TRUSTS Flashcards
Strong v. Bird (1874) / Legal Principle Established
Where a person intended to make a gift during their lifetime, but the gift was incomplete, the intention can still be perfected if:
- The intention to make the gift was clear and continued until the donor’s death.
- The donee becomes the executor (or personal representative) of the donor’s estate.
IMPLIED TRUSTS
- RESULTING TRUSTS:
a. an interest under an express trust fails
b. an express trust fails to exhaust the interest
c. the person makes voluntary transfer of purchase in the name of another - CONTRUCTIVE TRUST
to prevent unjust enrichment (fraud, undue influence, breach of fiduciary duty)
EXPRESS PRIVATE TRUSTS:
What is required to be formed
- CERTAINTY
a. of intention
b. of subject matter
c. of objects - TRUSTEE (Inter-vivos Trusts Only)
A testamentary trust will not fail for luck of trustee. - ASCERTAINABLE BENEFICIARIES
CERTAINTY OF INTENTION
Intent to take effect IMMEDIATELY
No precatory expressions (hope/ wish)
NO CERTAINTY OF INTENTION
Property - gift
Certainty of Subject Matter
- NO - the bulk of my estate
- YES - reasonable income
- YES Fractional Shares, unless it is tangible property - segregated from the rest
- Existing (not future property/contigent interest)
EXAMPLE Page 400
NO CERTAINTY OF SUBJECT MATTER
Trust is void, the property reverts to the settlor.
Certainty of Objects
(Beneficiaries)
Ascertainable Human beneficiaries
Concept capable of objective determination
FIXED TRUSTS:
Complete list- the beneficiaries need not be in existence. - Ascertainable by the time the interests are to come in enjoyment.
Conceptual certain + evidentially certain.
DISCRETIONARY TRUST: Given Postulant test
- Description of the class is clear -
no need for the whole range of potential beneficiaries to be ascertainable.
FAIL if administrative unworkable- The objects are too wide to form a class (capriciousness)= administratively unworkable. (Eg the inhabitants of the West Yorkshire)
No CERTAINTY OF OBJECTS
FIXED TRUST:
Trust fails
In such cases, the property held in the trust would revert to the settlor (the person who created the trust) or their estate. This is known as a resulting trust. The underlying principle is that if the trust fails due to the lack of beneficiaries, the property should go back to the person who created it.
- Exception: If beneficiary known but cannot be traced - Trustees apply to the Court for DIRECTIONS.
DISCRETIONARY TRUSTS:
A Resulting Trust on favour of the Settlor or the Settlor’s successors is presumed
Can the trust fail because the trustee dies, refuses to accept appointment or resigns?
NO.
CAN A MINOR BE A TRUSTEE?
Not in any event.
Beneficiaries can terminate trust under the rule in Saunders v Vautier?
- All the beneficiaries are adults and of sound mind.
- All the beneficiaries agree.
- All the beneficiaries have an absolute interest.
RULES AGAINST PERPETUITY
(6 April 2010) The insterest must vest within 125 years
remoteness of vesting
125 years
INALIENABILITY RULE
Non Charitable Purpose Trust:
- 21 Years
- Human Life plus 21 years
- Period assumed to be 21 years when no period is permitted.
CREATION OF INTER-VIVOS TRUSTS
a. Declaration of Self as Trustee (words or conduct)
b. Transfer property to another & Declaration that the transferee holds as trustee.
Declaration of Self as a Trustee for LAND
The declaration of trust must generally be made in writing to satisfy the requirements of the Law of Property Act 1925.
Under UK law, specifically the Trusts of Land and Appointment of Trustees Act 1996 (TLATA), a sole trustee can hold legal title to the land, but there are restrictions when dealing with the property, particularly when it involves the sale or transfer of the property.
The main issue is that a sole trustee cannot give a valid receipt for the purchase money when selling or transferring land. This is because the law requires at least two trustees (or a trust corporation) to provide protection to the buyer by ensuring that the sale is properly managed, and the proceeds are handled correctly.
So, while you can be the sole trustee of land, if you intend to sell or transfer the property, you would need to appoint at least one additional trustee to provide a valid receipt for the sale proceeds. This is to protect the interests of the beneficiaries and ensure proper management of the trust.
THREE REQUIREMENTS FOR A VALID DECLARATION OF TRUST
- CERTAINTY
- BENEFICIARY PRINCIPLE
- PERPETUITY
FORMALITIES OF TRUST
Personalty: No formal requirements
Land: Written Declaration of Trust (in all cases)
Formal Requirements for Transfer
Land: deed + registered at the Land Registry (by the transferee)
Shares: stock transfer form
Chattels: deliver to the recipient OR deed
Bank Account: Transfer notice to the bank
No formalities
incompletely constituted - Fails
EQUITY WILL NOT ASSIST THE VOLUNTEER Exceptions
1 Every Effort Test
(put the property outside the donor’s control) -> An imperfect gist is enforceable
not registered with the **Registry or Company **
2 Donatio Mortis Causa
a. Imminent death.
b. The donor delivers the property to the donee.
c. intention = to be given to the
d. the donor dies.
- Constructive Delivery will suffice (Key to the safe of jewlery.
3 Rule in Strong v Bird
Settlor dies before the transfer on trust is made.
Trustee becomes the PR on death. (If there is evidence that the donor changes their minds before die, the rule does not apply)
4** Proprietary estoppel**
(Reliance on Assurance + Acted to their detriment).
Every Effort Test: In Land or Shares where the transferor has executed d
EVERY EFFORT TEST - Trust of Land
A written declaration satisfies the requirement.
TESTAMENTARY TRUST
Formalities
A valid will
Secret Trust
Even if communication describing the trust was not made until AFTER the will was executed.
