Trusts

Question 1

What are the 3 certainties in a trust

Answer 1

1) Intention
2) Subject Mater
3) Objects

Question 2

What type of trusts require the 3 certainties

Answer 2

Express - will or inter vivos

Question 3

Key facts about trusts
1) what are non- charitable trusts classed as
2) who makes an express trust
3) what are the 2 ways a trust can be created
4) when dealing with a will what is the settlor referred to as
5) what can the settlor act as
6) what must the trust have

Answer 3

1) private trusts
2) The settlor
3) inter vivos or testamentary
4) testator
5) a trustee or appoint others to be
6) beneficiaries

Question 4

Certainty of Intention =

Answer 4

• must intend trust to arise
• intention question of fact subjective to objective assessment
  -Precatory/vague words not likely to be sufficient ie “i give to x to enjoy” Does not have to say “intention”
• doesn’t have to be written can be by conduct. Paul v Constance Constance left his wife to live with Paul, set money aside for Paul in separate account - trust by conduct

Question 5

Certainty of Subject

Answer 5

• anything an be subject to a trust BUT subject must be certain
• entitlement must also be capable of determination
• Tangible - physical property or chattels must be specific ie 5 paintings from collection, 20 same bottles wine, needs to be specific
• intangible - shares patents. exception to need to identify if “50 of shares in” as long as of same class.

Question 6

Certainty of Object

Answer 6

• person benefitting must be clear
• where more than one beneficiary, class of beneficiaries must be ascertainable
• test to determine certainty differs from fixed to discretionary trusts.
• FIXED - child, or group of people where complete list test can be conducted
• if group of people need to ascertain if fixed or discretionary trust. Fixed if above complete list test can be conducted.
  -DISCRETIONARY- includes large groups - rules mire relaxed eg employees. Don’t need evidential certainty just fact employee
• Friends - would not work as hard to define - trust would fail

Question 7

Formalities
1) what do they not apply to?

2) What are formalities

3) Are they required on land and other property?

Answer 7

1) -Wills as will in writing therefore completed and complies with s9 WA

2) Transfer of equitable beneficial title. Apply to express inter vivos trust

3) Only required on land - need trust in writing and settlor must sign. Property trust can be established orally - should tell more than one person.

Question 8

Constitution
1) What does constitution mean

2) What does constitution not apply to

3) What is required in respect of a self declaration trust

4) What if don’t complete requirements

5) What are the exceptions to this?

Answer 8

1) To vest the property ie transfer the legal title. Inter vivos trust - during lifetime

2) Wills as PR’s take legal title upon death

3) No constitution BUT does require all to have been done in according to nature of the subject of the property in order to transfer. IE:
- legal title property transferred by deed
- shares - share transfer form and companies act complied with
- painting - delivered
- chattel - deed of gift or actual transfer.

4) If don’t complete trust will fail -“Equity will not assist a volunteer” if don’t comply with formalities or constitution law will not step in to correct a mistake.

5) EXCEPT where
a) intends to make gift to executor, but doesn’t manage to before death. As becomes executor, legal title of estate vests in executor by operation of law and therefore enough to perfect gift
Rule in Strong v Bird.

b) Donatio Mortis Causa - in anticipation of imminent death. On death bed provied effect means of delivery present eg - keys to house, car keys, title deeds

c) Every Effort rule - if doner has done everything within power to effect transfer but then dies before effected - technically no constitution BUT equity steps in and allows trust to succeed on basis seller did all in power Re Rose

d) Proprietary Estoppel - trust not completely constituted BUT beneficiaries have provided valuable consideration and can compel settlor to constitute the trust. i.e prevents settlor acting in manner inconsistent with their representations to another. Example man left wife and said could have house he owned. She redecorated and spent money on improvements, he tried to evict her 3 years later. Title transferred to wife on basis proprietary estoppel.

Question 9

1) What are legal and equitable title?=

2) How are these incorporated into a trust? =

Answer 9

1)
Legal = Land name registered at Land registry, document that owns legal title
- if shares = name in members register
- painting = name bottom of painting

Equitable = below legal
- normally hold both eg phone

2) Trust=
Legal - some one owns this
Equitable - someone owns beneficial equitable title - recognised as true owners
eg In a trust A -holds legal title- transfers to B to hold on trust for equitable beneficiary C
A can also self declare trust straight to C
- mainly done because of minors or tax reasons.

Question 10

General requirements of a trustee?

