TRUSTS

Question 1

True or False: A trustee can apply trust property exclusively for their own benefit.

False

True

Answer 1

False

A trustee is under a duty to apply trust property for the benefit of the beneficiaries.

Question 2

A CREST member is the registered owner of 100,000 shares in BT Group plc. It holds 50,000 of those shares for a broker. The broker acquired its interest in the 50,000 shares on behalf of a private investor.

Which one of the following statements is a correct description of the private investor’s position in relation to the 50,000 shares?

The investor is the legal owner of the shares.

The investor has a legal and equitable interest in the shares.

The investor does not have any interest in the shares.

The investor has an equitable interest in the shares but not the beneficial interest.

The investor has an equitable and beneficial interest in the shares.

Answer 2

The investor has an equitable and beneficial interest in the shares.

The CREST member is the legal owner of the shares. The broker has an equitable interest in the shares but no beneficial interest. The investor has an equitable and beneficial interest in the shares.

Question 3

A trustee holds £50,000 on trust for a beneficiary. The trustee misapplies £10,000 of the trust money and gifts it to the local priest. The priest does not know that the £10,000 is trust money. The trustee misapplies another £10,000 of the trust money and purchases a car with the money. The seller knows that the money paid by the trustee is misapplied trust money. The trustee is made bankrupt.

Which one of the following statements is a correct description of the beneficiary’s rights?

The beneficiary does not have an equitable proprietary interest in the £30,000 held by the trustee, in the £10,000 given to the priest, or in the £10,000 paid to the seller.

The beneficiary has an equitable proprietary interest in the £30,000 held by the trustee, in the £10,000 given to the priest, and in the £10,000 paid to the purchaser.

The equitable proprietary interest which the beneficiary has in any assets held by the trustee will be subordinated to the claims of the trustee’s creditors.

The beneficiary has an equitable proprietary interest in the £30,000 held by the trustee but not in the £10,000 given to the priest or the £10,000 paid to the purchaser.

The beneficiary has an equitable proprietary interest in the £30,000 held by the trustee and in the £10,000 given to the priest, but not in the £10,000 paid to the purchaser.

Answer 3

The beneficiary has an equitable proprietary interest in the £30,000 held by the trustee, in the £10,000 given to the priest, and in the £10,000 paid to the purchaser.

The beneficiary of a trust has an equitable proprietary interest in the trust property which can be enforced against everyone except a purchaser of a legal interest who does not have notice of the trust. The priest is not a purchaser. The seller has notice of the trust.

Question 4

True or False: The full legal owner of an asset has an equitable interest in the asset.

False

True

Answer 4

False

The full legal owner of an asset has only a legal interest in the asset.

Question 5

A man holds shares on trust for a beneficiary. He is also the bailee of some goods. His house is subject to a legal charge and an equitable charge in favour of two of his creditors. He also has a number of unsecured creditors. The man is made bankrupt.

Who is likely to be most prejudicially affected by the man’s bankruptcy?

The bailor of the goods.

The legal chargee.

The equitable chargee.

The beneficiary of the trust.

The unsecured creditors.

Answer 5

The unsecured creditors.

An unsecured creditor has a personal right against their debtor. Unlike property rights, personal rights do not enjoy ‘priority’ in the event of the debtor’s bankruptcy.

A bailor has a legal proprietary interest in the bailed goods. Generally, legal proprietary interests can be enforced against everyone. A beneficiary of a trust has an equitable proprietary interest in the trust property. Equitable proprietary interests can be enforced against everyone except a purchaser of a legal interest without notice.

Question 6

A woman holds shares on trust for a beneficiary. She is also the bailee of some goods. In breach of her duties to the beneficiary and to the bailor, the woman sells the shares and the goods (for their full market value). The purchaser believes that the woman is the full legal owner of the shares and the goods.

Which one of the following statements is a correct description of the beneficiary’s and the bailor’s position in relation to the purchaser?

The beneficiary cannot recover the shares from the purchaser and the bailor cannot recover the goods from the purchaser.

The beneficiary can recover the shares from the purchaser but the bailor cannot recover the goods from the purchaser

The bailor can recover the goods from the purchaser and the beneficiary can recover the shares from the purchaser.

The bailor can recover the goods from the purchaser but the beneficiary cannot recover the shares from the purchaser.

The purchaser is an agent for the beneficiary and the bailor.

Answer 6

The bailor can recover the goods from the purchaser but the beneficiary cannot recover the shares from the purchaser.

Question 7

True or false: A settlor can be the beneficiary of a trust they create

False

True

Answer 7

True
A settlor can become the beneficiary of a trust over property which they previously held as full legal owner. One way of doing this is to transfer property on trust to a third party trustee to hold on trust for the settlor.

Question 8

By his valid will, the testator made the following dispositions:

‘1. I give £10,000 to my solicitor to be applied for the benefit of my mother.

I give £10,000 to my wife absolutely, confident that she will do right by our children.’
The executors of the testator’s will have paid £10,000 to his widow and £10,000 to his solicitor.

Which one of the following statements is correct?

The solicitor and the widow are the full legal owners of the money.

The solicitor holds the money on trust for the testator’s mother. The widow holds the money on trust for the testator’s children.

The widow holds the money on trust for the testator’s children. The solicitor is the full legal owner of the money.

The solicitor and the widow are the equitable owners of the money.

The solicitor holds the money on trust for the testator’s mother. The widow is the full legal owner of the money.

Answer 8

The solicitor holds the money on trust for the testator’s mother. The widow is the full legal owner of the money.

The testator has imposed a duty on the solicitor: the money is ‘to be’ applied for the testator’s mother. But the testator has not imposed a duty on the widow: the words ‘confident that she will’ are not imperative.

Question 9

True or false: Certainty of intention requires the settlor to understand that they are creating a trust.

True

False

Answer 9

False
Revisit your materials on Paul v Constance. The settlor does not even need to know what a trust is as long as their intention is consistent with the intention to create a the relationship which is characteristic of a trust.

Question 10

True or false: Only land and chattels can be held on trust.

True

False

Answer 10

False

Correct
Almost every asset and right can be held on trust. What was the subject matter of the trust in Hunter v Moss [1994] 1 WLR 452?

Question 11

The owner of 20 ordinary shares in a private company and 20 bars of gold bullion orally declares herself a trustee of 10 of the shares and 10 of the bars for a beneficiary. She does not segregate or otherwise identify the 10 shares or the 10 bars which are to form the subject matter of the trust.

Which one of the following statements best describes the effect of the declaration?

There is a valid trust of 10 shares and 20 bars.

There is a valid trust of 10 bars but no trust in respect of the shares.

There is a valid trust of 10 shares but no trust in respect of the bars.

There is a valid trust of 10 shares and 10 bars.

Neither the shares nor the bars are subject to a trust.

Answer 11

There is a valid trust of 10 shares but no trust in respect of the bars.

A person can declare a trust of x shares out of a larger number of such shares without identifying which x shares are to form the subject matter of the trust, provided that they are all shares of the same type and in the same company: Hunter v Moss [1994] 1 WLR 452. However, there is not a trust of any of the bullion because a person cannot declare a trust of x physical items out of a larger number of such items without identifying the particular x items which are to form the subject matter of the trust: In re Goldcorp [1995] 1 AC 74.

Question 12

By his valid will, the testator (deceased) made the following disposition:

‘I give to my trustees my favourite car on trust for my daughter, and the sum credited to my current bank account on trust to give most of it to my daughter and the balance to my son.’

There is no available evidence of which car was the testator’s favourite.

Which one of the following statements best describes the effect of the disposition?

The testator has created a valid trust of his favourite car but has not created a valid trust of the sum credited to his bank account.

The testator has not created a valid trust.

The testator has created a valid trust of his favourite car and of the sum credited to his bank account.

The testator has created a valid trust of the sum credited to his bank account but has not created a valid trust of a car.

The trustees are entitled to full legal ownership of a car and of the sum credited to the testator’s bank account.

Answer 12

The testator has not created a valid trust.

The intended trust of the car is void because it is not possible to identify which car was the testator’s favourite. The intended trust of the sum credited to the bank account is void because it is not possible to identify the beneficiaries’ beneficial entitlements – ‘most’ is too vague.

Question 13

A company transfers possession of its goods, but not its title to them, to a man. The company and the man agree that the man will try to sell the goods on behalf of the company and that he will return to the company any goods that he is unable to sell. They also agree that the man will pay the proceeds from any sales into a separate bank account and that he will transfer the sum credited to that account to the company at the end of each week. The man sells some of the goods. He pays the proceeds of sale into a separate bank account.

Which statement best describes the man’s relationship with the company?

The man is a bailee, an agent and a trustee for the company.

The man is a trustee for the company.

The man’s relationship with the company is not fiduciary in nature: it is merely contractual.

The man is a bailee for the company.

The man is an agent for the company.

Answer 13

The man is a bailee, an agent and a trustee for the company.

The man has possession of (but not title to) the company’s goods. This creates the relation of bailor and bailee. The man is authorised to sell goods on behalf of the company. This creates the relation of principal and agent. The man has paid the proceeds of sales into a separate bank account, which he must transfer to the company. This creates the relation of trustee and beneficiary.

Question 14

A man borrows £10,000 from a woman. They agree that the money can only be used by the man to renovate his house and for no other purpose. The man spends £5,000 of the money renovating his house and he gifts the remaining £5,000 to his son. The man’s son still has the £5,000.

Which statement best describes the woman’s rights?

The woman does not have any claims against the man or the son.

The woman has an equitable proprietary claim to the £5,000 held by the son.

The woman has an equitable proprietary claim to the £5,000 held by the son and an unsecured personal claim against the man.

The woman has an equitable proprietary claim to the £5,000 which was spent on the renovation works.

The woman has an unsecured personal claim against the man.

Answer 14

The woman has an equitable proprietary claim to the £5,000 held by the son and an unsecured personal claim against the man.

Since the man could only use the £10,000 to renovate his house, he held it on trust for the woman but had a power to apply it for the renovation works. The gift to the son was a breach of trust. Since the son provided no value for the £5,000, the woman can assert her equitable proprietary interest against him.

Question 15

By his valid will, the testator made the following disposition: ‘I give £10,000 to my trustees to be distributed between my children and my friends in such shares as my trustees shall determine.’ The executors of the testator’s will have paid £10,000 to the trustees.

Which one of the following describes the trustees’ position in relation to the £10,000?

The trustees hold the money on a resulting trust for the testator’s estate.

The trustees may keep the money for their own benefit.

The trustees must distribute the money amongst the testator’s children.

The trustees must distribute the money amongst the testator’s children and friends.

The trustees must distribute the money amongst the testator’s friends.

Answer 15

The trustees hold the money on a resulting trust for the testator’s estate.

The discretionary trust is void for uncertainty due to the inclusion of a conceptually uncertain term (‘friends’) in the description of the class of objects. As a result, the trustees hold the money on resulting trust for the testator’s estate.

Question 16

True or false: Evidential uncertainty in connection with the objects of a trust is fatal to all types of trust.

False

True

Answer 16

False
Although evidential uncertainty is fatal to some trusts – e.g. fixed trusts involving equal distribution amongst the members of a class – it is not fatal to all trusts: Re Baden’s Deed Trusts (No 2) [1973] Ch 9.

Question 17

By his valid will, the testator made the following disposition: ‘I give £10,000 to my trustees. £5,000 is to be distributed to my children, and £5,000 is to be distributed to British men, in such shares as my trustees shall determine.’ The executors of the testator’s will have paid £10,000 to the trustees.

Which one of the following describes the trustees’ position in relation to the £10,000?

The trustees hold £5,000 on discretionary trust for the testator’s children. They may keep the other £5,000 for their own benefit.

The trustees hold £5,000 on discretionary trust for the testator’s children and £5,000 on discretionary trust for British men.

The trustees hold £10,000 on resulting trust for the testator’s estate.

The trustees hold £5,000 on discretionary trust for British men and £5,000 on resulting trust for the testator’s estate.

The trustees hold £5,000 on discretionary trust for the testator’s children and £5,000 on resulting trust for the testator’s estate.

Answer 17

The trustees hold £5,000 on discretionary trust for the testator’s children and £5,000 on resulting trust for the testator’s estate.

The discretionary trust for the children is valid but the discretionary trust for British men is void for administrative unworkability, because the class of objects is too large. As a result, the trustees hold £5,000 on resulting trust for the testator’s estate.

Question 18

True or false: The trustees of a fixed trust have a distributive discretion.

False

True

Answer 18

False

The trustees of a fixed trust have no discretion in relation to the distribution of the trust property. They must distribute as directed by the settlor.

Question 19

True or false: The objects of a discretionary trust have proprietary rights in the trust property.

False

True

Answer 19

False

The objects of a discretionary trust are only potential beneficiaries. They have no equitable interest in the trust property until the discretion is exercised in their favour.

Question 20

A trustee holds property on trust for the settlor’s wife for life, remainder to the settlor’s daughter.

Match the beneficiaries with the description of their beneficial entitlement.

Answer 20

Wife: Entitled to income immediately

Daughter: Entitled to capital when life interest ceases

The wife has an interest in the income during her lifetime but no interest in the capital. The daughter has an interest in the capital but is only entitled to this once the wife’s life interest ceases (i.e. the wife dies). The daughter’s interest is not contingent. If the daughter dies before the wife, the capital passes to the daughter’s estate on the wife’s death.

Question 21

Match the arrangements with their description.

My trustees must hold the trust fund for my children in equal shares. During the trust period, my trustees may pay any or all of the trust fund to such of my wife and children as they see fit.

Answer 21

fiduciary power (coupled with a trust)

Question 22

My trustees must hold the trust fund for my children in equal shares.

Answer 22

fixed trust

Question 23

My trustees must distribute the trust fund between such of my children as my wife may determine within 12 months of my death and, if no such determination is made, in equal shares.

Answer 23

personal power (coupled with a trust)

Question 24

My trustees must distribute the trust fund between such of my children as they, in their absolute discretion, determine.

Answer 24

discretionary trust

Question 25

A trustee holds property on trust for A for life, remainder to the first of B and C to get married and, if neither marries, to charity. Which one of the following is correct: A’s interest is vested in possession. B and C’s interests are contingent. A’s interest is vested in interest. B and C’s interests are contingent. A, B and C’s interests are all vested in possession. A’s interest is vested in possession. B and C’s interests are vested in interest. A, B and C’s interests are all vested in interest.

Answer 25

A’s interest is vested in possession. B and C’s interests are contingent. A has a vested interest in the income. Each of B and C has a contingent interest in the capital. They must marry before the other for their interest to vest. It is not guaranteed that either will do so, hence the gift-over.

Question 26

A trustee holds property on trust for A for life, remainder to B (age 18) and C (age 16). A, B and C (all of whom are of sound mind) wish to use the rule in Saunders v Vautier to collapse the trust and divide the property equally between them. Which one of the following is correct: A cannot exercise Saunders v Vautier because they do not have a right to the capital. B and C must wait until A dies before they can collapse the trust. A, B and C cannot collapse the trust until C reaches the age of 18. A and B can take their shares of the trust property now. C must wait until they reach the age of 18. A, B and C can collapse the trust and share the property equally now. A can exercise Saunders v Vautier immediately because their interest is vested in possession. B and C cannot exercise Saunders v Vautier until their interests vest in possession.

Answer 26

A, B and C cannot collapse the trust until C reaches the age of 18. C is not yet an adult so cannot exercise Saunders v Vautier rights. Due to the nature of the trust, it is not possible to sever A and B’s shares.

Question 27

True or false: Saunders v Vautier rights can only ever be exercised by beneficiaries with indefeasible, vested interests. True False

Answer 27

False There are other situations where it is possible to exercise Saunders v Vautier rights but it is necessary for agreement between all the beneficiaries.

Question 28

True or false: Trustees must provide beneficiaries with reasons for the way they have exercised their powers. True False

Answer 28

False Trustees have no obligation to provide reasons for the exercise of their powers.

