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SQE1 > Trusts > Flashcards

Trusts Flashcards

1
Q

What are the 3 certainties for creation of an express private trust?

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

What are key elements of certainty of intention?

A
  • May be spoken or written, no form needed nor does word trust need to be used
  • Precatory language not sufficient eg hope
  • Settlor must have intention when owned property and must intent for the trust to take place immediately
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3
Q

What happens if there is no certainty of intention?

A

Trust void.
Trust property passes to person who would have been trustee as a gift

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4
Q

What are some features of certainty of subject matter?

A

-must be objectively definable. eg bulk not valid, reasonable income valid. Must be clear and identifiable.
- fractional shares - if tangible property (things that can be touched eg wine bottles), not valid unless segregated from other items. If intangible (can’t be touched eg shares) valid.
- trust property must be existing interest in property, not expectation
- beneficiaries entitlement must be certain

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5
Q

What happens if a trust is void for certainty of subject matter?

A

Void, property reverts to settlor

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6
Q

What are some features of certainty of objects?

A
  • Bs must be defined with sufficient certainty
  • may be name or concept
  • if concept must be objective eg nephew or employees, not subjective eg my friends
  • tests apply where concepts used to define class what test depends on whether trust is discretionary or fixed.
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7
Q

What is the complete list test?

A
  • used where fixed trust and concept used to describe beneficiaries eg my children or my nephews
  • T must be able to draw up a compete list of beneficiaries in order to distribute.
  • Bs must be named or described in such a way that is is possible to make a complete list
  • Bs need not be in existence at date of trust but need to be ascertainable by time interest comes into enjoyment
  • if fund to be distributed between group of people who are described but not named, the description must be conceptually certain and there must be evidential certainty.
  • not being able to find B doesn’t make void. Trustees can apply to court in respect of missing B & distribute fund

Example
Trust for my best friends might be uncertain whereas trust for my former employees may be valid but records needed to show that they are part of that class.

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8
Q

What is the given postulant test?

A
  • used where discretionary trust and concept used to describe Bs
  • description of class must be clear enough that it can be said with certainty that any given individual is or is not a member of that class that may benefit. Must be objectively certain.
  • if evidential uncertainty about whether a person is within class or not, won’t cause trust to fail.
  • if administratively unworkable, will fail. If objects too wide to form a class. Eg all inhabitants of West Yorkshire

Example
Trust for Directors, ex directors, relatives, dependents is valid as can define with objective certainty.

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9
Q

What happens if a trust is void for uncertainty of objects?

A

Void, resulting trust in favour of settlor or settlors estate presumed.

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10
Q

What is the beneficiary principle?

A

Trust must have asvertainable human beneficiaries to enforce. If none, will fail and T holds property on trust for settlor or their estate.

Trusts for purposes will fail however there are exceptions:
- honorary trusts
- charitable trusts

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11
Q

What are the rules against perpetuity?

A

Prevent settlor creating trusts that last for long time. If scope to extend for longer, will fail.

2 rules
1) remoteness of vesting rule - applies to contingent interest. Trust void if does not vest within period - 125 years for trusts after 2010

2) inalienability rule - only to express trusts for non charitable purposes, only valid if limited to 21 years or for rest of living persons life + 21 years.

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12
Q

What is needed for a valid express inter vivos trust?

A
  • Certianty of intention
  • Certainty of subject matter
  • Certainty of objects
  • Identifiable beneficiaries
  • Vests within perpetuity rules
  • Trustee selected
  • Validly created
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13
Q

How is an inter vivos trust created?

A

Settlor either:
- declares themselves as trustee
- makes declaration of trust to another with transfer of property

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14
Q

What must a settlor show to validly declare themselves trustee?

A
  • intent in words or conduct to be legally bound
  • requirements of certainty, beneficiaries principle and perpetuity rules be satisfied
  • if land, declaration must be in writing and signed
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15
Q

If a Settlor creates a trust by transfer to another with a declaration of trust what must be satisfied?

A

1) settlor must transfer trust property to trustee and
2) the settlor must make a declaration of trust

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16
Q

What are requirements for a declaration of trust?

A

No formal requirements for trust of personalty

If land, must be written evidence and signed.

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17
Q

What is required for transfer when creating a trust?

A

Legal title must be transferred from one party to another to constitute the trust.

