Trusts

Question 1

what is a resulting trust?

Answer 1

A resulting trust is implied in situations where it is presumed that the settlor would have intended such a trust, if they had thought about it.

Question 2

what is a constructive trust?

Answer 2

A constructive trust is implied in order to achieve a fair result between the parties involved. It is often used where it would be unfair to allow the legal owner to have full enjoyment of the property they hold.

Question 3

how does a settlor create a valid express trust?

Answer 3

1. make a valid declaration of trust
2. put the assets in the trust (in other words, put title to the property to be held in trust into the hands of the trustee, so that the trustee can manage that property going forwards)

Question 4

what are the two kinds of express trust?

Answer 4

1. fixed interest trust = the trustees have no discretion as to how the trust property is to be distributed between the beneficiaries
2. discretionary trusts = gives the trustees a discretion as to the amounts any person may receive and/ or whether particular people receive anything at all.

Question 5

a declaration of trust is only valid if there is sufficient certainty

how is this determined?

Answer 5

the three certainties:

(a) certainty of intention (also known as certainty of words): it must be clear that the person making the declaration intended to create a trust;

(b) certainty of subject- matter: it must be clear what property is being held on trust and also what the individual interests of beneficiaries are (ie it must be clear how that property will be shared); and

(c) certainty of objects: it must be clear who the beneficiaries are.

Question 6

in order to demonstrate certainty of intention, a settlor must have done what?

Answer 6

• must have used words that impose a duty on someone to act as trustee
• Paul v Constance = A trust may thus be created without using the word “trust”, for what the court regards is the substance and effect of the words used’

Question 7

which words do not create certainty of intention in a trust?

Answer 7

precatory words = expressing a wish or a hope

wording must be obligatory or mandatory

Question 8

which two aspects must a court have regard to when looking at certainty of subject matter?

explain them

Answer 8

(a) the trust property must be described with certainty; and
- trust property must be identifiable
- cannot be ‘future property’
- Re London Wine Co and Hunter v Moss

(b) the settlor must define the beneficiaries’ interests with certainty
- Boyce v Boyce = two houses on trust and the trustees should convey one to party A depending on ‘whichever she might think proper to choose’ and the remaining goes to party B
- party A died before they chose which house
- party B gets nothing
- The trust property was certain – the two houses – but it was unclear who got what

Question 9

what is the relevance of Re London Wine Co + Hunter v Moss?

Answer 9

regarding certainty of subject matter:

Re London Wine Co
- the crates were not labelled with any customer names, so it was impossible to identify which particular crate of wine was held on trust for which particular customer
- to have certainty of subject matter = the company would’ve had to have taken steps to physically separate (or label) each customer’s consignment of wine from those of other customers

Re London was distinguished from in…

Hunter v Moss
- party A says they will gold 50 of 950 shares on trust for party B
- the 950 shares were all the same type and were indistinguishable from each other so there was certainty of subject matter

It would therefore appear that you can create a trust over part of a collection of items, so long as the items in that collection are all identical.

This is likely to be true only for intangible property, such as shares (and only then if those shares are truly identical, eg they have the same voting rights and dividend rights attaching to them).

Items of tangible property – things that physically exist – might be ostensibly similar to other items but will nevertheless generally retain characteristics that distinguish them from each other. Therefore the way for the settlor to ensure there is certainty is to physically separate them.

Question 10

will there be certainty of subject matter in the following?

If the settlor transfers property to a third party and declares that that person shall be a trustee over ‘some of it’ and that a gift is intended over the rest.

Answer 10

no trust is created

the third party will take the entire property absolutely, free from any trust

Question 11

to have certainty of object, the beneficiaries must be identifiable. what happens when the beneficiaries are described as a class?

Answer 11

different tests for:

1. fixed interest trusts
   - the complete list test = must be possible to draw up a complete list of every beneficiary
   we need…

(a) conceptual certainty – is the description of the class clear and objective? If the language used to describe the class is unclear and lacks precision, then the trust will fail; and
e.g. ‘friends’ is usually conceptually uncertain

(b) evidential certainty – do we have the evidence to identify all the beneficiaries that will benefit under the fixed interest trust? If we do not have sufficient evidence to identify all the beneficiaries, then the trust will fail.

2. discretionary trusts
   - ‘given postulant / individual’ test = can it be said with certainty whether any given postulant (individual) is or is not a member of the class of objects?
   - conceptual certainty is required = has the settlor laid down sufficient criteria when describing the class so that it is clear what sort of person will qualify?
   - the trust cannot be administratively unworkable
   R v District Auditor, ex p West Yorkshire Metropolitan CC
   - must not be capricious

Question 12

what is the rule against perpetuity?

Answer 12

• A trust cannot go on for too long.
• With trusts for individuals, beneficiaries must have been selected (in the case of a discretionary trust) and/ or must have become entitled to trust property (in the case of all trusts) within 125 years of the trust’s creation.

known as the rule against remoteness of vesting

Question 13

explain the formalities relating to a declaration of trust for a lifetime trust

Answer 13

For a lifetime trust over land, the declaration of trust must be evidenced in signed writing in order to comply with s 53(1)(b) of the LPA 1925.

For lifetime trusts over other property, the declaration of trust can be oral.

Question 14

what must declarations of trust comply with?

Answer 14

53(1)(b) of the Law of Property Act 1925
- must be evidenced in writing signed by the settlor

Question 15

how does s 53 (1) (b) LPA 1925 apply to emails?

Answer 15

• If a settlor declares the terms of an express trust over land in an email at the end of which they type out their name, the typing of their name will constitute a signature for these purposes.
• their name can take pretty much any format e.g. full name, initials, nickname or if their is a signature block

HOWEVER

• the email address itself is not sufficient

Question 16

what is the difference between lifetime trusts and will trusts? what must be required for each?

Answer 16

1. lifetime
   - trust takes effect in the settlor’s lifetime
   - must have :
   a) declaration of trust
   b) ensure property is put into the trust (e.g. the trust property is transferred to the trustee)
2. will trusts
   - trust takes effect on the settlors death
   - must have :
   a) a valid declaration of trust in a will that complies with the provisions of the Wills Act 1837
   b) direct (in a valid will) that title to the trust property will be put in the hands of the trustee

Question 17

for an express trust to be enforceable, the settlor must make a valid declaration of trust and put assets into the trust. at this point the trust is said to be constituted and the settlor cannot change their mind.

what are the two methods of constituting an express lifetime trust?

Answer 17

(a) the settlor appoints themselves trustee for the beneficiary by making a valid declaration
of trust. or
- made a valid declaration of trust
- they owned the legal title to the trust property and because they have become a trustee they retain the legal title

(b) the settlor appoints someone else to be the trustee by making a valid declaration of trust.
In this situation, the settlor must also transfer legal title in the trust property to the trustee.
- made a valid declaration of trust
- must take steps to put legal title to the trust property into the hands of that other trustee

Question 18

is administrative workability a factor for fixed interest trusts?

