Trusts Flashcards
Who has legal ownership over trust property?
Trustee
Who has beneficial interest under a trust?
Beneficiary
What is an express trust?
A trust somebody purposefully created
What is a testamentary trust?
One set up in a will
What is an intervivos tryst?
The settlor still retains benefits of the assets in the trust during their lifetime
Either they are also a beneficiary or they are the trustee of their own trust
What is a fixed trust?
Distribution is decided and laid out by the trustee already
What is a discretionary trust?
Trustee can decide how to distribute the property
What is a charitable purpose trust?
Created for the public benefit
What is a non-charitable purpose trust?
Usually some sort of charitable endeavour that doesn’t fall into the definition of charitable trust
E.G., looking after an animal after you have died
What is a bare trust?
Trustee holds legal title for the beneficiary but has now power and MUST follow the instructions of the beneficiary
What is the perpetuity rule?
Prevents trusts lasting longer than 125 years
What is an implied trust otherwise known as?
Trusts arising by operation of law
Resulting/constructive
What are the 2 methods of creating express trusts?
Self-declaration
Transfer on trust
What happens in terms of ownership when you make a self-declaration of trust?
Settlor retains legal title
New equitable title is created
Beneficial ownership transfers to the beneficiary
What happens ownership-wise when you make an express trust via transfer on trust?
Settlor transfers legal title to third party
Settlor ceases to have any interest
New equitable title is created
Beneficial ownership is transferred to the beneficiary
What are the 3 certainties?
Intention
Subject Matter
Objects
What are the requirements for creation of express trusts
Certainty of intention
Beneficiary principle
Perpetuity rules
Registration – Online Trusts Registration Service (TRS)
Formalities
- Declaration of trust
- Constitution of trusts
What is the beneficiary principle?
Objects of trust must be legal persons (incl. companies)
*Without identifiable objects or beneficiaries, there is nobody who can enforce the trust
What are the 2 exceptions to the beneficiary principle?
Charitable and Non-Charitable
Which type of trust is exempt from the perpetuity rules?
Charitable
What are the 3 types of implied trust?
Constructive
Resulting
Statutory
What is the difference in formalities between a self-declaration express trust and a transfer on trust?
Declaration: only have to consider whether there are any obligations for that type of trust, e.g., in writing
Transfer: only comes into existence when the property is actual transferred into the trustees name (also called constitution)
What 2 types of resulting trusts are there?
Automatic resulting
Presumed resulting
What 3 types of constructive trusts are there?
Institutional
As remedy
Common intention
When do automatic trusts arise?
When transfer on trust fails wholly or partly (e.g., failed for certainty)
E.G.,
Trustee is holding property on trust for the settlor
*Settlor has Saunders v Vautier rights
When does a presumed resulting trust arise?
When someone makes a “gift”, equity presumes they wanted that person to hold it on trust for them
Raises a rebuttable presumption
Must be evidence that it was intended to be a gift
What is an institutional constructive trust?
Arises when the conscience of a legal owner is effected in some way, preventing them from denying the beneficial interests of another person
e.g., prevent fraud, breach of fiduciary duty
In what 4 circumstances can institutional constructive trusts arise?
Prevent fraud
To perfect an imperfect gift or trust
To compel parties to perform a contract
Over profits made in breach of fiduciary duty
What is a constructive trust ‘as remedy’
A trust that is awarded by the court as a remedy to misapplication of property where the claimant can establish an equitable proprietary interest OR traceable proceeds
What is a common intention constructive trust?
Court assesses peoples common intention with a piece of property and uses that to assess their respective equitable interest in the land
(Often unmarried couples who own a house together and are splitting up)
What happens if trust property is destroyed?
Trust ceases to exist unless the trustee is at fault in which case they have to restore property
What is a quistclose trust?
A trust that arises when property has been transferred for a specified purpose but that purpose then fails.
What is the difference in the proprietary rights beneficiaries have of fixed trusts, and discretionary trusts?
Fixed:
- Equitable proprietary rights (vested/contingent)
- Can sell/transfer/assert rights against 3rd parties
Discretionary:
No proprietary rights technically
Can compel misapplied property to be returned
Do both fixed and discretionary trust beneficiaries have saunders/vautier rights?
Yes
What personal rights do objects of fixed trusts have?
Compel proper administration
To be informed of their entitlement once their interest has vested
What personal rights do discretionary objects have?
Ask court to ensure discretion is exercised
Be informed of entitlement, after discretion has been exercised for at least 1 object
Enforce proper administration of trust against the trustee
What is the definition of a successive interest trust?
A series of consecutive interests in trust property
What is a life-interest trust?
Type of successive interest
Object 1 gets income in lifetime
Object 2 gets capital after income object dies
MUST or MAY discretionary trustees exercise their discretion?
MUST
*in reasonable time
What is a power of appointment?