Land - transfer to HMLR
Chattels - delivery and intention, may be by deed
Shares - STF & registration with company
Bank account - signed written notice to bank

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18
Q

If Settlor fails to make transfer, will equity assist and enforce?

A

No, equity will not assist a volunteer. Trust will fail.

Exceptions to this however.

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19
Q

What are the exceptions to the maxim equity will not assist a volunteer?

A

Every effort test
- S did everything required to transfer and put outside control. Enforceable. Applies to land and shares where signed form etc and handed over but registration not completed.

Donatio Mortis Causa (gift by reason of death) gift may be enforced if:
- donor delivers property to T whilst in contemplation of imminent death
- with intention that T holds on trust for X if donor dies and returned if D survives
- and D dies

Strong v Bird
- if S died before transfer made and T becomes PR, trust usually found to be valid.

Proprietary estoppel
- if donee can prove reliance on assurance and acted to detriment, may be enough to establish completed

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20
Q

What are the requirements of donatio mortis causa?

A

1) Donor delivers property to trustee when in contemplation of immediate or impending death (objective basis needed)
2) with the intention that property be given to hold on trust for X if donor dies and returned to donor if survives (conditional on death)
3) and the donor dies

Trust made out if satisfied

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21
Q

What is the rule in Strong v Bird?

A

If person intending to create trust died before property transferred and trustee then becomes personal representative, trust valid.

Donor must have continuous unbroken intention to give gift between initial intention and appointment as PR

If evidence to suggest changed mind before died, rule doesn’t apply. Eg will changed after declaration.

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22
Q

What is required to establish proprietary estoppel?

A

1) Donee relies on assurance
2) in relying on that assurance, acted to their detriment
3) reliance was reasonable

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23
Q

What is needed for the creation of a testamentary trust?

A
  • Must be contained in validly executed will
  • All terms must appear in will
  • 3 certainties
  • Beneficiary principle
  • Perpetuity rules
  • No requirement to transfer to trustee as vested in PR on death
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24
Q

What’s a half secret trust?

A

Existence of trust revealed in will but beneficiary not identified.

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25
Q

Can a half secret trust be enforced?

A

Yes
- Identify of B must be communicated to Trustee at or before making the will. Will cannot refer to future communication.

  • silence = implied acceptance
  • Language of will must be consistent with communication.
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26
Q

What is a secret trust?

A
  • contained in will
  • looks like outright gift to someone
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27
Q

Can a secret trust be enforced?

A
  • B needs to prove terms by clear and convincing evidence.
  • can be enforced by B even if communication describing trust not made until after will executed. Timing of communication to T irrelevant.
  • if trustee expressly refuses to accept trust or didn’t know about trust until after death, no trust and trustee takes outright.
  • if didn’t respond, acceptance implied.
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28
Q

What happens if secret trust void?

A

Trustee takes as outright gift

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29
Q

What happens if half secret trust fails?

A

T holds on resulting trust for S’s estate

T’s sole duty = transfer back to S’s estate

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30
Q

What’s the rule in Saunders v Vautier?

A

Beneficiaries can terminate trust if combined have absolute interest, all of age and sound mind.

Beneficiaries can call for trustees to transfer trust property to them and end the trust.

Trustee must obey and beneficiaries divide between them.

Applies to fixed and discretionary trusts. Fixed easier as interests fixed and must be no diminution. Discretionary harder as need to agree.

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31
Q

What are the requirements of Saunders v Vautier?

A

1) B has an absolute interest in the trust. Between them all Bs wholly entitled to property
2) All B’s are of full age and sound mind
3) All B’s in agreement

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32
Q

What is a resulting trust?

A

Trust implied by law based on presumed but unexpressed intention of settlor.

Equitable interest reverts to settlor or estate.

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33
Q

What are the 2 main types of resulting trust?

A

1) trusts arising following a voluntary transfer or purchase in the name of another
2) trusts arising on failure to exhaust beneficial interest under express trust

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34
Q

When may a resulting trust be implied?

A
  • where X transfers legal title to Y without consideration and no evidence before or at the time why it was made. General rule that did not intend to make a gift and Y holds on trust for X.
  • purchase money cases. X provides purchase money and legal title transferred to Y. Presumption that Y holds on resulting trust for X. If both contribute, held on trust for both in proportion.
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35
Q

What is the presumption of advancement?