Answer 18

no - administrative workability is only a factor for discretionary trusts

Question 19

a settlor may constitute an express lifetime trust in one of two ways. the second way is for them to appoint someone else to be the trustee by making a valid declaration of trust and putting the legal title of the trust property into the hands of the third party trustee.

how does the settlor transfer the legal title of the trust property if the trust property is land? i.e. what are the transfer rules for land

Answer 19

1. the settlor must execute a deed (LPA s25)
   - a deed is a document that satisfies s 1 LP(MP)A 1989
   - if the transfer is for registered land the TR1 form satisfies the requirements of s1 LP(MP)A
2. give the deed to the trustee (who then registers it with the LR) or give to the LR direct

the LR will then register the trustee as the legal owner

the trust will then be constituted and will be enforceable by a beneficiary

Question 20

a settlor may constitute an express lifetime trust in one of two ways. the second way is for them to appoint someone else to be the trustee by making a valid declaration of trust and putting the legal title of the trust property into the hands of the third party trustee.

how does the settlor transfer the legal title of the trust property if the trust property is shares? i.e. what are the transfer rules for shares

Answer 20

Legal title in company shares can be transferred either:

(a) within the CREST system – this only applies to
certain shares in public quoted companies; or

• online system which can transfer shares instantaneously without the need for paperwork
• shares within the CREST system are usually managed by a stockbroker, so the settlor will need to instruct the stockbroker to transfer the shares to the trustee

(b) outside the CREST system – this applies to all other shares, especially shares in private companies.

• paperwork is required
• settlor will have a share certificate evidencing ownership + that ownership is confirmed by the name of the owner being entered in the company’s register of members
• to transfer to the trustee the settlor must:

(a) execute a stock transfer form, and
(b) give the executed stock transfer form and relevant share certificate either to the trustee (who will then pass it on to the relevant company) or send it to the company direct.

The company’s secretary will then register the trustee as the new shareholder (and therefore the new legal owner) in the register of members.

legal title is not transferred until all of these steps have been completed

Question 21

a settlor may constitute an express lifetime trust in one of two ways. the second way is for them to appoint someone else to be the trustee by making a valid declaration of trust and putting the legal title of the trust property into the hands of the third party trustee.

how does the settlor transfer the legal title of the trust property if the trust property is money? i.e. what are the transfer rules for money

Answer 21

legal title to money generally passes with delivery

e.g. cash handed over, electronic transfers = when money hits trustee’s bank account, cheque = once it has cleared (note if the settlor dies before then the cheque can no longer be cashed)

Question 22

a settlor may constitute an express lifetime trust in one of two ways. the second way is for them to appoint someone else to be the trustee by making a valid declaration of trust and putting the legal title of the trust property into the hands of the third party trustee.

how does the settlor transfer the legal title of the trust property if the trust property is chattels? i.e. what are the transfer rules for chattels

Answer 22

Title to chattels is passed by physical delivery of the asset to the trustee or by deed

Question 23

what happens if the settlor doesnt fully constitute their express lifetime trust?

Answer 23

‘equity will not assist a volunteer’ - the volunteer here is the beneficiary

transfer rules cannot be ‘bent’ or overlooked in order to constitute a trust

EXCEPTIONS

Question 24

there are two ways a settlor can constitute an express lifetime trust. in the second way they must have made a valid declaration of trust + moved the legal title to the third party who will become trustee.

the rules regarding transferring the legal title (the transfer rules) and thus constitution will not be bent because equity will not assist a volunteer, except in which circumstances?

Answer 24

1. the ‘every effort’ test
   - the settlor must have passed the point of no return or put the property being transferred ‘beyond recall’ e.g. the settlor has sent out all documents relating to the transfer of the property
   - all that remains for the transfer to be completed is the actions of a third party

note if the documents are still in the possession of the seller = will fail the ‘every effort’ test

2. the rule in Strong v Bird
   - when someone dies the executor (where valid will) / administrator (intestate) will apply for a grant of representation and the legal title of the estate is transferred to them so they can administer the estate
   - in scenarios where the settlor wanted to transfer the legal title to a third party so as to constitute the trust, but never got round to it, but then that same third party obtains the legal title for the assets in the estate through being made executor/administrator when the settlor dies, the trust will be constituted, so long as the conditions from Strong v Bird are satisfied…

(a) the settlor intended to create an immediate trust with a third party acting as trustee;
(b) that trust was not immediately created due to a failure to comply with a relevant transfer rule;
(c) the settlor’s intention continued up to their death; and
(d) the intended trustee acquired legal title to the trust property by becoming the settlor’s
executor or administrator.

Question 25

What happens where the settlor appoints
themselves and someone else to immediately act as trustee

Answer 25

the settlor must take steps to transfer legal title from their sole name into the joint names of the settlor and the other trustees

they must still comply with the transfer rules for each type of property when doing this (e.g. land, shares, money and chattels)

Question 26

What happens where the settlor appoints
themselves and someone else to immediately act as trustee by a valid declaration of trust, but does not take any steps to transfer the legal title of the property into joint names?

Answer 26

• it would be unconscionable to back out of the trust
• you cannot deny the existence of the trust
• you are duty bound to take the necessary steps to comply with the transfer rules

Question 27

how does the description of the beneficiaries interest change depending on whether they are entitled to an interest in capital or an interest in income?

Answer 27

interest in capital = absolute interest

interest in income = limited interest

Question 28

a beneficiaries’ interest in a fixed interest trust is fixed by the settlor. what else can the settlor decide?

Answer 28

(a) whether a beneficiary should have a present entitlement to property, or whether that
entitlement should be made conditional on (for instance) the beneficiary attaining a
certain age;

(b) whether and when the beneficiary will get the capital and income generated by the trust,
or merely one or the other.

Question 29

looking at fixed interest trusts…

when does a beneficiary have a vested interest

Answer 29

• if that beneficiary exists and does not have to satisfy
  any conditions imposed by the terms of the trust before becoming entitled to trust property
• unconditional interest
• if the beneficiary dies before the trust property is paid over to them, the trust property will belong to the beneficiary’s estate and will pass in accordance with their will (or intestacy)
• until a beneficiary turns 18, the trustee will hold the property on trust for them
  NOTE
• Once a beneficiary turns 18 years, that does not automatically bring a trust to an end. The trustees will continue to hold the property on trust for the beneficiary until the beneficiary requests that the trust property be transferred to them. Until that happens, the trustees will hold the property on a ‘bare trust’

Question 30

what is the beneficiary’s interest where there is no instruction in the declaration of trust regarding the separation of the capital and the income of the trust property?

Answer 30

it is assumed the beneficiary is entitled to both

Question 31

looking at fixed interest trusts…

when does a beneficiary have a contingent interest?

Answer 31

• if it is conditional upon the happening of some
  future event that may not happen, or if the beneficiary is not yet in existence
• once the beneficiary satisfies the condition, the beneficial interest vests in them and they have a vested interest
• If a beneficiary dies before the happening of the stipulated event, their interest will go back to the settlor unless the settlor has provided that the beneficial interest should pass to someone else.

Question 32

looking at fixed interest trusts…

how do successive interests work?

Answer 32

EXAMPLE:

‘I give my shares in Aviva plc to my Trustees to hold on trust for my wife, Yara, for life, remainder to my son Adam.’
- Yara is the life tenant and her interest is the life interest
- Adam is the remainderman and his interest is said to be in remainder
- until Yara dies, Adam is said to have a vested interest

• if Adam died before Yara, his interest does not fail
• when Yara does eventually die, the trust property will go to Adam’s estate

(NOTE: it is not contingent because contingent interests are where the event might not happen, however the life interests death will always happen at some point

but if you wanted to you could create a contingent interest with the remainder e.g. the shares are with Yara for life, the remainder to my son when he reaches 25

NOTE: if Adam died before Yara in these circumstances, the remainder interest would fail and would go back to the settlor on a resulting trust)

Question 33

what kind of interests could a life tenant have in trust property, specifically where the trust property is land?