Fails if the legatee/trustee refuse or did not know UNTIL AFTER THE TESTATOR’S DEATH
(Not respond acceptance is implied)
SECRET TRUST
After the will was executed - OK
After Death - NOT
HALF SECRET TRUST
Identity was communicated to the trustee ON or BEFORE the making of the will.
DIFFERENCE BETWEEN Secret Trust and Half Secret Trust
SECRET: after will
HALF SECRET: on/before will
3 TYPES OF BENEFICIAL ENTITLEMENT
(How can the trustee distribute the property)
Fixed Trusts: no freedom how the trust property will be distributed
Discretionary Trusts: Trustees choose how to distribute the property
Mixed Trust: Both Fixed and Discretionary
Limited & Absolute
Limited = no right to the capital
DISCRETIONARY TRUST
Each beneficiary can seek an injunction to prevent a trustee from distributing the trust funds.
TERMINATION BY BENEFICIARIES - Saunders v Sautier
- All the beneficiaries are adults and of sound mind.
- All the beneficiaries agree.
- All the beneficiaries have an absolute interest.
FOR TH FIXED & DISCRETIONARY TRUSTS
RESULTING TRUSTS
No evidence before or at the time of the transfer
X provides purchase money but the property is transferred into Y’s name alone. - PRESUMPTION = Y hold legal title on a resulting trust for X.
X and Y both contribute purchase money = presumption Y holds on trust for X and himself in proportion to their respective contributions.
RESULTING TRUST - CONSIDERATION
- for purchase
at the time of before takes title.
-clear and convincing evidence
Can be rebutted: gift/repayment of debt/ loan was intended).
EXCEPTION = Presumption of advancement (father/ husband +fiance/ loco parentis)
- can be rebutted
Resulting trust. Window in which we can examine evidence:
Before or at the time of purchase or transfer
Resulting Trust: Evidence of Illegal and Fraudulent Motive
The court will decide whether it is in the interest of the public to allow the claim.
When a resulting trust arises from failure of an Express Trust?
Failure of a Contingent Interest
Lack of Certainty of Objects
Failure of Half Trust for Lack of Communication
TRUST OF FAMILY
Seperation of Couple who were cohabiting but were neither married nor in civil patrnership
The Court’s power is more limited.
What is required for an express trust of the family home
- agreement evidenced in writing
- Land Reg TR1 form has a section on it
agreement evidenced in writing
Land Reg TR1 form has a section on it
Own the property in equal shares
TRUST OF FAMILY HOME
Legal title to the property is the the sole name of one of the parties.
Non-owning party wish to claim a share by establishing that the non-owning party holds the property on trust for both parties.
Legal Title vs. Equitable Interest
Legal Title: This refers to the formal ownership of the property as registered with the Land Registry. Joint tenants of the legal title must always act together in relation to the property because they share one single legal interest.
Each joint tenant has an undivided share in the whole property.
Upon the death of one joint tenant, their share automatically passes to the surviving joint tenants through the right of survivorship. This applies both to the legal and equitable interests.
Equitable Interest: This refers to the beneficial interest in the property—essentially, who benefits from the property and how the property is distributed between the owners.
TRUST OF FAMILY
Joint tenants hold the legal title.
Do they also hold the equitable interest as joint tenants?
Equitable interests in the property do not have to be held the same as legal title.
They may hold equitable interests as joint tenants or tenants in common.
TRUST OF FAMILY HOME
Legal title in BOTH NAMES.
As to the EQUITABLE INTEREST, how can the trust be created?
Express Declaration of Trust:
A. If the declaration specifies that the property is to be held as ** joint tenants** in equity, the owners share the beneficial interest in equal undivided shares, and the right of survivorship applies. It does not matter whther the actual contributions were unequal.
B. If the declaration specifies the property is held as tenants in common, it will usually indicate specific shares (e.g., one party owns 60%, the other 40%), irrespective of the financial contributions to the purchase price (i.e. they may gave paid 20% and 80%)and no right of survivorship applies.
**No Express Declaration of Trust **
Equity follows the law (maxim)
PRESUMPTION Like the Legal interets, Equitable Interest is held as Joint Tenants
TRUSTS OF FAMILY HOME
Legal Title held as Joint Tenants.
What it the Presumption that applies to equitable interest, when there is no Express Declaration of Trust?
The equitable nterest is held as joint tenants.
However, a party can rebut the presumption.
No Express Declaration of Trust. What the court will look at to rebut the presumption?
cProving Common Intention:
-Advive they received at the point of purchase.
-Purpose of purchase of property
- motivation for purchasing property
- nature of relationship between parties
-Whether there are childer for which there is responsibility to provide a home.
-Arrangment of finances.
-Bills paid for property.
-The reason why One was authorised.
LEGAL TITLE in THE SOLE NAME OF one party.
What about the equitable interest how established?
- Express Declaraton of Trust.
- Common Intention Constructive Trust.
When the legal title is in the name of one, what is the fromality for the express declaration of trust to the non-legal owner?
A signed writing.
Unless
* fraud,
* mistake,
* undue
Can be avoided when a party can demostrate:
A Declaration may be overriden by PROPRIETARY ESTOPPEL.
- representation
- reliance to the reprsesentation
- to his detriment*
*not only financial. - taking care of an elderly over a lengthyyy period
How can an express declaration of trust be rebutted?
- Proprietary Estoppel
- Duress
- Mistake
- Undue Influence
If the Claimant is successful in claiming proprietary estoppel, will he receive what was promised in the assurance?
No. Will NOT necessarily receive what promised.
Will depend on expectation and detriment.
LEGAL TITLE IN THE NAME OF ONE PARTY
Common Intention Construcive Trist: What is required?
- Common Intention: Express or Inferred*
-direct contrubution to the purchase price
- repay mortgage
- pay house expenses so taht the other can repay mortgage
- -revovation
* Inferred: - pay for renovation”
” not merely decoration or supervise renovation.
Beneficiary: How the Court decides the quantification of the claimant’s share?
