end the trust and distribute the trust property to them
Who can remove a trustee from office without their consent?
- Beneficiaries (provided conditions are met)
- Court (e.g. for significant breach of trust or expediency)
If a trustee profits from director’s fee (paid employment) or from information or opportunity gained from their trusteeship, how is the profit held?
On constructive trust
Under the Trustee Act 2000, a professional trustee may charge reasonable remuneration provided which 3 conditions are met?
- They are not the sole trustee
- The co-trustee(s) have given their written consent
- There is no express trust provision relating to the trustee’s charges
What are the requirements for beneficiaries to agree to a trustee receiving payment?
They are of full age and capacity
When may the court authorise trustee remuneration?
When the trust is exceptionally onerous or the trustee has performed exceptional services
If a trustee purchases trust property, even if full price paid or purchased in open market, what is the purchase deemed?
Voidable
What rule establishes the conditions where a trustee may purchase a beneficiary’s interest?
Fair Dealing Rule
Provided they pay a fair price, make full disclosure of all material facts to the beneficiary, and in no way abuse their position
What are the 3 conditions whereby a trustee may purchase a beneficiary’s interest under the Fair Dealing Rule?
- Paid fair price
- Made full disclosure of all material facts to beneficiary
- Did not abuse their position
What are the 3 exceptions to the trustees’ Duty to Act Personally (to not delegate functions)?
- Administrative functions
- Investment decisions in certain circumstances
- All functions by Power of Attorney
Are trustees liable for atcs or omissions of agents if they exercised due care in selecting and supervising agents?
No
What is the maximum period a trustee may delegate all functions by Power of Attorney?
12 months
Is a trustee liable for acts or omissions when their functions are delegated by power of attorney?
Yes
Which process enables beneficiaries to hold trustees to account?
Disclosure of accounts and records
What does the general power of invstment provide?
Trustees may make almost any kind of investment that they could make if they were absolutely entitled to the trust assets
Where may trustees acquire land?
In the UK
Unless trust deed provides otherwise
Which 2 investment criteria must trustees always consider?
- Suitability to the trust
- The need for diversification
What is the term for the advice trustees obtain before exercising power of investment, if they consider it necessary and appropriate to seek it?
Proper advice
Under the Trustee Act, who may trustees delegate investment decisions to?
An asset manager
What must the trustees prepare for an asset manager before delegating investment decisions?
A written policy statement - must include full details of the trust and investment objectives
Are trustees liable for performance of investments if they have complied with the statutory requirements?
No
When are trustees obliged to exercise powers of maintenance and advancement?
Never
Which type of beneficiary may the trustees exercise their discretionary powers of maintenance to benefit?
Minors
What criterion must be met by a minor for the power of maintenance to apply?
They must have an interest in the income
If the fund is held on trust for B for life with remainder to the minor, the minor has no interest until B dies
If trustees apply power of maintenance to a minor, what must they do with the surplus income?
Accumulate it
A minor is not capable of giving a valid receipt. How must trustees advance maintenance funds?
Directly to the purpose required or to a parent/guardian for use in the beneficiary’s interest
What funds is a beneficiary with interest who turns 18 entitled to claim as of right?
All income generated by the trust before and after the time the beneficiary turns 18
When does a testementary trust take effect from?
The date of death
How did power of maintenance change for trusts created or arising from 1 October 2014?
Before: trustees have the power to pay a only reasonable amount
After: Limit removed
When can trustees exercise the power of advancement for a beneficiary?
If the beneficiary has an interest in the capital of the trust fund
Whether in possession or remainder, vested or contingent
Trustees have dscretionary power to advance trust capital to a beneficiary up to what amount?
The beneficiary’s presumptive entitlement
If trustees are holding a fund on trust for a beneficiary for life with remainder to another, what does the beneficiary have interest in?
Income
Not capital
What do trustees require to advance trust funds to a beneficiary with interest in capital if the advance will prejudice any beneficiary entitled to a prior interest?
e.g. it will reduce the income being produced for the beneficiary with prior interest
Written consent from the beneficiary with prior interest
Is consent of other beneficiaries for trust fund advancement required if the advance will prejudice the other beneficiaries but they do not have a prior interest?
e.g. advance to one sibling when multiple siblings are equally entitled
No
What is the restriction on beneficiary’s age for applying power of advancement?
