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SQE 1 > Trusts > Flashcards

Trusts Flashcards

1
Q

How is a trust declared over land?

Trusts 1

A
  • must comply with s 53(1)(b) Law Property Act
  • must be **evidenced in writing **and signed by the settlor
  • the trust must be executed in a deed
    - the document must state it is a deed
    - person making the deed must sign it in the presence of a witness
    - executed deed must be given to the Land Registry

*note Hudson v Hathaway (2022) - deed can be executed by email

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1
Q

What are the three certainties?

Trusts 2

A

In order for a trust to be valid the three certainties must be satisfied: s

  • certainty of intention
  • certainty of subject matter
  • certainty of objects
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2
Q

What is certainty of intention?

A
  • relates to the wording of the declaration of trust
  • words must impose a duty on the trustee to hold property for someone else
    * obligatory / mandatory wording should be used and not wishful or hopeful
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3
Q

What is certainty of subject matter?

A
  • relates to trust property
  • trust property must be described with certainty
  • beneficiaries interests must be described with certainty
  • trust property must be identifiable
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4
Q

What is certainty of objects?

A
  • depends on the type of trust
  • fixed interest trusts must satisfy the complete list test (the complete list test must satisfy conceptual certainty / individual certainty)
  • discretionary trusts must satisfy the given postulant test
  • if there is no certainty of objects there will be a resulting trust in favour of the settlor
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5
Q

What is a fixed interest trust?

A
  • trustees have no discretion as to how trust property is distributed and in what amounts it is distributed
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6
Q

What is the complete list test?

A
  • must be possible to draw up a list of each and every beneficiary
  • if beneficiaries are described as a class of people the description must satisfy:
    - conceptual certainty: class must be capable of objective definition
    - evidential certainty: is there evidence to identify all the beneficiaries that will benefit?
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7
Q

What is the given postulant test?

A
  • given postulant = an individual
  • can it be said with any sufficient certainty whether an individual is or is not a member of a class?
  • conceptual certainty needed / evidential certainty not needed
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8
Q

What is administrative unworkability?

A
  • discretionary trust must overcome administrative unworkability
  • discretionary trust will be invalid if class is so wide that it does not form anything like a class
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9
Q

What is a bare trust?

A
  • trust for a **sole, mentally capable adult **that gives the beneficiary a vested interest
  • a beneficiary of a bare trust will be absolutely entitled to the trust property
  • bare trust will also arise where a beneficiary under a contingent / successive interest trust becomes solely entitled
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10
Q

Can an email be used to declare a trust over land?

A
  • relevant case is Hudson v Hathaway [2022]
  • an email is a written document
  • typing of name at the end of the email will constitute a signature
  • entering the email address of the settlor will not constitute a signature
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11
Q

When is an express trust enforceable

an express trust is a trust that the settlor intends to create

A
  • when the settlor makes a valid declaration of trust
  • when the trust is constituted
  • a trust is constituted when title to the property held in the trust is put into the hands of the trustee
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12
Q

What is capriciousness?

A
  • discretionary trusts cannot be capricious
  • a discretionary trust will be capricious if:
    - there is no rational reason for the trust
    - no rational basis on which trustees can exercise their discretion to distribute the trust property
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13
Q

How is a trust constituted that involves money?

A
  • money passes with delivery so legal title of monies will pass to the trustee when it is handed over
  • if money is transferred electronically:
    - legal title passes once monies have arrived into trustee’s bank account
  • if money is transferred by cheque:
    - legal title passes once cheque has been cleared
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14
Q

How is a trust constituted that involves shares?

A

To transfer legal title to a 3rd party the settlor must:
* execute a **stock transfer form **
* give executed stock transfer form and share certificate to the trustee
* or send directly to the new company

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15
Q

How is a trust constituted that involves chattels?

chattles are anything that is tangible in nature (ie jewellry)

A
  • title passes with physical delivery of the asset
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16
Q

Equity will not assist a volunteer

A
  • a volunteer is someone that does not provide consideration for the transfer of the property to them
  • if settlor has not properly followed the rules to transfer the property then no trust is constituted
  • there are two exceptions to the rule that equity will not assist a volunteer:
    - the every effort test
    - the rule in Strong v Bird
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17
Q

What is the every effort test?