Infer the parties’ intention.
Priority to Express Agreement.
The court may vary the express agreement
Conduct of the Parties/ Course of Dealing.
X Y baught a property with an express agreement 50:50 ownership. One of
CHARITABLE & OTHER PURPOSE TRUSTS
What is a purpose trust?
A trust to accomplish a purpose, not for the benefit of a person.
CHARITABLE & OTHER PURPOSE TRUSTS
What at the 2 types of PURPOSE TRUST?
A. Charitable Trusts.
B. Non-Charitable Purspose Trusts or Private Trusts.
CHARITABLE & OTHER PURPOSE TRUSTS
DIFFERENCES
Between
CHARITABLE TRUSTS
&
EXPRESS PRIVATE TRUSTS
1. No Ascertainable Human Beneficiaries
2. May be Perpetual
3. Cy-Pres Doctrine (Redirect to a purpose “as near as possible” to the charitable purpose initially designated.
CHARITABLE & OTHER PURPOSE TRUSTS
Name the Charitable Purposes
Under the Charities Act of 2021:
1. The prevention or relief of poverty
2. The advancement of education
3. The advancement of religion
4. The advancement of health or the saving of lives
5. The advancement of citizenship or community development
6. The advancement of the arts, culture, heritage, or science
7. The advancement of amateur sport
8. The advancement of human rights, conflict resolution, or reconciliation, or the promotion of religious or racial harmony or equality and diversity
9. The advancement of environmental protection or improvement
10. The relief of those in need because of youth, age, ill-health, disability, financial hardship, or other disadvantage
11. The advancement of animal welfare
12. The promotion of the efficiency of the armed forces of the Crown, or the efficiency of the police, fire, and rescue services, or ambulance services.
13. Any other purposes currently recognized as charitable, or that may reasonably be regarded as analogous to, or within the spirit of, any purposes previously recognized as charitable.
CHARITABLE & OTHER PURPOSE TRUSTS
Requirements for a Charitable Trust
- Purpose must be Wholly & Exclusively Charitable.
- Must be for Public Benefit
- For the public or section of public.
What are the elements to the public benefit test?
- identifiable benefit
- public / section of the public
What is the public/section of the public test for the public benefit test?
Beneficial to public, or section of public,
- not a private class
- must not be negligible in number
- must not depend on relationship to a particular person
CHARITABLE & OTHER PURPOSE TRUSTS
When a charitable trust fails?
A. Groups related to an Individual or Business
B. Effect of Fees PAY ATTENTION Private School: If a significant programme whereby children can be admitted without payng fees OR makes facilities available to the public, the public benefit test is satisfied.
C. Political Pursposes are NOT Charitable
C. Purpose EXCLUSIVELY charitable
D. Each Purpose must be Charitable.
Do political objectives count as charitable?
No
(although can use political means to achieve a charitable objective).
CHARITABLE & OTHER PURPOSE TRUSTS
Private schools with fees can still operate under a charitable trust. When?
1.Advancement of Education as a Charitable Purpose
Education is traditionally recognized as one of the core charitable purposes. A private school that advances education can, in principle, be established under a charitable trust, as long as it primarily serves a charitable purpose. Charging fees does not automatically disqualify it from being considered a charity.**
2. Public Benefit Requirement
Most jurisdictions require that charitable organizations provide a “public benefit.” In the context of a private school, this means:
**Accessibility: **The school should not only cater to students from wealthy families who can afford the high fees. There needs to be some way in which the broader community benefits from the school’s existence, beyond just the fee-paying students.
Scholarships and Bursaries: One common way to satisfy the public benefit requirement is for the school to offer scholarships, bursaries, or other financial assistance to students from low-income backgrounds, allowing them access to education they could not otherwise afford.
Wider Community Benefit: Some schools demonstrate public benefit by making their facilities available for community use, offering outreach programs, or engaging in activities that benefit local schools or the general public.
CHARITABLE & OTHER PURPOSE TRUSTS
Political Purposes are not Charitable.
CHARITABLE & OTHER PURPOSE TRUSTS
Can the Court Sever the Charitable from Non Charitable Trusts?
Yes.
And Allow the Charitable Part to Take Effect.
CHARITABLE & OTHER PURPOSE TRUSTS
How can a Charitable Trust be enforced?
On behalf of the public by the Attorney General.
CHARITABLE & OTHER PURPOSE TRUSTS
When can the initial gift to a charity vest?
Within the perpetuity period.
BUT
A gift from the charity to another can take effect at distance any time
CHARITABLE & OTHER PURPOSE TRUSTS
CY-PRES Doctrine
The cy-près doctrine applies when it becomes impossible, impractical, or illegal to carry out the original charitable purpose of a trust.
The doctrine allows the court to modify the charitable purpose of a trust or gift, so that the funds can be used for a purpose as close as possible to the original intention of the donor.
The term “cy-près” means "as near as possible" in French, reflecting this idea of approximation to the donor’s original intent.
CHARITABLE & OTHER PURPOSE TRUSTS
Use an Example when the Cy-pres Docrine Applies in the Initial Failure of a Trust:
Example:
A donor leaves money in their will to a hospital that closes down before the donation is received. Since the hospital no longer exists, the funds can be redirected to a similar charitable institution, such as another hospital or a medical charity.
CHARITABLE & OTHER PURPOSE TRUSTS
Use an Example when the Cy-pres Doctrine Applies when a Subsequent Trust Fails:
Subsequent Failure (Failure After the Trust Is Set Up)
Cy-près also applies when a charitable purpose that was originally valid becomes impossible, impractical, or illegal to fulfill after the trust has been established. This is known as subsequent failure and occurs in situations such as:
The charity or institution ceases to exist.
The charitable purpose has already been fulfilled, or there is surplus property remaining.
The purpose becomes outdated, obsolete, or impractical due to changes in society, law, or circumstances.