A

Presumption of resulting trust doesn’t apply where X treated as being under moral obligation to provide financial provision for Y. Presumed that intended to make a gift.

X is husband or fiance
X is father
X stands in loco parents to Y

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36
Q

Can presumption of resulting trust and presumption of advancement be rebutted?

A

Yes by evidence to contrary. Could be:
- surrounding circumstances eg birthday gift
- acts and declarations made at time or before purchase or transfer.
- if evidence of illegal or fraudulent motive, court will decide if in public interest to allow claim. At courts discretion.

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37
Q

When will a resulting trust arise on failure of express trust?

A

Where the trust declared fails to dispose of entire equitable interest or fails for another reason eg failure of contingent interest or lack of certainty, or failed half secret trust.

Trustee not intended to have ownership so holds on resulting trust for S or S’s estate.

Duty = convey title back to S or Estate

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38
Q

What is considered conclusive in determining shares in a family home?

A

Declaration of trust stating proportion of shares. Conclusive in absence of fraud or mistake.

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39
Q

What happens if there is no declaration of trust and property held in both names?

A

Law presumes that equitable interest held as joint tenants like legal interest.

Can be rebutted by evidence and can prove intended otherwise.

Need to provide common intention

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40
Q

What will Court look at when deciding common intention?

A

Whole course of dealings and conduct. Including: advice received, purpose for which purchased, motivation, nature of relationship, children, finance arrangements

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41
Q

If legal title in sole name, how may the fact the property is held on trust for 2 people be established?

A

1) Express declaration of trust. Must in in writing and signed. Can be made when acquired or later. Generally conclusive but can be avoided if fraud, mistake or UD established, can be overridden by proprietary estoppel claim.

2) Common intention constructive trust imposed by court.

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42
Q

What is proprietary estoppel and what are the requirements?

A

Means of establishing an interest in property.

Claimant must show:

  • representation or assurance made
  • claimant relied on this and
  • claimant incurred some detriment as a consequence of reliance. (Not just money, can be caring or work in lieu of payment)
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43
Q

What must the claimant show to establish a common intention constructive trust?

A

Claimant must show:

  • parties had common intention, either express or inferred that C should have equitable interest in the property and
  • Claimant relied on that to his detriment.

Claimant must show actual discussions that led to believe, must relate to ownership of land not sharing home or life.

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44
Q

When might court infer common intention?

A

Discretionary but:

  • direct contribution to purchase price
  • mortgage payments
  • payment of household expenses to enable legal owner to pay mortgage
  • substantial renovations by one party.

Claimant must show they relied on this to their detriment.

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45
Q

What does rely on to detriment require?

A

Significantly altered position in reliance. Minor acts eg decorating won’t suffice.

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46
Q

When is a purpose trust permitted?

A
  • charitable trusts
  • non charitable purpose trusts
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47
Q

What rules are charitable trusts exempt from and why?

A
  • no requirement for ascertainable human beneficiaries
  • can be for an abstract purpose ie no certainty of objects. Eg for relief of poverty
  • may be perpetual. Not subject to rules against perpetuities. Can continue indefinitely. Initial gift must fall within perpetuity period but gift from one charity to another can take effect at any time.
  • court may be able to apply cy-pres if impossible to carry out settlors intention.

Exempt due to benefits impose on society.

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48
Q

What are the requirements for a charitable trust?

A
  • charitable purpose - exclusively charitable
  • for public benefit
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49
Q

What purposes are charitable?

A

Charities Act 2011
- prevention of poverty
- advancement of education, religion, health, citizenship, development, arts, culture, heritage, science, sport, human rights, conflict resolution, harmony, equality, diversity, environment
- relief of those in need, ill health, disability, poverty
- animal welfare, armed forces, emergency services

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50
Q

What counts as public benefit?

A

Must bestow:
1) identifiable benefit 2) to the public or section of it

51
Q

What doesn’t count as public benefit?

A

Where group that stands to be benefitted is defined by reference to relationship to individual or business. If is, it is a private trust and will fail. This rule doesn’t usually apply to relief of poverty as long as people who benefit not named.

Effect of fees - if only those who can afford fees can benefit, may not be for public benefit. Issue with private schools, it scholarship programme or facilities available to public may be satisfied.