Question 29

A trustee holds a trust fund on trust for A for life, remainder to B and C in equal shares. The trustee is considering how to invest the trust fund. What should the trustee be trying to achieve from their investment strategy? Capital growth only Income and capital growth Income only

Answer 29

Income and capital growth The trustee must attempt to strike a fair balance between the life tenant who is entitled to the income and the remaindermen who are entitled to the capital.

Question 30

Which of the following is a dispositive power of trustees? Power to charge trust property Power to sell trust property Power of delegation Power of investment Power of appointment

Answer 30

Power of appointment A power of appointment involves making a decision as to the distribution of property. This is a dispositive power.

Question 31

A trustee of a life interest trust decides that they will invest £500,000 of trust money in a property for the life tenant to live in. The trustee decides to buy a property in the north of France, where the life tenant is currently living. The trust instrument does not contain any express provisions relating to the acquisition of land. True or false: The trustee has acted in breach of trust. False True

Answer 31

True | The land is abroad and therefore is not an authorised investment. See section 8 Trustee Act 2000.

Question 32

A trust fund is worth £500,000. It has two trustees, who are both property lawyers. The trustees decide to invest £50,000 of trust money in company shares. They discuss the matter together and decide to make the investment. The trust instrument does not contain any express provisions relating to investment. Which ONE of the following best describes the position? The trustees have breached their statutory duties because they have not obtained proper advice with regards to the investment. The trustees have breached their statutory duties because they have not diversified their investments The trustees have breached their statutory duties because company shares are not a suitable investment for this trust fund. The trustees have not breached their statutory duties because they have a statutory power to invest in company shares. The trustees have breached their statutory duties because they do not have the power to make this kind of investment.

Answer 32

The trustees have breached their statutory duties because they have not obtained proper advice with regards to the investment. The trustees are required to take proper advice in accordance with section 5 Trustee Act 2000 unless they reasonably consider it unnecessary to do so in the circumstances. There is nothing in the fact pattern that suggests that this is an investment where it would not be necessary to take advice.

Question 33

Which of the following powers are trustees permitted to delegate using their statutory powers of delegation? Powers of investment and powers to acquire land Powers to distribute property to trust beneficiaries only Powers to acquire land and powers to distribute trust property to beneficiaries Powers of investment only Powers of investment and powers to distribute trust property to beneficiaries

Answer 33

Powers of investment and powers to acquire land Trustees can delegate their powers of investment and powers to acquire land but cannot delegate their powers to distribute property to a beneficiary.

Question 34

Ten years ago, a trustee used money from a trust fund to purchase a house for themselves. The beneficiary has only just discovered the breach. True or false: The beneficiary cannot recover the trust property because the limitation period has expired False True

Answer 34

False This would be a proprietary claim (for the trust property itself), rather than a personal one and therefore would not be subject to the limitation rules. This may also be considered a fraudulent act.

Question 35

A trust has three trustees. One of the trustees is a solicitor, another a doctor and the third is an accountant. The solicitor is a director of the company in which the trust has a significant shareholding. The solicitor has not attended board meetings for some time and, as a result, was unaware of a number of poor business decisions which were made by the board. The value of the company shares has decreased significantly as a result of these decisions. The company accounts have been circulated to the three trustees on an annual basis. It has been very clear from the accounts that the company has been in financial difficulties for several years and that the share value has been decreasing year on year. The trustees have not taken any action to try and improve the position of the company or sell the shares. Which of the trustees is likely to be found liable for breach of trust? Only the solicitor and accountant Only the solicitor All three trustees Only the accountant None of the trustees

Answer 35

All three trustees This is the most likely outcome. All the trustees have failed to properly monitor the investment in the company shares. Although the solicitor may appear more culpable than the others (and the accountant could be expected to have a better understanding of the accounts) none of them has exercised the requisite standard of care and skill in respect of this investment. All had access to the accounts and should have reviewed them.

Question 36

A trustee holds a fund on trust for A for life, remainder to B (18) and C(12). A wants the trustee to purchase land in Spain for A to live in. The trust instrument does not give the trustee the power to acquire land overseas. Which of the following represents the best advice to the trustee? The trustee can purchase the land in Spain as long as they obtain the fully informed consent of A and B. C’s consent is not needed because they are a minor. The trustee can purchase the land in Spain as they have A’s consent. B and C’s consent are not needed because their interests have not yet vested in possession. The trustee can purchase the land in Spain as long as they obtain proper advice and are confident it is a suitable acquisition which is in the interests of all the beneficiaries. Although purchasing the land is unauthorised, the trustee should not worry about this as they will only be liable to compensate the trust fund if the breach causes a loss. The trustee should not purchase the land in Spain. It is not permitted by the terms of the trust and obtaining A’s consent is insufficient to prevent the trustee being liable for breach of trust. The trustee can purchase the land in Spain as long as they obtain the fully informed consent of all three beneficiaries.

Answer 36

The trustee should not purchase the land in Spain. It is not permitted by the terms of the trust and obtaining A’s consent is insufficient to prevent the trustee being liable for breach of trust. This is an unauthorised investment and would require the fully informed consent of all beneficiaries. C cannot consent.

Question 37

A woman recently died. Her valid will contains the following clauses: I give £50,000 to my trustees to be distributed between my children in equal shares. I give £50,000 to my trustees to be distributed between such of my children and in such proportions as my wife may determine and, if no such direction is made within five years of my death, to the homelessness charity Shelter. Which one of the following statements best describes the effect of the provisions in clauses 1 and 2? Clauses 1 and 2 are both fixed trusts. Clause 1 is a fixed trust. Clause 2 is a discretionary trust. Clauses 1 and 2 are both discretionary trusts. Clause 1 is a fixed trust. Clause 2 is a fixed trust with a power of appointment exercisable by the woman’s wife. Clause 1 is a discretionary trust. Clause 2 is a fixed trust with a power of appointment exercisable by the woman’s wife.

Answer 37

Clause 1 is a fixed trust. Clause 2 is a fixed trust with a power of appointment exercisable by the woman’s wife.

Question 38

By the terms of a trust the trustee is instructed to pay the trust income to a man during his lifetime and, after the man’s death, to transfer the trust capital to a woman if she reaches the age of 25. The man is alive. The woman is aged 21. Which statement best describes the nature of the man’s and the woman’s rights? The man and the woman have contingent interests. The man and the woman together have the right to terminate the trust. The man has an interest in possession and the woman has a contingent interest in remainder. The man and the woman have interests in remainder. The man and the woman have interests in possession.

Answer 38

The man has an interest in possession and the woman has a contingent interest in remainder. The man has an immediate right to income. The woman’s interest is contingent because she is only entitled to the capital if she reaches the age of 25. Her interest is in remainder because she is only entitled to the capital after the man dies.

Question 39

A woman is the trustee of two trusts, Trust A and Trust B. The beneficiaries of Trust A are all capable adults with vested interests. Trust B has adult and child beneficiaries. Which statement best describes the beneficiaries’ rights? The beneficiaries of Trust A can terminate their trust. The beneficiaries of Trust B can terminate their trust but only if the trustee agrees The beneficiaries of Trust A can terminate their trust. The beneficiaries of Trust B cannot terminate their trust. The beneficiaries of Trust B can terminate their trust. The beneficiaries of Trust A cannot terminate their trust. The beneficiaries of Trust A and Trust B can terminate their respective trusts. The beneficiaries of Trust A and Trust B cannot terminate their respective trusts.

Answer 39

The beneficiaries of Trust A can terminate their trust. The beneficiaries of Trust B cannot terminate their trust. Beneficiaries can agree to terminate a trust if they are all capable adults who exhaust all possible claims to the trust property. The beneficiaries of Trust A satisfy these conditions but the beneficiaries of Trust B do not.

Question 40

By a valid will, a testator made the following disposition: “I give £10,000 to my wife absolutely, confident that she will do right by our children.” The testator’s executors have paid £10,000 to the widow. Which one of the following statements best describes the widow’s rights in relation to the £10,000? The widow holds the money on a discretionary trust for the children. The widow has a fiduciary power to appoint the money amongst the children. The widow is the full legal owner of the money. The widow holds the money on a fixed trust for the children. The widow has a personal power to appoint the money amongst the children.

Answer 40

The widow is the full legal owner of the money. This provision is most likely to be interpreted as an outright gift to the wife. There is no evidence she is intended to be a trustee. She is therefore the full legal owner of the money and can do with it as she chooses. (As full legal owner she, of course, has the power to pay it to the children but this does not mean she has a power of appointment )

Question 41

A woman recently died. By her valid will she gave £500,000 to trustees to hold on trust for her husband for life with remainder to such of their children and in such shares as her husband may select during his lifetime or by his will and, in default of selection, to such of their children who are living on the date of her husband’s death. Which statement best describes the husband’s position? He has a power in relation to the trust capital. He has a duty to appoint the trust capital. He is entitled to the trust income during his lifetime. His rights will be determined by the trustees. He is entitled to the trust income during his lifetime and has a power in relation to the trust capital.

Answer 41

He is entitled to the trust income during his lifetime and has a power in relation to the trust capital.

Question 42

A woman recently died. Her valid will contains the following clauses: ‘1. I give £10,000 to my trustees to be distributed amongst my children in such shares as my trustees shall determine. I give £10,000 to my trustees to pay an ample sum to my brother.’ Which statement best describes the status of the trusts in clauses 1 and 2? The trustees can determine whether the trusts are valid or void. The trusts in clauses 1 and 2 are void. The trust in clause 2 is valid but the trust in clause 1 is void. The trusts in clauses 1 and 2 are valid. The trust in clause 1 is valid but the trust in clause 2 is void.

Answer 42

The trust in clause 1 is valid but the trust in clause 2 is void. Certainty of subject matter comprises two requirements. The second requirement is the beneficial entitlement requirement: it must be possible to ascertain the nature and extent of the beneficiary’s interest in the trust property. In relation to clause 1, it is possible to ascertain the extent of each beneficiary’s interest by reference to the trustees’ determination. However, in relation to clause 2, it is not possible to ascertain the extent of each beneficiary’s interest because ‘ample sum’ is an uncertain measure. (How much is an ‘ample sum’?) As a result, the trust in clause 2 is void for uncertainty of subject matter.

Question 43

A woman declares a trust of three of her five paintings, and 100 of her 200 ordinary shares in a private company, in favour of a man. The woman does not segregate or otherwise identify the three paintings or the 100 shares to be held on trust. Which statement best describes the effect of the woman’s declaration? The woman holds 100 shares on trust for the beneficiary. She remains the full legal owner of the other 100 shares. She holds the paintings on a resulting trust for herself. The woman holds 100 shares and three paintings on trust for the man. She remains the full legal owner of the other 100 shares and two paintings. The woman does not hold any shares or paintings on trust for the man. She remains the full legal owner of all the shares and paintings. The woman holds 100 shares on trust for the man. She remains the full legal owner of the other 100 shares and all the paintings. The woman holds three paintings on trust for the man. She remains the full legal owner of the other two paintings and all the shares.

Answer 43

The woman holds 100 shares on trust for the man. She remains the full legal owner of the other 100 shares and all the paintings. Certainty of subject matter comprises two requirements. The first requirement is the trust property requirement: it must be possible to identify the trust property. The woman has failed to identify the three paintings to be held on trust and, as a result, it is not possible to identify the trust property. By contrast, the woman’s failure to identify the 100 shares to be held on trust is not fatal because a person can declare a valid trust of x of their (x+y) shares of the same type in the same company without identifying the x shares to be held on trust.

Question 44

A woman recently died. Her valid will contains the following clause: ‘I give £10,000 to my husband absolutely. I trust him to use it fairly vis-à-vis our children.’ The executor of the woman’s will has paid £10,000 to her husband. Which statement best describes the husband’s position in relation to the £10,000? The husband holds the money on a discretionary trust for the children. The husband holds the money on a fixed trust for the children. The husband is the full legal owner of the money. The husband holds the money on a fixed trust for himself and the children. The clause is void and the husband receives nothing.

Answer 44

The husband is the full legal owner of the money. The £10,000 is given to the husband ‘absolutely,’ which is consistent with a gift. The words ‘I trust him to’ are not sufficiently imperative to impose a duty (a trust) in relation to the money. This is supported by the fact that the content of any supposed duty – the ‘fair’ use of the money – is entirely vague.

Question 45

A settlement contains a discretionary trust and a fiduciary power. The objects of the discretionary trust are ‘all children living in the United Kingdom.’ The objects of the fiduciary power are ‘all adults living in the United Kingdom.’ Which statement best describes the status of the trust and the power? The trust and the power are void. The trustees can determine whether the trust and the power are valid. The power is valid but the trust is void. The trust and the power are valid. The trust is valid but the power is void.

Answer 45

The trust in clause 1 is valid but the trust in clause 2 is void. ? The power is valid but the trust is void.

Question 46

woman recently died. Her valid will contains the following clauses: ‘1. I give £10,000 to my trustees to distribute in equal shares amongst my biological children. I give £10,000 to my trustees to distribute in equal shares amongst persons who have a moral claim on me.’ Which statement best describes the status of the trusts in clauses 1 and 2? The trusts in clauses 1 and 2 are valid. The trust in clause 1 is valid but the trust in clause 2 is void. The trustees can determine whether the trusts are valid or void. The trusts in clauses 1 and 2 are void. The trust in clause 1 is void but the trust in clause 2 is valid.

Answer 46

Where a trust involves equal distribution among the members of a class, it must be possible to compile a complete list of the members of the class. Since the class in clause 2 – ‘persons who have a moral claim’ on the deceased – is conceptually uncertain, it is not possible to identify the members of the class. As a result, the trust in clause 2 is void for uncertainty of objects.

Question 47

Two trustees, A and B, hold a trust fund on trust for C, who is 12 years old. The trust fund includes a house which is currently unoccupied and not producing any rental income for the trust. A and B have decided to sell the house. A would like to buy it. The trust deed does not contain any provisions authorising trustees to purchase trust property. Which of the following is the most appropriate advice to A? A can’t buy the house but they could incorporate a company and use the company to buy the house instead. A can buy the house as long as they pay market value. A can buy the house if B agrees. A can buy the house if C’s parents agree. A cannot buy the house.

Answer 47

A cannot buy the house. Buying the house would be self-dealing. It is not authorised by the trust deed and the beneficiary is a minor so cannot provide consent.

Question 48

A trust has two trustees, A and B. The beneficiaries are minors. The trustees require legal advice on a tax issue which has arisen in relation to the trust. A is a partner at a law firm so B suggests that there is no need to obtain advice. A specialises in real estate and is not confident in providing tax advice so suggests instructing a tax partner at their firm. What is the best advice to the trustees? The trustees can obtain advice from A’s firm if A reasonably believes that their colleague is the best person to provide advice on this matter. The trustees can obtain advice from A’s colleague because A is not competent to advise on tax so it would be a breach of fiduciary duty to do so. The trustees should obtain fee quotations from several firms first. They can instruct A’s colleague if their fees are the lowest. The trustees can obtain advice from A’s firm because the advice is being given by a different solicitor so there would be no breach of fiduciary duty. The trustees should obtain advice from a different firm because A has a personal interest in this firm so it would be a breach of fiduciary duty to instruct them.

Answer 48

The trustees should obtain advice from a different firm because A has a personal interest in this firm so it would be a breach of fiduciary duty to instruct them. Instructing another partner at A’s firm would involve a conflict between A’s duties to the beneficiaries and A’s personal interest in the firm.

Question 49

In which of the following circumstances is it permissible for a trustee to make a profit out of their role as trustee? If the profit is either permitted by the terms of the trust or fully informed consent is provided by all the beneficiaries. Only if fully informed consent is provided by all the beneficiaries. Only If there is no conflict between the trustee’s personal interest and their duties to the beneficiaries. Only if the profit is permitted by the terms of the trust. If the profit is either permitted by the terms of the trust or fully informed consent is provided by all the beneficiaries and there is no conflict between the trustee’s personal interest and their duties to the beneficiaries

Answer 49

If the profit is either permitted by the terms of the trust or fully informed consent is provided by all the beneficiaries. The trust terms may authorise the trustee to make a profit. If the profit is not authorised, the trustee will need the fully informed consent of all the beneficiaries.