The trust or charity can no longer effectively use the funds for the original purpose.
In these cases, the funds are redirected to a charitable purpose that is as close as possible to the original.
Example:
A trust is established to provide scholarships for students in a particular profession, but that profession no longer exists or is no longer in demand. The courts may apply cy-près to direct the funds towards scholarships for a related profession or field of study.
CHARITABLE & OTHER PURPOSE TRUSTS
What is Required to Apply the Cy-pres Doctrine?
General Charitable Intent
For cy-près to be applied, the court often considers whether the donor had a general charitable intent. If the donor’s intent was specific to one charitable purpose or institution, and it fails, the funds might revert to the donor’s estate.
**Only for Initial Failure of the Gift ** - General Charitable Intention is Required
**Subsequent Failure of the Gift **- No Charitable Intetion Required.
CHARITABLE & OTHER PURPOSE TRUSTS
Is it possible to apply the Cy-pres Doctrine when the testator’s will containes a Gift to a Specific Named Charity e.g a legacy to “Newtown Home for Stray Cats”?
**It is possible.
**
If the donor’s intent was specific to one charitable purpose or institution, and it fails, the funds might revert to the donor’s estate. However, if the court can infer that the donor had a broader charitable intention (for instance helping cats), then cy-près can be applied more easily.
Example of General Intent:
If a donor leaves money to a specific charity to help “alleviate poverty,” and the charity no longer exists, cy-près can redirect the funds to another poverty-related charity because the general intent was charitable, even though the specific charity no longer exists.
Example of Specific Intent:
If a donor gives money explicitly to a very niche and narrow purpose, like a small local charity with no broader charitable intention, and the charity closes, the gift might revert to the donor’s estate if there’s no general charitable intent
CHARITABLE & OTHER PURPOSE TRUSTS
In the subsequent failure of the gift is charitable Intention Required to apply the CY-PRES DOCTRINE?
No.
CHARITABLE & OTHER PURPOSE TRUSTS
Is it possible to apply the Cy-pres Doctrine when the testator’s will containes a Gift to a Specific Named Charity, where the Charity named in the will never existed?
Yes.
It is easier to infer a general Charitable Intention.
CHARITABLE & OTHER PURPOSE TRUSTS
Is General Charitable Intention required in cases where money have been collected or raised where the donors are not known?
No.
EXAMPLE:
NONCHARITABLE PURPOSE TRUSTS
What non-charitable purpose trusts are allowed?
- particular animals
- monuments and graves - not private individuals
- private masses (Denley Trust).
NONCHARITABLE PURPOSE TRUSTS
When Valid?
**A. Denley’s Trust
This case introduced a special exception to the beneficiary principle. In Re Denley’s Trust Deed (1969), a trust was established for the purpose of maintaining a sports ground for the benefit of the employees of a company. The court held that because the employees were directly or indirectly benefiting from the trust, it could be considered valid as they had a sufficiently tangible interest, even though it was expressed as a purpose trust.
Key Point: The purpose trust in Re Denley was valid because it had a defined class of individuals (the employees) who had an indirect benefit and could therefore enforce the trust.
*
The individuals in a Denley Trust May Enforce Trust.
They are not permitted to use the rule in Saunders v Vautier to terminate the trust.*
**B. Honorary Trusts **
e.g. maintentance of specific aminals, graves, tombs, monuments
Valid but UNENFORCEABLE.
NONCHARITABLE PURPOSE TRUSTS
What Happens if the trustee fails or is unwilling to carry out the terms of the honorary trust?
A RESULTING TRUST will be imposed for the settlor or the settlor’s estate.
NONCHARITABLE PURPOSE TRUSTS
How does the inalienability rule apply to non-charitable purpose trusts?
What should non-charitable purpose trusts include to ensure they comply with rule against inalienability?
An express perpetuity clause.
Given the amount must vest within a maximim of 21 years.
Can trustees still act on a non-charitable trust?
If trustee willing to act, a Pettingall order could be made.
What are the two rules to prevent perpetuity?
- remoteness of vesting (people or charities)
- rule against inalienability (non-charitable purpose trusts)
What happens if the Common Law rule against inalienability is breached?
The trust is void - the ‘wait and see’ rule does not apply.
Unlike the 125 year rule, the 21 year limit is not a “wait and see”, it fails immediately.
Who can trustees pay income early?
Minors.
CHARITABLE TRUSTS
What is the public/section of the public test for the public benefit test?
- Identifiable benefot to
- Peope not connected to a particular person or Group
- Not a Private Group.
TRUSTEES
Can a trustee accept a trust in part and disclaim in part?
No.
TRUSTEES
Is there a minimum number of trustees?
No.
Except for
Land 2 to 4.
TRUSTEES
Can the settlor appoint trusteed after the trust has been established?
(subsequent appointment)
If the settlor does not reserve any specific power to appoint trustees in the trust deed, they typically cannot appoint or remove trustees after the trust is established.
TRUSTEES
Who can appoint ADDITIONAL TRUSTEES?
- The Person designated in the trust instrument
TO MAX 4.
- Where the trust instrument does not include any special administrative powers.
The two trustees together CAN appoint an additional trustee.
What should non-charitable purpose trusts include to ensure they comply with rule against inalienability?
Vest within 21 years
TRUSTEES
REPLACEMENT TRUSTEES
When?
- Dies.
- Becomes unfit or incapable of acting (e.g., through mental incapacity).
- Desires to be discharged.
- Is removed for any other valid reason under the terms of the trust or court orde (bankrupt or comitted a breach of trust).
- Remains Outside UK for a continuous Period Exceeding 12 months.
TRUSTEES
WHO appoints the Replacement Trustees?
A. The person named in the trust instrument.
B. Surviving of Contonuing Trustees, if none;
C. The PRs;
D. The Court.
TRUSTEES
What is the maximum number of Replacement Trustees?