Answer 10

• all trusts require at least 1 but max 4 trustees. Can be as many beneficiaries as wanted
• at least 16 to be trustee of a charity
• at least 18 to be trustee of any other trust
• can be uk citizen company or foreign national
• for charity trust must not be disqualified by commission on basis bankrupt or conviction
• Trust is not sperate legal entity- Trustee enters into contract and is thereafter liable
• Settlor creates trust - or becomes trustee if self declares

Question 11

What are the differences between Express & Implied trusts

Answer 11

EXPRESS - Intentioanlly deliberately set up by the settlor. Intentianal declaration
Private - express private purpose trust - set up for a purpose no beneficiaries.
Charitable - set up for charitable purpose

IMPLIED
Resulting - transferree holds property on resulting trust for the transferor.
Constructive - In court - eg co-habiting couple dispute over property

Question 12

1) What is a bare trust?

2) What is the condition re entitlement and conditions???

Answer 12

1)
- assets held in name of trustee BUT adult beneficiary has absolute right to and has full control over assets.
- can use rule in suanders and valutier to collapse trust if:
*has absolute entitlement
*is 18
*is sui juris ie of full age and under no diasability

2)
must have vested interest and NO conditions attached to taking the property. If there are conditions then has a contingent interest so can’t collapse until contingent part dealt with

Question 13

1) What is the rule in Saunders v Vaultier?

2) Why does tyhe rule not apply when it is a contingent interest in the trust?

Answer 13

1)
- arose under a wills trust. left shares when reaches age of 25. Beneficiary said wanted when reac hed age of 18, so collapsed trust
- can’t stop as reached age of 18 so fully entitled, and if didn’t rach age of 25 gift would fail.

2)
- because AGE IS NOT a contingent interest
- contingent interest is a “gift over” ie leave to someone then if doesn’t survive goes to someone else

Question 14

What is the difference between:

1) contingent and vested interest

2) Discretionary and fixed interest

Answer 14

1) vested = definite interest in subject matter - not conditional on any event
Contingent = beneficiary has interest that is subject to an event occuring eg reaching cetainage or child graduating from law school

2) Fixed = certain interest in a subject matter. Settlor recides and makes clear to Trustees what and when
Disecretionary =beneficiary may or may not not have an interest in a subject manner, depending on trustees discretion.
-

Question 15

How does the rule in Saunderts and Vaultier affect life tennant and remainder man and numerous beneficiaries?

Answer 15

1) Life Tennant & Remnainder man=
- beneficial - life tennant entitled to asset during lifetime
- remainder man - captial so entitled to when life tennant dies
- both can collapse if 18, entitled and sui generis. BUT only if both agree

2) NUMEROUS beneficiaries = if all consent can collapse if 18, entitled and sui generis
-BUT if contingency interest can’t use Saunders and Vaultier

Rule in S v V not regularly used as don’t know it exists

Question 16

EXPRESS TRUST =

Answer 16

=Private trust
Will trust - in contents of a will - doesn’t have to comply with requirements
Intervivos - during lifetime - can self-declare or on trust to trustee

Question 17

Fixed trust - key points=

Discretionary Trusts - key points =

Answer 17

FT=
- can exercise S & V
- Usually to kids and grand children

DT=
- if to smalller group could exerciser S & V - children, siblings
- if larger group wouldn’t apply

Self-Dec Trust = settlor owns legal title but metaphorically transfers equitable title to beneficiary

Question 18

What is the Perpetuity Rule?

Answer 18

= Trust can’t last for more than 125 years
- don’t usually have to worry about this UNLESS no beneficiary so property could be tied up forever

Question 19

Trusts family home, what type of trusts are they?

Answer 19

• They are implied trusts and arise by operation of law, can be;
• Resulting or constructive trust
• Resulting - have scenarios been established
• Constructive - have conditions been satisfied
• as implied - no formalities

Question 20

Implied trust of home
-When does a common intention construction trust arise?

Answer 20

• co habiting couple who fall out and either claiming share in property or greater share than they have in law
• ie either sole owner or joint ownership

Question 21

Implied trust of home
- where sole owner

Answer 21

• sole owner owns 100% of property - therefore NO TRUST.
• in relationship and partner moves in, relationship then breaks down
• partner says not fair and wants share - as for instance paid bills, looked after kids, cleaned, decorated.
• Asking sole owner remains Legal owner
• but wants share of equitable ownership
  claimant needs to show:
  INTENTION - words such as “don’t worry I will give a share”
  IMPLIED BEHAVIOUR - paying mortgage, quit job to look after kids, pay bills

Question 22

Implied trust of home
- where joint ownership

Answer 22

• both own legal title, no declaration of any interest by each, therefore beneficial joint tenants.
• Legal and equitable title owned 50/50.
• Claimant saying should own more after break down in relationship
• TRUST EXISTS as joint tenants
  -court looks at quantification, should shares change.
• if courts find at equitable level will adopt contingent implied trust of home.
• claimant needs to show:
  INTENTION - words such as “don’t worry I will give a share”
  IMPLIED BEHAVIOUR - paying mortgage, quit job to look after kids, pay bills

Question 23

What does the court consider when considering an Implied trust of the home

Answer 23

• Where sole owner - start presumption equity 50-50 equity follows the law
• rely on common intention and any detriment suffered by claimant on not owing more
• Is it just and fair
• If finds becomes common intention construction trust - which is essentially same as joint tenants.