Question 50

In breach of trust, a trustee misapplies £100,000 of the trust fund. A solicitor dishonestly helps the trustee to misapply the money and move it offshore. Later, an accountant dishonestly helps the trustee to falsify the trust accounts. Which one of the following statements is correct? The accountant is liable as a dishonest assistant but the solicitor is not. Neither the accountant nor the solicitor is liable as a dishonest assistant. Beneficiaries can sue only trustees in connection with a breach of trust. Both the accountant and the solicitor are liable as dishonest assistants. The solicitor is liable as a dishonest assistant but the accountant is not.

Answer 50

Both the accountant and the solicitor are liable as dishonest assistants. Both the solicitor and the accountant assisted the trustee and did so dishonestly. It is irrelevant that the accountant assisted after the breach: it is sufficient that the accountant assisted the trustee to obfuscate the breach.

Question 51

True or false: For the purposes of dishonest assistance claims, the standard of dishonesty is objective. False True

Answer 51

True Dishonesty is an objective standard: Ivey v Genting Casinos (UK) Ltd (trading as Crockfords Club) [2017] UKSC 67.

Question 52

A company director commits a breach of fiduciary duty. The director is dishonestly assisted by an accountant. The breach causes the company a significant loss. The accountant makes a substantial profit as a result of the director’s breach. Which one of the following statements is correct? The accountant is liable for the profit if his participation in the breach was the real or effective cause of the profit. The company can only recover losses in connection with the director’s breach of fiduciary duty. The company cannot sue the accountant for dishonest assistance because only trust beneficiaries can bring that type of claim. The accountant is liable for the profit if his participation in the breach was a ‘but for’ cause of the profit. The company can only sue the director in connection with the breach of fiduciary duty.

Answer 52

The accountant is liable for the profit if his participation in the breach was the real or effective cause of the profit. A dishonest assistant is only liable for profits if his participation in the breach was the real or effective cause of the profit: Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908.

Question 53

True or false: Only trust beneficiaries can utilise the equitable tracing and claiming rules. True False

Answer 53

False The equitable tracing and claiming rules can be utilised by persons other than trust beneficiaries; for example, the beneficiaries of a deceased person’s estate and companies.

Question 54

Which of the following is not an asset over which a beneficiary may be able to make a claim? An asset purchased with a mixture of trustee money and money belonging to an innocent third party An asset purchased exclusively with the traceable proceeds of misapplied trust money An asset purchased with a mixture of misapplied trust money and the trustee’s own money An asset purchased exclusively with misapplied trust money An asset purchased with a mixture of misapplied trust money and money belonging to an innocent third party

Answer 54

An asset purchased with a mixture of trustee money and money belonging to an innocent third party The beneficiary has no right to make a proprietary claim over assets which do not represent the traceable proceeds of a breach of trust (or fiduciary duty)? All the other options involve the use of misapplied trust money, over which the Re Diplock conditions for tracing are satisfied.

Question 55

Which of the following is not an asset over which a beneficiary may be able to make a claim? An asset purchased with a mixture of trustee money and money belonging to an innocent third party An asset purchased exclusively with the traceable proceeds of misapplied trust money An asset purchased with a mixture of misapplied trust money and the trustee’s own money An asset purchased exclusively with misapplied trust money An asset purchased with a mixture of misapplied trust money and money belonging to an innocent third party

Answer 55

An asset purchased with a mixture of trustee money and money belonging to an innocent third party The beneficiary has no right to make a proprietary claim over assets which do not represent the traceable proceeds of a breach of trust (or fiduciary duty)? All the other options involve the use of misapplied trust money, over which the Re Diplock conditions for tracing are satisfied.

Question 56

True or false: When a trustee withdraws money from a current account containing a mixture of misapplied trust money and the trustee’s money, the basic rule is the ‘first in, first out’ rule. False True

Answer 56

False The first in, first out rule (from Clayton’s case) is not applicable to a wrongful mixture. The basic rule is found in the cases of Hallett and Oatway.

Question 57

A trustee takes £1,200 from a trust fund and pays it into their personal account, which already contains £600. The next day, the trustee withdraws £1,200 from the account and uses it to buy shares in a company. The trustee then withdraws £600 from the account and dissipates it. Which of the following represents the best advice to the beneficiary? The money in the account is shared rateably between the trustee and beneficiary. The trustee is treated as spending £400 of their own money and £800 of trust money on the shares. The money which was dissipated is attributed in the same proportions, meaning £200 of the dissipated money is trustee money and £400 is trust money. The money withdrawn from the account can all be treated as trust money but only if there are no competing creditors, meaning the trustee spent £1,200 on the shares and dissipated their own £600. If there are competing creditors, the first £600 withdrawn from the account must be treated as the trustee’s own money, meaning the trustee spent £600 of their own money and £600 of trust money on the shares (and then dissipated £600 of trust money). The first £600 withdrawn from the account must be treated as the trustee’s own money, meaning the trustee spent £600 of their own money and £600 of trust money on the shares. The trustee then dissipated £600 of trust money. The money in the account is shared equally between the trustee and beneficiary. The trustee is treated as spending £600 of their own money and £600 of trust money on the shares. The money which was dissipated is attributed in the same proportions, meaning £300 of the money in the account is trustee money and £300 is trust money. The money withdrawn from the account can all be treated as trust money, meaning the trustee spent £1,200 on the shares and dissipated their own £600.

Answer 57

The money withdrawn from the account can all be treated as trust money, meaning the trustee spent £1,200 on the shares and dissipated their own £600. This is a wrongful mixture, part of which has been dissipated. The basic rule (in Hallett and Oatway) is that the trustee is treated as dissipating their own money and using the beneficiary’s money to acquire a traceable asset. Cherry picking does not come into play here because there is a straight choice between the beneficiary’s money being used to acquire an asset or being dissipated. This falls squarely within the basic rule.

Question 58

A trustee takes £600 from Trust A and pays the money into their personal current account (which was previously empty). The next day, the trustee takes £1,200 from Trust B and pays it into the same account. The next day, the trustee withdraws £1,200 from the account and uses it to buy shares in a company. The trustee dissipates the remaining £600 in the account. What is the most likely way in which the withdrawals from the account will be attributed to the beneficiaries of the two trusts? The withdrawals from the account should be shared equally by the beneficiaries. The trustee should be treated as spending £600 from Trust A and £600 from Trust B on the shares. The trustee should be treated as withdrawing the money from Trust B before Trust A. The shares were bought exclusively with money from Trust B. Trust A’s money was all dissipated. The withdrawals from the account should be shared rateably by the beneficiaries. The trustee should be treated as spending £400 from Trust A and £800 from Trust B on the shares. The trustee should be treated as withdrawing the money from Trust A before Trust B. The first £600 withdrawn from the account is Trust A’s money. The remainder of the £600 withdrawal comes from Trust B.

Answer 58

The withdrawals from the account should be shared rateably by the beneficiaries. The trustee should be treated as spending £400 from Trust A and £800 from Trust B on the shares. Although this is a current account, the rule in Clayton’s case is easily disapplied in cases of unfairness. Applying the rule in this case would mean that the beneficiaries of Trust A can trace all their money into the shares and the beneficiaries of Trust B could only trace half their money into the shares, with the remaining half being dissipated. This feels very unfair given the order in which the payments were made, so it would make sense to apply the pari passu ex post facto rule or rolling charge instead. (In these circumstances, both produce the same result.)

Question 59

True or false: Proprietary claims can be made against any person who receives misapplied trust property. False True

Answer 59

False Proprietary claims cannot be made against a purchaser for value without notice of the trust. The beneficiary can trace into the sale proceeds but has no recourse against the purchaser.

Question 60

In breach of trust, a trustee misappropriates £10,000 of the trust fund. He uses the money to purchase shares in a company. Which one of the following statements describes the beneficiary’s rights? The only claim available to the beneficiary is a personal claim against the trustee for £10,000. The beneficiary may elect between an ownership claim to the shares and a security claim to the shares. The only claim available to the beneficiary is a proprietary ownership claim to the shares. The beneficiary can make a personal claim against the trustee for £10,000 or a proprietary claim to the shares, as the trustee determines. The only claim available to the beneficiary is a security claim to the shares.

Answer 60

?? week 5.4?

Question 61

True or false: The beneficiary of a trust has a knowing receipt claim against an innocent recipient of misapplied trust property. False True

Answer 61

False Knowing receipt is a fault-based liability. CARDS AFTER THIS NEED TO BE PUT IN LAND!!

Question 62

A trustee holds a painting on trust for a beneficiary. In breach of trust, the trustee gifts the painting to the owner of a private art gallery. The painting is delivered to the gallery by a courier hired by the trustee. The gallery owner and the courier are aware that the painting is misapplied trust property. The gallery owner sells the painting and dissipates the proceeds of sale. Which one of the following statements describes the beneficiary’s rights? The beneficiary can maintain a knowing receipt claim against the gallery owner but not against the courier. The beneficiary can maintain a knowing receipt claim against the gallery owner and the courier. The beneficiary can maintain a knowing receipt claim against the courier but not against the gallery owner. The beneficiary can only sue the trustee for breach of trust. The beneficiary cannot maintain a knowing receipt claim against the gallery owner or the courier.

Answer 62

The beneficiary can maintain a knowing receipt claim against the gallery owner but not against the courier. Both the gallery owner and the courier possess knowledge sufficient for a knowing receipt claim. However, unlike the gallery owner, the courier’s receipt of the painting was ministerial only.

Question 63

One of the situations where undue influence may arise is where there is a relationship of influence of which unfair advantage is taken. There are a number of relationships where there is an irrebuttable presumption that one party has influenced the other. Which ONE of the following is NOT within that number? Solicitor and client Husband and wife Doctor and patient Trustee and beneficiary Parent and child

Answer 63

Husband and wife Correct. In cases where undue influence is claimed, it will not be presumed but will need to be positively shown.

Question 64

In addition to a relationship of trust and confidence, what else must be shown for a claim of undue influence to succeed? A transaction which involves misrepresentation. A transaction which requires explanation. A transaction which involves fraud.

Answer 64

A transaction which requires explanation. Correct. If there is a relationship of trust and confidence the transaction must be one that initiates the question ‘why has X signed this?’ If it is, undue influence is established.

Question 65

In Barclays Bank v O’Brien, why was the bank unable to enforce its charge against Mrs O’Brien? The bank had unduly influenced Mrs O’Brien into signing the charge without ensuring she was fully informed. Mr O’Brien had unduly influenced his wife to sign the charge without ensuring she was fully informed. The bank had constructive notice of Mr O’Brien’s undue influence and failed to take reasonable steps to ensure that Mrs O’Brien was fully informed.

Answer 65

The bank had constructive notice of Mr O’Brien’s undue influence and failed to take reasonable steps to ensure that Mrs O’Brien was fully informed. Correct. The bank had notice of the potential risk of undue influence and should have ensured that Mrs O’Brien fully understood what she was signing.

Question 66

In RBS v Etridge, the court extended the scope of the principles of constructive notice of undue influence. Which one of the following is the most accurate statements of the effect of this case? The principles are relevant in every case where the relationship between the person claiming undue influence and the debtor is non-commercial. The principles are relevant where the relationship between the person claiming undue influence and the debtor is one of husband and wife and civil partners. The principles are relevant where the relationship between the person claiming undue influence and the debtor is one of husband and wife.

Answer 66

The principles are relevant in every case where the relationship between the person claiming undue influence and the debtor is non-commercial. Correct. The idea of constructive notice now extends far beyond family and spousal relationships.

Question 67

Which case sets any guidance as to the steps a lender should take to avoid being fixed with constructive notice of undue influence? CIBC v Pitt Barclays Bank v O’Brien RBS v Etridge

Answer 67

RBS v Etridge

Question 68

Where a borrower has created three legal mortgages, in favour of three different lenders, on consecutive days, how do we work out which takes priority? Priority between legal charges depends on the order in which the deeds are executed. Priority between legal charges depends on the order specified in the mortgage deeds. Priority between legal charges depends on the order in which they have been registered

Answer 68

Priority between legal charges depends on the order in which they have been registered Correct. This is the rule in LRA 2002, s48.

Question 69

Where a borrower has created three equitable mortgages, in favour of three different lenders, on consecutive days, how do we work out which takes priority? Priority between equitable mortgages depends on the order in which they are protected by registration. Priority between equitable charges depends on the order specified in the mortgage deeds. Priority between equitable mortgage depends on the order in which they are created.

Answer 69

Priority between equitable mortgage depends on the order in which they are created. Correct. Equitable mortgages do not have to be registered in order to be created properly. LRA 2002, s28 which relates to equitable interests, says that equitable interests take effect in the order in which they are created.

Question 70

An equitable mortgage can be (but does not have to be) protected by entering a s32 Notice on the Charges Register. If an equitable mortgage has been protected, what does that mean in terms of priority? It takes priority over ALL subsequent equitable mortgages only. It takes priority over ALL subsequent mortgages, whether legal or equitable. It takes priority over all equitable mortgages even those which are created before it.

Answer 70

It takes priority over ALL subsequent mortgages, whether legal or equitable. Correct. LRA 2002, s29(2) says that an interest which is protected takes priority over all subsequent transactions.

Question 71

What is the consequence if a lender exercises its power of sale under a legal mortgage, but the sale proceeds are insufficient to discharge the mortgage debt? The lender may sue the borrower in contract for the outstanding debt. The lender cannot recover the shortfall. The lender can recover a shortfall of capital but not interest by suing the borrower in contract for the outstanding debt.

Answer 71

The lender may sue the borrower in contract for the outstanding debt. Correct. The right to sell is a proprietary remedy which coexists with the contractual remedy which does not extinguish it.

Question 72

To whom does a receiver owe a duty to act with due diligence? The court. The lender. The borrower.

Answer 72

The borrower. Correct. This may seem odd, as the receiver is appointed by the lender, but it means that the lender is not liable for the receiver’s negligence.

Question 73

Foreclosure is rarely used by lenders, yet it does have an advantage for a borrower who is in serious debt and is in ‘negative equity’. What is that advantage? The foreclosure process takes a long time and buys the borrower time to make alternative arrangements. All subsequent mortgages and the contractual debt are extinguished. The court can award a sale in lieu of foreclosure.

Answer 73

All subsequent mortgages and the contractual debt are extinguished. Correct. The borrower cannot be sued personally either by the lender who forecloses or any subsequent lender.

Question 74

The legal lender has the right to sue the borrower in person for the contractual debt. What is the limitation period for a contractual debt for a legal mortgage? 6 years for capital and 12 years for interest. 6 years for capital and interest. 12 years for capital and 6 years for interest. 12 years for capital and interest.

Answer 74

12 years for capital and 6 years for interest. This is correct. The limitation period for a contractual debt is not straightforward: if the mortgage has been created by deed, as all legal mortgages must be, then the period for recovery of the debt stated in the deed (the capital) is twelve years. The limitation period for recovery of interest is six years. What this means in reality is that borrowers can find themselves involved in contractual debt actions many years after repossession, when they may have thought that their troubles were behind them.

Question 75

What is the purpose of the Pre-Action Protocol 2008? It enables lenders to enter residential or commercial premises to prepare them for sale. It sets out an expectation that lenders will explore alternative arrangements with a borrower before taking possession of residential properties. It sets out an expectation that lenders will explore alternative arrangements with borrower before taking possession of residential or commercial properties. It enables the lender of a commercial property to manage it rather than sell it straight away. It sets out an expectation that lenders will explore alternative arrangements with borrower before taking possession of commercial properties.

Answer 75

It sets out an expectation that lenders will explore alternative arrangements with a borrower before taking possession of residential properties. Correct. It was intended to reduce the number of residential properties which were being repossessed and the number of families losing their homes. Lenders agreed that possession should be a last resort.

Question 76

When does the mortgagee acquire the right to possess mortgaged property? When the court has granted order for possession. When a mortgage payment is missed. Immediately the mortgage deed is signed. When interest is in arrears for two months.

Answer 76

Immediately the mortgage deed is signed. Correct. This is set out in Four Maids v Dudley Marshall and LPA 1925, s95(4). It is set out expressly in most mortgage deeds, although there will be an acknowledgement by the lender that it will not exercise the right whilst payments are met.