NO MAX
max 4 in a trust of land.
TRUSTEES
Can a retiring trustee be allowed to help choose the replacement trustee?
Yes.
But a trustee who has been removed cannot particpate.
TRUSTEES
APPOINTMENT OF REPLACEMENT TRUSTEES.
What are the formalities required?
Signed writing.
NOT A DEED.
TRUSTEES
Shares & Land - Replacement Trustees (Example)
TRUSTEES
When can Beneficiaries appoint new/replacement trustees?
- There is no person nominated in the trust instrument to appoint new trustees.
- Beneficiaries of full age abd capacity
- Beneficiares absolutely entiled to the trust property
- Act unanimously
In these circumstances, the beneficiaries could, if they wished, agree to end the trust and divide the trust property between them.
In these circumstances, the beneficiaries can request a trustee to retore and appoint a replacement beneficiary.
TRUSTEES
TRUSTEES
Who can remove a trustee?
The Settlor: If the trust instrument provides for it.
Remaining Trustees: If allowed by the trust deed. OTHERWISE NOT
Beneficiaries: If they are of full capacity and entitled to the trust property, often requiring unanimous consent.
The Court: If there is evidence of unfitness, breach of trust, or for the overall benefit of the trust.
TRUSTEES
Retirement of a Trustee without being replaced.
- Trust Instrument allows it.
- consent by deed from co- trustees or the person authorised uder the trust instrument to appoint new trustees.
AND they leave in office AT LEAST TWO TRUSTEES or a trust corporation.
TRUSTEES DUTIES & POWERS
What is the Duty Trustees owe to the Beneficiaries?
FIDUCIARY DUTY
(to manage the trust property for the benefit of the beneficiaries)
TRUSTEES DUTIES & POWERS
Describe the fiduciary duty.
Utmost Good Faith and Undivided Loyalty.
TRUSTEES DUTIES & POWERS
FIDUCIARY DUTY =
- Duty Not to Profit from Trusteeship
- No SelfDealing - Deuty notto purchase Trust Property.
TRUSTEES DUTIES & POWERS
Duty Not to Profit from Trusteeship
=
When any profit is made, equity imposes a constructive trust on the trustee which will forse the trustee to turn the profit over to he trust.
TRUSTEES DUTIES & POWERS
Duty Not to Profit from the Trust.
What happens wih the Director’s Fees?
If fees by virtue of the shares as trustee, has been appointed director, holds the funds they paid on contructve trust for the trust beneficiaries.
- It it can be shown that the trustee would have been appointed as a director withput the voting rights attched to the compay shares, the rule does not apply.
TRUSTEES DUTIES & POWERS
FIDUCIARY OLIGATIONS OF TRUSTEES
A. DUTY NOT TO PROFIT FROM THE TRUSTEESHIP
- Director’s Fees
- Profits from information or opportunity, even if not in direct conflict
- Remuneration No, Only Out of Pocket Expenses.
Exceptions:
* charging clause
* Professional Trustee Charges (Trustee Act 2000)
TRUSTEES DUTIES & POWERS
What are the requirements for a professional trustee to charge reasonale remuneration for their services under the Trustee Act 2000?
- They are not the Sole Trustee.
- The Co-Trustees give their Written Consent,and
- There is no express provision in the trust instrument relating to the trustees’ charges (whether a charging clause or a prohibition on charging).
TRUSTEES DUTIES & POWERS
Can a Trust Corporation charge a reasonable amount for their services even if acts as a Sole Trustee?
Under the Trustee Act, a trust corporation may charge reasonable remuneration for its services even if acts as a sole trustee.
TRUSTEES DUTIES & POWERS
May a court authorise payment to a Trustee?
Yes.
WHEN:
Trust is exceptionally onerous.
Trustee performed exceptional services
TRUSTEES DUTIES & POWERS
TRUSTEES DUTIES & POWERS
NO SELF - DEALING
Not purchase any property owned by the Trust.
EVEN if the trustee pays FULL VALUE or the purchase is made at OPEN MARKET.
Purchase is VOIDABLE at the instance of beneficiaries.
UNLESS Court permit self-dealing.
UNLESS purchasing the beneficial interest FAIR DEALING RULE (and disclose all information)
TRUSTEES DUTIES & POWERS
Fair Dealing Rule
The Fair Dealing Rule is a principle in UK trust law that governs situations where a trustee (or another fiduciary) seeks to buy or otherwise deal with trust property for their personal benefit. This rule operates alongside the Self-Dealing Rule, but they address slightly different aspects of the trustee’s fiduciary duties.
In the context of self-dealing, a trustee is generally prohibited from purchasing or dealing with trust property because of the potential conflict of interest between their duty to act in the best interest of the beneficiaries and their personal interest in acquiring the trust property. The Fair Dealing Rule, by contrast, focuses on the fairness of the transaction when a trustee enters into such a deal.
Key Features of the Fair Dealing Rule:
Permission to Deal, Subject to Fairness: Under the Fair Dealing Rule, a trustee can buy or deal with trust property but only if they can prove that:
The beneficiaries gave fully informed consent to the transaction.
The trustee provided full disclosure of all relevant facts, including any potential conflicts of interest.
The transaction was at arm’s length and on fair terms, meaning that the trustee did not take advantage of their position or insider knowledge to achieve better terms than would have been available on the open market.
Fair Price: The trustee must demonstrate that they paid a fair price for the property. If the trustee underpays, this will likely be seen as a breach of their fiduciary duty to the beneficiaries.
Burden of Proof: The burden of proving that the transaction was fair, fully disclosed, and consented to by the beneficiaries lies on the trustee. This is crucial because courts tend to scrutinize such transactions closely due to the inherent conflict of interest.
TRUSTEES DUTIES & POWERS
Trustee’s duty of care
“such care and skill as is reasonable in the circumstances”
prudence of ordinary man
+ any special knowledge.