Question 24

Proprietary estoppel - what is this?

Answer 24

• legal owner of property makes promise
• 3 requirements
  1) assurance giving rise to expectation - must come first
  2) person relied on assurance
  3) person acted to their detriment as result of assurance

IT IS ACKNOWLEDGED THERE IS AN OVERLAP BETWEEN PROPRIETARY ESTOPPEL & CONSTRUCTIVE TRUSTS

Question 25

Resulting Trusts - what are these?

Answer 25

• form of implied trust
• Automatic or presumed
• settlor self declares a transfer or asset to the trustee. If successful equitable ownership would transfer
• In a resulting trust the transfer fails, for instance due to certainties not being satisfied, evidence conflicting and unclear where property should go, therefore ownership jumps back to settlor, automatically held on trust for settlor

Question 26

Automatic resulting trust =

Answer 26

• where failure to create valid trust due to failure to satisfy 3 certainties, therefore no constitution of a trust -= automatic resulting trust

Question 27

1) - Do CTS like trusts to fail?

2) - How do CTS deal with them?

3) -What is a Quistclose trust

Answer 27

1)
- No, CTS try to create certainty. CTS don’t want failed trust and no one knows who owns property

2)
-contingency under trust not satisfied - fails
-testamentary - asset in will - dies - falls into residuary, or inter vivos = Resulting trust (RT) = back to settlor.
-limited gift for purpose - eg UNI - completed and money left over. Unless stated otherwise falls back to settlor on RT. Express trust fails due to lack of certainty

3)
Quistclose trust - lends borrower money for specific purpose
- held on trust to lender, lender can take back if not used for specific purpose
- once purpose completed relationship goes back to being debtor and creditor
- held on trust until purpose realised
-

Question 28

Presumed resulting trust =

Answer 28

Can be from either:
a) Purchased money
b) Donor gifts something for free

a) purchased money = gives money to someone to but something for someone else
- law steps in to say could not expect to give money away for nothing, therefore RT
- can be rebutted if it was intentionally a gift, or if evidence gift on birthday

Question 29

PURPOSE TRUST -= Express Trust=

Answer 29

-deliberate intention by settlor
-perpertuitary rule= trust not to last longer than 125 years. Will not become relevant as must have beneficiary.

Question 30

Private Purpose Trust

Answer 30

• Trust by individual requiring purpose to be carried out after they die
• will most likely fail
• charitable trusts more likely to succeed
• must satisfy one of the trust functions which are limited
• those which will succeed include- maintenance monuments/graves, maintenance animals, saying of private masses
• Private purpose trust must state - life in being + 21 years - most common used wording under common law. Life in being must be identifiable, usually youngest royal as identifiable. This ensures fits in with perpertuitary rule.

Question 31

Charitable Trusts

What does remoteness of vesting mean?

Answer 31

Charity =
1) Charitable purpose - relief of poverty, education
2) benefit group of people
3) exclusively charitable - not for profit
- but have charitable purpose under charities act then can last forever - so perpetuity rules DO NOT apply

Remoteness of vesting - where trust will fail=
- where charitable trust has gift over rule eg assets for charity for period of time then to someone else.
- if gift over to non charity then perpertuitary rules apply, and if doesn’t will fail
- exception is where gift over is to another charity, therefore can be forever as no gift over
- charity can be by majority, non charity must be unanimously.

Question 32

Liability of a stranger - what does this mean?

Answer 32

• a beneficiary if suffers loss usually has a claim against the trustee or fiduciary.
• BUT if they are insolvent or have no money - IMPECUNIOUS the beneficiary would have a claim against a stranger - non trustee who has the means to pay. In some circumstances a stager can become liable as if they were a trustee IF equity imposes a constructive trust on them.