A right to choose who, from within a specified class of objects, receives property
Who is the donor? (power of appointment)
Person who confers the power
Who is the donee? (power of apt)
Person who receives the power
What is a fiduciary power of appointment?
Power of appointment given to a trustee
What obligations does a person with fiduciary power of appointment have?
Doesn’t need to exercise power but must periodically consider whether to do so
What is a personal power of appointment?
Power of apt given to somebody who isn’t a trustee
What obligations does a person with personal power of appointment have?
None, they don’t even have to consider exercising it
What 3 key features distinguish between a power of appointment and a discretionary trust?
WORDING:
MUST = discretionary
MAY = POA
POWER HOLDER IDENTITY
3rd party (not trustee) = POA
GIFT-OVER
= POA (because it means power doesn’t have to be exercised) (NOT DETERMINATIVE)
What does vested in interest mean?
Future right to enjoyment
What does vested in possession mean?
Current right to enjoyment
Who can trust property be transferred to under saunders/vautier?
Beneficiaries
3rd parties
Who can exercise saunders/vautier rights?
Adults
Sound mind
What is a contingent interest?
Conditional interest upon the occurrence of an event
How can saunders/vautier be exercised in a simple fixed trust?
Each beneficiary severs their share off capital without affecting the interests of others
How can saunders/vautier be exercised for complex trusts where shares are not severable?
All beneficiaries must be adults of sound mind
Unanimously agree to collapse
Includes beneficiaries with contingent interests and objects of discretionary trusts
What is the intention behind certainty of intention?
To impost or assume a duty which is characteristic of a trust
How is intention ascertained for certainty of intention?
Words and conduct
Will the court adopt an objective or subjective approach to certainty of intention?
Objective
What factors can be looked at when interpreting certainty of intention from written documents?
Natural and ordinary meaning
Relevant/contextual features
Facts known by the author when created
Common sense
How is use of the word ‘trust’ analysed when looking for certainty of intention?
Good indicator
Not determinative
Not necessary
What are the 2 requirements under certainty of subject matter?
Possible to identify trust property
Possible to ascertain beneficiary interest in the trust property
What is the difference between fungible and non-fungible assets?
Fungible = exchangeable (identical)
Non-fungible = aren’t EXACTLY the same, cannot be exchanged
For what types of asset, can you declare a trust over a specified number of things in a wider bulk, without specifying exactly which items those are? (e.g., 10 of x in my collection)
Intangible, fungible assets
E.G., ordinary shares
What is the difference between tangible and intangible assets?
Tangible = physical things: cash, diamonds
Intangible = conceptual things: shares, debts, property rights
Will a trust be void for certainty of subject matter if it says ‘reasonable income?’
No
What test do you use to determine certainty of objects in fixed trusts?
Complete list test
(must have conceptual and evidential certainty)
What test do you use to determine certainty of objects for discretionary trusts and fiduciary powers?
is/is not test
(must have conceptual certainty but can accommodate some evidential uncertainty)
What fails for administrative unworkability?
Discretionary trusts
NOT
Fiduciary power
What is conceptual certainty?
Linguistic certainty
Precision of language in defining a class
What is evidential certainty?
Extent to which evidence in a case enables trustees to identify the objects of the trust
Must a POA also satisfy certainty of objects to be valid?
Yes
Why do discretionary trusts fail for administrative unworkability?
Because the class of objects is so large that it can’t really be a class
What is the difference between ‘half the bottles in my wine cellar’ and 50% of the wine in my cellar?
Half the bottles isn’t possible because which half? Maybe some are corked? Some are worth more money?
50% gives an interest in all of the bottles so it is valid
What formalities should you consider for an inter vivos trust?
Is subject matter land? – must consider requirements under s53(1)b LPA 1925
Other: can be orally, in writing or conduct
What is the consequence for a failed declaration of an inter vivos trust of land?
The trust won’t be enforceable
What is the consequence of a failed self-declaration of trust?
Will have no effect
What is meant by constituting a trust?
Transferring the property to the trustee
What is the rule in Milroy and Lord?
Equity will not perfect an imperfect gift
- Will not treat an intended gift as a self-declaration of trust
- Will not treat a failure to constitute a trust as a self-declaration of trust
What is the formalities for declaring a trust of land under s53 of the LPA?
In writing
By person or by will
What are the exceptions to Milroy/Lord?
Re: Rose
Unconscionable principle
Strong v Bird
Donatio Mortis Causa
What is the re:rose exception to milroy v lord (that equity will not perfect and imperfect gift?
Correct method
Transferor did everything in their power
Or put it beyond their own control
IF SO: equity will impose a constructive trust for the transferee
What is the unconscionable principle for equity perfecting a gift?
Court will do it if unconscionable
Look for: if a transferor died, and the transferee was appointed as PR – apply Strong v Bird
What is the Strong v Bird exception to Milroy v Lord?