Fact that incidentally benefits some individuals will not prevent it being deemed charitable. Eg people being paid to do key roles.

52
Q

What is not charitable purpose?

A

Political purposes. Main purpose = campaigning to change law or for / against a political party, not charitable. But if ancillary to main purpose, won’t fail.

53
Q

How are charitable trusts enforced?

A

Enforced on behalf of public by Attorney General.

54
Q

What is the cy-pres doctrine?

A

May apply where charitable purpose of a trust impossible or impractical. Permits Court to direct that trust property be applied to another charitable purpose rather than allowing to fail.

55
Q

How does cy-pres doctrine apply where there has been an initial failure of gift?

A

Court can apply doctrine only if settlor has shown general charitable intention.

Applies where gift is impossible or impractical to carry out when comes into operation.

56
Q

How does cy-pres doctrine apply where there is a subsequent failure of gift?

A

If impossible or impractical after come into operation, no need to show general charitable intention on part of S.

57
Q

What might or might not suggest charitable intention?

A
  • if gifts to specific named charity may be harder to infer.
  • if other gifts to charity, court looks at will as a whole, if more than 1 gift to charity may be able to infer
  • detailed plans may make it less likely
  • if money been collected or raised and donors not known, no general charitable intention needed.
58
Q

What is a non charitable purpose trust?

A

Some private purpose trusts can be valid:

  • Denley trusts
  • Trusts for maintence of particular animals
  • Trusts for saying of private masses
  • Trusts for erection and maintenance of monuments and graves
59
Q

What is a denley trust?

A

A trust which appears to be for private purpose will succeed if actually for benefit of ascertainable human beneficiaries who may enforce the trust

Have power to enforce trust by injunction if trustees in breach but do not have full beneficial entitlement. Not permitted to use rule in Saunders v Vautier to terminate.

Perpetuity rules apply.

60
Q

What is an honorary trust?

A

Trusts for maintenance of specific animals, saying of private masses, maintenance of specific graves/tombs.

Valid but not enforceable.

Trustee is on their honour to carry out trusts.

May not continue beyond 21 years (including human life in being plus 21 years). If does will fail from outset.

61
Q

Who can appoint trustees?

A

Original trustees are appointed by Settlor or the Court.

Subsequent appointment:

  • Settlor no longer has any power (unless provision allowing this).
  • Person may be granted power in trust document. Doesn’t apply if trust co operation.
  • If no provision, existing trustees have power to appoint.
62
Q

Can trustees decline office?

A

Yes, no obligation to accept. Can disclaim or refuse but cannot disclaim in part.

63
Q

What is the minimum/max amount of trustees?

A

No minimum. If trust of land, need 2 or trust co operation to give valid receipt on sale. Max 4 for land.

64
Q

Is there any limits to appointing additional trustees?

A

Yes, cannot be used to increase to more than 4 even if not land.

65
Q

How are new trustees appointed?

A

In writing, no need to be by deed but commonly used as vests legal title to land and chattel in new trustee

66
Q

When can a trustee be replaced?

A

When:
- die
- refuse to act
- remains outside of UK for continuous period of over 12 months
- unfit to act eg committed breach of trust or bankrupt
- desires to be discharged

67
Q

Who can appoint replacement trustees?

A
  • any person named in instrument
    If none:
  • surviving or counting trustees or if none
  • PR of last surviving trustee or if none
  • Court
68
Q

Do trustees need to be replaced?

A

Don’t have to but can do.

69
Q

Who should help choose new trustees on retirement/replacement?

A

Retiring trustee should be allowed to help choose new trustee.

If trustee removed, can’t participate.

70
Q

Do beneficiaries have power to chose trustees?

A

No general powers to control unless breach of trust committed. However under certain circumstances, can select.

Applies where:

  • no person nominated in trust instrument to appoint new trustees
  • beneficiaries are of full age and capacity and taken together absolutely entitled to trust property and
  • they act unanimously

They may by written instruction order one or more of existing trustees to retire and order remaining trustees to appoint a new trustee or their choice.

Does not apply where one B’s interest is contingent on surviving the other.

71
Q

Can the court appoint new trustees in substitution or addition?

A

Yes, if considered in expedient, difficult or impracticable without courts assistance.