NOTE CONSTRUCTIVE TRUST IN THIS INSTABNCE IS DEFFERENT TO COMMON INTENTION CONSTRUCTIVE TRUST CICT ONLY APPLIES TO FAMILY HOME DISPUTES

• constructive trust in this instance principles same as with other constructive trust ie:
• exempt formality requirements
• residual cat where CT feels trust should be imposed where no other is appropriate
• CT not really trust just means of equitable remedy to enable claimant to obtain restitution
• Constructive trustee single duty of transferring property to entitled beneficiary.

Question 33

What are the means for imposing a constructive trust on a stranger, what has to be established? 3 possibilities

Answer 33

1) Recipient Liability
2) Accessory Liability
3) Intermeddling

Question 34

Recipient liability -

Answer 34

• can be established in 1 or 3 ways
  1) - Knowingly receiving in breach of trust or fiduciary duty- knowing receipt. Must be shown has knowledge of breach - can be shown by actual or constructive knowledge - ie no actual knowledge but shuts eyes to obvious and failed to make enquires honest and reasonable person would make.
  2) - receives property without knowledge of trust, then becomes aware and deals with property in way inconsistent with trust
  3) - receives trust property knowing it to be such, BUT without breach of trust and then deals with in way inconsistent with trust

Claimant must show:
1) Has interest in property
2) Can follow property into hands of stranger. if substituted must be able to trace value in property received by stranger
3) Once established has proprietary interest, can assert personal claim to recover

Remedies
1) personal liability if shown disposed of property, had sufficient knowledge and failed to make reasonable person enquiries
2) No personal liability if shown acted in good faith

Question 35

Accessory Liability?=

Answer 35

• where third party doesn’t receive trust property but DOES assist trustee in committing breach and therefore may be personally liable to beneficiaries
• Recent case law takes view gives rise to personal liability rather than a constructive trust as stranger never in possession of trust property - so no tracing available.

Requirements for dishonest assistance=
1) trust existed - formal or as result of fiduciary relationship
2) there was a breach of trust/fiduciary duty
3) assistance by a stranger in the breach
4) third party acted dishonestly in providing assistance.

Remedies
-compensation for loss
may also be liable for profits acquired by reason of participating in breach

Question 36

Intermeddling?=

Answer 36

• stranger takes it upon themselves to intermeddle and that intermeddling causes loss to trust
• know as trustee de son tort - person whose actions have caused loss, making them liable as a trustee

Question 37

1) Is a constructive trust always the mechanism used in respect of recipient, accessory and intermeddling?

2) Is everyone who receives or deals with trust property a constructive trustee

Answer 37

1)
- No as the usually remedies of a constructive are not always available.
- generally the claimant has a personal claim
- proprietary claim not always available, only available if they have the trust property, or equivalent.
- if never in possession tracing not available so no constructive trust available

2)
-Bona Fide Purchaser - NO they have bought the property free from equitable rights. Trustee sold i breach of trust therefore remedy against trustee no purchaser
-Innocent volunteer - NO received property in good faith unaware that trust property
BUT - remedy of tracing could could be used requiring the return of the property
- Purchasers and volunteers taking with notice of breach of trust YES - constructive trustees. personal action against them and tracing available

Question 38

Fiduciary relationship -

1) How is this formed

2) what is a fiduciary/trustee prohibited from doing - 5 situations?

Answer 38

1) - someone who has undertaken to act for on or behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence

2) - overriding duty to avoid conflict between their personal interests and their duty to the trust. A trustee is not allowed to profit from their position through:
a) Making unauthorised profits
b) Retaining directors fees
c) remuneration as a trustee
d) purchase of trust property
e) Competition with the trust business

Question 39

Fiduciary duty
Making unauthorised profits =

Answer 39

• must not profit from their role as a trustee. profits held on constructive trust for beneficiaries
• remedy is called account of profits - allows claimant to recover profits taken as a result of the breach
• applies to all fiduciaries not just trustees. BUT if no fiduciary relationship then NO need to account for profits

Question 40

Fiduciary duty
Retaining directors fees

Answer 40

• must not profit from a trust and this extends to directors fees, as opportunity to obtain remuneration came from position as trustee. Fees must be held on constructive trust for beneficiaries
• CAN retain fees if
  a) directorship predated trusteeship
  b) appointed as director independently of votes of trust
  c) trust instrument expressly authorised trustee to retain fess

Question 41

Fiduciary duty
Remuneration as a trustee

Answer 41

• general rule mustn’t profit extends to remuneration.
• Professional trustees can but non professional still subject to non profit rule unless:
  -express clause in trust instrument authorising
• authorised by CTS in interest of beneficiaries
  -authorised by beneficiaries, must be sui juris to authorise