Question 77

Why might a lender choose to apply to the court for an order for possession? The Pre-Action Protocol of 2008 requires an order for possession to be obtained. To avoid allegations of trespass. To avoid possible criminal proceedings following allegations of use of force to gain entry to premises.

Answer 77

To avoid possible criminal proceedings following allegations of use of force to gain entry to premises. Correct. The order for possession gives the lender authority to possess and protect the lender from criminal proceedings under Criminal Law Act 1977, s6.

Question 78

The court has jurisdiction under AJA 1970, s 36 in relation to applications relating to a mortgaged property by the lender. Which of the following best describes the scope of s 36? It enables a court to prevent a lender from possessing residential and commercial properties. It enables a court to prevent a lender from exercising its power of sale. It enables a court to postpone possession of residential and commercial properties. It enables a court to postpone possession of a residential property where an order has been applied for by the lender. It enables a court to postpone possession even in cases where no possession order has been applied for.

Answer 78

It enables a court to postpone possession of a residential property where an order has been applied for by the lender. Correct. The court can postpone possession of residential properties only and has discretion as to timing and conditions.

Question 79

AJA 1970, s 36 enables a court to postpone an order for possession provided that the borrower can pay ‘any sums due’ within a ‘reasonable period’. Which of the following best explains this? The borrower must pay the whole of the mortgage debt including arrears on a date set by the court before the end of the term. The borrower must pay the arrears and accrued interest within 24 months of the arrears arising. The borrower must pay the arrears before the end of the mortgage term.

Answer 79

The borrower must pay the arrears before the end of the mortgage term. Correct. This generous interpretation of the effect of s 36 is set out in AJA 1973, s 8 and Cheltenham & Gloucester Building Society v Norgan.

Question 80

Will a court postpone an order for possession to allow the borrower to sell the property? No. Courts are suspicious of potential delaying tactics by the borrower and will not postpone for this reason. Yes. Courts prefer borrowers to sell property themselves to save costs and ensure the sale proceeds quickly. No. Courts must act in the lender’s best interests once arrears have arisen. Yes, if there is firm evidence of an imminent exchange of contracts.

Answer 80

Yes, if there is firm evidence of an imminent exchange of contracts. Correct. This was decided in Mortgage Services Funding plc v Steele. Simply instructing a solicitor will not be enough.

Question 81

In which ONE of the following circumstances does the right to sell become exercisable under LPA 1925, s 103? Three months after the lender has served notice requesting arrears to be paid. When two months’ interest payments are outstanding. When some of the interest is unpaid for two months or more.

Answer 81

When some of the interest is unpaid for two months or more. Correct. LPA 1925, s 103(ii) states that some interest must be outstanding for two months. It does not mean that two months’ worth of arrears is owed! The amount can be very small.

Question 82

A property has two charges secured on it. The second lender sells under the right of sale. Which of the following represents the correct procedure? The first loan is redeemed first, then the second loan with any surplus being paid to the borrower. The second loan is redeemed first, then the first loan, with any surplus being paid to the borrower. The first loan is redeemed first, then the second loan, and any surplus proceeds are divided proportionately between the first lender and the second lender.

Answer 82

The first loan is redeemed first, then the second loan with any surplus being paid to the borrower. Correct. The first lender takes priority and is paid first, even though the second lender actually sold. The surplus proceeds are held in trust of the first borrower.

Question 83

When selling, which of the following statements best expresses the lender’s duty as to the timing of the sale in a slow market? The lender must delay the sale if there is any prospect of planning permission being granted. The lender must sell immediately the right to sell becomes exercisable. The lender must wait a reasonable time for an upturn in the market. The lender has an unfettered discretion as to when to sell and need not delay.

Answer 83

The lender has an unfettered discretion as to when to sell and need not delay. The lender has an unfettered discretion as to when to sell and need not delay.

Question 84

The lender owes the borrower a duty to take reasonable care to obtain the true market value for the property. Which of the following is the most accurate statements of what ‘true market value’ means in this context? The lender must obtain the maximum possible price in that particular market but need not delay sale. The lender cannot be expected to achieve the perfect sale price, but the price must be in the correct bracket. The lender owes a duty to carry out repairs and improvements to the property to obtain the highest possible price.

Answer 84

The lender cannot be expected to achieve the perfect sale price, but the price must be in the correct bracket. Correct. This was the decision in Michael v Miller.

Question 85

When does the lender’s rights to sell arise, where the mortgage is a capital and interest repayment mortgage? As soon as the ink is dry on the mortgage deed. As soon as one monthly instalment is unpaid. When the legal date of redemption has passed.

Answer 85

As soon as one monthly instalment is unpaid. Correct. LPA 1925, s 101(1) says that the right arises when the mortgage money ‘has become due’. In an interest-only mortgage, that will happen on the legal redemption date; in a capital and interest repayment mortgage, that happens when any payment of capital has been missed.

Question 86

What is the effect of failure to comply with section 53(1)(b) LPA 1925? The trust is void The trust is unenforceable

Answer 86

The trust is unenforceable Section 53(1)(b) LPA 1925 is an evidential requirement only.

Question 87

Which of the following trusts would be unenforceable? A person calls their friend to inform them that they will be transferring their house to the friend to hold on trust for the person’s sibling. After the legal transfer has been effected, the person sends a signed letter to the friend confirming the terms of the trust. A person orally declares themselves to be holding their house on trust for their sibling and then sends the sibling a signed letter to confirm the terms of the trust. A person sends a signed letter to their friend to inform them that they will be transferring their house to the friend, to hold on trust for the person’s sibling. The letter contains the terms of the trust. The person then effects the legal transfer of the house. A person orally declares that they are holding their house on trust for their sibling and then leaves their sibling a voicemail to confirm the terms of the trust A person sends their sibling a signed letter declaring that they now hold their house on trust for the sibling. The letter contains the terms of the trust.

Answer 87

A person orally declares that they are holding their house on trust for their sibling and then leaves their sibling a voicemail to confirm the terms of the trust This trust does not satisfy the requirements of s53(1)(b) LPA 1925 as there is no signed, written evidence of the trust.

Question 88

True or false: Section 53(1)(b) LPA 1925 only applies to declarations of trusts of land. False True

Answer 88

True Section 53(1)(b) LPA 1925 contains the formalities requirements for declaring a trust of land. Declarations of trusts over other types of property do not need to comply with this provision.

Question 89

Match the trust to the perpetuity rule

Answer 89

Non-charitable purpose trusts: Rule against inalienability Trusts with beneficiaries or charitable purposes as objects: Rule against remoteness of vesting

Question 90

Which of the following best describes the rule against remoteness of vesting? The trust property must vest within the common law period of 21 years. It must be clear from the outset that the trust property will vest within that time. It is possible to wait and see whether it vests in that time. The trust property must vest within the common law period of 125 years. It is possible to wait and see whether it vests in that time. The trust property must vest within the common law period of 21 years. It must be clear from the outset that the trust property will vest within that time. The trust property must vest within the statutory period of 125 years. It is possible to wait and see whether it vests in that time. The trust property must vest within the statutory period of 125 years. It must be clear from the outset that the trust property will vest within that time.

Answer 90

The trust property must vest within the statutory period of 125 years. It is possible to wait and see whether it vests in that time.

Question 91

Which statement best describes the effect of a non-charitable purpose trust having an uncertain purpose? The trustees can use their discretion to interpret the purpose as they see fit. The trust is likely to be void. The trustees should carry out the elements of the purpose which are certain and disregard elements of the purpose which are uncertain. The court will strive to interpret the purpose as being sufficiently certain if it is possible to do so. The trustees can make an application to court for scheme of administration setting out how to administer the trust.

Answer 91

The trust is likely to be void A non-charitable purpose trust which is insufficiently certain will be void.

Question 92

True or false: A trust will only be charitable if the purpose of the trust falls strictly within a recognised charitable purpose. True False

Answer 92

False There is provision for purposes which are analogous to or within the spirit of the statutory purposes to be charitable.

Question 93

Which of the following would NOT be a charitable purpose? The provision of a homework club. The preservation of an area of outstanding natural beauty. The funding of a mountain rescue service. The repair and maintenance of a churchyard The care of family pets.

Answer 93

The care of family pets. The care of specific animals is not charitable, although the welfare of animals generally is a charitable purpose.

Question 94

A testator intends to create a charitable trust to promote the work of an amateur artist who specialises in minimalistic modern art. Which of the following statements is correct? The purpose will only be charitable if it can be shown that the art is of educational value. The purpose may be charitable but expert evidence of artistic merit may be required. The purpose may be charitable if the artist believes it is of artistic merit. The purpose is charitable. The purpose is not charitable.

Answer 94

The purpose may be charitable but expert evidence of artistic merit may be required. The purpose may fall under the charitable purpose of the advancement of the arts. Charity Commission guidance provides that to be charitable the art needs to be of merit, and the assessment of this may require expert evidence. Before the advancement of the arts became a head of charity in its own right the promotion of art could only be charitable if it could be brought within the advancement of education. This is no longer the case following the Charities Acts of 2006 and 2011.

Question 95

True or false: If a trust has charitable purposes, it is presumed to have public benefit. False True

Answer 95

False Public benefit is a separate issue which must be proved.

Question 96

An employer wishes to establish a sports club for its employees. Is it possible to create a charitable trust for this purpose? Yes, but only if there are no fees payable by the employees, to ensure that nobody is excluded due to inability to pay. No. This is not a charitable purpose. No. The employees of the company are a private class of individuals meaning the public benefit test would not be satisfied. Yes, but only if the company has a large number of employees meaning that they are treated as a ‘section of the public’ Yes. The advancement of amateur sport is a charitable purpose.

Answer 96

No. The employees of the company are a private class of individuals meaning the public benefit test would not be satisfied. Correct. Although the advancement of amateur sport is a charitable purpose, the public benefit test would not be satisfied here because the class of individuals who can benefit has been limited by reference to a specific person i.e. the employer.

Question 97

A testator has left £10,000 in their will for “the purpose of educating the poor”. What is the effect of this provision? The £10,000 will be held on a charitable trust. The trustees will have discretion as to how to achieve the testator’s intention. The £10,000 is not held on a charitable trust because the class of potential objects is too wide. The £10,000 is not held on a charitable trust because the purpose is not charitable. The £10,000 will be applied cy-pres because the specific purpose is unclear but the testator has shown a general charitable intent The £10,000 is not held on a charitable trust because the purpose is uncertain.

Answer 97

The £10,000 will be applied cy-pres because the specific purpose is unclear but the testator has shown a general charitable intent The testator has shown a general charitable intent (as both the advancement of education and the relief of poverty are charitable purposes) but as they have failed to specify the method by which this purpose should be achieved, the cy-pres doctrine will apply.

Question 98

Which of the following is capable of being a valid purpose in relation to a non-charitable testamentary trust? To promote the objectives of my local neighbourhood sustainability project. To maintain the lawn and gardens of my family home. To fund an annual memorial lecture in my name. To look after my pet cat after my death. To maintain my collection of antique clocks in good working order.

Answer 98

To look after my pet cat after my death. Looking after animals generally may be a charitable purpose. However, looking after specific animals falls within a recognised Endacott exception to the beneficiary principle such that it is capable of being a valid non-charitable purpose.

Question 99

Which of the following statements is correct? Trusts for purposes are only valid if the purpose is charitable. Trusts for non-charitable purposes are valid but may be unenforceable if there is no beneficiary. Trusts for non-charitable purposes are void unless someone is appointed who can enforce the trust against the trustees. Trusts for purposes are void because they do not have beneficiaries who can enforce the trust. Trusts for non-charitable purposes are void unless the purpose falls within limited recognised exceptions.

Answer 99

Trusts for non-charitable purposes are void unless the purpose falls within limited recognised exceptions. Non-charitable purpose trusts are prima facie void because they breach the beneficiary principle. However, there are a limited number of recognised exceptions. To be valid the trust must also be sufficiently certain and comply with perpetuity rules.

Question 100

To be valid a non-charitable purpose trust must fall within a recognised exception to the beneficiary principle. What other two requirements must a testator check are satisfied? That the purpose is sufficiently certain and satisfies the test of providing a public benefit. That the purpose satisfies the test of providing a public benefit and the trust complies with perpetuity rules. That there is an identifiable beneficiary and the trust complies with perpetuity rules. That the purpose is sufficiently certain and the trust complies with perpetuity rules. That the purpose is sufficiently certain and there is a person capable of enforcing the trust against the trustees.

Answer 100

That the purpose is sufficiently certain and the trust complies with perpetuity rules. To be a valid a non-charitable purpose trust must fall within an Endacott exception, be sufficiently certain and comply with perpetuity rules.

Question 101

True or false: If a settlor intends to make a transfer on trust but fails to transfer legal title to the trustee, equity will automatically treat them as having made a self declaration of trust. False True

Answer 101

False Milroy v Lord makes clear that equity will not require the settlor to take on the role of trustee if that was not their intention.

Question 102

A father writes to his daughter declaring himself to be holding his house on trust for his daughter. He signs the letter and sends it to his daughter. Has this trust been validly constituted? Yes. In order to constitute a trust of land, the trust must be declared in writing and signed by the settlor. As the father has signed the letter, this means the trust has been constituted correctly. No. The trust has not been constituted because the letter has not yet been received by the daughter. Until she has signed evidence of the declaration of trust, the trust is void. No. In order to constitute a trust of land, the declaration of trust must be made by deed. Until this occurs, the trust is not constituted and so it is void. No. The transfer of beneficial ownership to the daughter must be registered with the land registry for the trust to be constituted. Yes. As this is a self-declaration of trust there is no movement of legal title and so the trust is automatically constituted when it is declared by the father.

Answer 102

Yes. As this is a self-declaration of trust there is no movement of legal title and so the trust is automatically constituted when it is declared by the father. The settlor is declaring himself a trustee and so legal title to the property is already vested in him and the trust is automatically constituted. Note the formality requirement of s53(1)(b) LPA 1925 which requires a declaration of a new trust of land to be evidenced in signed writing. This is also satisfied here.

Question 103

A man wanted to gift shares to his brother. He completed a stock transfer form in favour of his brother intending to post it to him the next day. However, the man died unexpectedly that night. The man's validly executed will leaves the shares to his sister. Which of the following correctly explains what will happen to the shares? The brother is the beneficial owner of the shares. Completion of the stock transfer form can be interpreted as a self-declaration of trust over the shares. The gift was constituted when the man completed the stock transfer form but, as this has not been communicated to his brother, the gift is imperfect. His sister will inherit the shares. The brother is the legal owner of the shares but holds them on trust for the sister. Although the man intended to make a gift of the shares it was not fully constituted before his death and so the gift is imperfect. His sister will inherit the shares under the will. The gift was constituted when the man completed the stock transfer form. The brother is the legal owner of the shares.

Answer 103

Although the man intended to make a gift of the shares it was not fully constituted before his death and so the gift is imperfect. His sister will inherit the shares under the will. In order to transfer legal title, the man should have sent the signed stock transfer form and share certificate to the Company’s registrar under s1 of the Stock Transfer Act 1963. Legal title would pass on registration of the brother as shareholder. As this has not occurred, the gift is imperfect. Equity will not perfect an imperfect gift under the rule in Milroy v Lord or assist the brother as a volunteer.

Question 104

A man tells his wife that he will transfer shares to her. He completes a stock transfer form and sends it with the share certificate to the company’s registrar. The man dies and the shares are still registered in his name. Can the wife claim beneficial ownership of the shares? Yes. Re Rose is likely to perfect the imperfect gift. No. Although she may have had a beneficial interest in the shares under Re Rose whilst the man is alive, this will not survive his death. Yes. Milroy v Lord provides that equity will always treat a failed gift as a self-declaration of trust. Yes. Pennington v Waine will apply in this situation. The man has promised his wife that he will transfer the shares and so it would be unconscionable to go back on this. No. Legal title passes on registration of the shares into her name. As this has not occurred before the man’s death, equity cannot perfect this imperfect gift.