Trustee or Beneficiary can apply to court. Need to show that it is in interests of Beneficiary for Trustee to be replaced.

72
Q

Can a trustee retire without being replaced?

A

Yes, retirement must:

1) contain consent by deed of co trustees and any other person who can appoint new trustees and
2) leave in office at least 2 trustees or a trust co operation.

73
Q

When might a trustee be removed from office without their consent?

A
  • incapacity, bankruptcy,
  • Bs remove them
  • by the court
74
Q

What is the duty not to profit from trusteeship?

A

Where such profit made, held on constructive trust.

75
Q

What happens with directors fees?

A

If it can be shown that the trustee would have been appointed as a director even without the voting rights attached to trust company shares, the rule that must hold funds on constructive trust for B’s doesn’t apply.

76
Q

Can a trustee charge for their services?

A

Generally not. May recover expenses.

Exceptions:
- charging clause in trust permitting them to charge
- professional trustee may charge reasonable remuneration for services providing that: not only trustee, co-trustees give written consent and there is no express provision relating to the charges in the instrument.
- trust co operation may charge reasonable time ration for its services even if act as sole trustee
- if B’s of full age and capacity can agree to trustee receiving payment.
- court authorisation

77
Q

Can a trustee purchase trust property?

A

No - rule against self dealing. Not even if pay full market value on open market. Voidable transaction as insistence of B. Good faith and benefit to trust irrelevant.

Court may permit in exceptional circumstances.

78
Q

Can a trustee purchase a beneficial interest?

A

In some circumstances, yes.

Trustee must pay fair price, made full disclosure of all material facts to beneficiaries and no way abused position. Trustee must prove this if needed.

If not, voidable.

79
Q

What is the duty of care owed by trustees?

A

In relation to statutory powers under trustee act:

  • must exercise such care and skill as is reasonable in the circumstances taking into account any specialist knowledge the trustee has or holds himself out as having.
  • professional trustees held to higher standards as takes into account special knowledge.

General standard
- duty to act with the prudence of an ordinary man of business acting in relation to own affairs

80
Q

Must trustees act personally?

A

Yes, but exceptions:

  • can delegate purely administrative functions. Eg preparation of accounts, tax returns. Cannot delegate discretion.
  • can delegate investment decisions providing meet conditions
  • can delegate to other person or trust co operation by executing POA for a term not exceeding 12 months.
81
Q

What is the duty to invest?

A

Trustees under duty to invest funds to produce income. Regulated by Trustee Act.

Must ensure that:
- investments are authorised by statute or trust instrument
- taken into account relevent criteria when selecting investments
- take any necessary advice and
- keep under review

82
Q

What are authorised investments?

A

Almost anything. Includes land, but not outside of UK.
Provisions in instrument may extend or restrict. May exclude unethical investments.

83
Q

What is the standard investment criteria?

A

Must have regard to:

Suitability of type of investment proposed and particular investment under consideration and

The need for diversification of investments of the trust

84
Q

Do trustees need to obtain advice on investments?

A

Yes, need to obtain and consider proper advice about way in which power should be exercised (having regard to standard investment criteria).

Proper advice - someone T reasonably believes to be qualified by reason of ability and practical experience. Belief must be genuinely and reasonably held.

No need to be professional.

Advice not always needed but need to consider.

85
Q

Must investments be kept under review?

A

Yes, also need to consider under standard investment criteria if should be varied.

86
Q

May the power to invest be delegated?

A

Yes can delegate to asset manager.

Need to:
- prepare written policy statement for asset manager to follow
- ensure this is incorporated into contract

87
Q

Trustees liable for losses from investment decisions?

A

Not if complied with requirements

  • authorised investments
  • taken into account criteria
  • taken any necessary advice
  • keep under review
88
Q

Can a minor beneficiary receive income?

A

Generally no right to income. Cannot give valid receipt.

Under TA trustees have discretion to apply income for minor beneficiaries maintenance, education or benefit.

Any surplus must be accumulated. Income must be applied directly or to parent/guardian.

89
Q

What happens to income when Beneficiary is under 18?

A

Accumulates.

90
Q

When is beneficiary entitled to income?

A

Power of maintenance ends on 18th birthday. From then entitled to claim income.