Trustees can be REIMBURSED for out of pocket expenses

Question 42

Fiduciary duty
purchase of trust property:
2 rules
Self-dealing
Fair -dealing

Answer 42

SELF DEALING
- trustee purchases trust property, acts as both vendor and purchaser.
-Voidable no matter how fair open and honest
- beneficiary can set aside transaction and property must be returned
- Beneficiary can approve transaction if no objection to it
-cannot be evaded by retiring first or using nominee

Doesn’t apply if:
- authorised by trust
- all beneficiaries being sui juris authorise it
- if purchase pursuant to option or contract prior to trusteeship
- if CT uses discretion to approve purchase in advance or retrospectively

FAIR DEALING
- Trustee purchase a beneficiaries beneficial interest
- only voidable if trustee acted unfairly

Transaction will stand if can show
- didn’t take advantage of their position
- made full disclosure to beneficiary
- transaction fair and honest

Question 43

Fiduciary duty
Trustees must not compete with the trust

Answer 43

• Trustees must not put themselves in a position where their interest and duty conflict
• should avoid putting themselves in position in which their duty to one principal conflicts with duty to another principal

Question 44

1) Who can’t be appointed as a trustee?
2) How many trustees can you have

Answer 44

1)
- undischarged bankrupt
- convicted of dishonesty of deception offences
- lack capacity due to mental disorder, ill health or other disability

2)
Trust in personalty - at least one and no maximum
Trust in land - minimum number is 2 and max is 4.

Question 45

Who can appoint trustees?
5 ways?

Answer 45

1) By testator in will or settlor. The trust property is vested in them= constructive trust. Then hold jointly until they retire, die or are removed and the trust then vests in the survivor or survivors through right of survivorship.
NOTE - where property held by two or more persons as joint tenants, on the death of a joint tenant property automatically passes to the survivors, this continues until there is one sole owner

REPLACEMENT OR ADDITIONAL TRUSTS these are in the order that follows:

2) person or person nominated for the purpose of appointing new trustees by the instrument creating the trust -

3) surviving or continuing trustees or trustee for time being under s36 TA 1925
NOTE- nominated person trumps surviving trustees - however this is construed strictly

4) By the - court under s41 TA 1925 - last resort

5) By beneficiaries under s19 TOLATA 1996

Question 46

Appointment of replacement Trustees under s36(1)=

Answer 46

• can be excluded by trust instrument, but if not trustee can be appointed, in writing, in place of trustee who:
  *dead
  *is out of uk for 12 months
  *wants to be discharged
  *refuses to act
  *incapable of acting - lacks capacity
  *unfit to act - bankrupt or convicted dishonesty or deception offences
  *infant
• removed by power construed in instrument creating trust

If no person able or willing to act then surviving or continuing trustees or trustee for time being or PR of last surviving or continuing trustee

Question 47

Appointment of Trustees, by court s41 TA 1925

Answer 47

• if it is expedient to appoint a new trustee or trustees and inexpedient, difficult or impractical to do so without the CT, then the CT may make an order to appoint a new trustee/s in substitution or in addition to any existing trustee or although no existing trustee.

CT will consider:
1) wishes of settlor
2) CT will not appoint trustee who would not be even handed towards all beneficiaries
3) CT will have regard to whether appointment will promote or impeded execution of trust.

IF NO ONE WILLING CT CAN APPOINT:
Public Trustee - Trust corporation - which administers trust where trustee can’t be found ie when die intestate

Judicial Trustee - appointed by High Court where ordinary trustees have failed

Question 48

By beneficiaries under s19 TOLATA 1996 - in a trust in land

Answer 48

• gives certain beneficiaries the right to appoint or replace their trustees
• must be adults, mentally capable and entitled to trust property
• all beneficiaries must agree
• they can give directions regarding the appointment or retirement of trustees. - Where no one is nominated by the trust for the purpose of appointing trustees the beneficiaries may:
  a) give written direction to trustee to retire from the trust
  b) give written direction to trustees for time being to appoint a specified person to be a trustee
• when a trustee directed to retire they must ensure after retirement that there will be a trust co-operation, or at least 2 trustees remaining.
• replacement or continuing trustee must consent to retirement by deed
• s20 TOLATA - allows for right to substitute for a trustee who lacks capacity

Question 49

What does vesting of trust property mean? =

Answer 49

• trust must be full constituted - legal title vested in the trustees
• vesting of most property is automatic if made by deed
• if in writing continuing trustees must execute a deed of vesting after the appointment
• exceptions are stocks and shares which do not automatically vest - must exercise transfer forms