A
  • if settlor does everything they can to transfer title then transfer can be regarded as complete but:
    - settlor must have put the property being transferred beyond recall
    - must have passed the point of no return
    - all that remains is the act of a 3rd party
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18
Q

What is the rule in Strong v Bird?

Se

A

Applies where settlor wants to create a trust with someone else as trustee but does not transfer title during lifetime. All four factors must be present:

  • settlor inteded to create immediate trust with 3rd party acting as trustee;
  • trust not immediately created due to failure to comply with relevant transfer rule;
  • settlor’s intention continued until death;
  • intended trustee acquired legal title by becoming settlor’s executor / administrator
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19
Q

How is a trust constituted where settlor and 3rd party both act as trustees?

A
  • settlor must take steps to transfer legal title from sole name into the names of the other trustees
  • trust will constitute if it becomes unconscionable to back out
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20
Q

What is a vested interest?

A
  • beneficiary exists and has an unconditional interest
  • if beneficiary is a minor, trustees will hold interest on trust until beneficiary turns 18
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21
Q

What is a contingent interest?

A
  • the beneficiary’s interest is contingent upon the happening of some future event that might happen
  • if beneficiary dies before contingency is met then interest goes back to settlor (unless settlor provides interest passes to someone else)
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22
Q

What is a successive interest trust?

A
  • example: “I give my shares in Legal and General plc to my trustees to hold on trust for my wife, Amy, for life, remainder to my son Joshua
  • separates trust capital from income
  • Amy has limited interest to trust income during lifetime
  • Adam has vested interest in capital

Adam has a vested interest in trust capital (not contingent). Amy’s death is a certainty and is bound to happen.

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23
Q

What is the rule in Saunders v Vautier?

A
  • applies to trusts with more than one beneficiary
  • beneficiaries can end the trust by calling for transfer of trust property to them
  • beneficiaries must be:
    - in existence / ascertained
    - aged 18+
    - all agree
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24
Q

What is a purpose trust?

A
  • Settlor wants to set up a trust carry out a purpose / advance a cause
  • general rule is that purpose trusts are void for offending the beneficiary principle
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25
Q

What is the beneficiary principle?

A
  • trusts are generally only valid if they have beneficiaries who can go to court to enforce them
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26
Q

What is a charitable trust?

A
  • trust must be for a charitable purpose
  • must have sufficient public benefit
  • must be exclusively charitable
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27
Q

When is a charitable trust exclusively charitable?

A
  • trust with charitable / non-charitable purposes will not be charitable
  • trust must not have political purposes:
    - must not support a poitical party
    - campaigning for a change in the law
    - change in government policy
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28
Q

When will a charitable trust have sufficient public benefit?

A
  • trust must have an **identifiable benefit / benefits **
  • benefit must accrue to the public or a sufficiently large section of the public
  • benefit of the trust must be clear
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29
Q

What is the personal nexus test?

A
  • applies only to trusts for the advancement of education
  • beneficiaries cannot be linked by a personal nexus
  • a personal nexus is anyone who is linked by a relationship to a particular individual or a company (ie family / common employment)
  • this is not a sufficient section of the public
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30
Q

What is the rule against perpetuities?

A
  • rule against perpetuities: trust property cannot be locked away for too long
  • Also known as inalienability of trust capital
  • non-charitable purpose trusts are void for offending the rule against perpetuities unless:
    - trust states that it is to last for no more than 21 years
    - solicitors will often state ‘for as long as the law allows’ in trust deeds
    - trustees spend all the trust capital on its purpose which ends the trust at the time
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31
Q

When is a non-charitable purpose trust valid?