TRUSTEES DUTIES & POWERS
More than One Trustees act together …..
jointly.
personally
can delegate administrative functions.
may delegate investment decisions in Certain Cirmumstances
TRUSTEES DUTIES & POWERS
Is Delegation by a Trustee allowed?
Yes. For:
* Administrative Functions, or
* Certain Investement Decisions, or
- By a power of Attorney for not more than 12 months, The trustee remains liable for all acts and omissions of the attorney as if they acted personally
TRUSTEES DUTIES & POWERS
Do Trustees have a Duty to take possession of the property?
Yes.
If one is left at control, co-trustees will be liable for misappropriation.
TRUSTEES DUTIES & POWERS
What Functions can be delegated with a Power of Attorney for a fixed period less than 12 months?
All.
TRUSTEES DUTIES & POWERS
Trustees Duties
To take possession of the property
Keep accounts & diclose information
Act impartially
Duty of Confidentiality
Duty to Invest
TRUSTEES DUTIES & POWERS
Duty to Invest
Freehold or Leasehold Land in UK.
NOT oustside Uk, unless the trust deed provides otherwise.
TRUSTEES DUTIES & POWERS
Standard Investment Criteria
Suitability & Diversification
Before Investment, they must also obtain proper advice.
TRUSTEES DUTIES & POWERS
Proper advice to invest
Objectively & Subjectively
The adviser need not be professional, but must be experienced
dvice not always needed.
TRUSTEES DUTIES & POWERS
TRUSTEES DUTIES & POWERS
Has a minor beneficiary any right to teh income during minority (until he reaches 18)?
No right to Income.
But POWER OF MAINTENANCE APPLIES.
Maintenance, Education, Benefit.
18+
VESTED INTEREST + 18
The Beneficiary is entitled to any accumulated income + property.
CONTINGENT INTEREST +18:
Entitled to all income arising AFTER 18. Accmulated income during the beneficiary’s minority will accumulate to the capital.
TRUSTEES DUTIES & POWERS
Trusts Created Before 1 October 2024 - Income
The trustee’s power was to apply oly such amount of income as would reasonable under the circumstances.
TRUSTEES DUTIES & POWERS
Power Of Advancement
- Beneficiary Must have Interest in Capital - **vested or contigent. **
- Trustees have Discretionary Power to advance trust capital to the beneficiary u to the amount of the beneficiary’s presumptive entitlement.
- Three provisos:
- The amount must not exceed entitlement.
- Must be Brought Into Account in Final Distribution.
- Written consent fo the Person with prior interest is required.
- Irrespective of the beneficiary’s age (under 18).
Under 18 cannot give a valid receipt. Therefore, payment firectly eg school fees or the the minor’s parents.
For Trusts Created before 1st October 2014, the amount of the advance is limited to one half.
TRUSTEES DUTIES & POWERS
TRUSTEES DUTIES & POWERS
Three Provisos to advance capital
- The Beneficiary must have an interest in Capital.
- The amount must not exceed entitlement.
- Must be Brought Into Account.
- WRITTEN Consent of Person with PRIOR Interest is required.*
- if all have contigent interests is not required. Only where there is a lift interest prior consent is required.
TRUSTEES DUTIES & POWERS
Power of Advancement
Before 1 October 2024
Only One-half
TRUSTEES DUTIES & POWERS
Is there any restriction on the beneficiary’s age in the Power of Advancement?
No.
But a beneficiary under the age of 18 cannot give valid receipt to the trustees.
Any advance must be either applied directly for teh required purpose or be paid to the beneficiary’s parent or guardian.
TRUSTEES DUTIES & POWERS
Legitimate Expectation
If Trustees of a Discretionary Trust have been paying a beneficiary the same sum for the last 10 year, they should warn the beneficiary in advance in order to discontinue payment.
TRUSTEES DUTIES & POWERS
Powers When Beneficiaries are absolutely entitled.
If the beneficiares are:
- of full age
- and capacity
- and absolute;y entitled to teh antire equitable interest,
- They may by agreement require teh currect trustees to retire and appointe new trustees of teh beneficiaries’ choice.
- Bring teh trust to an end and require the trustees to transfer the trust funds to them in teh shares they agree.
What general duty is on trustees?
To act
- honestly and
- in good faith,
- for benefit of beneficiaries
What happens if there’s only 1 trustee who resigns?
The trustee holds the land on bare trust for the Bs until a new trustee can be found.
TRUSTEES DUTIES & POWERS
Can Beneficiaries control excercise of Dicreation as to a. distribution of property to the beneficiaries or b. investments?
No. Only pursue trustees if the decision was capricious or irrational.
What methods are there for appointing new trustees for a subsisting trust?
- Any express powers in trust instrument
- outgoing trustee
- Beneficiaries exercising S v V rights
- The court
- Charity Commission for Charitable trusts
Formalities required for the appointment of Replacement Trustee OR Additional Trustee.
IN WRITING.
TRUSTEES DUTIES & POWERS
In what 2 ways can trustees retire?
- Voluntary retirement
- Direction of beneficiaries: in writing & all agree
How can trustees voluntarily retire?
- By deed
- Where at least **2 other people **or 1 trust corporation are there to act as trustees
- Co-trustees & anyone else with power to appoint trustees consent
- Should also obtain formal discharge of liability from beneficiaries
How do beneficiaries exercising S v V rights remove a replacement trustee?
- in writing
- all beneficiaries agree
LIABILITY FOR BREACH OF TRUST
LIABILITY OF TRUSTEES
- Liability for Loss (resulting for the trustees’ breach).
- The beneficiaries may keep the gains form one breach and sue for the losses from the other breach. No offset unless there is a link oof investments.
LIABILITY FOR BREACH OF TRUST
WHICH TRUSTEE IS IN BREACH?
