Trusts Flashcards
Equitable vs beneficial interest
Beneficial = right to receive benefits or profits of a property, equitable = right to use and enjoy property (ie sub trust - equitable interest held by sub trustee and beneficial interest held by sub beneficiary
Types of trust
express (intentional), resulting and constructive (arise by law)
Trust v bailment
Bailor retains legal proprietary interest in bailed goods, has only granted possession vs beneficiary has equitable interest
Trustee v agent
Trustee transact as principal for beneficiary, not as agent
What type of interest does a full legal owner have
Legal interest only, no separate equitable interest
Company transfers possession of its goods (not title) to a man, agree that man will try to sell the goods on behalf of the company and that he will return to the company any goods he is unable to sell. The man will pay the proceeds from any sales into a separate bank account and transfer the proceeds to the company. The man sells some of the goods. He pays the proceeds of the sale into a separate bank account. What is the man’s relationship with the company?
The man is a bailee (goods), an agent (authorised to sell goods on behalf of company), and a trustee for the company (paying proceeds to separate bank account that must transfer to company)
Perpetuity - Rule against remoteness of vesting
Perpetuity - Rule against alienability
- Non-charitable purpose trusts only
- = assets cannot be tied up on trust for longer than specific life + 21 years (21 years if no life specified)
- (no wait and see) (common law rule)
Perpetuity - Rule against remoteness of investing
- Trusts with people or charities as objects
- person/charity but obtain vested interest in trust property w/in perpetuity period = 125 years (trust can shorten)
- wait and see = trust can exist until clear that cannot vest within perpetuity period
- “class closing” rules can exclude objects that would otherwise cause trust to fail
Trustee holds property on trust for A (age 2) for life, remainder to be divided equally btwn A’s children and grandchildren. Apply “class closing” rules
Problem: potentially violates perpetuity period, unclear how many years it will take for all grandchildren to be born. Solution: “class closing” - limits beneficiary to A’s children and grandchildren who are alive at the end of the perpetuity period
Consequence of failing perpetuity period
Resulting trust for settlor
Perpetuity: testator leaves £10k on trust in will, capital and income used to maintain grave of testator
Void because capital may not be used up within perpetuity period of 21 years (must contain express perpetuity clause)
Perpetuity: testator leaves £10k on trust in will, income to be used to maintain grave of settlor
Void because capital will never be disposed of
Perpetuity: testator leaves £10k on trust in will, capital and income used to maintain testator’s dog
Courts take restrictive approach, even though dog unlikely to live more than 21 years would be void
Solutions to perpetuity - express clauses
1) “as long as the law allows” 2) express clause that trust lasts for 21 years 3) clause that perpetuity period only starts running at death of named person (“Royal lives clause” - “period not exceeding 21 years following the death of the last surviving descendent of Queen Elizabeth II who is alive at the date of my death”
2 types of express trust
1) self-declared trust (settlor retains legal title and holds as trustee for third party) 2) transfer on trust (settlor transfers legal title to hold on trust for a beneficiary, includes transferring to third party to hold on trust for settlor)
If express trust fails then
Resulting trust created
Trusts by law
1) resulting trusts 2) constructive trusts 3) statutory trusts
Three certainties
1) intention 2) subject matter 3) objects
Consequence of uncertainty: inter vivos trusts - no transfer of legal title
no change, owner remains absolute legal owner
Consequence of uncertainty: inter vivos trusts - transfer of legal title
1) if certainty of intention that trust fails and automatic resulting trust arises (ie uncertainty re: objects/subject matter) 2) if no certainty of intention then presumption of resulting trust applies
Beneficiary principle
Trust only valid if has beneficiary (purpose = enforceability, holding trustee to account)
Certainty: intention
1) = intention to assume responsibilities of trustees 2) ascertained from words/conduct, fact specific 3) use of word “trust” not necessary nor conclusive
Certainty: subject matter
requires objective yardstick ie “reasonable income”
Certainty - subject matter - tangibles
If no segregation then no valid trust (ie wine bottles)
Certainty - subject matter - fungible intangibles
If no segregation valid (ie identical shares)
Fixed trusts v discretionary trusts v powers of appointment
fixed trusts no discretion discretionary trusts has discretion but must exercise, powers of appointment may be exercised but need not be (but may need to consider using periodically if is a fiduciary power)
Conceptual certainty
precision of language used by settlor to define class of persons intended as beneficiaries
Evidential certainty
1) extent to which the evidence in a particular case enables trustees to identify the objects of the trust