A

If a purpose trust is not charitable it will only overcome the beneficiary principle if:

  • it is a Re Denley trust
  • a trust of imperfect obligation
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32
Q

What is required for a Re Denley trust?

A
  • the purpose of the trust must be sufficiently clear
  • the purpose of the trust must give rise to a sufficiently tangible benefit
  • person(s) who stand(s) to benefit must be conceptually certain:
    - they must satisfy the given postulant test
    - description of persons must be conceptually certain
  • trust must not offend the rule against inalienability of trust capital
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33
Q

What is a trust of imperfect obligation?

A

Predominantly includes:
* trusts to care for specific animals
* trusts to maintain graves and tombs

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34
Q

Can a trust of imperfect obligation be enforced?

A
  • a trust of imperfect obligation is valid but unenforceable
  • no human beneficiary can enforce the trust and they therefore offend the beneficiary principle
  • if anything settlor or residuary beneficiary can go to court to claim trust property
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35
Q

Can you create a resulting trust when voluntarily transferring land?

A
  • there is no presumption of resulting trust arising out of a voluntary transfer of land
  • resulting trust for a voluntary transfer of land can still arise but court will need some evidence or additional factor
  • no presumption of resulting trust in the absence of evidence
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36
Q

How does a purchase money resulting trust arise?

A
  • A purchases property from B and puts the property in the name of C
  • C will have legal title and A will have equitable title
  • May be presumption that A intended C to hold property on resulting trust for A
  • If resulting trust created A will own the entire equitable interest
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37
Q

What is the presumption of advancement?

A
  • applies in some voluntary transfer / purchase money cases
  • equity regards transferor as being under a moral obligation to provide for transferee:
    - father to child
    - person in loco parentis to child (acting as a parent)
    - husband to wife
    - fiance to fiancee
  • there is no presumption of resulting trust - if property passes between these individuals it is presumed that the transferor intends to gift to the transferee
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38
Q

Can the presumption of advancement be rebutted?

A

Presumption of advancement can be rebutted but:

  • there must be evidence of the transferor’s intention before or at the time of transfer
  • transferor cannot rely on evidence of acts / declaration occuring after the transfer
  • is there evidence at the time of transfer that something else was intended? If so, presumption of advancement can be rebutted
39
Q

When does the presumption of advancement not apply?

A
  • does not apply if roles are reversed ie wife gifts property to husband
  • resulting trust would apply
  • NB where a voluntary transfer of land occurs there is no presumption of a resulting trust
40
Q

Does a presumption of resulting trust apply when transferring personalty?

A
  • if A transfers personalty they own to B for free, a presumption of resulting trust will generally arise4
  • B will hold the legal title / A will hold the equitable title
  • presumption of resulting trust can be rebutted by evidence of A’s intention
  • underlying presumption of resulting trust only applies where there is no evidence (words / conduct) of giving party’s intention
41
Q

Can there be a resulting trust of the family home?

A
  • resulting trust only focuses on contributions to the purchase price made at the same time as the purchase itself
  • Payment of ancillary items (deposit, stamp duty, legal fees) do not count
  • resulting trust of the family home only recognises monetary contributions ie. domestic contributions are ignored.
42
Q

How is an express trust of the family home created?

A
  • if there is an express trust then beneficial interests will be set out in the declaration of trust
  • declaration of trust must be:
    - evidenced in signed writing
    - comply with s 53(1)(b) LPA 1925
43
Q

How is a common intention constructive trust created where the house is jointly owned?

A
  • if one partner claims shares are unequal onus is on them to prove that court should depart from general rule that shares are joint / equal
  • they can do this by:
    - proving an express agreement between the partners as to how beneficial interests would be shared
    - allowing the court to infer common agrement / common intention over time - ie partner finances extension
44
Q

How will the court infer a common intention constructive trust *where the house is jointly owned?

A

where there is no express agreement or the court cannot infer the parties’ intentions the court will:
* survey the whole course of dealing between the parties
* ascertain what is fair having regard to the course of dealing

45
Q

How does the court quantify the share in a CIT where the house is jointly owned?