Answer 104

Yes. Re Rose is likely to perfect the imperfect gift. Correct The correct method of transfer is used, the man has done everything in his power to effect the transfer and the documentation has ended up in the hands of the organisation capable of effecting the transfer i.e. the company’s registrar. Under Re Rose the wife will have a beneficial interest in the shares under a constructive trust and can force the transfer of legal title to her.

Question 105

A woman wanted to give her house to her adult son. She completed a transfer deed and gave this to her solicitor who said he would finalise the gift on his return from holiday in two weeks’ time. The woman died the next day and in her validly executed will the house was left to her boyfriend. Will the son be able to claim a beneficial interest in the house? Yes. The Re Rose exception to Milroy v Lord will apply because the woman completed the correct method of transfer and did everything in her power to effect the transfer. No, the house will pass to her boyfriend. The Re Rose exception to Milroy v Lord will not apply because the woman has not put the matter beyond her own control. No, because the woman has used the wrong method of transfer. Yes. The Re Rose exception to Milroy v Lord will apply because the woman has put the matter beyond her control. Yes. Milroy v Lord provides that equity will always treat a failed gift as a self-declaration of trust. The woman is treated as holding the house on trust for her boyfriend as soon as she expresses the intention to make a gift.

Answer 105

No, the house will pass to her boyfriend. The Re Rose exception to Milroy v Lord will not apply because the woman has not put the matter beyond her own control. Re Rose will not apply because, whilst she used the correct method of transfer (a deed under s52(1) LPA 1925) this has not yet been sent to the land registry and so has not ended up in the hands of the person capable of effecting the transfer. Instead, the transfer documentation is with her own agent (her solicitor); an extension of herself. Therefore, she has not done all within her power to effect the transfer under Re Rose. Nor has she put the matter beyond her control as in Mascall v Mascall.

Question 106

True or false: The rule in Re Rose can be used to perfect imperfect gifts but not to perfect imperfect trusts. True False

Answer 106

False | The rule can be applied to the perfection of both gifts and trusts.

Question 107

True or false: If a person dies after expressing an intention to make a gift but before delivering the asset to the donee, equity will perfect the imperfect gift as long as the donor did not change their mind before they died. True False

Answer 107

False it is not sufficient that the donor’s intention remained unchanged before their death. The gift must either be conditional upon death and satisfy the requirements of a donatio mortis causa, or it must be intended to be immediate and satisfy the requirements of Strong v Bird.

Question 108

A man wishes to give a five-acre paddock to his adult granddaughter to open a riding stable. The man’s solicitor completes the transfer documentation, but the man then dies unexpectedly before the granddaughter is registered as the owner. In the man’s validly executed will, his grandson is due to inherit the land. The granddaughter and her sister are appointed executors. Can the granddaughter claim beneficial ownership of the land? No, because she was not registered as the legal owner before the grandfather’s death. Yes, because her grandfather made the gift shortly before his death, meaning that it was a donatio mortis causa. Yes but she can only claim a beneficial share in half the land because there is another executor. Yes, under the rule in Strong v Bird. No. The rule in Strong v Bird will not apply because she is not the only executor.

Answer 108

Yes, under the rule in Strong v Bird. The requirements for Strong v Bird are satisfied. There is a continuing intention to make an immediate gift and the intended donee is one of the executors of the donor’s will (Re Stewart).

Question 109

A professional musician decided to give her prized cello to her niece on her retirement. She took her niece out to lunch to announce the news, promising that she would arrange delivery as she played her last concert later that month. The woman died in an accident later that day. Her validly executed will, in which her niece was named executor, left all her instruments to a youth orchestra. Who owns the cello? The cello will go to the youth orchestra under the cellist’s will. The rule in Strong v Bird will not apply here as the niece has no written proof of the cellist’s intention. The cello will go to the niece who will be able to claim it under the rule in Strong v Bird because the cellist had a continuing and immediate intention to make a gift. The cello will go to the niece who will be able to claim it under the rule in Strong v Bird because the cellist’s intention remained unchanged at her death. The cello will go to the youth orchestra because the cellist did not contemplate her immediate death when attempting to make the gift and so the rule in Strong v Bird will not apply. The cello will go to the youth orchestra under the cellist’s will. Strong v Bird will not apply as the cellist does not intend to make an immediate gift.

Answer 109

The cello will go to the youth orchestra under the cellist’s will. Strong v Bird will not apply as the cellist does not intend to make an immediate gift. Although there is continuing intention to make a gift (see Re Gonin) and the intended donee is the executor of the donor’s estate (Re Stewart), the cellist does not intend to make an immediate gift. The facts are analogous with Re Freeland. The cellist intends to give the cello in the future. As such, there is no intention to make an immediate gift of the cello and so this would prevent the operation of fortuitous vesting.

Question 110

True or false: The presumption of resulting trust can be rebutted True False

Answer 110

True The presumption is rebutted by evidence that the transferor did not intend the recipient to hold the property on trust for them.

Question 111

Which of the following will give rise to an automatic resulting trust? An intended gift fails due to lack of constitution An intended self-declaration of trust fails due to uncertainty of objects An intended transfer on trust fails due to lack of constitution An intended transfer on trust fails due to uncertainty of objects An intended self-declaration of trust fails due to uncertainty of subject matter

Answer 111

An intended transfer on trust fails due to uncertainty of objects Where a settlor transfers property on trust but fails to adequately identify the objects of that trust, the trust will fail and the trustee will hold the property on trust for the settlor

Question 112

A man purchases a piece of land which he intends to use for a new business venture. His boyfriend contributes 50% of the purchase price for the land but the man is registered as the sole legal owner of the land. The couple break up and the boyfriend claims that he is entitled to a share of the land. There is no express trust declared over the property and no evidence that the boyfriend intended a gift or a loan when contributing towards the land. What is the most likely conclusion that a court will reach as to the legal and equitable ownership of the land? The man is the sole legal and beneficial owner of the land. The man and his boyfriend are legal joint tenants and hold the land on trust for themselves as equitable tenants in common in equal shares. The man holds the land for himself and his boyfriend as equitable tenants in common in equal shares. The man and his boyfriend are legal joint tenants and hold the land on trust for themselves as equitable joint tenants. The man holds the land for himself and his boyfriend as equitable joint tenants.

Answer 112

The man holds the land for himself and his boyfriend as equitable tenants in common in equal shares. This is the most likely conclusion. As there is no evidence to rebut the presumption of resulting trust, the man will hold the land on trust for himself and his boyfriend, with their shares reflecting their respective contributions to the land. They will therefore be equitable tenants in common and will each have a 50% share. This is different to joint tenancy, where they would both own 100% of the land.

Question 113

True or false: If legal title to a family home is held by cohabitees as joint tenants, it is presumed that they have 50/50 shares in equity. False True

Answer 113

False The presumption is one of joint tenancy. Joint tenancy does not involve distinct shares. 50/50 would be a tenancy in common.

Question 114

A couple are civil partners and have lived together for 10 years. They decide to dissolve their partnership and sell their family home which they own as legal joint tenants. There is no express trust over the home. They disagree over how the proceeds of sale should be divided between them and they take the case to court. How will the court determine beneficial ownership of the family home? The court will determine beneficial ownership based on the contributions each of them made to the acquisition of the home. They are presumed to be equitable joint tenants but this presumption may be rebutted by evidence of an alternative common intention. The court will determine their beneficial interests based on the whole course of conduct. This is a common law marriage because of the length of the relationship. This gives the court discretion to determine their respective beneficial interests. The court has a statutory discretion to determine their respective beneficial interests because they are civil partners. The court has no discretion. They couple are legal joint tenants so they are presumed to be joint tenants in equity too. The court will sever the joint tenancy and award half shares.

Answer 114

The court has a statutory discretion to determine their respective beneficial interests because they are civil partners. On the dissolution of a civil partnership the court can exercise its’ discretion under the Civil Partnership Act 2004 to divide ownership of the property between the parties.

Question 115

A married man purchases a flat to live in with his girlfriend. The man pays the deposit and purchases the flat in his sole name. The man is solely liable for the mortgage. He tells his girlfriend that he can’t put the flat in her name until he tells his wife about their affair, but he assures her that he is holding it on trust for them both and that she has a 50% share. In reliance on these statements, the woman pays all household expenses and contributes equally towards the mortgage repayments. What claim would you advise the woman to make? The woman should seek to establish an interest under a purchase money resulting trust. The woman cannot make any claims because the man is married so the flat will be matrimonial property belonging to the man and his wife. The woman should seek to establish an interest under an express trust. The woman should seek to establish an interest under a common intention constructive trust. The woman cannot make any claims because she did not contribute directly towards the acquisition of the flat.

Answer 115

The woman should seek to establish an interest under a common intention constructive trust. The woman should seek to establish an interest under a common intention constructive trust.

Question 116

True or false: When a couple acquire property as legal joint tenants, it is only possible to rebut the presumption of joint tenancy if it can be proved that they had a different common intention when they purchased the property. False True

Answer 116

False Jones v Kernott confirmed that intention could be ambulatory.

Question 117

Which of the following provides the best evidence that joint legal owners of a family home do not also intend to be equitable joint tenants? Only one party takes legal responsibility for the mortgage One party moving out of the home and ceasing to contribute towards household expenditure Only one party contributes towards household expenditure, including mortgage repayments Express discussions as to beneficial ownership Rigid separation of finances

Answer 117

Express discussions as to beneficial ownership Express discussions will always provide the strongest evidence of intention

Question 118

A cohabiting couple own a house as legal joint tenants. There is no declaration as to beneficial shares in the property. The woman pays the deposit money to purchase the house and a mortgage is taken out in their joint names which the woman pays. The man pays for all other expenses on the property. She wants to leave her partner and she seeks advice as she wants to claim a larger share given her contributions to the deposit and mortgage. What is the best advice to the woman? It is presumed that the property is owned as equitable tenants in common in equal shares. The burden is on the woman to rebut this. It should be possible to rebut the presumption as it is clear from their conduct that the woman was intended to have a greater share in the property. Their interests will be quantified based on their respective contributions to the deposit and mortgage. It is presumed that the property is owned as equitable joint tenants. The burden is on the woman to rebut this. It should be possible to rebut the presumption as it is clear from their conduct that the woman was intended to have a greater share in the property. Their interests will be quantified based on their respective contributions to the deposit and mortgage. The couple are joint tenants at law and in equity. If they had wanted to own in different shares, they should have declared themselves tenants in common and specified their shares in writing. There is no way to challenge this. It is presumed that the property is owned as equitable joint tenants. The burden is on the woman to rebut this. It is a heavy burden and it is unlikely that unequal contributions will be enough to rebut the presumption. It is presumed that the parties share the beneficial ownership in proportion to their respective contributions. The onus will be on the man to rebut this presumption. It is unlikely that he will be able to do so.

Answer 118

It is presumed that the property is owned as equitable joint tenants. The burden is on the woman to rebut this. It is a heavy burden and it is unlikely that unequal contributions will be enough to rebut the presumption. The burden is on the party seeking to rebut the presumption to adduce evidence and Lady Hale in Stack v Dowden said that this was a “heavy burden” requiring “unusual facts”. Fowler v Barron indicates that unequal contributions alone are not enough to rebut the presumption of joint tenancy.

Question 119

True or false: In the absence of evidence of an express common intention, it is possible for the court to impute a common intention for a person without a legal interest in the family home to have an equitable interest in that home. False True

Answer 119

False Imputation is not permissible at the acquisition stage. It is only possible when quantifying the parties’ interests

Question 120

An unmarried couple buy a weekend retreat in the countryside. The cottage is registered in the woman’s sole name, but the man contributes to the deposit and to the monthly mortgage payments. They split up and the woman changes the locks and says that the man has no rights to the property. What is the best advice to the man? The man should claim an interest under a common intention constructive trust. He has the burden of proof but common intention is likely to be inferred based on his financial contributions. The man should claim an interest under a common intention constructive trust. There is a presumption of joint beneficial ownership because he has contributed to the deposit and mortgage. The woman has the burden of rebutting this presumption. She is unlikely to be able to do so. The man should claim an interest under a common intention constructive trust. He has the burden of proof but common intention is likely to be imputed based on his financial contributions. The man should claim an interest under a purchase money resulting trust because he has contributed to both the deposit and monthly mortgage payments. The woman has the burden of rebutting the presumption of resulting trust. She is unlikely to be able to do so. The man should claim an interest under an express trust. He has the burden of proof but should be able to establish this based on his financial contributions.

Answer 120

The man should claim an interest under a common intention constructive trust. He has the burden of proof but common intention is likely to be inferred based on his financial contributions. This is the best advice. The man needs to establish that he has acquired an interest but his direct financial contributions to both the deposit and to the monthly mortgage payments should mean that a common intention to share the property can be inferred from conduct.

Question 121

A woman moved into her girlfriend’s flat, which was registered in the girlfriend’s sole name. The woman repainted the living room and bedroom and bought soft furnishings whilst her girlfriend was on a business trip. When the girlfriend returned home, she asked the woman why she had gone to all this trouble. The woman explained that the flat didn’t feel like “theirs” and her girlfriend reassured her saying “don’t be silly, you know this is your home too”. Two years later, their relationship became strained and her girlfriend asked her to leave the flat. The woman refused saying, “but you said this is my home too”. Is the woman likely to have a beneficial interest in the flat? No. The discussions were not about ownership of the property, nor is there any evidence that the woman has detrimentally relied on them. No. The discussions were about ownership of the property but the woman has not detrimentally relied upon them. No. The discussions were not about ownership of the property so even though the woman has detrimentally relied upon them she will not be able to establish a common intention constructive trust. Yes. Although the discussions were not about ownership, a common intention can be inferred based on the whole course of conduct. Yes. The discussions were about ownership of the property and the woman has detrimentally relied on them by painting the living room and purchasing the soft furnishings.

Answer 121

No. The discussions were not about ownership of the property, nor is there any evidence that the woman has detrimentally relied on them. In order to establish express common intention the statements must be about shared ownership not merely occupation. Describing the property as the woman’s “home” is unlikely to be enough (see Lloyds Bank v Rosset). Even if it were, this is not followed by detrimental reliance as she has already repainted the rooms in the flat before the statement is made. Further, decoration and purchasing soft furnishings are unlikely to amount to detrimental reliance. It is also unlikely that these actions are enough to infer common intention as they will probably not have added any significant value to the property (see obiter of Lord Walker and Lady Hale in Stack v Dowden and the contrasting cases of James v Thomas and Aspden v Elvy).

Question 122

True or false: Proprietary estoppel operates as a defence only. False True

Answer 122

False Unlike promissory estoppel, proprietary estoppel operates as a cause of action not just a defence.

Question 123

A and B are romantically involved. A moves into B’s house. B says to A: ‘You will always have a secure home here with me.’ A spends £5,000 of their savings making improvements to the house. The relationship breaks down two years later and A moves out of the house. A successfully brings a proprietary estoppel claim against B. Which one of the following remedies is the LEAST likely to be awarded to satisfy A’s equity? An order directing B to allow A to occupy the house for the rest of her life. An order directing B to transfer the house to A. An order directing B to pay £5,000 to A. An order directing B to allow A to occupy the house for five years. An order directing B to pay £1,000 to A.

Answer 123

An order directing B to transfer the house to A. An order directing B to transfer the house to A would exceed A’s expectation.

Question 124

C and D are romantically involved. They do not live together. C repeatedly says to D: ‘You stick with me and you’ll be alright.’ D, a builder, converts the loft of C’s house. C pays for all the materials. D is not paid for the work. C and D’s relationship breaks down two years later. D brings a proprietary estoppel claim against C. Which one of the following is the most likely reason why D’s claim would fail? C has not made a qualifying assurance to D. D has not spent any money on C’s house. C’s statements to D were not in writing. C and D are not married. D has not acted to their detriment.

Answer 124

C has not made a qualifying assurance to D. An assurance must relate to a right in or over identifiable property owned by the defendant. C’s assurance does not relate to any property.

Question 125

True or false: Any person can be a trustee False True

Answer 125

False | A trustee must be an adult of sound mind

Question 126

The sole trustee of a trust for a minor beneficiary has just died. The trust instrument contains no powers to appoint trustees. Who has the power to appoint a replacement trustee? The trustee’s personal representatives and the court. The settlor. The trustee’s personal representatives only. The court only. Nobody.