Answer 33

• may receive rental income from the property
• they may have the ‘use and enjoyment of the property’

Question 34

with discretionary trusts, often the beneficiaries are a class of people. at what point do those members of a class have a beneficial interest in the trust?

Answer 34

Until the trustees exercise their discretion to distribute property to particular members of the class, no individual member of that class has a beneficial entitlement to the trust fund.

in the period in which the distribution of the trust is pending, the people in the class are known as ‘objects’ of the trust

Question 35

is it possible to combine elements of fixed interest trusts and discretionary trusts?

Answer 35

yes

e.g.

‘I give my shares in Kingfisher plc to my Trustees to hold on trust for my wife, Francesca, for life, [fixed interest trust - lifetime interest] remainder to such of my children [remaindermen] as survive my wife and in such shares as my Trustees in their discretion see fit’ [as they see fit = discretionary]

Question 36

what is the rule in Saunders v Vautier

Answer 36

The beneficiary under a bare trust (sole, adult beneficiary) can direct the trustees to transfer trust property to the beneficiary

a bare trust = a trust for a sole, adult, mentally capable beneficiary that gives the beneficiary a vested interest

The beneficiary of a bare trust is often said to be ‘absolutely entitled’.

• the trustees must handle the trust as the beneficiary dictates e.g. the beneficiary can bring the trust to an end at any time by requiring the trustees to convey the whole trust fund to the beneficiary or to other trustees
• bare trusts also arise where a beneficiary who had a contingent or remainderman interest becomes the sole beneficiary

Question 37

what is the extended rule in Saunders v Vautier?

Answer 37

beneficiaries can end the trust by calling for a transfer of trust property to themselves or other trustees, so long as all the beneficiaries under the trust who could possibly become entitled:

(a) are in existence and ascertained;
(b) are aged 18 years or over and have mental capacity; and
(c) agree to what is being proposed.

Question 38

i leave my trustees my house on trust for my daughter alice for life and the remainder to my grandchildren.

would you describe alice’s interest as absolute or limited?

Answer 38

the capital and the income have been split

alice gets the income from the property if she chooses to live elsewhere and rent it out OR she can live in the property rent free

the grandchildren’s beneficial interests are postponed but when alice dies they have an absolute interest

Question 39

£100,000 to my trustees to hold on trust for such of my children who reached 25.

brian = 28 charles = 24 david = 23

does the rule in saunders v vautier apply?

Answer 39

yes because they are all of the beneficiaries, they are all 18 and they are all in an agreement

remember the relevancy of age here is not about when they receive their interest (for example here brian’s interest is vested and charles and david’s interests are contingent) but are they 18?

if a beneficiary has a contingent interest which is not yet vested, this doesnt matter for saunder v vautier as long as they are 18 and in agreement

Question 40

purpose trusts are a kind of ________ trust and therefore require ……

Answer 40

they are a kind of express trust

and therefore require:
a declaration of trust + assets to have been moved into the trust

Question 41

When looking at a declaration of trust for a purpose trust, what is different?

Answer 41

additional validity rules which are not generally an issue for trusts for individuals and they are:

(a) the beneficiary principle, which requires that trusts ordinarily directly benefit individuals; and

(b) the rule against perpetuities (in this case, the rule against inalienability of capital), which requires that property should not be locked away in the trust for too long.

Question 42

summarise the validity rules for a declaration of trust

Answer 42

1. the three certainties (intention, subject matter and object)
2. the beneficiary principle (trusts must usually benefit individuals)
3. perpetuities
4. formalities e.g. if it is a trust of land the declaration of trust must comply with s 53 (1) (b) LPA 1925

Question 43

why do purpose trusts usually offend the beneficiary principle?

Answer 43

the beneficiary principle = duty to look after the trust property for the benefit of individuals and they can go to court to enforce these duties

purpose trusts offend the ben. principle because there is no individual who can go to court to enforce the trust

as a general rule, purpose trusts are usually void

R v Shaw

Question 44

how does the rule against perpetuities differ when looking at purpose trusts?

Answer 44

• usually the law allows a settlor to lock away their trust property for up to 125 years
• non- charitable purpose trusts are void for offending the rule against inalienability of capital (i.e. locking he capital away for too long) unless either:

(a) the trust states that it is to last for no more than 21 years (in trust deeds, solicitors will often state that the trust will last ‘for as long as the law allows’ – this means the same thing); or

(b) the trustees may spend all the trust capital on the purpose and thereby end the trust at any time.

Question 45

are either of the following a valid purpose trust?

(a) ‘I give £40,000 to my Trustees so that they may use the income to maintain the changing rooms at Beeston tennis club’.

(b) ‘I give £40,000 to my Trustees so that they may build changing rooms at Beeston tennis club’.

Answer 45

a) is invalid because it offends the rule against alienability of capital. if the trust said maintain the changing rooms for as long as the law allows / for no more than 21 years = valid

b) valid because although it doesn’t state no more than 21 years, the trustees may spend all the trust capital on the purpose and therefore end the trust at any time (this is the second exception)

Question 46

Charitable trusts are ______________ from the beneficiary principle and the rule against inalienability
of capital, and therefore do not encounter the problems that these principles and rules create.

Answer 46

exempt

Question 47

who are charitable trusts enforced by?

Answer 47

the attorney general

Question 48

who are charitable trusts regulated by?

Answer 48

the Charity Commission

Question 49

in order to be a charitable trust three conditions set out in the Charities Act 2011 must be satisfied

what are they?

Answer 49

(a) the trust must be for a charitable purpose;
(b) the trust must have sufficient public benefit; and
(c) the trust must be exclusively charitable.

Question 50

a trust will be charitable if it satisfies the three conditions set out under the Charities Act 2011.

explain the first of these three conditions…

‘the trust must be for a charitable purpose’

Answer 50

• 13 charitable purposes are listed in s 3(1) CA
• to be charitable, a trust must seek to promote or attain at least one (can be more than one) of these purposes
• some of the charitable purposes:

a) the prevention or relief from poverty
- poverty doesn’t necessarily mean destitution
- could include the unemployed, build hostels for asylum seekers or to help people who become impoverished due to famine or natural disaster

b) advancement of education
- scholarships, museums, libraries, payment of teachers and admin staff
- can include research so long as the research is useful and the results are published

c) the advancement of religion
- to maintain places of worship or to publish and distribute religious publications

Question 51

a trust will be charitable if it satisfies the three conditions set out under the Charities Act 2011.

explain the first of these three conditions…

‘the trust must be for a public benefit’

Answer 51

(a) the trust purpose must have an identifiable benefit or benefits; and

(b) the benefit must accrue to the public or a sufficiently large section of the public:

i) the prevention or relief from poverty
- A trust to relieve poverty amongst named individuals is not charitable.
- However, a trust to relieve poverty amongst ‘my family’ or ‘my relatives’ is charitable.
- This is generally justified on the ground that the prevention of poverty is such an important objective that anything that seeks to achieve it should be upheld even if the benefit only extends practically to a small number of individuals. This generous rule only
applies to trusts for the prevention or relief of poverty.

ii) The advancement of religion. Public benefit will be present if either:
(a) the place of worship is open to all, even if only a small number attend; or
(b) whilst the place of worship is not open to all, members of the relevant congregation
‘live in this world and mix with their fellow citizens’

HOWEVER Contemplative religious orders that are cloistered and have no contact with the outside
world are not charitable

iii) The advancement of education and other charitable purposes

iv) Charitable trusts must not exclude the poor.
- A charitable institution can charge fees for the services it provides, so long as any profits are ploughed
back into the charitable purpose.
- However, if an institution charges fees that are so high, they can only be met by richer members of society, this is likely to affect its charitable
status.
- Independent Schools Council v Charity Commission

Question 52

when looking at the three conditions needed to create a charitable trust, the second condition is the trust must be for public benefit.

which tests must be satisfied when looking at charitable trusts for the advancement of education and other charitable purposes?