A
  • court will award shares that it considers fair having regard to the whole course of dealing between the parties
  • court will take into account:
    - advice / discussions at time of purchase
    - nature of relationship
    - how the parties arranged their finances
    - how they arranged their outgoings
46
Q

How is a common intention constructive trust created where the house is solely owned?

Method 1 - express common intention + detrimental reliance

A
  • involves an express oral agreement / understanding between the couple that the house is to be shared beneficially and both parties would have an interest
  • claiming party needs to show that they have acted to their detriment
  • there must be express common intention + detrimental reliance

Note Hudson v Hathaway

47
Q

How is Hudson v Hathaway relevant to Method 1 (express common intention + detrimental reliance)?

A
  • detrimental reliance can be non-monetary and domestic
  • it must be substantial
48
Q

What are the requirements for proprietary estoppel?

A
  • prevents someone from going back on their word in relation to property when it would be unfair for them to do so
  • assurance: can be active or passive / legal owner must have made a representation or created / encouraged an expectation
  • detriment: claiming party must show they acted to their detriment
  • reliance: assurance must cause claiming party to act to their detriment
49
Q

How can a trustee retire?

A
  • retirement of trustees covered by s 36(1) TOLATA
  • s36(1) cannot be used by beneficiaries

Who appoints the new trustee?
* person nominated in trust
* if no person appointed in trust then continuing trustees can appoint
* includes retiring trustee if willing to join in the appointment
* appointment must be in writing
* advantageous to use a deed as automatically vests trust property in continuing / new trustees

50
Q

Can a trustee retire under s 36 without being replaced?

A

there must be:
* two trustees or a trust corporation left
* trustees retire by deed
* other trustees consent by deed

51
Q

When can additional trustees be appointed?

A
  • governed by s 36
  • cannot be used by beneficiaries

who makes the appointment?
* person nominated in the trust instrument
* if none continuing trustees
* trust cannot appoint more than 4 additional trustees
* appointment must be in writing
* advantageous to use a deed

52
Q

When can the court appoint additional trustees?

A

s 41 Administration Justice Act
* court will appoint a new trustee if it is expedient to do so
* must be inexpedient, difficult or impractical to appoint without the court’s assistance

53
Q

When can beneficiaries direct a trustee to retire?

A
  • s 19 TOLATA allows beneficiaries to serve a written direction on trustee / trustees to retire and appoint person specified in direction
  • only applies if beneficiaries are:
    - full age
    - capacity
    - absolutely entitled

NB: trust instrument can exclude s 19

53
Q

What must the trustee do following receiving a written direction?

A

Following written direction a trustee must retire by deed if:
* reasonable arrangements have been made to protect their rights
* after the retirement there will be two trustees / trust corporation left
* another person is appointed to replace them
* trustees consent by deed to retirement

54
Q

When can a trustee be removed?

A

Trustee can be removed under s 36(1) if trustee is:
* dead
* remains outside the UK for more than 12 months
* refuses to act
* unfit to act
* incapable of acting
* a minor

NB: s 36 cannot be used by beneficiaries

55
Q

When can trustees pay income / capital to beneficiaries?

A
  • Settlor may expressly provide in trust that trustees can pay income / capital to beneficiaries
  • if no provision Trustee Act 1925 gives trustees powers to pay income / capital early to beneficiaries
56
Q

Paying income to beneficiaries under s 31 Trustee Act 1925

A
  • trustees have power to use income to pay for the maintenance, education and benefit of a beneficiary under 18
  • following conditions must be satisfied:
    - no contrary provision in declaration of trust
    - no other prior interests in income
57
Q

What are key considerations when applying income for minor beneficiaries?

A
  • cannot be used for a beneficiary where someone has a prior interest in income
  • exercise of trustee power is discretionary
  • any monies should be paid direct to beneficiary’s parent / guardian
58
Q

When are trustees under a duty to pay income to beneficiaries?