Answer 126

The trustee’s personal representatives and the court. The trustee’s personal representatives can exercise the statutory power to appoint trustees. The court also has a statutory power to appoint a new trustee but is only likely to exercise it if the personal representatives cannot or will not exercise it.

Question 127

A trust has two trustees, neither of which is a trust corporation. One of the trustees wishes to retire immediately. Can they do so? Yes, as long as they obtain the consent of any person with a power to appoint trustees. Yes, as long as they obtain the consent of their co-trustee. Yes, but only if directed to do so by the beneficiaries. Yes, as long as they obtain the consent of their co-trustee and any person with a power to appoint trustees. No, another trustee needs to be appointed before the trustee can retire.

Answer 127

No, another trustee needs to be appointed before the trustee can retire. S39(1) TA 1925 gives trustees the power to retire but only if there would be at least two trustees or a trust corporation remaining. To exercise this power the trustees must also obtain the consent of their co-trustees and any person with a power to appoint trustees. They can only retire without another trustees.

Question 128

True or false: Trustees do not need to make payments to beneficiaries until the beneficiaries make a request. False True

Answer 128

False When beneficiaries have a right to income or capital under the terms of a trust, the trustees are under an obligation to make the payments to the beneficiaries as soon as possible. The trustees must not wait for the beneficiaries to demand the payment.

Question 129

Which of the following would be an inappropriate approach for a trustee to take if they are aware of the identify of a beneficiary but are unable to locate them? Putting a notice in a national newspaper of their intention to distribute the trust property. Paying money into court in case the beneficiary is located in the future. Retaining a fund to pay the beneficiary’s interest if they are located in the future. Taking out insurance against wrongful distribution. Seeking directions from the court as to how to distribute the trust fund.

Answer 129

Putting a notice in a national newspaper of their intention to distribute the trust property. This strategy is only appropriate where the trustees are unsure of the identify of the beneficiaries. It does not absolve them of liability for known but missing beneficiaries.

Question 130

If a trustee distributes the entirety of a trust fund in accordance with a Benjamin order and a missing beneficiary is later found, what is the effect of the distribution? The missing beneficiary has a proprietary claim against the trustee. The missing beneficiary has no claims in respect of the distribution. The trustee will not be liable to the missing beneficiary but the beneficiary may make a proprietary or receipt-based claim against other beneficiaries who have been overpaid as a result of the distribution. The trustee will be personally liable to the missing beneficiary. Correct

Answer 130

The trustee will not be liable to the missing beneficiary but the beneficiary may make a proprietary or receipt-based claim against other beneficiaries who have been overpaid as a result of the distribution. A Benjamin order will prevent the trustee being liable to the missing beneficiary but does not change the beneficiary’s proprietary rights under the trust, meaning they may be able to make a claim against a recipient.

Question 131

True or false: The power of maintenance can only be exercised where a beneficiary has a vested interest in the trust capital. True False

Answer 131

False The power of maintenance can also be exercised when a contingent interest carries the intermediate income

Question 132

Trustees have been holding property on trust for a minor beneficiary (now 17 years old) for the last five years. The trustees have never previously used the power of maintenance and have been accumulating income. The beneficiary has asked the trustees to pay for her to attend a three year performing arts course. Which of the following represents the best advice to the trustees? The trustees must accumulate the income until the beneficiary is 18. It cannot be used to fund the performing arts course and cannot be paid to the beneficiary until the beneficiary is 18. The trustees may use the accumulated income and any future income to fund the performing arts course for the full three years of the course. The trustees may use any future income to fund the performing arts course until the beneficiary reaches the age of 18. After this date, the trustees must pay the income directly to the beneficiary. Accumulated income cannot be used and must be added to the capital. The trustees may not use the income to fund the performing arts course but can pay the income directly to the beneficiary. The trustees may use the accumulated income and any future income to fund the performing arts course until the beneficiary reaches the age of 18. After this date, the trustees must pay the income directly to the beneficiary.

Answer 132

The trustees may use the accumulated income and any future income to fund the performing arts course until the beneficiary reaches the age of 18. After this date, the trustees must pay the income directly to the beneficiary. The power of maintenance can be used to apply present and accumulated income for the maintenance of a minor beneficiary while they are under 18. After this date, the beneficiary becomes entitled to the income.

Question 133

Trustees holds a trust fund for the settlor’s wife for life, remainder to the settlor’s minor daughter (age 17). The daughter wants to receive some of her capital now, to help her buy a car. Which of the following is the best advice to the trustee? The trustees have a power to pay capital to the daughter but must obtain the written consent of the wife The trustees do not have a power to pay capital to the daughter because she is under 18. The trustees do not have a power to pay capital to the daughter because the wife has a prior interest. The trustees have a power to pay capital to the daughter. The trustees have a power to pay capital to the daughter but must obtain the consent of the wife.

Answer 133

The trustees have a power to pay capital to the daughter but must obtain the written consent of the wife This is the best advice. Because the wife has a prior interest, it is necessary to obtain her written consent.

Question 134

'Despite some suggestions otherwise, there is no requirement of property in order for there to be a trust. The existence of an obligation on a trustee is sufficient.' True. False.

Answer 134

False. There are two fundamental features: the obligation component and the property component. The property component requires that a person (the trustee) holds property rights for a person (the beneficiary) or a purpose.

Question 135

Patrick gives £100 to Robin to hold on trust for Tina until her 18th birthday. On Tina's 18th birthday, Robin refuses to transfer the money to Tina. What can Patrick and Tina do to enforce the trust? Select two answers. Patrick has a right to enforce the trust as he was party to the initial bargain with Robin. Patrick has no right to enforce the trust despite being party to the initial bargain with Robin. Tina has a right to enforce the trust despite not being party to the initial bargain with Robin. Tina has no right to enforce the trust because she was not party to the initial bargain with Robin

Answer 135

Patrick has no right to enforce the trust despite being party to the initial bargain with Robin. Tina has a right to enforce the trust despite not being party to the initial bargain with Robin. Patrick, the settlor, has no rights to enforce the bargain against the trustee. Enforcement of the trust is left to the beneficiary, Tina, even though she was not party to the initial bargain between Patrick and Robin.

Question 136

In which circumstances can a trustee benefit from the trust property? There may be more than one correct answer. Trustees are not able to benefit from the trust property. The trustee might also be a beneficiary under the trust. Trustees are entitled to profit as long as they are not dishonest. The trust instrument might provide circumstances in which the trustee is permitted to receive a benefit.

Answer 136

Trustees are not able to benefit from the trust property. incorrect The trustee might also be a beneficiary under the trust. correct Trustees are entitled to profit as long as they are not dishonest. incorrect The trust instrument might provide circumstances in which the trustee is permitted to receive a benefit. correct Trustees are not generally able to benefit from the trust property, but there are two exceptions: (1) the trustee might also be a beneficiary under the trust; (2) the trust instrument might provide circumstances in which the trustee is permitted to receive some benefit such as remuneration

Question 137

Why is a trustee bound to carry out the express trust as requested by the settlor? Because the trustee is contractually bound by the contract between the settlor and the trustee. Because it would be unconscionable for the trustee to fail to administer the property. Because the trustee does not actually own the property in any meaningful sense. Because the trustee could go to prison if they failed to administer the trust as required.

Answer 137

Because it would be unconscionable for the trustee to fail to administer the property. The trustee owns the property at law but is bound to carry out the purposes for which the property was vested in them as a failure to do so would be unconscionable. Equity binds the conscience of the owner of the legal interest.

Question 138

Terence gives his daughter, Ursula, an envelope thinking it contains £100 and instructions that Ursula is to hold the money on trust for Verity, her sister. The envelope did not contain the letter of instructions and so Ursula thinks the £100 was a gift to her and spends it. Has the attempt to create a trust been successful? It does not matter that Ursula did not know about the intention to create a trust at the time. As long as Terence tells her at some point, her conscience is still bound, and she must hold £100 on trust for Verity. Verity can bring a personal claim against Ursula for breach of trust. Ursula's conscience is not bound because she was not aware of facts that might have affected her conscience. Ursula's conscience is not bound because she is Terence's daughter and so it is not possible for an express trust to be recognized.

Answer 138

Ursula's conscience is not bound because she was not aware of facts that might have affected her conscience. To be a trustee, Ursula, as the holder of the legal interest, must be aware that Terence intended for her to hold the property for the benefit of Verity. Otherwise there is no valid trust, and so Verity cannot bring a claim against Ursula. That Terence and Ursula are father and daughter does not mean that an express trust cannot be recognized but may be relevant in relation to the presumption of advancement and the recognition of a resulting trust (discussed in Chapter 8).

Question 139

A beneficiary's equitable proprietary interest binds the whole world.' True. False.

Answer 139

False. Equitable proprietary interests are not enforceable against bona fide purchasers for value without notice of the equitable interest.

Question 140

In the event of insolvency, the trust property will be available to whose creditors? There may be more than one correct answer. The settlors' creditors. The trustees' creditors. The beneficiary's creditors. No one's creditors.

Answer 140

The beneficiary's creditors. The settlor no longer has a proprietary interest in the assets (unless they are also a beneficiary). Only the beneficiary's creditors can access the trust property in the event of the beneficiary's insolvency as they belong to the beneficiary in Equity.

Question 141

'There can only be one beneficiary under a trust.' True. False.

Answer 141

false | There can be many beneficiaries or groups of people who benefit.

Question 142

Which of the following are functions of the trust? Select two answers. To segregate assets. To avoid tax. To allow for perpetual property management. To allow property to be held by a separate legal person.

Answer 142

Trusts serve many different functions. Whilst trusts allow for management of property, this management cannot be perpetual as there are limits on the duration of trusts. Also, a trust that has its main purpose as avoiding tax may be considered abusive. To segregate assets. correct To avoid tax. correct

Question 143

How can we distinguish between a trust and an unsecured debt? There may be more than one correct answer. It is not really possible to tell them apart, both entail personal rights in relation to property that one person owes to another. It is possible to tell them apart, but it is difficult as both entail proprietary rights in relation to property that one person owes to another. A creditor has a personal right to value whereas a beneficiary has an equitable proprietary right in property. Trusts have a degree of personal liability, like creditor/debtor relationships, but also proprietary rights.

Answer 143

As considered in Re Lehman Brothers International, a creditor is defined as someone to whom money is owed, whereas a proprietary claim to trust property does not constitute a claim in respect of a debt owed by the company. The beneficiaries have an interest in the property that was held on trust rather than the value of that property. It is not really possible to tell them apart, both entail personal rights in relation to property that one person owes to another. incorrect It is possible to tell them apart, but it is difficult as both entail proprietary rights in relation to property that one person owes to another. incorrect A creditor has a personal right to value whereas a beneficiary has an equitable proprietary right in property. correct Trusts have a degree of personal liability, like creditor/debtor relationships, but also proprietary rights. correct

Question 144

Britta takes her car to the garage for repairs. What is the relationship between Britta and the garage and what can Britta do if the garage sells her car to Simon? Bailment—Britta can sue Simon for the tort of conversion. Debt—the garage is personally liable to Britta for the value of the car. Trust—Britta's equitable proprietary interest is defeated by Simon as he is a bona fide purchaser. Contract—Britta can sue the garage for breach of contract.

Answer 144

The key issue is identifying the location of the legal title. Whilst Britta has given the garage possession of her car, she remains the legal title owner and so this is a bailment instead of a trust. Accordingly, Britta can sue Simon for the tort of conversion even though he was a good faith purchaser, as legal title is not defeated by the bona fide purchaser rule.

Question 145

'The essential difference between a trust relationship and an agency relationship is that trustees owe fiduciary duties whereas agents do not.' True. False.

Answer 145

False. Trustees and agents both owe fiduciary duties. The main difference is that the agency relationship is personal, not proprietary.

Question 146

'A beneficiary under a will has an equitable proprietary interest in suspense until the deceased's debts have been discharged.' True. False.

Answer 146

False The beneficiary has a mere equity until the executors have discharged all of the deceased's debts. The beneficiary has neither a legal nor an equitable interest in the property until that time. It is impossible to know what is in the estate until the necessary debts have been paid. The beneficiary has a personal right to ensure that the estate is administered. If property from an unadministered estate is misappropriated, any person entitled to the estate can bring a proprietary claim to recover the property from the third party recipient, at which point the property is restored to the estate rather than to the beneficiary.

Question 147

What is the difference between trusts and powers? Select two answers. Trusts impose obligations which must be performed, whereas powers impose obligations which may be performed. Trusts and powers are different words for the same thing—you can use 'trust', 'power', and 'trust power' interchangeably. Trusts can be executed by the court, whereas powers cannot. A power is part of a trust and enables the trustee to benefit from the trust property.

Answer 147

Trusts impose obligations which must be performed, whereas powers impose obligations which may be performed. correct Trusts and powers are different words for the same thing—you can use 'trust', 'power', and 'trust power' interchangeably. incorrect Trusts can be executed by the court, whereas powers cannot. correct A power is part of a trust and enables the trustee to benefit from the trust property. incorrect Trusts impose obligations that must be performed, whereas powers may be performed. Trusts can be exercised by the courts, whereas powers cannot. Whether the power-holder must consider the exercise of the power depends on the nature of the power—the holders of fiduciary powers must consider their exercise, but there is no obligation to exercise the power. The holder of a mere power is not required to consider the exercise of the power.

Question 148

A father declares a trust for his three-year old son over the money in the father’s bank account. Which of the following is the most accurate statement in relation to this trust? The trust is void as the father has not complied with the necessary formalities for creating a new trust. The father remains the full legal owner. The trust is unenforceable as the father has not complied with the necessary formalities for creating a new trust. There is a resulting trust for the father. The trust is valid. It would be a good idea to evidence it in writing but this is not legally necessary. The trust is void as the father has not complied with the necessary formalities for creating a new trust. There is a resulting trust for the father. The trust is unenforceable as the father has not complied with the necessary formalities for creating a new trust. The father should evidence it in writing.

Answer 148

The trust is valid. It would be a good idea to evidence it in writing but this is not legally necessary. The father does not need to use writing, as this is not a new trust of land. The trust is valid and enforceable as it is. However, it would be a good idea to have some evidence of this trust.

Question 149

A woman sends a signed letter to her son, asking him if he will hold her holiday home on trust for her grandchildren. She then properly executes a deed to transfer the legal title of the holiday home to her son and sends it to her solicitor to complete the registration at the Land Registry. The solicitor put the deed in his drawer and forgot to register it. The woman died one month after handing the deed to her solicitor. Which of the following statements provides the best advice regarding the holiday home? The formalities for declaring a trust of land have not been satisfied, nor has the trust been constituted. The holiday home remains part of the woman’s estate on her death. The formalities for declaring a trust of land have been satisfied so the trust has been constituted. Legal title has therefore passed to the son who holds it on trust for the grandchildren. The formalities for declaring a trust of land have been satisfied and the trust has been constituted. Legal title has therefore passed to the son who holds it on trust for the grandchildren. The formalities for declaring a trust of land have been satisfied. Although the trust has not been constituted, equity will perfect the trust because the woman had done everything in her power to transfer legal title to her son. The formalities for declaring a trust of land have been satisfied but the trust has not been constituted. The holiday home remains part of the woman’s estate on her death.

Answer 149

The formalities for declaring a trust of land have been satisfied but the trust has not been constituted. The holiday home remains part of the woman’s estate on her death. The signed note satisfies s53(1)(b) LPA 1925 but legal title has not been transferred to the son. The rule in Milroy v Lord provides that equity will not perfect the imperfect transfer. There are no relevant exceptions here as the solicitor is the woman’s agent, meaning she has not put the matter beyond her own control.

Question 150

Shortly before undergoing a major operation, a woman hands a gold ring to her girlfriend saying “if I don’t make it, this is yours”. The woman dies during the operation. Advise the woman’s girlfriend The woman has made a valid lifetime gift. The girlfriend is now the full legal owner of the ring. The woman has not made a valid donatio mortis causa. The girlfriend holds the ring on resulting trust for the woman’s estate. The woman has made a valid donatio mortis causa. The girlfriend is now the full legal owner of the ring. The woman has made a valid donatio mortis causa. Her personal representatives hold the ring on trust for the girlfriend. The woman has not made a valid donatio mortis causa. The gift remains part of her estate.