Answer 52

• numerical number of people who benefit must not be negligible
• also various tests to overcome:

1. ‘personal nexus test’
   People linked by a personal nexus are not a sufficient section of the public (usually family and employment) e.g. ‘I give £250,000 to my Trustees for the education of the children of employees of Red Anchor Limited’.
2. The ‘class within a class’ test.
   - The class of people who can benefit from a charitable
   purpose can be limited, so long as those limits are legitimate, proportionate, rational or justifiable given the nature of the charitable trust.
   - geographical location usually legitimate and rational
   - ‘I give £350,000 on trust for the building of
   sheltered accommodation for the elderly residents of Lewisham’
   - arbitrary restrictions = not permitted
   - In IRC v Baddeley (2 separate restrictions, one was legitimate the other was arbitrary)

Question 53

a trust will be charitable if it satisfies the three conditions set out under the Charities Act 2011.

explain the first of these three conditions…

‘the trust must be exclusively charitable’

Answer 53

• A trust with both charitable and noncharitable
  purposes will not be charitable

two different limbs:

(a) to be charitable, a trust must not have political purposes; and
- e.g. supporting a political party or campaigning to change the law
- McGovern v Attorney General

NOTE Charities can engage in political activities that are ancillary or incidental to their main charitable purpose so long as they do not become the dominant means by which the charity carries out its purpose.

(b) if a charitable organisation charges fees, the profits from those fees must be ploughed back into the trust rather than be paid over to private individuals (such as the owners of the organisation).

Question 54

‘I give £50,000 to my Trustees to use the income to relieve poverty among my relatives’.

Is this a charitable trust?

Answer 54

This is a charitable trust:
* The purpose is to relieve poverty, and therefore falls within s 3(1) of the Charities Act 2011.
* It exists for the public benefit. Relieving poverty is a clearly identifiable benefit; identifying a class of people who might benefit – even a class as small as ‘my
relatives’ – is sufficient (listing my relatives as named individuals would not be).
* It is exclusively charitable
.
The fact that my trustees can only use the income (with the result that the trust is capable of lasting in perpetuity) does not render the charitable trust invalid as such trusts are immune from the rule against inalienability of capital.

Question 55

‘I give £250,000 to my Trustees to campaign for Wales to become an independent sovereign state separate from the United Kingdom’.

is this a charitable trust?

Answer 55

This is not a charitable trust as the main purpose is political – the trust is seeking to change the law.

Question 56

If a purpose trust is not charitable, it will only overcome the beneficiary principle and the rule
against inalienability of capital if it is either…..

Answer 56

(a) it is a Re Denley trust; or
(b) it is a trust of imperfect obligation.

Question 57

what is a Re Denley trust?

Answer 57

If the declaration of trust identifies the people who will benefit from a particular purpose then problems with the beneficiary principle can be overcome – the people identified in the declaration of trust will be given standing to enforce the trustees’ duty to apply trust property to achieve the stated purpose and the court can therefore control the trust.

Question 58

what is required for there to be a valid Re Denley trust?

Answer 58

(a) the purpose of the trust must be sufficiently clear and give rise to a sufficiently tangible benefit;

(b) the persons who stand to benefit from the carrying out of the purpose must be ascertainable (satisfy the any given postulant test and the description of people must be conceptually certain)

(c) the trust must not offend the rule against inalienability of capital, ie it must be limited to 21 years in duration or the trustees must be able to spend all the trust capital on the purpose and bring the trust to an end.

Question 59

what is a trust of imperfect obligation?

Answer 59

These trusts include:
(a) trusts to care for specific animals, such as a favourite pet; and
(b) trusts to maintain graves and tombs.

In both cases, there is no human beneficiary who can enforce the trust and they therefore offend the beneficiary principle.

These trusts must comply with the rule against inalienability of capital.

Question 60

trusts of imperfect obligations are ____________ but ________________

Answer 60

valid but unenforceable

For instance, if I leave £225,000 to my trustees to spend it on looking after my dog Bouncer:
* the trust is valid, so if my trustees spend the money on looking after my dog Bouncer, noone can complain; but
* the trust is unenforceable, so if my trustees do not spend any money on my dog Bouncer, no- one can go to court to compel them to do so. The accepted view in these situations is that the settlor (or, more likely, the residuary beneficiary of the deceased settlor’s estate)
can go to court to claim the trust property for themselves.

Question 61

looking at implied trusts…

Where someone (A) transfers property to another (B), the law applies presumptions in an attempt to work out what the effect of that transfer should be.

what are the two main presumptions?

Answer 61

(a) situations that might give rise to a presumption of resulting trust;
(b) situations that might give rise to the countervailing presumption of advancement
(or gift); and

Question 62

looking at implied trusts…

what is the presumption where A voluntarily transfers personality (property other than land) to B?

how can the presumption be rebutted?

Answer 62

• presumption in favour of a resulting trust
• e.g. A transfers shares to B > presumption = B is holding the shares on resulting shares for A
• the presumption in favour of a resulting trust can be rebutted where there is evidence (words or conduct) of A’s actual intention

Question 63

looking at implied trusts…

what is the presumption where A voluntarily TRANSFERS land (or realty) to B?

how can the presumption be rebutted?

Answer 63

• presumption in favour of a resulting trust is less likely to apply in these scenarios
• it is still possible for a resulting trust to arise out of a voluntary transfer of land, but the court would need some evidence or additional factor (eg that the transferor and transferee are strangers) to arrive at that conclusion
• can be rebutted by evidence of A’s actual intention

Question 64

looking at implied trusts…

what is the presumption where A purchases land (or realty) and puts it in the name of Y?

how can the presumption be rebutted?

Answer 64

• presumption in favour of a resulting trust
• this means even if A purchases property and puts it in the name of B, it is still presumed that B is holding the property on trust for A
• can be rebutted by evidence of A’s actual intention

Question 65

looking at implied trusts…

what is the presumption where A contributes to the purchase price of personalty or realty (the balance of the purchase price being paid by B) and puts it in the name of B?

how can the presumption be rebutted?

Answer 65

• presumption in favour of a resulting trust
• means if A contributes and the land or other kind of property and it is put in the name of B, it is presumed the property is held on resulting trust for both A and B
• the proportion of A and B’s beneficial interest under the resulting trust will be proportionate to the size of their contributions

However, for a contribution to give rise to a presumption of resulting trust, that contribution must be:
(a) contemporaneous with the purchase – it does not count if someone tries to make a ‘contribution’ after the event; and
(b) directed towards the actual purchase price itself – if X pays the price tag and Y pays the lawyers’ fees in relation to their advice on the purchase, only X’s contribution counts.

Question 66

looking at implied resulting trusts….

what is the impact of the presumption of advancement applying?

Answer 66

When the presumption of advancement applies, there is no resulting trust and the transferor is presumed to be gifting property to the transferee.

Question 67

looking at implied resulting trusts….

in which situations does the presumption of advancement apply?