Intention to create an immediate gift
Intention continues until death
Transferee is a PR
(when the property is transferred to the PR, it ‘perfects’ the gift)
What is the donatio mortis cause exception to Milroy v Lord?
Intended to make a conditional gift on death (not immediate gift like for Strongbird)
In contemplation of death (of a specific cause)
Actual/constructive delivery of the property
What are the 3 conditions for a purpose trust?
Charitable purpose
Public benefit
Wholly and exclusively charitable
What are the 3 types of non-charitable purpose trusts?
Endacott
Closed class
Narrowly construed
What are the 12(13) recognised types of charitable trust?
Poverty
Education
Religion
Health/save lives
Advance citizenship/community development
Art, culture, heritage, science
Amateur sport
Human rights, conflict, equality, diversity, harmony
Environment
Youth, age, ill-health, disability, financial hardship and other disadvantages
Animal wellfare
Armed forces, police, fire, rescue, ambulance
General purpose/catchall
What are the 2 most important considerations when looking at whether a charitable purpose trust is for public benefit?
Can’t exclude the poor
Can’t be limited to a narrow class of private individuals
Can charitable purpose trusts have a mix of charitable and non-charitable purposes?
No, unless the non-charitable portion is ancillary to the charitable purpose
What happens if a charitable purpose trust is failed to be created properly?
Cy-pres
What happens if a non-charitable purpose trust is failed to be created correctly?
Resulting trust
What is the difference between establishing certainty for a charitable vs non-charitable trust?
Non-charitable will fail for certainty, like all other trusts
Charitable does not have to be certain… just needs to be clear that there is charitable INTENT, in which case the trustee can decide what charity to donate to etc
What is the cy-pres doctrine?
If there is a failed charitable trust, then the property can be applied to a different charitable purpose
What is the perpetuity rule for charitable trusts?
Statutory
Trust property must vest in the charity within 125 years
OR if a gift to charity:
Within 125 years of giving that gift
Can charitable purpose trusts continue indefinitely?
Yes
What is perpetuity for non-charitable purpose trusts?
Must be limited to 21 years, and this can be extended to life in being (e.g., life of the king)
What is the difference between enforceability of charitable purpose vs non-charitable purpose trusts?
Charitable: enforceable by the charity commission
Non-charitable: not enforceable, trustees are usually required to give an undertaking, if they don’t comply then the residual beneficiaries under the will get the property
What are the differences that apply to charitable trusts vs all other trusts?
- Don’t have to comply with beneficiary principle
- Flexible certainty of objects (only needs to certainly be for charity)
- No limit on duration
- Cy-pres doctrine
- Tax benefits
What is the test to decide whether a charitable trust is for public benefit?
Beneficiaries cannot be negligible in number
Quality distinguishing them from others cannot be a quality that depends on their relationship with another individual
What type of charitable cause will never be eligible as a charitable trust?
Political
What 4 types of charitable purpose trust have slightly different public benefit rules?
Poverty
Education
Religion
Human rights
How is a charitable trust for poverty different in terms of public benefit test?
Class can be defined by reference to a particular person
BUT
Benefit must still be for a particular description of poor persons, not particular poor persons
How is a charitable trust for education different in terms of public benefit test?
Fee paying schools aren’t for public benefit but they are still a charitable purpose as long as they have some token of accessibility for the poor
How is a charitable trust for religion different in terms of public benefit test?
Public benefit must be proved in each case
E.G., to specific nuns in a house won’t count despite it being religious but to a synagogue benefitting wide community would
How is a charitable trust for human rights different in terms of public benefit test?
It walks the line with
Trust for political objectives (is not valid)
VS
Trust doing political activity as a means to achieving a charitable end (is valid)
On what 5 grounds can the cypres doctrine to apply?
OG purpose cannot be fulfilled/carried out
OG funds are not spend (SURPLUS)
Property from similar trusts can be combined for more effective use
Area/class of persons no longer exists/is suitable
Purpose has been:
- adequately provided for by other means
- ceased to be charitable in law
- ceased to provide suitable/effective method of using the property
What are the endacott exceptions for non-charitable purpose trusts?
Maintenance of particular animals
Monuments and graves
Private masses
How do class closing rules work?
If the class isn’t certain, it will close at the end of the perpetuity period
Do resulting trusts apply to family homes?
No
What does an automatic resulting trust arise?
Failure to create valid trust or partial failure
When do presumed resulting trusts arise?
Gratuitous transfers
Person pays all/part of purchase price (NOT family home)
What trust creation failures don’t lead to resulting trusts?
Trust fails due to lack of constitution (settlor always had, and still has the property)
What are the 2 most common instances of partial trust failures leading to automatic resulting trusts?
Failure to vest within 125 years and no gift over
Purpose of non-charitable purpose can no longer be carried out (pet died)
What is the presumption of advancement?