If vested interest in income, can claim income and accumulated income.

If vested interest in capital and income, trusts comes to an end.

If contingent interest in capital, only entitled to income arising after 18, accrued income accrues to capital.

91
Q

Is there a limit on the power of maintenance?

A

For trusts created after October 2014, no limit.

For trusts created before, power only to apply an amount that is reasonable in all circumstances.

Check date of trust / date of death in will

92
Q

Do trustees have power to advance capital?

A

Yes provided that:
1) Beneficiary has an interest in the capital, can be vested or contingent, in possession or remainder.
2) can advance up to amount of presumed entitlement.

It is in trustees absolute discretion.

If before 2014, can only advance up to have. If after can be full amount

93
Q

What are the provisos for advancement of capital?

A

1) amount must not exceed entitlement
2) must be brought into account on final distribution
3) consent of those with prior interest required. Need to be full age and capacity. Written consent needed.

94
Q

Are there any restrictions on advancement of capital?

A

For trusts created before October 2014, amount of advance limited to 1/2 of vested or presumed share.

Limit removed for trusts after October 2014

95
Q

Does the power to advance capital apply to beneficiary’s who are under 18?

A

Yes, but can’t give valid receipt so must be applied directly or do parents/guardian

96
Q

What’s some examples of breach of trust?

A

Failure to invest
Failure to take advice on investment or consider investment criteria
Distributing funds to wrong B
Failure to keep trust property under joint control
Failure to act impartially

97
Q

Are trustees liable to beneficiaries for breach of trust?

A

Yes, Ba may bring a personal claim against trustee for losses arising from breach of trust.

B have burden of proving loss. If no loss, escape liability.

98
Q

Are trustees vicariously liable?

A

Not for acts of co trustees. Only trustee in breach liable. But may have committed another breach eg failure to supervise actions of trustee in breach or keeping property in trustees control.

99
Q

If more than one trustee in breach, is their liability joint?

A

Yes joint and several. B can sue any of trustee in breach for whole loss. Trustee will then try and recoup from others if possible.

100
Q

Are there any defences available to trustees for breach of trust?

A

Yes.

Consent of beneficiaries - if of full age and capacity and have full knowledge of all material facts, can consent and may not later sue for that breach. If one B consents but others dont, trustee will be liable for losses to Bs that didn’t consent

101
Q

What is the limitation period for claim against a trustee?

A

6 years. BUT:

Time doesn’t run for a B with interest in remainder until interest falls into possession

No lintisiton period if trustee party to fraud and

No limitation period in an action to recover trust property or proceeds from hands of trustee.

Trust instrument may exclude liability for breach. Strictly construed but enforceable if no bad faith, no intentional breach and no recklessness involved. Clauses absolving from liability for fraudulent breaches void.

102
Q

Is the court able to award relief from liability ?

A

Yes, in their discretion. If trustee acted honestly and reasonably and ought fairly to be excused. Rarely awarded. Eg acting reasonably - taking advice on a matter outside of expertise.

103
Q

What remedies can be awarded?

A

Liable to account - means obligation to pay money into trust to restore value.

Equitable compensation - beneficiary directly compensated. May be recoverable where no trust.

104
Q

What is tracing?

A

Process that allows for the recovery of property. Available where trust property or proceeds can be identified in hands of trustee. Proprietary claim can be made to the property.

105
Q

What are the benefits of tracing?

A

If trustee is insolvent, beneficiaries able to claim property ahead of other creditors.

If property or proceeds increased, can claim increase also.

106
Q

What is tracing?

A

Process in identifying trust property in hands of trustee.

Applies differently in different situations:

  • Trust property not mixed with other property
  • Assets purchased from mixed funds
  • Funds mixed with trustees own funds in account
  • Assets purchased from mixed funds of 2 trusts
  • Funds of 2 trusts mixed in bank account
107
Q

How is property traced/recovered where trust property is not mixed with other property?

A

If the original property in trustees hands, B’s can simply claim back.

If directly substituted for another asset, can claim that asset (and any increase in it) or a charge over the asset up to the amount of the loss.(Charge enables B to sell asset and taken proportion of proceeds) Eg T bought ring with trust money.

108
Q

How is property traced when asset is purchased from mixed fund?