A trustee is not viariously liable for teh breach of the co-trustee/ unless failure to supervise.
LIABILITY FOR BREACH OF TRUST
IS MORE THAN ONE TRUSTEE IS IN BREACH, WHAT IS THEIR LIABILITY?
Joint & Several.
LIABILITY FOR BREACH OF TRUST
DEFENCES to the Trustees’ Liability for Breach of Trust
a. BENEFICIARIES’ CONSENT (when teh beneficiaries are of full age and capacity. If one beneficiary gave consent and teh other not. The Beneficiary will be liable to teh others. )
LIABILITY FOR BREACH OF TRUST
Limitation Period
SIX YEARS
Exceptions:
Time does not begin to run against a beenficiary with an interest in remainder, until her interest falls into possession.
Fraud.
There is no limitation period n an action to recover trust property or its proceeds from the hands of the trustee.
LIABILITY FOR BREACH OF TRUST
When ar EXCLUSION CLAUSES valid?
When no Bad Faith,
Recklessness, or
Intentional breach is
involved.
LIABILITY FOR BREACH OF TRUST
Can the Court award relief from liability?
Yes. in Court’s Discretion.
If they colcude the Trustee acted Honestly and Reasonable and ought fairly to be excused.
LIABILITY FOR BREACH OF TRUST
EQUITABLE TRACING
The process if identifying the property in the hands of the trustee.
A Proprietary Claim:
Advantageous because if trustee is insolvent, the beneficiaries will able to claim the trust property from the trustee ahead of creditors.
If the value of the trust property has increased, a proprietary claim enables the beneficiaries to claim the increase.
What is the difference between following and tracing?
- Following = following same asset as it moves hands
- Tracing = identifying new asset as substitute for old
What are 2 examples of innocent mixtures?
- Money from 2 or more trusts
- Innocent recipient of misapplied money mixes it with their own
LIABILITY FOR BREACH OF TRUST
Remedies Following Tracing
Proprietary claim: If the tracing identifies the specific property, the claimant may make a proprietary claim to recover the asset in its new form.
Constructive trust: The court may impose a constructive trust over the traced asset, meaning that the wrongdoer must hold the property for the benefit of the claimant.
Personal claim: If the traced property can no longer be recovered or identified, the claimant might bring a personal claim for breach of fiduciary duty or unjust enrichment against the wrongdoer.
LIABILITY FOR BREACH OF TRUST
The Beneficiaries will receive the one amount from the sale proceeds (from the charge over the asset) and for the remaining (e.g. 3,00 GBP) will rank equally with the claims of teh trustee’s other creditors.
LIABILITY FOR BREACH OF TRUST
Can subsequent payments to teh abnk account replace money?
No.
LIABILITY FOR BREACH OF TRUST
Liability of Third Parties
Transfer to Bona Fide Purchaser Cuts Off Beneficiary’s Rights.
(for value and without notice of the trust).
Innocent Volunteer Recipient: Not a personal claim. Only proprietary claim against them.
LIABILITY FOR BREACH OF TRUST
How you can recover as a beneficiary property from an Inncocent Volunteer?
Show that:
a. The property was subject to a fiduciary relationship.
b. The property or its product is identifiable using equitable tracing rules.
c. The property is not in the hands of a bona fide purchaser witout notice.
LIABILITY FOR BREACH OF TRUST
Can a beneficiary recover property after the recipient has purchased assets from mixed funds?
**Proportionate share. **
If the recipient is an Innocent Volunteer Recipient ->
NO option to claim a charge over the property, just to claime a proportionate share of the asset.
LIABILITY FOR BREACH OF TRUST
What happes when the funds are mixed with these of an inncocent trustee
First In, First Out.
Page 478.
LIABILITY FOR BREACH OF TRUST
When is Unconsionable for the Recipient to retain the Property?
LIABILITY FOR BREACH OF TRUST
Claims against a Knowing Recipient.
Personal
Proprietary
LIABILITY FOR BREACH OF TRUST
Dishonest Accessory
What are the requirements for accessory liability?
- Trust in existence at material time
- Trustee committed breach of that trust
- D assisted trustee in committing breach
- D’s assistance was dishonest.
If a Third Party facilitated a breach of trust, the third party is liable as if they were the trustee.
The Beneficiaries can sue him with a ** personal claim** for losses as if they were a contructive trustee.
Not Proprietary Claim, because it is unlikely that the accessory received trust property,
*Passive Assistance May Suffice.
LIABILITY FOR BREACH OF TRUST
Give an example of passive assistance, which facilitated a breach of trust.
A Trustee asks a Solicitor to facilitate a breach of trust by transferring funds to an offshore company.
A Partner of the Solicitor in the law firm finds evidence of the transaction, but keeps quiet.
The Beneficiary can also sue the second Solicitor, Partner for Passive Assistance in the Breach of Trust.
How can trustees be protected from the outset?
Ouster cause - trust deed removes duty
Exemption clause - limits liability for breach
Trustee liability insurances
How can trustees be protected during administration?
- seeking directions - Expensive
- ** s48 **to rely on Counsel - cheaper
- Surrendering discretion to the court - T’s can’t agree or conflicted exceptional
- Obtaining beneficiary consent
What is the process for s.48?
- get written legal opinion
- apply to high court for authorisation to rely on that opinion
How can trustees protect themselves from Unidentified beneficiaries?
- Benjamin Order
- s.27 Notice
- Retain funds to satisfy missing beneficiaries
- Pay money into court
- Insurance
- seek indemnity from known beneficiaries
In what circumstances is a Benjamin Order used?
know of existence of a beneficiary but can’t find them (assumes missing B is dead)
What is a s.27 notice?
notice placed in:
- London Gazette
AND
- Newspaper covering land involved
AND
- other appropriate newspaper
- protection against unknown beneficiaries
- does not protect Bs just Ts (although C could claim any undistributed assets from T).