Question 50

Termination of Trusteeship

1) Disclaimer

2) Removal

3) Death

4) Retirement

Answer 50

1)
-Trustee can disclaim before acceptance but not after.
- Can disclaim by deed, oral or inferred conduct or length of time

2)
- Under an express power
- person with power to appoint trustees or by trustees s36 TA 1925
-By CT s41 TA 1925
-By CT under inherent jurisdiction
- by beneficiaries directing retirement s19 TOLATA 1996

3)
- on death trusteeship terminates and vests in surviving trustees under survivorship
- sole trustee dies trusteeship devolves onto PR’s who may appoint new trustees

4)
- trustee can retire by complying with a s39(1) of TA 1925, which are:
a) must be deed declaring trustees desire to be discharged
b) remaining trustees must consent to retirement in deed
c) after retirement there will be either a trust corporation or 2 trustees remaining

Question 51

Trustee’s duty of care

1) Common law duty of care

2) Statutory duty of care

Answer 51

• trustees owe a duty of care to the beneficiaries and they must act with such care and skill as is reasonable in the circumstances
• Failing to do so may lead to breach

1) - trustees expected to exercise standard of diligence and care as an ordinary prudent person of business would exercise with his own affairs

2) - trustee shall exercise care and skill, having regard to any special knowledge/experience that is reasonable to expect of a person in that person - objective test - ss7 statutory duty can be excluded from trust instrument

Continuing duties includes:
- exercising powers unanimously with other trustees
- keeping accounts and records
- acting impartially between the beneficiaries
-investing
- ensuring personal interests do not conflict with their duty towards the trust

Question 52

Trustees - Duty to invest
What must the trustees be

What must trustees be/consider - 4

Answer 52

• no statutory definition of duty to invest, but must ensure trust produces interest and profit where applicable

1) Trustees must be even handed
- treat all beneficiaries fairly
- especially where different class of beneficiaries ie life interest = entitled to income from trust, remainder interest = capital on death. Therefore must produce income whilst protecting capital

2) Meaning of investment =
- purchase of property for income yield as well as investments for capital growth
- must select investments suitable

3) Modern portfolio theory
- Since TA 2000 standard of care measured in light of modern portfolio theory - emphasizing risk level of ENTIRE portfolio, NOT individual investments

Question 53

Trustees - power to invest, what must be considered?

Answer 53

1) Unless excluded by the trust instrument trustees are given general power of investment by TA 2000
s3 - may make investment as though absolutely entitled
s8 - allows investment in land

2) Must review investments from time to time, considering variation based on:
- suitability of investment
- need for diversification

3) Before investing must obtain and consider proper advice from person reasonably believed by trustee to be qualified and have practical experience of financial and other matters relating to proposed investment

4) Can they consider non-financial investments. Can only be done when:
- given express authority to do so by the trust instrument
- beneficiaries all sui juris and given consent to trustees
- when following ethical investment policy, trustees can show investments are as financially sound as the rejected investments.

Question 54

Power of maintenance and advancement -

Answer 54

Maintenance
- where trust for minor
- can advance for maintenance, education and benefit of beneficiaries - provided not excluded by trust instrument

Advancement
- where trust for minor
- capital can be advanced

• Trusts before 1.10.2014 - limited to max one half
  -Trusts after 1.10.2014 - can advance any amount

Question 55

Trustees Liability
1) Definition of breach of trust =
2) What are the two types of breach? =

Answer 55

1)
- violation of any duty which trustee owes as trustee to the beneficiaries
- no doctrine of mens rea - intention not relevant to liability for breach
- action fallen below standard of care
- breach does not automatically lead to liability, only liable if breach led to unauthorised loss or gain to trust -
2)
- can occur by action or omission
- unauthorised action - outside scope of powers
- inadequate action - to protect the trust

Question 56

Trustees Liability where one or more trustee, all liable? =

Answer 56

• trustee liable for own breaches - not vicariously liable for co-trustees
• BUT if has not actively committed breach MAY still be liable by omission for neglecting duties ie should have known what co-trustees up to - duty to act unanimously
  -not liable for breach before appointed
• But if breach found must take action and failure to do so will lead to breach by omission.
• not liable when retire, unless retirement facilitated breach
• Liability is JOINT & SEVERAL- beneficiaries can sue all, one or some of those liable, can claim whole sum against one trustee. - useful where several trustees impecunious (no money) so can claim from one who has money
• Civil Liability (contribution) Act 1978 gives CTs discretion to determine what each trustee should pay, made on basis for what is just and equitable

Question 57

1) Indemnity

2) What is this and how does it apply?

3) What does impound a beneficiaries interest mean?