A
  • adult contingent beneficiaries are entitled to trust income as it arises
  • trustees must pay income pending vesting of beneficial interests
  • discretionary power ceases when beneficiary reaches 18
  • trustees have a duty to pay trust income to beneficiary as it arises and until contingency is reached
59
Q

When is there a duty to pay capital to beneficiaries?

A
  • if there is another beneficiary with a prior interest any advancement of capital can only take place if:
                  - **prior interest holder is an adult**; and
              - has given **written consent** to advancement
              - payment must be for beneficiary's advancement / benefit
60
Q

How much capital can trustees advance?

A
  • trusts created after 1 October 2014 - advance payment must not exceed beneficiary’s entitlement
  • trusts on or before before 1 October 2014 - trustees can only advance half of beneficiary’s entitlement
61
Q

What are the trustees’ duties when starting out?

A

A newly appointed trustee must ensure:
* they have been properly appointed
* ascertain what the trust property consists of
* take all reasonable / proper measures to take control of trust property
* review trust documents and associated paperwork
* enquire into past business to ensure no breach
* where there are chattels held on trust to draw up an inventory

62
Q

**Do trustees have a duty of care?

A

Trustees must:

  • take all precautions which an ordinary prudent man of business would take
  • when managing similar affairs of his own
  • this is an objective standard but could be higher for professional trustees
62
Q

What are the main duties that a trustee has?

A
  • duty of care
  • duty to act fairly between beneficiaries
  • duty to act personally and unanimously
  • duty to exercise discretions properly
63
Q
A
63
Q

What is the duty to act fairly between beneficiaries?

A
  • trustees must act fairly and in the interests of each beneficiary
  • trustees must not benefit one beneficiary at the expense of another
64
Q

What is the duty to act personally and unanimously?

A
  • trustees must take reasonable and proper measures to take control of trust property
  • trustees must take decisions unanimously unless trust document states otherwise
  • trustees must act personally
  • trustees must be active in running the trust and and cannot sit back
65
Q

How can trustees comply with their duty to exercise discretions properly?

A
  • beneficiaries cannot compel trustees to exercise discretionary powers in a particular way
  • beneficiaries can intervene if trustees exercise power improperly
  • trustees must exercise power:
    - in good faith
    - rationally
    - for the purpose it was created
    - with regard to all relevant matters
    - with regard to all relevant facts
66
Q

When do trustees need to give reasons for their decisions?

A
  • trustees do not need to give reasons for their decisions
  • if they do decide to give reasons, the beneficiaries and the court can enquire into the soundness of the decisions
  • trustees must give **advance warning if exercising power differently from legitimate expectation of beneficiary **
67
Q

When do trustees need to disclose information?

A

Beneficiaries are entitled to see:
* trust documents
* will that created the trust
* schedule of trust investments
* other documents that show how trust property is created

  • beneficiaries cannot demand documents that record trustee deliberations on the exercise of a discretion / power
67
Q

What do trustees have to take into consideration when investing trust property?

A
  • investments must be suitable for the trust
  • trustees must diversify their investments to minimise the chance of losing their investments in one asset
68
Q

What investments can trustees make?

A
  • can make any kind of investment as if absolutely entitled
  • can purchase land in the UK for any purpose
  • must have regard to standard investment criteria (suitability and diversification)
  • when selecting / reviewing investments trustees must obtain and consider proper advice
  • trustees must review investments from time to time
  • trustees must seek best financial return
69
Q

When can trustees appoint an agent to make decisions?

A
  • trustees can select a suitably qualified agent to carry out asset management functions
  • agent must be appointed in writing with a written policy statement
  • must review agent’s actions from time to time
  • trustees **not liable for defaults of the agent **but can be liable for breach of appointment process
70
Q

What are trustees main considerations when making investments?

A

Trustees must:
* act impartially between beneficiaries
* strike a fair balance between the needs of all beneficiaries
* secure the best return for beneficiaries
* not be guided by their own moral / ethical views but must have regard to the morals / ethics of the trust

71
Q

When can trustees keep personal profits?