Answer 150

The woman has made a valid donatio mortis causa. The girlfriend is now the full legal owner of the ring. The gift was made in contemplation of death and clearly conditional upon death. The woman physically handed the ring to her girlfriend, clearly passing dominion. As the woman has now died, the condition has been satisfied and the gift takes effect.

Question 151

Shortly before undergoing a major operation, a woman hands a gold ring to her girlfriend saying “if I don’t make it, this is yours”. The woman dies during the operation. Advise the woman’s girlfriend The woman has made a valid lifetime gift. The girlfriend is now the full legal owner of the ring. The woman has not made a valid donatio mortis causa. The girlfriend holds the ring on resulting trust for the woman’s estate. The woman has made a valid donatio mortis causa. The girlfriend is now the full legal owner of the ring. The woman has made a valid donatio mortis causa. Her personal representatives hold the ring on trust for the girlfriend. The woman has not made a valid donatio mortis causa. The gift remains part of her estate.

Answer 151

The woman has made a valid donatio mortis causa. The girlfriend is now the full legal owner of the ring. The gift was made in contemplation of death and clearly conditional upon death. The woman physically handed the ring to her girlfriend, clearly passing dominion. As the woman has now died, the condition has been satisfied and the gift takes effect.

Question 152

A woman’s valid will contains the following clause: ‘I give £10,000 to my trustees to hold on trust for such of my children, and in such proportions, as my wife may direct while my children are under the age of 18. Any money that remains once all of the children are over 18 shall be divided equally between my children.’ Which of the following statements best describes the respective powers and obligations of the wife and the trustees? The wife has a power of appointment. The trustees hold the property on a discretionary trust. The wife and trustees both hold the property on a discretionary trust. The wife holds the property on a discretionary trust. The trustees hold the property on a fixed trust. The wife has a power of appointment. The trustees hold the property on a fixed trust. The wife and trustees both have a power of appointment.

Answer 152

The wife has a power of appointment. The trustees hold the property on a fixed trust. The wife is not a trustee but does have a power of appointment, meaning she can tell the trustees what to do with the funds while all the children are under 18. There is then a gift-over to the children once they reach the age of 18. The trustees have no discretion here at all. They must simply hold the property as directed.

Question 153

A testator’s will contains the following clause: ‘I give my estate to my partner for life, reminder to my daughter on the condition that she survives my partner.’ Which of the following correctly describes the interests of the testator’s partner and daughter? The partner has a vested right to the income during their lifetime. The daughter has a vested right to the capital once the partner dies. The partner has a vested right to the income during their lifetime. The daughter has a contingent right to the income once the partner dies. The partner has a vested right to the income during their lifetime. The daughter has a contingent right to the capital once the partner dies. The partner has a vested right to the income during their lifetime. The daughter has a vested right to the income once the partner dies. The partner has a vested right to the capital during their lifetime. The daughter has a contingent right to the capital once the partner dies.

Answer 153

The partner has a vested right to the income during their lifetime. The daughter has a contingent right to the capital once the partner dies. The partner is the life tenant. They are entitled to the income during their lifetime. The daughter has a remainder interest which is contingent upon surviving the partner.

Question 154

A man and his girlfriend consider opening a joint bank account but believe that this will be difficult because the girlfriend does not have British nationality. Instead, the man opens the account in his own name, assuring the girlfriend that “it’s both of our account really”. They both regularly pay money into the account and use it for paying household expenses such as electricity bills and food shopping, as well as eating out and holidays. The man regularly refers to the account as “our account”. What is the most likely conclusion that a court would reach about this arrangement? The man holds the money in the account on trust for himself, with a power to pay money to his girlfriend. The man holds the money in the account on trust for himself and his girlfriend equally. The man holds the money in the account on a discretionary trust for himself and his girlfriend. The man holds the money in the account on trust for his girlfriend. The man is the full legal and beneficial owner of the money in the account. The girlfriend has no equitable proprietary interest.

Answer 154

The man holds the money in the account on trust for himself and his girlfriend equally. This is the most likely conclusion, based on similarities to the case of Paul v Constance.

Question 155

A deceased person’s estate contains £50,000 and four paintings by Picasso. Their validly executed will contains the following clauses: ‘1. £50,000 to my trustees to be distributed between such of my children and in such proportions as my trustees may decide. My trustees must give one of my Picasso paintings to each of my four children. The children may each select their own painting but if they cannot agree, my trustees may make the selection for them. Which statement best describes the status of the trust in clause 1 and the gifts in clause 2? The trust in clause 1 will fail for uncertainty of objects. The gifts in clause 2 will fail for uncertainty of subject matter. The trust in clause 1 will fail for uncertainty of objects. The gifts in clause 2 are valid. The trust in clause 1 is valid. The gifts in clause 2 will fail for uncertainty of subject matter. The trust in clause 2 will fail for uncertainty of beneficial entitlement. The gifts in clause 2 will fail for uncertainty of subject matter. Both the trust and gifts are valid.

Answer 155

Both the trust and gifts are valid. Clause 1 creates a discretionary trust, of which the objects are certain. Clause 2 creates a gift to each of the settlor’s children and provides a clear mechanism for determining how the property should be distributed. The children have the power to select their own paintings and the trustee also has a default power which may be exercised if there is disagreement.

Question 156

A testator wants to include a trust of land in their will. They want the land to be held on trust for their children. What must the settlor do in order for this trust to be enforceable? Transfer legal title of the land to the intended trustees and ensure the will is validly executed. Declare the trust in signed writing and then transfer legal title of the land to the intended trustees. Declare the trust in signed writing. There is no need to transfer legal title of the land to the intended trustees as this is a testamentary trust. Transfer legal title of the land to the intended trustees and ensure the declaration of trust has been evidenced in signed writing. Ensure the will is validly executed. There is no need to transfer legal title of the land to the intended trustees as this is a testamentary trust.

Answer 156

Ensure the will is validly executed. There is no need to transfer legal title of the land to the intended trustees as this is a testamentary trust. A testamentary trust is valid if the testator’s will is valid. As long as the will is validly executed, the requirements of s53(1)(b) LPA 1925 will be satisfied. The trust will not take effect until the testator has died and so there is no need to transfer legal title in their lifetime. The trustee’s personal representatives must ensure that the legal title is transferred to the intended trustees (if they are not the trustees themselves).

Question 157

A declares that she holds 20 of her 100 sheep on trust for B. Will the trust fail for uncertainty? Yes. No.

Answer 157

This is because the sheep are not identical. They may vary in size and some may be diseased. It is uncertain which of the sheep are to be held on trust. Yes. correct No. incorrect

Question 158

Why do the courts treat tangible and intangible property differently? Intangible property of the same type is identical, whereas tangible property is not. Trusts of intangible property are less common and so the courts take a more flexible approach. Tangible property is not generally numbered. Trusts of tangible property have existed for longer and so have different rules.

Answer 158

Intangible property of the same type is identical, whereas tangible property is not. correct Tangible property, no matter how similar, may have slight differences. For example, 100 identical chairs cannot be guaranteed to be identical, as some may have been made with different wood and some may be damaged. Intangible property, on the other hand, can be guaranteed to be identical.

Question 159

A declares that she holds 100 of her 1,000 shares on trust for B. A sells 100 shares to C. Which of the following do we presume? A sold the shares she owns beneficially. A sold the shares she held on trust for B. A did not sell any shares to C as she is unable to pass the legal title to shares held on trust for B. A sold 50 of the shares that she owns beneficially and 50 of the shares that she held on trust for B.

Answer 159

A sold the shares she owns beneficially. The presumption is always the more favourable position for the beneficiary as we presume the trustee to act loyally in furthering the beneficiary's interests and not her own.

Question 160

A declares that she holds 100 of her 1,000 shares on trust for B. A sells 100 shares to C and uses the proceeds to buy shares in another company which quadruple in value. Which of the following do we presume? There may be more than one correct answer. A sold the shares she owns beneficially. A sold the shares she held on trust for B. C holds her 100 shares on trust for B. A sold the shares she held on trust for B.

Answer 160

The presumption is always the more favourable for the beneficiary as we presume the trustee to act loyally in furthering the beneficiary's interests and not her own. If the sale was authorized then A has overreached B's equitable proprietary interest in the original shares and replaced it with an equitable proprietary interest in the more valuable shares. A sold the shares she held on trust for B. correct A sold the shares she held on trust for B. correct

Question 161

A client wishes to leave their art collection on trust for the enjoyment of the public. Which of the following is the best advice to the client? The client’s objective cannot be achieved as the intended purpose is not charitable, nor would it constitute a recognised non-charitable purpose trust. The client’s objective can be achieved by way of a charitable trust provided that the art collection is of merit, which may require expert evidence. The client’s objective can be achieved by way of a charitable purpose trust provided that the art collection can be considered to be of educational value. The client’s objective can be achieved by way of a non-charitable purpose trust provided that the art collection is clearly defined. The client’s objective can be achieved by way of a non-charitable purpose trust provided that it complies with perpetuity requirements.

Answer 161

The client’s objective can be achieved by way of a charitable trust provided that the art collection is of merit, which may require expert evidence. The purpose can fall with the advancement of the arts. Charity omission guidance provides that art must be of merit, which may require expert evidence to establish.

Question 162

An organisation wishes to set up a trust fund for the purpose of promoting human rights in relation to an armed conflict abroad. The aims of the fund include raising awareness of human rights abuses, providing relief for the victims and campaigning to change the law in the country concerned in respect of legal representation for human rights activists. Which of the following is the best advice in relation to the validity of the trust? The trust is unlikely to be upheld as a valid charitable trust because the purposes do not fall within a recognised charitable purpose. The trust is likely to be a valid charitable trust for the purpose of the advancement of human rights. The trust is unlikely to be a valid charitable trust because it relates to overseas activities. The trust is unlikely to be a valid charitable trust as it is not wholly and exclusively charitable. The trust is likely to be upheld as a valid charitable trust in respect of the purposes of raising awareness of human rights abuses and providing relief to victims.

Answer 162

The trust is unlikely to be a valid charitable trust as it is not wholly and exclusively charitable. It is unlikely that the purpose of changing the law in a foreign country would be considered charitable as it would likely not meet the public benefit requirement. The purposes would therefore not be wholly and exclusively charitable.

Question 163

A client wishes to set up a trust for the purpose of operating a food bank to provide food to people in the local area. Which of the following is the best advice to the client? The trust is unlikely to be upheld as a valid charitable trust because there is no perpetuity period. The trust is likely to be upheld as a valid charitable trust because there is a presumption of public benefit in relation to activities which relieve poverty. The trust is unlikely to be upheld as a valid charitable trust because it is not explicitly for poor people The trust is unlikely to be upheld as a valid charitable trust because it is limited to a restricted geographical area. The trust is likely to be upheld as a valid charitable trust for the purpose of the relief of poverty.

Answer 163

The trust is likely to be upheld as a valid charitable trust for the purpose of the relief of poverty. The purpose is likely to fall within the charitable purpose of the relief of poverty and satisfy the public benefit test. Poverty can be inferred – see Biscoe v Jackson. Please review your materials in relation to charitable purposes. There is no presumption of public benefit

Question 164

A will contains the following provision: “My trustees shall hold £100,000 on trust to apply the income for the provision and maintenance of football pitches for amateur football clubs in Stratford, East London.” Which of the following is the best advice on the validity of the trust? It is likely to be invalid for perpetuity It is likely to be invalid for lack of public benefit It is likely to be valid as a non-charitable purpose trust. It is likely to be invalid because the purpose is not charitable It is likely to be a valid charitable trust

Answer 164

It is likely to be a valid charitable trust Amateur sport is a charitable purpose under the Charities Act 2011, and the Charity Commissioners’ guidance and case law shows that limitation to a large locality can still satisfy public benefit. A charitable trust can be perpetual. It is likely to be charitable. If it isn’t, it would not be valid under any of the non-charitable purpose trust exceptions. The other options are therefore incorrect.

Question 165

A will includes a draft clause providing that £5,000 shall be left on trust for the purpose of caring for the testator’s dog after the testator’s death. The clause includes sufficient detail to meet the certainty requirement. Which statement is the best advice to the testator? Whether the trust is valid depends on the age and likely lifespan of the dog. The trust is unlikely to be valid because the purpose does not fall within a recognised exception to the beneficiary principle. The clause should be amended to limit the duration of the trust to the dog’s lifetime. The trust is likely to be valid as drafted. The clause should be amended to include an express perpetuity period of no more than 21 years (or as extended by a human life in being).

Answer 165

The clause should be amended to include an express perpetuity period of no more than 21 years (or as extended by a human life in being). Maintenance of a particular animal is an exception to the beneficiary principle but to be valid the trust must also comply with perpetuity rules.

Question 166

In order to prevent a non-charitable purpose trust from failing it is advisable to include an express ______________ in the trust instrument.

Answer 166

perpetuity clause A non-charitable purpose trust will fail if it is not clear from the outset that it will end within the common law perpetuity period of 21 years. It is therefore advisable to include an express perpetuity period in the trust instrument. The common law perpetuity period is 21 years but can be extended by reference to a life in being.

Question 167

Which of the following statements best describes the fundamental importance of the requirement for certainty in a non-charitable purpose trust? The purpose must be so clearly defined that if the trustees surrendered their discretion the court could carry out the purpose. The purpose must be so clearly defined that the trustees can interpret the purpose in a reasonable way. The purpose must be so clearly defined that the beneficiaries can enforce the trust. The purpose must be so clearly defined that the beneficiaries can understand the nature of their rights under the trust. The purpose must be so clearly defined that the trust can be administered in accordance with the wishes of the testator.

Answer 167

The purpose must be so clearly defined that if the trustees surrendered their discretion the court could carry out the purpose. Equity does not recognise trusts that it cannot enforce or control. A purpose must therefore be sufficiently certain that it is possible for the court to carry out the purpose.

Question 168

Which statement is correct in relation to the perpetuity requirements applying to non-charitable purpose trusts? Non-charitable purpose trusts are subject to the 25-year common law perpetuity period. Non-charitable purpose trusts are subject to the 21-year common law perpetuity period. Non-charitable purpose trusts are subject to the 125-year perpetuity period under the Perpetuities and Accumulations Act 2009. Non-charitable purpose trusts are subject to the 125-year common law perpetuity period. Non-charitable purpose trusts are not subject to perpetuity restrictions provided the purpose falls within a recognised exception to the beneficiary principle.

Answer 168

Non-charitable purpose trusts are subject to the 21-year common law perpetuity period. The Perpetuities and Accumulations Act 2009 expressly does not apply to non-charitable purpose trusts. The common law perpetuity period therefore applies.

Question 169

A trustee withdraws £1,000 from the trust bank account and gives it to their sister. The sister uses the cash to buy a computer from a friend. Neither the sister nor the friend knows about the breach of trust. The friend still has the £1,000 cash. Which of the following is the most accurate description of the following, tracing and claiming process? The beneficiary can trace the £1,000 from the bank account into the computer and make a personal claim against the trustee’s sister. The beneficiary can follow the £1,000 from the bank account into the hands of the trustee’s sister, then trace into the computer and make a personal claim against the sister. The beneficiary can follow the £1,000 cash into the hands of the trustee’s sister, then trace into the computer and make a proprietary claim over the computer. The beneficiary can follow the £1,000 from the bank account into the hands of the trustee’s sister and then continue to follow it into the hands of the friend, then make a proprietary claim against the £1,000 cash. The beneficiary can trace the £1,000 from the bank account into the hands of the trustee’s sister and then trace again into the computer and make a proprietary claim over the computer.

Answer 169

The beneficiary can follow the £1,000 cash into the hands of the trustee’s sister, then trace into the computer and make a proprietary claim over the computer. The beneficiary is able to follow the £1,000 cash into the hands of the trustee’s sister and trace into the substitute (i.e. the computer). The friend is a purchaser for value without notice of the trust so has a defence against proprietary claims. The sister does not have such a claim as she has not given value.