Where a resulting trust does not arise because of a relationship between the transferor and transferee
It gives rise instead to the presumption of advancement
Means that the transfer was intended as a gift
In what 3 circumstances is there a presumption of advancement?
From husband to wife (and fiances) (BUT ONLY THE MAN TO THE WOMAN)
Parent to child (INCL. ADULT CHILD)
Person in loco parentis to a minor child
What is the starting point in family homes cases?
Equitable title reflects legal title
Where there is sole legal ownership, what does a person have to prove to establish a claim in a family home?
That they acquired an intention under a common intention constructive trust
- There was common intention for family home
- They detrimentally relief on it
In joint legal ownership cases, somebody trying to establish that somebody else doesn’t have an interest in the family home has to prove what?
Rebut the presumption of joint equitable ownership by showing
- Intention was to own separately
- Detrimental reliance on that fact
What does the statement ‘intention can be ambulatory’ mean?
Circumstances change… beneficial interest in a family home can be established after acquisition etc
What is the courts approach to quantifying equitable interest once interest in a family home has been established?
Whole course of conduct
What is proprietary estoppel?
Whereby a claimant informally acquires property rights
What are the 3 elements to a proprietary estoppel claim?
Assurance was made
Relied on
Detrimentally
Is unconscionable
What characteristics must an assurance have to satisfy proprietary estoppel?
A right in or over an identified property
What is the test for reliance in proprietary estoppel claims?
There is a sufficient link between the defendants assurance and the claimants detrimental conduct
How does the court approach assessing detriment for the purposes of proprietary estoppel?
Very widely
What is the test for unconscionability in proprietary estoppel claims?
Shock the court
**very rarely are cases thrown out for this. Court is easily shocked.
What are the Guest Guidelines for remedies available for proprietary estoppel?
Remedy does not exceed expectation
Satisfying the expectation is usually most fair way of resolving the unconscionable thing
If not possible/satisfactory, monetary equivalent of what claimant was promised
If more than 1 remedy exists, claimant can choose
Can all trustees be paid?
Only professionals
How many trustees should you have?
Best is at least 2
Usually max 4
What is the irreducible core of trustee duties?
Act honestly and in good faith for the benefits of the beneficiaries
What happens if the trustee chosen in a self-declared trust?
Trust instrument could contain an express power
If not, or cannot be exercised, the disclaiming trustee can appoint their replacement
What happens in a testamentary trust, if somebody won’t/can’t act as trustee?
Renouncers can appoint new trustees of their choice
Deceased 3rd party then the PR’s temporarily become trustees and then they have the power of appointment
Disclaiming trustee refusing to appoint: PR’s can choose
Does a living settlor have power to name replacement trustees?
No
In what 5 ways can new trustees of already existing trusts be appointed?
Express powers in instrument
Current or outgoing trustees rely on their statutory power to appoint
Beneficiaries, using Saunders/Vautier to give title over to new trustee
By Charity Commission (for charitable trusts only)
By court
What is the key operational difference between trustee powers and trustee duties?
Powers are permissive MAY
Duties are mandatory MUST
From what sources do trustee powers come from?
Trust instrument
Statute (TA 1925, TA 2000)
What are the 2 broad categories of trustee powers/duties?
Administrative (management and protection of trust property)
Dispositive (giving property to objects)
What is the difference between breaching a fiduciary duty and other duties?
It is a different cause of action, with different remedies
What are the 3 main statutory powers set out in TA 2000?
Investment
Acquire land
Delegation
What must a trustee consider before exercising their power of investment?
Consider the investment criteria in TA 2OOO
Take advice in accordance with TA 2000
Can DOC be excluded with regards to power of investment?
Yes, in the trust instrument
What are the standard investment criteria under TA 2000?
Suitability
1. Is the investment of a suitable kind? (land)
2. Is this particular investment suitable? (that piece of land)
Diversification
What principles are there for suitable investments a trustee can make?
Best interest of beneficiaries
Balance interests of beneficiaries
Personal views of trustees are not relevant
Best interests can be wide, and include moral/ethical conundrums with certain investments if all beneficiaries agree
Trusts are not bound to follow investment advice, but they can’t ignore it because they personally disagree
What is ‘proper advice’ for a trustee exercising the power of investment?
Provided by a person who is reasonably believed by the trustee to be qualified to give it
To what circumstances the statutory DOC apply to trustees?
Only to the statutory duties in TA 2000
What is the statutory duty of care in TA 2000?
Reasonable care and skill
- special knowledge/experience
- professional trustees
What is the common law DOC for trustees?
Wider, requires trustees to exercise standard of diligence/care expected of an ordinary prudent business person
Which powers can trustees delegate?
Everything except dispositive ones
NOT to beneficiaries
Investment power delegation must be in writing