Answer 67

It applies in cases of voluntary transfers
and provision of purchase money:

(a) from father to child (the child here can be either a minor or an adult);
(b) from person in loco parentis to child. A person in loco parentis is effectively a guardian who has taken on the responsibility to provide financially for a child. This responsibility generally finishes when the child reaches the age of 18 years;
(c) by husband to wife; and
(d) by fiancé (male) to fiancée (female), so long as the couple subsequently marry.

NOTE the presumption does not apply when any of the above roles are reversed

Question 68

looking at implied resulting trusts….

the presumptions in favour of a resulting trust are easily rebuttable; however they must evidence of contrary intention must be from when?

Answer 68

the evidence to rebut an underlying presumption must be of the transferor’s intention before or at the time of transfer

Question 69

looking at implied resulting trusts…

what is the presumption when an express trust fails?

give examples

Answer 69

• the beneficial interest goes back to the settlor (the resulting trust is implied in favour of the settlor)
• sometimes called automatic resulting trusts
• if the settlor has died the beneficial interest goes to the beneficiary of the settlor’s residuary estate

e.g.
- a contingent interest fails
- no certainty of subject matter
- non-charitable purpose trust that offends the rule against perpetuities
- offends the beneficiary principle
- lack of certainty to beneficiaries interest

Question 70

how would the legal and equitable interests in a joint property be decided expressly (and create an express trust)?

Answer 70

TR1 form

(remember legal title can only be held as JT’s but you could choose to put in the TR1 form how the equitable interests were held)

Question 71

if a cohabiting couple created an express trust over the family home, where would their beneficial interests be set out?

Answer 71

• the declaration of trust
• to be enforceable, the declaration of trust must be evidenced in signed writing in order to comply with s 53(1)(b) of the LPA 1925

Question 72

why are resulting trusts inadequate in dealing with trusts of the family home for a cohabiting couple?

Answer 72

• proportion of purchase price = proportion of your interests in the property

what about non-financial contributions? or financial contributions made after the purchase e.g. through mortgage payments? or ancillary financial contributions e.g. lawyers fees

Question 73

a cohabiting couple co-own the legal title of a property. how are they presumed to hold the equitable title?

Answer 73

equity follows the law so however the legal title is held = same

this is an implied trust

Question 74

to find a common intention constructive trust, the claiming party must show common intention (express or implied) + detrimental reliance.

what would express common intention look like?

Answer 74

written or oral agreement

“this house is as much mine as it is yours”

or draft conveyancing documents

doesn’t matter how imperfect or imprecise the details are

Financial contributions towards the house (eg paying off some of the mortgage or paying for improvements/ alterations to the home) and/ or substantial payments of housekeeping expenses certainly suffice.

Non- monetary, ‘domestic’ contributions (such as giving
up a job to look after children) may well suffice, but the position here is less clear- cut.

non-financial contributions need not be sufficient, so long as they are SUBSTANTIAL

Question 75

to find a common intention constructive trust, the claiming party must show common intention (express or implied) + detrimental reliance.

what would implied common intention look like?

Answer 75

implied from conduct

common intention can usually be implied from:
(a) a direct contribution to the purchase price; or
(b) a significant contribution to mortgage payments falling due after the purchase.

Question 76

which factors might the court look at when reviewing the couples ‘whole course of dealing’?

Answer 76

(a) advice or discussions at the time of purchase;
(b) the reasons why the home was transferred into their joint names;
(c) the nature of the partners’ relationship;
(d) whether they had children for whom they had a responsibility to provide a home;
(e) how the purchase was financed, both initially and subsequently;
(f) how the partners arranged their finances; and
(g) how they discharged the outgoings on the home and other household expenses.

Question 77

If only one partner is the registered proprietor of the family home, then in the absence of an express trust, the other partner may be able to secure a beneficial interest in the home if a common intention constructive trust can be established.

who has the burden of proving they are entitled to a bigger share?

Answer 77

the party claiming they should have a bigger beneficial interest

Question 78

what are the two methods of finding a common intention constructive trust?

Answer 78

1. common (express) intention + detrimental reliance
2. common (implied) intention + detrimental reliance

Question 79

what is meant by detrimental reliance?

Answer 79

significantly altering your position

Question 80

Once a common intention constructive trust has been established (under either method), the next
stage is to quantify the size of the partners’ respective beneficial interests or shares in the family
home.

how does the court decide this?

Answer 80

if previous draft agreement = implemented

if no evidence of what shares were intended for each party = the court will award such shares as it
considers fair having regard to the whole course of dealing between the partners in relation
to the property

Question 81

what is another way in which a partner might become entitled to an interest in the family home?

Answer 81

proprietary estoppel - prevents someone from going back on their word in relation to property,
when it would be unfair or unconscionable to do so

It is commonly relied on when a relative or friend has been assured by the legal owner of the family home that the home ‘will be yours when I die’, only to
find that the legal owner has subsequently left the home to someone else in their will.

Question 82

what are the key elements of proprietary estoppel?

Answer 82

(a) Assurance
- The legal owner must have made a representation or created or encouraged an expectation that the claiming party would become entitled to an interest in land.
- either words or conduct

(b) Detriment
- The detriment need not consist of the expenditure of money, so long as it is something substantial.
- e.g. spending money on improving property, working without adequate renumeration, giving up a job and moving to a new area, looking after someone who is gravely ill (especially if that involved giving up more
remunerative employment)
- the detriment that the claiming party has received must be weighed against any benefits
they have obtained

(c) Reliance
- The assurance and detriment must be connected to each other
- the assurances don’t have to be the sole reason

Question 83

what is the main difference between common intention constructive trusts and proprietary estoppel?

Answer 83

The main difference between these two mechanisms is that the common intention constructive trust, if established, guarantees the claiming partner a beneficial share in the home; whereas proprietary estoppel gives the court a discretion over the remedy that the claiming partner will be awarded (which might be much more than a beneficial share – such as a transfer of the entire freehold – or much less).

Question 84

under what circumstances may a party find themselves barred from obtaining a remedy?

Answer 84

1. If the claiming party’s conduct is inequitable or unconscionable (must come to equity with clean hands)
2. An unreasonable delay in bringing a claim in proprietary estoppel may defeat the claim. Equity does not assist a party who has failed to assert their rights within a reasonable time – ‘delay defeats equity’.

Question 85

Once the elements of proprietary estoppel have been made out, the court has a discretion over whether a remedy should be awarded and, if so, which type.

Which remedies is a court able to grant?

Answer 85

(a) transfer of the legal ownership in land;
(b) grant of a lease;
(c) some right of occupancy (eg the right to live in a house rent-free for life);
(d) financial compensation; or
(e) a beneficial share in the home.

Question 86

a father provided 60% of the purchase money to buy a house, the son contributing the balance via a mortgage. the house was for their joint occupation. the mortgage lender would have not provided the finance had the father been a joint co-owner of the property because he was unemployed at the time. the decision was therefore taken that the property should be registered in the son’s sole name. the father instructed a solicitor to prepare a declaration of trust in which the son would declare that he held the legal title on trust for his father and himself in shares proportionate to their contributions to the purchase price, although this was never signed.

does the father have a beneficial interest in the house?