A

If trustee combined own funds with trust funds and bought an asset, B can claim proportionate part of that asset or may claim w charge over the asset for the amount of trust property used.

109
Q

How is property traced when trust funds are mixed with trustees own funds in bank account?

A

B can claim a charge over account for amount of trust funds in it.

If trustee taken money out, basic rule is that trustee withdraws their own money first.

Exception - when trustee withdraws money to buy an asset then dissipates balance, B can claim share of asset or charge over it.

110
Q

How does tracing apply is assets purchased from mixed funds of two trusts?

A

Beneficiaries share proportionally

111
Q

How does tracing apply if trustee uses funds from 2 or more trusts in their personal banks account?

A

Depends on whether current account or savings account

Current account - first in first out rule. Deemed to use funds paid in first out first if used to buy assets.

If contrary to intentions of Claimant’s, impractical or unfair, or if beneficiaries agree, can use proportionate solution instead. Divide money proportionately. Fairer.

Savings account - proportionate solution used.

112
Q

Can beneficiaries bring a personal or proprietary action against a third party (stranger) to the trust?

A

Depends if conscious is affected.

If third party acquires legal title for value and without notice, takes free of equitable interest - equities darling.

If property came into possession of innocent volunteer (wasn’t aware of breach, no knowledge or suspicion) who didn’t pay for the property, B’s cannot bring a personal claim. But may be able to make a proprietary claim using equitable trading process.

Knowing recipient, will be treated as if they were a trustee. Can make proprietary claim and personal claim.

If third party facilitated breach, liable as if they are a trustee if their assistance was dishonest.

113
Q

Can property be recovered from possession of an innocent volunteer recipient?

A

If third part didn’t pay but had no knowledge or suspicion of breach of trust, can’t bring personal claim. May be able to bring proprietary claim to recover asset or product.

To establish right to trace, B must show:
1) that property was subject of fiduciary relationship
2) property or product identifiable using equitable tracing rules and
3) the property is not in the hands of a bona fide purchaser for value without notice

114
Q

How do tracing rules apply to innocent volunteer recipient?

A

If property in possession or directly substituted, can take asset back.

If asset purchased from mix of trust funds and own funds, may claim proportionate share of asset. No option to claim charge over it. Losses shared proportionately.

If trust funds mixed with volunteers in bank, depends on whether current account or savings. Current = first in first out rule, savings = proportionate solution court prefers as more equitable.

115
Q

Can dissipated funds be traced?

A

No

116
Q

What happens when the third party was a knowing recipient?

A

Treated as if they were a trustee.

117
Q

What must the claimant show to 3rd party had sufficient knowledge to make it unconscionable for recipient to retain property?

A

Found if recipients knowledge falls into one of following categories:
- actual knowledge
- wilfully closing eyes to obvious
- wilfully and recklessly failing to make inquiries as honest and reasonable person would make
- knowledge of circumstances which would indicate facts to honest and reasonable person or
- knowledge of circumstances that would put honest and reasonable person on inquiry.

118
Q

What claims can be made against a knowing recipient?

A

Treated in equity as constructive trustee.

Personally liable to make good trust to Bs - personal claim.

Tracing rules apply to identify trust property or product in hands - proprietary claim.

Charge or asset can be reclaimed.

119
Q

What is a dishonest accessory?

A

Third part who facilitated breach. Only liable if assistance was dishonest.

Positive act of assistance required. But passive assistance may suffice. Eg keeping quiet.

Dishonest = conscious impriety, not acting as honest person would have in circumstances. No need to know participating in breach of trust just that was illegal.

120
Q

What claims can be bought against a dishonest accessory?

A

Treated as constructive trustee.

Can sue personally for losses arising from breach.

Proprietary claim not relevant as unlikely to have trust property.

121
Q

What are some features of equitable remedies?

A

Discretionary
Must be no adequate remedy at common law
Enforcement must be feasible

122
Q

What are some defences to equitable remedies?

A

Inequitable conduct
Laches - delay

123
Q

When does a class close?

A

Generally, a class closes-to the exclusion of any potential beneficiary not then living-when at least one beneficiary has a vested interest. When there is a contingent gift, the class closes at the date of the testator’s death if there is any living beneficiary who has met the condition. If there is no beneficiary who meets the condition, the class remains open until the first beneficiary does.

SQE1 (23 decks)

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