Answer 57

1)
Indemnity = sum of money paid by compensation

2)
-trustee found in breach of trust must compensate from their own personal funds
- trustee can claim indemnity from a fellow trustee or beneficiary if:
a) co-trustee fraudulent
b) co-trustee is a solicitor-trustee and exercising controlling influence over the other. Can claim indemnity from controlling trustee.
c) beneficiary who is also trustee and has benefitted from breach of trust must indemnify for benefit gained
d) if beneficiary instigated the breach or consented in writing. CT can impound a beneficiary’s interest by way of indemnity to the trustee. can impound up to the full value

3)
- to seize or take control of a beneficiaries entitlement under the trust
- to indemnify the trustee
-beneficiary barred from suing the trustee for the breach

Question 58

1) Measure of damages - for breach of trust and fiduciary duty.

2) What is the difference.

3) Are they liable for personal and proprietary?

4) Can the court issue interest on damages?

Answer 58

1) BREACH OF TRUST remedy = compensation
- trustee personally liable for loss and must restore funds personally
- no need to prove trustees are in possession of trust property

BREACH FUDUCIARY DUTY - if trustee made unauthorised profit remedy = restitution, must account for profits made.

2)
BREACH OF TRUST = makes investments expressly forbidden by trust. Causing loss which must be repaid personally.

BREACH OF FIDUCIARY DUTY = uses authority to make unauthorised profits
- they must account for their profits
- injunction to restrain breach can be made.

3) Yes - if trustee still in possession of trust property, or equivalent beneficiary can exercise their proprietary rights to trace against the trustee

4) YES
- normally simple interest at CTS discretion - based on principal sum awarded
- can award compound interest where fraudulent or made unauthorised profits - based on principal sum but also interest accumulated on it

Question 59

Protection of trustees
Exemption Clauses -

Answer 59

• trust contains clause that exempts/limits trustees liability for breach. Fraud/dishonesty cannot be excluded
• CT must construe fairly
  -Any ambiguity in the clause will result in clause being construed against trustee seeking to rely on it.

Question 60

Protection of trustees
Relief of liability & beneficiary involvement

Answer 60

• s61 TA 1925 = CT has a discretion to excuse a trustee for breach if it appears they acted honestly and reasonably and ought fairly to be excused.
• for instance where beneficiary involved and excused breach, or if at instigation of beneficiaries.
• CT can relieve wholly of partly
  -Lay and professional trustees can claim protection, but less likely to excuse a professional trustee

Question 61

1) -Limitation period

2) Exceptions

3) Fraud, concealment or mistake

Answer 61

1)
- 6 years for breach of trust - brought within 6 yrs of right to bring action accrued.
- EG where life interest and then remainder man. Remainder mans 6 years starts at time of death.
-Life tenant out of time cannot take advantage of remainder mans time to sue

2)
-no limitation periods against trustee party to fraud
-no limitations in actions to recover trust property or proceeds from a trustee
- if under disability when breach occurs time doesn’t start until disability ended.
- disability includes infants and person of unsound mind
- when turn 18 clock starts running
- unsound mind disability ends on death, the estate then takes action.

3)
- Actions for fraud, concealment or mistake time starts running from time discovered, or could with reasonable diligence have discovered it

Question 62

What is the doctrine of Laches and Acquiescence?

Answer 62

Doctrine of Laches =
- based on fact claimant delayed claim to so extent that it has become inequitable to enforce their rights against the defendant, unjust to do so.

Acquiescence =
-can be done in 1 of 2 ways
- claimant confirming intention NOT to sue or:
- by delating taking action to point doctrine of lashes applies

Question 63

1) What is tracing

2) when is tracing most likely used?

Answer 63

1)
- beneficiaries who have lost trust assets due to fraud, misappropriation or mistake, by a trustee, can recover property, or identify substitute, and claim it
- available against trustee, constructive trustee or innocent volunteer.

2)
- if bankrupt - tracing action gives claimant priority over other creditors, claiming property as their own
- cannot be found - property might in possessions of “innocent volunteer” who becomes subject to tracing action
-innocent volunteer - no personal claim but tracing is available
- tracing more profitable - if can sue for compensation or trace, may chose tracing as property increased in value

Question 64

1) What does tracing allow? (2)

2) When is tracing not allowed

Answer 64

1)
a) Have charge over asset - claimant can sell property and claim what owed from proceeds
b) Claim constructive asset over asset - entitles to equitable proprietary interest in asset and take advantage of increase in value

2) Tracing is lost if the property no longer exists

Question 65

Requirements of tracing
1) - fiduciary relationship
2) - claimant must have an equitable proprietary interest in the property
3) - property must be traceable
4) - must not produce inequitable result
5) - No unreasonable delay

Answer 65

1) - need not be between beneficiary who is tracing and the person against who they are tracing SO LONG AS there was an initial fiduciary relationship
- easily met

2) - not available to anyone. MUST have an equitable proprietary interest in property being traced
- beneficiary of trust has such an interest.