Answer 86

the main reason why the son became the sole legal owner was because only then would the mortgage provider lend the son the balance of the purchase monies required. the fact that the solicitor had been instructed to draft a declaration of trust benefiting the father demonstrates that it was intended that the father would retain a beneficial interest

FINISH THIS ANSWER

Question 87

Five years ago, a man and his girlfriend were looking for a house that they could move into and call their family home. They found a house they both liked. The man told his girlfriend that he would pay the deposit but asked whether she could pay the conveyancing fees for him because he had forgotten to budget for this. She did so. When they first went to see their solicitor on the purchase of the house, they agreed that the house should be put in their joint names. However, after discussions with the bank to get a mortgage, the bank advised it would be better for the house and mortgage to be in the man’s sole name, because his girlfriend had a low credit rating that might make it difficult for them to get mortgage finance. The girlfriend agreed to this.

Over the next five years, the man paid the monthly mortgage instalments. His girlfriend got a job three years ago, and since then has paid for the expensive work that was done to put in a new bathroom and kitchen.

The relationship between the man and his girlfriend has now broken down. She has moved out and the man is looking to sell the house.

does the girlfriend have an interest in the house?

Answer 87

Yes, because there was an express understanding that she was to have an interest on which she relied.

Question 88

Although in Lloyds Bank v Rossett it was indicated that only a direct contribution to the purchase price (including making significant payments of the mortgage, which is not the case here) would be sufficient to demonstrate implied common intention, later cases such as Le Foe v Le Foe suggest that payment of household expenses which enable the legal owner to pay the mortgage may be sufficient to indicate a common intention

Question 89

a trust over land should have at least _______ trustees or a _____________________________________________

a trust over personalty must have at least ______ trustees.

what is the max number of trustees?

Answer 89

• two trustees or a trustee corporation
• must have at least one

note, express trusts usually have a mix of land and personalty so it is always best to have two trustees

also practically speaking it is best to have two trustees regardless of the rules because then they can keep an eye on one another

max number of trustees = 4

Question 90

The declaration of trust may contain express powers for trustees to be appointed, replaced or removed. However, where there are no express provisions in the trust, where would you look?

Answer 90

Trustee Act 1925

Question 91

where there are no express provisions in the declaration of trust, what does the Trustees Act say about a trustees retirement?

Answer 91

1. Section 39 of the TA 1925 allows a trustee to retire without being replaced.
   Conditions:
   (a) there will be two trustees or a trust corporation left
   (b) the trustee retires by deed
   (c) the other trustees consent by deed
2. Section 36(1) of the TA 1925
   - The retiring trustee must be replaced by the appointment of a new trustee.
   - Who appoints the new trustee?
   (a) the person nominated in the trust instrument to exercise the s 36 power, but if none
   (b) the continuing trustee(s) (which includes
   the retiring trustee if they are willing to
   join in the appointment).
   - the replacement appointment must be in writing but it is better if it is formally registered via a deed because a deed enables the trust property to automatically vest in the continuing/new trustee

Question 92

Is a trustee who has retired liable for breaches of trust?

Answer 92

A retiring trustee remains liable for their own breaches but will not be liable for future breaches unless they retired to facilitate the breaches.

Question 93

Trustees or the beneficiaries may want to remove and/ or replace a trustee (sometimes against the trustee’s will).

A trust may contain express provisions regarding this, but if not, how would the trustees go about removing and replacing a fellow trustee via statute?

Answer 93

Section 36(1) of the TA 1925

• Grounds for replacing a trustee:
  (a) the trustee is dead
  (b) remains outside the UK for more than 12 months
  (c) desires to be discharged (retire)
  (d) refuses to act (disclaims)
  (e) is unfit to act
  (f) is incapable of acting (eg mental
  or physical incapacity)
  (g) is a minor.
• Who effects the replacement?
  (a) the person nominated in the trust instrument to exercise the s 36 power, but if none:
  (b) the continuing trustee(s) including a retiring trustee if they are willing to join in the appointment;
  (c) if all trustees have died, the PRs of the last surviving trustee.
• needs to be in writing but note the advantage of using a deed (trust property automatically vests in the new and continuing trustee)

Question 94

Trustees or the beneficiaries may want to remove and/ or replace a trustee (sometimes against the trustee’s will).

A trust may contain express provisions regarding this, but if not, how would the court go about removing and replacing a fellow trustee via statute?

Answer 94

Section 41 of the TA 1925

• Grounds?
• The court will replace a trustee if it is expedient to do so + it is otherwise inexpedient, difficult or impractical to appoint without the court’s assistance.
• The court makes the appointment following an application by the trustees or the beneficiaries.
• The court will only replace a trustee if it is not in the best interests of the trust for them to continue. Mere dislike of a trustee is generally insufficient.

Question 95

Trustees or the beneficiaries may want to remove and/ or replace a trustee (sometimes against the trustee’s will).

A trust may contain express provisions regarding this, but if not, how would the beneficiaries go about removing and replacing a fellow trustee via statute?

Answer 95

Section 19 of the TLATA 1996 allows beneficiaries to serve a written direction on a trustee or trustees to retire and appoint the person (if any) specified in the direction.

• s 19 does not apply if the trust instrument:
  ∘ excludes it, or
  ∘ the trust instrument nominates someone to appoint new trustees.
• s 19 applies only if the beneficiaries are of full age and capacity and taken together are absolutely entitled to the trust property (test in Saunders v Vautier)
• Following a valid written direction, the trustee must retire by deed if:
  (a) reasonable arrangements have been made to protect their rights;
  (b) after their retirement there will be two trustees or a trust corporation left; and
  (c) another person is appointed to replace them or the continuing trustees consent by deed to their retirement.

Question 96

Trustees or beneficiaries may not want any of the existing trustees to step down but may want to appoint an additional trustee.

If the trust instrument doesn’t contain any express provisions regarding how trustees should do this, what does statute say?

Answer 96

Section 36(6) of the TA 1925
* Who makes the appointment?
- The person nominated in the trust instrument or, if none, the continuing trustee(s).
- remember there can be no more than 4 trustees

• s 36 states that the appointment must be in writing. but remember the advantages of using a deed

Question 97

Trustees or beneficiaries may not want any of the existing trustees to step down but may want to appoint an additional trustee.

how would the court go about appointing another trustee?

Answer 97

Section 41 of the TA 1925
* Grounds?
- The court will appoint a new trustee if it is expedient to do so and it is otherwise inexpedient, difficult or impractical to appoint without the court’s assistance.
- The court makes the appointment following an application by the trustees or the beneficiaries.

Question 98

Trustees or beneficiaries may not want any of the existing trustees to step down but may want to appoint an additional trustee.

how would the beneficiaries go about appointing another trustee in the absence of express provisions in the trust instrument?

Answer 98

Section 19 of the TLATA 1996 allows beneficiaries to serve a written direction on a trustee or trustees to appoint the person (if any) specified in the direction.

• s 19 does not apply if the trust instrument:
  ∘ excludes it, or
  ∘ the trust instrument nominates someone to appoint new trustees.
• s 19 applies only if the beneficiaries are of full age and capacity and taken together are absolutely entitled to the trust property.
• Following a valid written direction, the trustee must retire by deed if:
  (a) reasonable arrangements have been made to protect their rights;
  (b) after their retirement there will be two trustees or a trust corporation left; and
  (c) another person is appointed to replace them or the continuing trustees consent by deed to their
  retirement.

Question 99

If a trustee is concerned that they might not be able to perform their functions in running the trust for a period of time, they should consider delegating those functions to a ‘deputy’ called an attorney.