LIABILITY FOR BREACH OF TRUST
Conscious Impropriety
Dishonesty.
NATURE OF EQUITABLE REMEDIES
When the Court applies Equitable Remedies?
1. Right Enforceable at law or in Equity.
2. No adequate remedy at common law.
3. Enforcement must be Feasible.
4. The Court will seek to balance the Hardship between Claimant and Defendant.
5. The Claimant must not be guilty of any inequitable conduct in reation to the case (“Come to Equity with Clean Hands”) +** not guilty of any unreasonable delay**.
What is the no-profit rule and remedies for breach?
Either:
-account for profits (personal claim)
Or:
Constructive Trust imposed
What is self-dealing and its effect?
- Trustees shouldn’t sell or purchase trust property to the thruse
- Transaction = voidable
Defences to Self Dealing
Beneficiaries’ Informed Consent.
How can trustee liability be excluded or limited?
- have **exclusion clause **in instrument (not where breach is fraudulent)
- Can rely on s61 TA 1925: gives court discretion to excuse trustee where they acted honestly and reasonably, and ought fairly to be excused
- If they show they obtained fully informed consent or Bs acquiesced, operates as partial defence
What is the statutory defence to all breaches?
Trust shows they:
- acted honestly
- reasonably
- ought to be fairly excused
What must trustees do if they exercise the power to invest?
- Consider standard investment criteria:
(a) suitability (general [kind of investment] & specific [particular investment]), AND
(b) diversification
- Take advice (unless reasonably conclude not needed)
- General duty of care
What rules are there for taking advice when exercising power of investment?
- not bound to follow the advice but can only ignore if a reasonably prudent trustee would do the same
obtain proper advice before exercising power & when reviewing instruments
.
Exception: don’t need to seek advice if reasonably conclude it’s unnecessary
What is the power to acquire land?
- Trustees have statutory power to acquire freehold or leasehold in UK (not overseas)
- Can be done for investment or wider purposes
- If done for investment, relevant criteria apply
- Statutory DoC applies
What is the power of delegation?
- Can delegate powers of investment and to acquire land, but cannot for distributive obligations
- Can’t delegate to beneficiaries
- Must be an appropriate agent, reviewed regularly with an agreement that complies with statute
For investment, must be evidenced in writing
What are the advantages of having a beneficial equitable interest?
- Interest can be enforced against everyone (except Equity’s Darling)
- Can claim interest in traceable proceeds
- Interest is unaffected by trustee’s bankruptcy/insolvency
What happens where there are multiple beneficiaries for a fixed trust but uncertainty with some identities?
- Trust may not fail completely
- If identifiable ones have entitlement not dependent on uncertain ones, they can take their interest.
What are the requirements for the Rule in Strong v BIRD?
Beneficiaries must be
- over 18,
- of sound mind and
- all agree
For contingent, defeasible interests, must all act together
What is certainty of objects for fixed trusts?
if fails for some Bs won’t fail for all.
Looking for a complete list of Bs:
- conceptual (what the class is)
- evidential certainty (does x fall within that class) .
What happens if a gift to someone whilst the donor is alive fails?
The Donee holds the property on trust for the Donor
What formalities are there to create an express trust of land?
What if there is no written evidence?
IN WRITING.
The trust is unenforceable NOT void. This means that if, later, the transfer is evidenced in writing, the beneficiaries will be able to enforce their rights going back to the original date of creation of the trust.
What are the cases on oral agreements of land?
A sold to B on the oral agreement that B would hold it on trust - held constructive trust created as would otherwise be fraud.
How is constitution achieved for registered land?
Registered Land: valid deed, registration.
how can a trustee avoid liability for fair-dealing?
Fair Dealing = trustee buying beneficial interest off beneficiary
Voidable unless:
- full disclosure
- acted honestly and fairly
- did not take advantage of B
- get fully informed consent from principals (settlor)
What is the doctrine of equity will not assist a volunteer?
Equity won’t compel a settlor to transfer legal title i.e. won’t perfect an imperfect gift or treat it as a self-declaration of trust if constitution fails.
What are the exceptions to principle of equity won’t assist a volunteer?
- Re Rose
- Fortuitous Vesting
- DMC
Principle Re Rose (Every Effort Test)
The Re Rose principle in trust law arises from the 1952 case Re Rose (Rose v. Inland Revenue Commissioners), and it deals with the effective transfer of property, specifically the moment when an intended transfer becomes valid in equity, even if it is not yet legally complete.
Under the Re Rose principle, a transferor (donor) is said to have done everything in their power to transfer the legal title to the transferee (donee), but **the formalities or legal processes (such as registration) have not yet been completed. In such cases, equity will step in and recognize the transfer as effective from the moment the transferor has done all that is necessary **on their part to transfer the property.
What is the principle of unconscionability in relation to Re Rose?
Might also apply where unconscionable not to do so - proprietary estoppel
1) Assurance (you’ll have the shares Harrold)
2) Reliance (Harold became a director)
3) Detriment (Harold took on duties as director)
Must be unconscionable to go back on assurance
What is fortuitous vesting?
(Strong v Bird)
The intended recipient of a gift is also the PR of transferor’s estate, so gift is perfected on death
- Intention to make immediate gift
- Intention must continue until donor’s death
- Intended donee becomes executor of donor’s estate
Must relate to existing property, not future
What is a Donation Mortis Causa?
Gift made in contemplation of death
Gift:
- made in contemplation of imminent death
- conditional on death
- Delivery of property (not necessarily transfer of legal title, just part with control - can be constructive e.g. keys to a locked box containing deeds)
Note: unlike fortuitous vesting DMC does not require the gift to be immediate, just IF dies.
What happens if there is no evidence in writing of a trust of land
The trust is unenforceable but not void. This means the beneficiary can’t enforce their rights unless and until the trust is evidenced in writing.