A
  • if authorised by the declaration of trust
  • all beneficiaries are aged 18+, know the full facts and consent
  • if authorised by a court order / statutory provision
71
Q

What is self-dealing?

A
  • occurs where trustee is tempted to sell or purchase property from the trust
  • beneficiaries can set aside transaction if trustee is involved
  • must be set aside within a reasonable timeframe
71
Q

When can trustees be renumerated?

A

Trustees cannot demand payment for their services from trust funds unless authorised by:
* express provision in trust deed
* beneficiaries consent
- beneficiaries must be at least 18 years
- agreement must be fair
- trustees must disclose all relevant facts
* court order
* Trustee Act 2000

  • if the trustee is not a sole trustee they can only charge if the other trustees consent
72
Q

Can trustees exploit an opportunity / use information that they could have only obtained through their roles as trustees?

A
  • trustee is liable to account for any profits they receive where **they have received profit by exploiting an opportunity belonging to the trust **(ie becoming aware of an investment that they would not have become aware of had they not been a trustee)
  • if trustee is looking to exploit opportunities that belong to the trust they will need authorisation of beneficiaries aged 18+
73
Q

Are trustees liable for another trustee’s breach of trust?

A
  • trustees are not automatically or vicariously liable for defaults of co-trustees
  • if more than one trustee has breached the trust then liability is joint and several
  • beneficiaries can choose to bring a claim against all or an individual trustee
74
Q

When is there a breach of trust?

A
  • beneficiaries must establish causation and that the breach of trust caused the loss suffered
  • must satisfy the ‘but for’ test
  • beneficiaries can recover compensation equal to the loss of the trust
  • can also claim interest from date of breach
75
Q

What defences are there to a breach of trust

A
  • s 61 Trustee Act
  • knowledge and consent of beneficiaries
  • exemption clauses
76
Q

When can trustees bring a personal claim?

A
  • applies where a trustee’s wrongdoing causes the trust to suffer a loss. Claim can be brought against the trustees personally
  • trustees must satisfy the claim from their own personal funds or property
77
Q

When is a personal claim not advantageous or appropriate?

A
  • if the trustee is insolvent. If claim is brought beneficiary will be an unsecured creditor in any bankruptcy.
  • where the trustee has bought something that the beneficiary considers attractive (ie shares which have doubled in value). Beneficiary should bring a proprietary claim to recover the shares
  • if the trustee’s wrongdoing has happened some time ago. Personal claims are sometimes statute-barred six years after the breach.
78
Q

Defences to a personal claim
s 61 Trustee Act 1925

A
  • court has discretion under s 61 to relieve trustees from liability wholly or in part
  • trustee must have acted honestly and reasonable
  • courts are reluctant to excuse trustees who sit around and do nothing to administer trust (‘passive trusts’)
79
Q

Defences to a personal claim
Exemption clauses

A
  • settlor can include an express clause in trust deed which exempts trustees from liability for breach of trust
  • can relieve trustees from liability for negligent or innocent breaches but cannot apply to fraudulent breaches
80
Q

Defences to a personal claim
Knowledge / consent of the beneficiaries

A
  • beneficiaries can consent before or after breach
  • consent must be fully informed and freely given
  • a minor cannot give valid consent
  • consenting beneficiaries must be adults of full capacity
81
Q

What is the relevance of s 1 Civil Liability Act?

A
  • court can order a co-trustee to make a contribution that is just / equitable having regard to the extent of that co-trustee’s responsibility for the loss
  • contribution can be anything up to 100% of the compensation ordered
82
Q

What is the limitation period for personal claims?

A
  • personal claims are subject to a 6 year limitation (does not apply to fraudulent breaches)
  • limitation runs from date of breach
  • in regards to a minor, the period runs when they reach the age of 18
  • for remainder beneficiaries, limitation period runs when interest falls into possession
83
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A
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85
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86
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87
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88
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89
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90
Q
A

SQE 1 (2 decks)

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