Explain this

Answer 99

• The delegation should be made by deed in the form prescribed under s 25 of the TA 1925
• The delegation can run for a period of 12 months
• Written notice about the delegation must be given to all other trustees and any other person with the power to appoint new trustees within 7 days of delegation
• The trustee will automatically become vicariously liable for the acts or defaults of the attorney as if they were the acts or defaults of the trustee
• As well as one trustee individually delegating their functions to an attorney, the trustees collectively can delegate decisions on how best to invest trust property to an independent financial adviser

Question 100

what happens on the death of a trustee?

Answer 100

• If two or more trustees are appointed, they will hold legal title to trust property as joint tenants, with the result that if one dies, the legal title will devolve to the surviving trustees
• If there is only one surviving trustee left, that trustee should be advised to appoint a replacement trustee under s 36(1) of the TA 1925 to ensure the continuity of trust administration.

Question 101

A settlor may expressly provide in the declaration of trust that trustees can, in the future, pay income or capital to beneficiaries before they become strictly entitled to trust property. If they do so, those express provisions must be followed.

Assuming the settlor has not made an express provisions regarding early payment of income, what powers does a trustee have to apply income for beneficiaries who are minors?

Answer 101

• Income is a return paid on a regular basis generated from capital.
• s 31 of the TA 1925 = trustees have the power to use income to pay for the maintenance, education and benefit of a beneficiary under the age of 18 years so long as the following conditions are satisfied:

(a) there is no contrary provision in the declaration of trust; and
(b) the trustees can only exercise this power in favour of minor beneficiaries who have some kind of interest in income, whether vested or contingent, but not where there are any ‘prior interests’ to income

i.e you cannot use s 31 where someone else is a life tenant because the trustees must pay income to the life tenant

• any income shouldn’t be paid directly to the minor beneficiary, instead it should be paid to their parents or the provider of the maintenance, education or benefit
• this is for practical and legal reasons (being that a minor cannot give good receipt)
• note s31 gives trustees the power to apply trust income in this way but they are not obliged to do so - they cannot be compelled - this power is at their discretion

Question 102

how does the power to pay income to a beneficiary change when the beneficiary is an adult with a contingent interest?

Answer 102

• Adult contingent beneficiaries are entitled to trust income as it arises and trustees MUST pay that income to them, pending the vesting of their beneficial interests
• If an adult contingent beneficiary dies before the condition is satisfied, their estate will receive nothing (no capital and no accumulated income)

Question 103

what powers do trustees have to pay the beneficiaries the trust capital?

Answer 103

• Capital refers to the underlying trust property itself
• Under s 32 of the TA 1925, trustees have the power to pay or apply trust capital early for a beneficiary’s advancement or benefit so long as certain conditions are satisfied :
  1. there is no contrary provision in the declaration of trust
  2. The beneficiary has an interest in capital.
  Such beneficiaries include:
  (i) beneficiaries with a vested interest in trust capital (whether in possession or in remainder); and
  (ii) beneficiaries with a contingent interest in trust capital.
  3. The payment must be for the beneficiary’s
  advancement or benefit.
  4. For trusts created after 1 October 2014, the advance payment must not exceed the beneficiary’s entitlement.
  For trusts created on or before 1 October 2014, the trustees can only advance up to half the beneficiary’s entitlement.
  5. The payment is taken into account when the
  beneficiary becomes entitled to trust capital.
  6. If there is a beneficiary with a prior interest, an advancement to another beneficiary can only take place if the prior interest- holder is an adult and has given written consent to the advancement.
• if the beneficiary is under the age of 18 = should be paid to third party who will improve the material situation of the beneficiary
• again this is a power, not an obligation and the trustees cannot be compelled > discretionary power

Question 104

what are the statutory conditions for advancing capital to beneficiaries?

Answer 104

Question 105

what is the difference between trustees duties and powers?

Answer 105

• beneficiaries cannot compel trustees to use their powers e.g. power to pay capital to the beneficiary
• beneficiaries can compel trustees to comply with their duties

Question 106

in the absence of the settlor making express provisions to modify / exclude a trustees duties and liability, what duty of care does a trustee have?

Answer 106

• a trustee must take ‘all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own’
• objective standard
• the standard is higher for paid professionals e.g. if the trustee was a solicitor

Question 107

in the absence of the settlor making express provisions to modify / exclude a trustees duties and liability, what duties does a trustee have when starting out as a trustee?

Answer 107

A trustee newly appointed to office (whether at the start of a trust or part- way through its life) must:

(a) ensure that they have been properly appointed

(b) ascertain what the trust property consists of and take all reasonable and proper measures to obtain control of the trust property

(c) review the trust document and associated paperwork to familiarise themselves with the trust and how it works
- note, the other trustees must produce papers relating to the administration of the trust

(d) enquire into the past business of the trust to ensure that there have been no past breaches of trust, and to take appropriate action to remedy any breaches; and

(e) where there are chattels held on trust, ensure that a proper inventory is drawn up.

Question 108

in the absence of the settlor making express provisions to modify / exclude a trustees duties and liability, what duties does a trustee have to act impartially between beneficiaries?

Answer 108

• a trustee may be faced with a choice between two
  beneficiaries, whose interests appear to conflict with each other
• acting impartially does not necessarily mean that beneficiaries must be given equal treatment, nor does it mean that trustees must consult either or both beneficiaries, nor give either side a ‘fair hearing’
• however, a trustee must not benefit one beneficiary at the expense of another and may find themselves in
  breach of trust if they continually prefer the interests of one beneficiary over the other

Question 109

in the absence of the settlor making express provisions to modify / exclude a trustees duties and liability, what duties does a trustee have to act personally and unanimously?

Answer 109

ACTING UNANIMOUSLY
- it is best practice to have between 2 and 4 trustees
- co-trustees must generally make decisions unanimously (this acts as an important safeguard)

ACTING PERSONALLY
- Trustees must be personally active in the running of a trust
- Outside of statutory powers to delegate decision- making to others (such as the appointment of an
attorney trustees cannot sit back and allow others to take decisions on their behalf

• If a trustee:
  (a) leaves matters in the hands of a co- trustee without enquiry;
  (b) allows trust funds to remain in the sole control of a co- trustee;
  (c) fails to watch over and, if necessary, correct the conduct of their co- trustees; or
  (d) fails to take action knowing that a co- trustee was committing, or about to commit, a breach of trust;
  this passive trustee may be liable to make good any loss that the beneficiaries suffer.
• whilst trustees can take advice from experts, they
  cannot allow the experts to take decisions for them

Question 110

explain a trustees duty to exercise discretion properly

Answer 110

• whilst beneficiaries cannot compel trustees to exercise discretionary powers in a particular way, they can intervene if the trustees exercise those powers improperly
• having decided to exercise a power, trustees must exercise that power:
  (a) in good faith;
  (b) rationally;
  (c) for the purpose for which it was created;
  (d) with regard to relevant material matters and without regard to irrelevant ones;
  (e) with regard to all relevant facts; and
  (f) with regard to any legitimate expectation that a beneficiary might have that the power be exercised in a particular way

Question 111

explain a trustees duty to explain why they have exercised their power in a certain way

Answer 111

• Trustees do not generally need to give reasons for their decisions (but if they do decide to give reasons, the beneficiaries and the court can enquire into their soundness)
• However, where a particular beneficiary has a legitimate expectation that a discretion will be exercised in their favour, the trustees may be obliged to give reasons and advance warning if they are thinking of exercising their discretion differently.

Question 111

which documents are beneficiaries entitled to see?