None
If under 18 must be paid in kind or to parent/guardian
What is the restriction on amount of advance for trusts created or arising before 1 October 2014?
Limited to one half of the beneficiary’s vested or presumptive share
Limit removed for trusts arising thereafter
If trustees are not carrying out their duties, how may the beneficiaries compel them to do so?
By application to the court
Can beneficiaries demand trustees disclose the reasons for the way they exercised their powers?
No
What is the exception to the rule that beneficiaries have no right to control trustees’ exercise of discretion?
If trustees have given beneficiaries a legitimate expectation that their discretion will be exercise a certian way, they may be expected to warn beneficiaries if they intend to change their policy
What 2 powers do beneficiaries have towads a trust when they hold absolute interest and are of full age and capacity?
- Retire and appoint new trustees of the beneficiaries’ choice
- Bringthe trust to an end (transferring trust funds to beneficiaires)
If beneficiaries are bringing a personal claim against trustees for losses resulting from the trustees’ breach of trust, whi has the burden of proving loss?
The beneficiaries
A trustee is not vicariously liable for the acts of their co-trustee.
When is trustee liability joint and several?
If more than one trustee is in breach
When may a beneficiary not sue trustees who are in breach of trust?
Not about Saunders v Vautier or proper advice
If they are of full age and capacity and consented to the action that gave rise to the breach with full knowledge of all material facts
What is the general limitation period for bringing an action against trustees?
6 years
In which 2 situations is there no limitation period for bringing an action against trustees?
- If the trustee was party to a fraud
- If the action is to recover trust property or its proceeds from a trustee
Term for the process of identifying the trust property in the hands of a trustee to be recovered in a proprietary claim by beneficiaries
Tracing
What is the exception for asset purchased before fund dissipated?
If trustee places trust funds in own bank account in breach of trust then draws money out, treated as spending own money first
If a trustee withdraws trust funds to purchase an asset and then dissipates the fund balance, the beneficiaries may claim a share of the asset or a charge over it
What rule is applied to funds of 2 trusts mixed into a trustee’s current account?
First in, first out rule
When funds of 2 trusts mixed into a trustee’s current account, when would the first in first out rule be replaced with a proportionate solution?
When ordered by the courts due to the first in first out rule being impractical or causing injustice
What rule is applied to funds of 2 trusts mixed into a trustee’s savings account?
Proportionate solution
When are beneficiaries unable to claim against a third party involved in breach of trust?
When the third party is a bona fide purchaser of trust property for value and without notice of the trust
What is an Innocent Volunteer Recipient?
A third party who did not pay value for trust property but had no knowledge or suspicion that a breach of trust has occurred
What type of claim can beneficiaries make against an Innocent Volunteer Recipient?
Proprietary claim only
What is a third party treated as if they received money or property traceable to a breach of trust with knowledge of the breach?
As a trustee
What is the liability of a knowing recipient of funds (third party) deriving from a breach of trust?
Personal liability
Treated in equity as if they were a constructive trustee
What does a third party need to know for them to be a dishonest accessory?
That they were facilitating an illegal scheme
Need not know of breach of trust
Which term describes ‘not acting as an honest person would in the circumstances’?
Conscious impropriety
What are the 4 categories of third parties in a breach of trust?
- Bona fide purchaser
- Innocent volunteer
- Knowing recipient
- Dishonest accessory
What is a knowing recipient and dishonest accessory treated as in terms of liability?
Constructive trustee
If a property transfer was made as part of an illegal or fraudulent transaction, what would the court consider before allowing the claim?
Whether it is in the public interest to allow a claim
Can trust funds be advanced if the beneficiary’s interest in capital is contingent?
Yes
A trustee can be replaced if they have been domiciled outside the UK for what period?
More than 12 months
Who does trust property revert to when the trust is rendered void for uncertainty of
- intention
- subject matter
- Person who would’ve been the trustee
- Settlor