3) - property must be identifiable
- substituted property can be identifiable ie sells painting and buys cottage, cottage can be traced
-mixed property - where own money and trust money used, can trace the amount of trust money used

4) - as equitable remedy can’t trace if unfair to defendant
- particularly relevant if innocent volunteer
- general consensus tracing not allowed into a mixed fund where innocent volunteer mixed own money with trusts. This would be unequitable. Party could raise defence of change of position.

5) -equitable remedy so no limitation period
-doctrine of laches applies and can be used as defence against tracing

Question 66

Rules of tracing
1) Tracing into unmixed funds
2) Tracing into mixed funds
3) Tracing into funds mixed in bank accounts

Answer 66

1)
- relatively straightforward
- if sperate and not fixed - can be reclaimed. Called following
- if sold 3 outcomes
a) proceeds of sale claimed if no mixing
b) proceeds bought property, can trace and claim that
c) can follow asset if purchaser constructive trustee and purchased knowing fraudulent

2)
- rules differ dependant on whether in bank account or elsewhere
- if trustee used own money and trust money ONUS on trustee to prove some funds belong to them
- if trustee can distinguish, assets will be divided and divided pre rata - ie divided proportionally
- where trustee has mixed the funds of two trusts, or transferred to innocent volunteer who mixed with their own. Two claimants/funds have pro rata claim in the mixed funds or property bought - ie share proportionally

3)
- different rules apply
- the trustee is presumed to spend their own money first- ie when tracing presumption is withdrawn own money first.= first in first out
- the presumption is subject to primary rule that beneficiaries have a right to claim any property purchased using mixed fund
- lowest intermediate balance= claim limited to lowest balance after trust money paid in. Therefore no tracing into overdrawn acc, if exceeds amount paid in
- no backwards tracing - must follow chronological order. eg if loan taken out to buy property then trust money used to pay off, right to trace lost as not using trust money directly

Question 67

What is the exception to the rules of lowest intermediate balance and no backwards tracing

Answer 67

= co-ordinated scheme exception
- will not apply in cases where CT satisfied various steps taken by defendant are co-ordinated to defeat tracing

Question 68

Defences against tracing- what are these? 4?

Answer 68

1) Change of position
- only available to innocent volunteer
- received trust property in good faith, then suffered change in circumstance making it unfair to trace

2) property dissipated
- money used to pay for something that has dissipated eg paid for cruise, right to trace lost. BUT can claim compensation against for loss against trustee.

3) Bona fide purchaser for value without notice
- property bought in good faith, with no knowledge that property belongs to trust = Trusting not available.

4) Doctrine of laches
- if claimant delayed taking action to extent become inequitable then right to claim may be lost

Question 69

Equitable remedies
1) What are these
2) What are the general principles

Answer 69

1) - Damages are a common law remedy as of right. All other remedies are equitable

2)
- discretionary, not as of right
- Clean hands maxim - anyone applying for equitable remedy must conduct themselves equitably- CT will refuse otherwise
- equitable remedy only awarded if can be carried out
- granted where damages are inadequate or inappropriate
-s50 Senior CTS Act - can award damages as well as, or in substitution for injunction or specific performance

Question 70

Specific performance =

Answer 70

• not confined to actions for breach available in all civil actions
• order for defendant to carry out contractual duties
• claimant MUST have provided consideration before can apply
• only ordered where damages inadequate as subject matter unique eg rare antique
• NOTE - LAND is all required as unique in English Law so specific performance available

CAN’T COMPELL EMPLOYEE TO WORK

Question 71

Injunction =

Answer 71

• order for defendant to stop (prohibitory), to act (mandatory) or prevent a wrong being committed.
• granted at CTs discretion
• any breach is in contempt of CT and may be fined or imprisoned
• can be granted at any stage of CT proceedings
• if throughout proceedings = interim
• example of interim junction in tracing =preventing defendant from dissipating property
• claimant MUST give undertaking as to damages = agreement to compensate the defendant if it transpires injunction should not have been granted - especially with regard to interim injunction
• CT can award damages in lieu of injunction
• injunction granted where damages inappropriate.

equitable remedies never granted as of right but at courts discretion where damages inadequate or inappropriate