Answer 111

(a) the trust document or will that created the trust;
(b) the trust accounts; and
(c) a schedule of trust investments or other documents that show how trust property is invested.

Question 112

what documents are beneficiaries not entitled to see from the trustees?

Answer 112

• not allowed to demand documents that record trustees’ deliberations on a discretion or power
• beneficiaries cannot demand sight of letters of wishes from settlors
• beneficiaries can apply to the court for disclosure of documents
• the court will usually start with the presumption that such documents should not be disclosed, unless such disclosure is in the interest of the sound administration of the trust (eg where there is good evidence that
  trustees might have committed a breach of trust)
• the court may refuse disclosure where it would :
  i) cause family members to fall out, or
  ii) if it were to reveal confidential information about the finances or state of health of individual beneficiaries

Question 113

are trustees permitted to make unsecured loans as an investment?

Answer 113

trustees are not permitted to make unsecured loans unless the trust document contains a very clear, express provision to that effect

Question 114

assuming no express provisions have been made in the declaration of trust, where do trustees get their general power to invest from and what under that power, what investments can a trustee make?

Answer 114

• s 3 TA = general power
• a trustee can make any kind of investment that they could make if they were absolutely entitled to the assets of the trust, save for investments in land
• investments in land covered by s 8 TA
• a trustee may acquire freehold or leasehold land in the UK either:
  (a) as an investment;
  (b) for occupation by a beneficiary; or
  (c) for any other reason.

Question 115

what duties do trustees have when making investments?

Answer 115

STATUTORY DUTIES:
- When purchasing or reviewing investments, trustees must have regard to the ‘standard investment criteria’:
(a) The investments must be suitable for the trust.
(b) There is a need for diversification (insofar as is appropriate to the circumstances of the trust).

• trustees should obtain and consider proper investment advice from someone the trustees reasonably believe to be qualified to give such advice, unless the trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate to do so (such as where one of the trustees is a qualified financial adviser)
• note > whilst they can receive advice, the decision of investing/not investing is theirs alone

NON-STATUTORY DUTIES:
(a) Trustees must act impartially between beneficiaries.
(b) Trustees must secure the best return for the beneficiaries.
- this doesnt mean they must secure the highest return
- financial considerations must take precedence over ethical/moral considerations, unless:
i) an ethical and an unethical investment will both receive the same return > can invest in ethical
(ii) if the trust is charitable, the trustees can properly refuse to invest in things that might be at odds with the charitable purposes of the trust and that might alienate the charity’s supporters
iii) the declaration of trust says otherwise

Question 116

can a trustee delegate their investment duties?

Answer 116

• yes or to one trustee (if for example they are a financial adviser)
• the third party is entitled to reasonable renumeration
• trustees must comply with various processes when delegating investments (otherwise known as ‘asset management functions’) to someone else:
  (a) They must retain the investment agent by written agreement.
  (b) They must prepare a written statement (known as the ‘policy statement’) that gives guidance as to how the agent should exercise their asset management functions in the best interests of the trust.
  (c) The written agreement under which the agent is retained must include a term to the effect that the agent will secure compliance with the policy statement.
  (d) The agent must comply with the same statutory and non- statutory investment duties that would otherwise apply to the trustees.
  (e) The trustees must regularly review the arrangements under which the agent is acting and how those arrangements are working.
  (f) the trustees must select a suitably qualified person to whom their asset management functions will be delegated

Question 117

is a trustee liable for the defaults of a third party agent appointed for investment of the trust property?

Answer 117

a trustee is not liable for any act or default of the agent, unless the trustee has breached any of the personal duties listed above and those breaches cause loss to the trust

Question 118

what core fiduciary duties does a trustee have?

Answer 118

the trustee must not:
(a) put themselves in a position where their own interests conflict with the interests of their principal (the ‘no conflict’ rule); and
(b) make an unauthorised personal profit from their position or use their principal’s property to make such a profit (the ‘no profit’ rule)
- the trustee’s intentions are irrelevant > the liability is strict

Question 119

what happens if the trustee acts for their own benefit rather than the trust’s and makes a personal profit?

Answer 119

the trustee will be obliged to account for it e.g. pay the profit over to the trust

Question 120

are there any circumstances in which a trustee can lawfully make a profit?

Answer 120

Trustees can keep personal profits if:
(a) this is authorised by the declaration of trust;
(b) all the beneficiaries are aged 18 years or over, know the full facts and consent; or
(c) this is authorised by a court order or by statutory provision.

Question 121

what is the self-dealing rule?

Answer 121

• looking at trustee’s breaches of fiduciary duties
• when trustee purchases from the trust = breach
• the transaction is not automatically void, as the beneficiaries may decide that the transaction was a good deal as far as the trust was concerned
• however, the beneficiaries can set the transaction aside for any reason within a reasonable period of time
• whether or not the trustee has paid fair value for the property and whether they were acting honestly = irrelevant
• a trustee cannot get around the self- dealing rule by retiring from the trust before purchasing trust property

Question 122

explain a trustees fiduciary duty relating to competition with the trust

Answer 122

• if the trust includes a business = trustee must not set up their own business in competition
• if they do so, they will be liable to account for any profits made by their competing business
• if the beneficiaries become aware that the trustee is planning to set up a competing business, they can obtain an injunction to prevent this from happening

Question 123

trustees cannot usually demand renumeration for their trust services, however there are some circumstances in which they can. what are they?

Answer 123

1. express provision in the trust deed
2. the beneficiaries consent
   - if all are over 18
   - the agreement must be fair
   - the trustees must make full disclosure of all relevant facts, otherwise the beneficiaries can set aside the agreement at a future date
3. court order
   - where it would be in the interests of beneficiaries because for example, they need the expertise of the trustee
4. TA 2000 allows the following to receive reaonsable renumeration:
   - a trust corporation
   - a trustee who acts in a professional capacity and who is not a sole trustee, and where the other trustees have agreed in writing
   - a trustee acts in a professional capacity if they act in the course of a profession or business that consists of or includes the provision of services in connection with the management or administration of trusts

• can also be reimbursed for expenses incurred when acting on behalf of the trust

Question 124

will a trustee be in breach of their fiduciary duties if they receive incidental profits?

Answer 124

• incidental profits in the form of commission = in breach
• if the trust contains a substantial shareholding in a company the trustees should consider securing an appointment on the board of directors so that they can oversee and have some input into the management of the company
• in the absence of authorisation from the trust deed, the beneficiaries or the court, the trustee must surrender their salary to the trust if they acquired the directorship only by virtue of being a trustee
• if someone was a director of a company before they became a trustee of a trust that has shares in the company, the director can keep their salary

Question 125

what happens if a trustee makes a profit as a result of information or opportunities they received due to their trusteeship?

Answer 125

• they must account for the profit
• this is regardless of whether the trust could have taken advantage of the same opportunity or information

Question 126

what remedies are available to a beneficiary, where the trustee has breached one of their fiduciary duties?

Answer 126

(a) a personal claim that the trustee pays over their unauthorised profit
(b) a proprietary claim
- a proprietary claim will seek to recover property owned by the trustee that represents the personal profit they received
- e.g. the trustee makes an unauthorised profit and uses that money to purchase shares

Question 127

list the ways in which a trustee can breach their fiduciary duties

Answer 127

1. core duties - no conflict and no profit rules
2. self dealing
3. renumeration
4. incidental profits
5. exploitation of trust opportunity/information

the trustee may have a defence where personal profit is authorised by:
- trust deed
- beneficiaries
- court
- statute