3) Baden - C must prove to trustees’ satisfaction that they are within the class, else they are outside
Test of certainty for fixed trusts
Complete list test = evidential and conceptual certainty
Test of certainty of discretionary trusts and fiduciary powers
- Is/is not test (any given postulate) = whether any given individual is or is not a member of the class
- requires conceptual certainty but can accommodate some evidential uncertainty
Administrative unworkability
Discretionary trust can fail but fiduciary power cannot
Reason for certainty of objects
Court must be able to regulate and if necessary enforce trust
Interested vested in possession
= current right to current enjoyment of property
Interest vested in interest
= current right to future enjoyment of property (not contingent)
(ie, house held on trust for woman with life remainder to son)
Contingent interest
right to property conditional on occurrence of uncertain future event
if future event occurs becomes “vested”
(ie trust of house for woman for life remainder to son if he survives her else charity)
“gift-over”
= granting interest in property upon termination/failure of a prior interest
(ie trust of house for woman for life remainder to son if he survives her else charity)
Sole beneficiary future interest to capital
capital interest carries intermediate income
(unless assigned to someone else)
(whether beneficiary will be paid income as arises depends on age of beneficiary + powers of trustees)
Sole beneficiary absolutely entitled to capital and income
capital interest vested in possession
(if minor depends on dispositive powers of trustees ie power of maintenance)
Successive interest trusts
- property left to A for life (= life tenant/income beneficiary ) then B once A dies (= remainderman/capital beneficiary)
- A only has interest in income, B only in capital when A dies
Saunders v Vautier define
= sole adult beneficiary of sound mind w vested interest in trust property entitled to direct trustee to transfer legal title to them, end trust and become absolute owner
(must be absolutely entitled)
Saunders v Vautier - fixed trusts
1) if each beneficiary has severable distinct interest the can exercise (ie simple fixed trusts with no successive interests)
2) else beneficiaries must agree to exercise rule to transfer agreed shares (together hold absolute interest)
(cannot agree if not adult of sound mind ie if child has successive interest must wait until turn 18)
Saunders v Vautier - discretionary trust or fiduciary power with gift-over
- exercisable if all agree (including those with contingent interests)
- unlikely in large/complex trusts
Formalities: trusts of land (s53(1)(b) LPA)
- evidential requirement = trust unenforceable until satisfied
(but trust exists from moment declared; once formalities satisfied beneficiary can enforce trust for period btwn declaration and satisfying formalities) - must just contain intention to create trust + terms
- if will, must be validly executed
Formalities for trust to land: consequences for self-declaration of trust
beneficiary cannot assert interest (unless PE or constructive trust)
Formalities for trust to land: consequences for intended transfer on trust
1) if does not transfer legal title: void for lack of constitution and unenforceable unless estopped
2) if does transfer legal title, trustee should ask court
Constitution define
= legal transfer of title from one party to another
Constitution requirement for inter-vivos transfer trust/gift
Trust: legal title must transfer from settlor to trustee
Gift: legal title must transfer from donor to donee
Constitution of self-declaration of trust
Automatically constituted when trust declared
Transferring legal title of shares requirements
1) signed stock form 2) send to registrar of company
Constitution of gifts and trusts in will
Constituted in will
Constitution - multiple trustees
sufficient that trust property has been transferred to one of intended trustee, including where settlor is one
Milroy v Lord Rule
If incorrectly tries to transfer legally title disposition fails,
equity will not assist volunteer
(will not treat as a self-declaration of trust)
Fortuitous vesting (Strong v Bird rule)
= when imperfect gift but are later granted legal title through another route, equity will fix gift (ie will makes purported donee executor)
Requirements: 1) intention to make immediate gift 2) intention must continue until donor’s death 3) intended donee becomes executor (or one of several)
Donationes Mortis Causa
1) = gift made in contemplation of death
2) conditions = 1) conditional on death 2) delivery of property (either handing it over or something that represents title
(1. re: chattel sufficient to have delivery w intention
2. re: land, shares, bank accounts more must be done to transfer title but full transfer not required (ie man dying tells friend house was hers and gives her keys to box that has title deeds))
Professional negligence - Montgomery rule
Medical professionals have duty to tell patient is aware of any material risks re: any recommended treatment + any reasonable alternative
A material risk = reasonable person in the patient’s position consider as one or the doctor objectively should be (or is) aware that patent would consider material risk