Question 170

In breach of trust, a trustee misappropriates £15,000 of the trust fund. The trustee uses £5,000 to purchase shares, £5,000 to purchase a car, and £5,000 to purchase a painting. The trustee sells the shares and dissipates the proceeds of sale: The purchaser does not have any knowledge of the trust. The trustee gifts the car to his son: The son does not have any knowledge of the trust. Which one of the following statements describes the beneficiary’s rights? The beneficiary can make a proprietary claim to the painting but not to the shares or the car. The beneficiary cannot make any proprietary claims. The beneficiary can make a proprietary claim to the car, the painting and the shares. The beneficiary can make a proprietary claim to the car and the painting but not to the shares. The beneficiary can make a proprietary claim to the shares and the car but not to the painting.

Answer 170

The beneficiary can make a proprietary claim to the car and the painting but not to the shares. Generally, a beneficiary can make a proprietary claim against assets acquired exclusively with trust money or its traceable proceeds. However, a beneficiary cannot make any claim against a purchaser of a legal interest who does not have knowledge of the trust. Thus, the purchaser of the shares can successfully defend the beneficiary’s proprietary claim.

Question 171

In breach of trust, a trustee misappropriates £10,000 of the trust fund. He uses the money to purchase shares in a company. Which one of the following statements describes the beneficiary’s rights? The only claim available to the beneficiary is a proprietary ownership claim to the shares. The only claim available to the beneficiary is a personal claim against the trustee for £10,000. The beneficiary may elect between an ownership claim to the shares and a security claim to the shares. The only claim available to the beneficiary is a security claim to the shares. The beneficiary can make a personal claim against the trustee for £10,000 or a proprietary claim to the shares, as the trustee determines.

Answer 171

The beneficiary may elect between an ownership claim to the shares and a security claim to the shares. When a trustee misapplies trust money and uses it to purchase an asset, the beneficiaries can bring: (a) a personal claim against the trustee for the misapplied money, or (b) a personal claim against the trustee for the misapplied money coupled with a proprietary security claim to the asset, or (c) a proprietary ownership claim to the asset: Foskett v McKeown [2001] 1 AC 102.

Question 172

A solicitor trustee and a lay trustee held a majority shareholding in a company on trust. The solicitor trustee was elected to the board of directors but did not attend board meetings and was unaware that the company was being mismanaged. The shares have halved in value since they were acquired by the trustees. As a result of the failure to supervise and safeguard the trust investment a breach of the trustee duty of care and skill has occurred. Which of the following most accurately describes the liability of the trustees? Only the solicitor trustee will be liable, because they were the trustee elected to the board of directors. Only the solicitor trustee will be liable, because they are acting in a professional capacity. The trustees will be jointly and severally liable. However, the lay trustee should apply for an indemnity because of the solicitor trustee’s overbearing influence. The trustees will be jointly and severally liable, although it may be possible for the lay trustee to apply to apportion greater liability to the solicitor trustee. The trustees will be jointly and severally liable. There is no defence available to either trustee because the trust was a majority shareholder.

Answer 172

The trustees will be jointly and severally liable, although it may be possible for the lay trustee to apply to apportion greater liability to the solicitor trustee. As the trust has a majority shareholding the trustees were under a common law duty to supervise and safeguard the investment (see e.g. Bartlett v Barclays Bank). Where a breach of duty occurs, the trustees are jointly and severally liable even though one of the trustees is not directly involved and even though one of the trustees is not acting in a professional capacity. While acting as a lay trustee will not absolve a trustee of their liability, it may be possible for the lay trustee to apportion greater liability to the professional trustee under s 1 Civil Liabilities (Contribution) Act 1978, although it is not possible on the facts to know whether this would be successful or not

Question 173

You are advising the two trustees of a discretionary trust in relation to the following events, each of which was a breach of duty by the trustee resulting in loss to the trust fund: Trustee A made a transfer from the trust bank account to settle an invoice received by the trust.Trustee A later discovered that the recipient account details were entered incorrectly, the funds have been paid to an overseas bank in error and it may not be possible to recover this money. Trustee B withdrew £2,000 from the trust bank account and used this to repay outstanding gambling debts. The trust instrument contains an exemption clause which absolves the trustees from all liability for loss to the trust fund as a result of any breach. Who may rely on the trustee exemption clause? Neither trustee. Trustee B only. Both trustees, provided they each agree the other should be absolved Trustee A only. Both trustees, provided a majority of the beneficiaries agree.

Answer 173

Trustee A only. Following Armitage v Nurse, an exemption clause which exonerates a trustee from liability can be enforced in respect of any breach other than a fraudulent or dishonest breach of trust. Trustee A was negligent but was not dishonest. Trustee B has stolen from the trust which is an act of dishonesty and therefore Trustee B cannot claim the benefit of the exemption clause, irrespective of how widely it is drafted.

Question 174

A man and woman bought a house 20 years ago as a family home. The house was registered in the man’s sole name. The couple were not married or in a civil partnership. When the house was purchased they agreed that they had equal shares in the house but did not write this down. The couple lived together in a quasi-matrimonial relationship, sharing all outgoings including the mortgage payments, until they separated recently. The man denies that the woman has any interest in the house. Which of the following is the best advice to the woman? The starting point is that the man is the sole equitable owner. It is likely that the woman has acquired an interest under a common intention constructive trust. Under this trust, the man and woman are likely to be equitable joint tenants. The starting point is that the man is the sole equitable owner. It is unlikely that the woman can establish an equitable interest in the house. It is presumed that the man and woman are equitable joint tenants. It is unlikely that the presumption can be rebutted. It is presumed that the man and woman are equitable joint tenants. This presumption is likely to be rebutted in favour of a tenancy in common in equal shares. The starting point is that the man is the sole equitable owner. It is likely that the woman has acquired an interest under a common intention constructive trust. Under this trust, the man and woman are likely to be equitable tenants in common in equal shares.

Answer 174

The starting point is that the man is the sole equitable owner. It is likely that the woman has acquired an interest under a common intention constructive trust. Under this trust, the man and woman are likely to be equitable tenants in common in equal shares. This is the most likely analysis based on the express discussions between the parties. There is nothing which suggests that their intention changed over time.

Question 175

A woman purchased a cottage which was registered in her sole name. She subsequently entered a relationship with a man. They were not married or in a civil partnership. The man spent many weekends helping the woman to decorate the cottage. The woman told the man that the improvements to the cottage would “benefit us both”. The relationship has broken down and the man is claiming a beneficial interest in the cottage. Which of the following statements is the best advice? It is unlikely that the man could successfully establish a beneficial interest in the cottage. It is likely that the man could establish a beneficial interest in the cottage under an express trust. It is likely that the man could establish a beneficial interest in the cottage under a purchase money resulting trust. It is likely that the man could establish a common intention constructive trust based on his detrimental reliance upon the express discussions about benefitting from the cottage. It is likely that the man could establish a common intention constructive trust based on the whole course of conduct in relation to the cottage.

Answer 175

It is unlikely that the man could successfully establish a beneficial interest in the cottage. This is the most likely analysis. The express discussions were not about ownership of the house and it is unlikely that helping the woman to decorate the cottage would be sufficient to infer a common intention for the man to acquire an interest in the cottage.

Question 176

A man and a woman bought a house as a family home which was registered in their joint names. 75% of the deposit was provided by the woman, with the balance provided by way of mortgage for which they were jointly liable. The woman made most of the mortgage repayments and paid most of the outgoings. The man and woman lived in a quasi-matrimonial relationship for 25 years, during which time they had three children. Throughout this period the parties kept separate bank accounts and made separate investments. The couple recently separated and the woman is claiming that she is entitled to a larger share of the house than the man. Which of the following is the best advice to the woman? The couple are presumed to be equitable joint tenants. It is unlikely that the presumption can be rebutted. The couple are presumed to be equitable joint tenants. Based on the whole course of conduct, the court is likely to rebut the presumption and award the woman a greater share which will be quantified with reference to her financial contributions to the mortgage and outgoings. The couple are presumed to be equitable joint tenants. It is unlikely that the presumption will be rebutted until the couple ended the relationship, at which stage the presumption will be rebutted in favour of a tenancy in common in equal shares. The couple are presumed to be equitable tenants in common. Based on the whole course of conduct, the court is likely to rebut the presumption and award the woman a greater share which will be quantified with reference to her financial contributions to the mortgage and outgoings. The couple are presumed to be equitable tenants in common in proportion to their respective contributions to the mortgage and outgoings. It is unlikely that this presumption can be rebutted, meaning the woman will have a greater share of the property than the man.

Answer 176

The couple are presumed to be equitable joint tenants. Based on the whole course of conduct, the court is likely to rebut the presumption and award the woman a greater share which will be quantified with reference to her financial contributions to the mortgage and outgoings. This is the most likely analysis, based on the similarity between this fact pattern and the facts of Stack v Dowden, where rigid separation of finances was a significant factor.

Question 177

A father is the registered owner of freehold land which is used as a farm. He encourages his daughter to work on the farm and regularly assures her that he will leave the farm to her on his death. His daughter lives and works on the farm for her whole life, giving up other career opportunities. On the father’s death, he leaves the farm to his son. Which of the following is the best advice to the daughter on whether she can claim the farm by estoppel? She may have a claim to the farm by estoppel, but more evidence will be needed on whether she can satisfy each element of the claim. She is very likely to have a successful claim to the farm by estoppel. She can only claim estoppel if she suffered substantial financial detriment in working on the farm. She cannot claim estoppel because it can only be used as a defence, not a cause of action. She cannot claim estoppel because equity will not perfect an imperfect gift.

Answer 177

She may have a claim to the farm by estoppel, but more evidence will be needed on whether she can satisfy each element of the claim. On these facts, the daughter may have a successful claim, but more evidence is needed on whether there was sufficient assurance, reliance, detriment and unconscionability.

Question 178

A woman and her girlfriend bought a house which they registered in their joint names. During the course of a 12 year relationship, they contributed equally towards the mortgage payments and other household outgoings. The couple then separated and agreed that the woman would remain in the house and that the girlfriend should use their joint savings as a deposit on a new flat. The girlfriend made no further contributions to the house. The woman died 15 years later. Her personal representatives claim that her estate is entitled to a share of the house (which has increased significantly in value since the couple separated). Which of the following is the best advice to the woman’s personal representatives? It is presumed that the couple were equitable joint tenants. It is unlikely that the presumption can be rebutted. It is presumed that the couple were equitable joint tenants. It is likely that the presumption was rebutted when the couple separated. The woman’s estate is likely to have a greater share based on her continued contributions and the increase in the value of the house. It is presumed that the couple were equitable tenants in common in equal shares. It is likely that the presumption was rebutted when the couple separated. The woman’s estate is likely to have a greater share based on her continued contributions and the increase in the value of the house. It is presumed that the couple were equitable joint tenants. It is unlikely that the presumption can be rebutted. The house passes to the girlfriend via survivorship. It is presumed that the couple were equitable joint tenants. It is likely that the presumption will be rebutted in favour of a tenancy in common in equal shares.

Answer 178

It is presumed that the couple were equitable joint tenants. It is likely that the presumption was rebutted when the couple separated. The woman’s estate is likely to have a greater share based on her continued contributions and the increase in the value of the house. This is the most likely analysis, based on the similarity to the fact pattern in Jones v Kernott. It is unlikely the presumption could be rebutted before the couple separated, but their subsequent conduct suggests that it was intended that the woman should benefit from subsequent increases in the house price.

Question 179

The sole trustee of a trust for an adult beneficiary has just died. The trust instrument contains no powers to appoint trustees. Who has the power to appoint a replacement trustee? Nobody. The court only. The beneficiary only The trustee’s personal representatives only. The beneficiary, the trustee’s personal representatives and the court.

Answer 179

The beneficiary, the trustee’s personal representatives and the court. The beneficiary has a power to appoint trustees under s 19 TLATA. The trustee’s personal representatives can exercise the s36 TA 1925 statutory power. The court also has a power to appoint trustees under s 41 TA 1925.

Question 180

Trustees hold a £10,000 trust fund on trust for a sole beneficiary (currently aged 17). The beneficiary has asked the trustees for an advancement of £4,000 capital to buy a car. The beneficiary also wants the trustees to use the trust income to fund the running costs of the car. How should the trustees deal with the request? The trustees must advance the £4,000 capital but may not apply the income for the car’s running costs. The trustees may advance the £4,000 capital but may not apply the income for the car’s running costs. The trustees must advance the £4,000 capital and apply the income for the car’s running costs. The trustees may advance the £4,000 capital and apply the income for the car’s running costs. The trustees may not advance the £4,000 capital or apply the income for the car’s running costs.

Answer 180

The trustees may advance the £4,000 capital and apply the income for the car’s running costs. The trustees have the power under ss 31 and 32 LPA 1925 to advance capital for the benefit of the beneficiary and to apply income for their maintenance.

Question 181

Which of the following most accurately correctly describes the statutory powers of trustees to purchase land? Trustees may purchase land in the UK or overseas but only as an investment. Trustees may purchase land in the UK but only for occupation by a beneficiary. Trustees may purchase land in the UK or overseas, whether as an investment or for any other purpose, including occupation by a beneficiary. Trustees may purchase land in the UK but only as an investment Trustees may purchase land in the UK, whether as an investment or for any other purpose, including occupation by a beneficiary.

Answer 181

Trustees may purchase land in the UK, whether as an investment or for any other purpose, including occupation by a beneficiary. Section 3 Trustee Act 2000 gives trustees a wide power to invest in any property, but in the case of land this must be read in conjunction with section 8 which provides that trustees may only acquire land in the UK. This land may be purchased as an investment, for occupation by a beneficiary or for any other reason.

Question 182

Lay trustees decided to invest in a company having read positive reviews in the press. The company share price was increasing rapidly so they invested immediately without seeking further advice. Six months later the company was publicly criticised for having breached data protection regulations on numerous occasions, and as a result the share price plummeted. Have the trustees acted in breach of their investment obligations under the Trustee Act 2000? Yes, because they did not first seek the consent of the beneficiaries. Yes, by relying on the press reports and not seeking any other advice. No, because it is reasonable to rely upon advice in the press. No, because the trustees are not acting in a professional capacity. No, because the events which caused the loss were not in the public domain at the time the trustees made the investment decision.

Answer 182

Yes, by relying on the press reports and not seeking any other advice. The trustees are under an obligation to take proper advice and it is unlikely that this has been satisfied by reliance on press reviews (s 5 of the Trustee Act 2000).

Question 183

You are advising the trustees of a discretionary trust. The trustees want to appoint an investment manager to make financial decisions on their behalf in relation to the trust fund. One of the beneficiaries of the trust (‘B’) is an experienced and well-respected financial adviser and has specialist tax knowledge. The trustees would like to appoint B to act as investment manager for the trust. The trustees believe B will be highly motivated to perform well and she may also be able to offer her services to the trust at a reduced rate. The trustees would also like B to decide when distributions should be paid to the beneficiaries to ensure this is done in the most tax efficient manner. The trust instrument does not contain any express powers relating to the appointment of agents or delegation of trustee functions. Which of the following is correct? The trustees may not delegate either investment or distribution decisions to anyone because the trust instrument does not expressly permit this. The trustees may not appoint B to make either investment or distribution decisions The trustees may appoint B to make distribution decisions only. The trustees may appoint B to make both investment and distribution decisions. The trustees may appoint B to make investment decisions only.

Answer 183

The trustees may not appoint B to make either investment or distribution decisions The Trustee Act 2000 does permit the delegation of investment decisions but not decisions relating to distribution of the trust fund. However, the trustees may not delegate to one of the trust beneficiaries.

Question 184

The sole beneficiary of a trust has an interest in the £50,000 trust capital which is contingent upon attaining the age of 25. The beneficiary is currently 17 years old. The beneficiary has asked the trustee to advance her £30,000 from the trust fund so that she can fund her studies to become an educational psychologist. Which of the following best describes the powers and duties of the trustee? The trustee may advance £30,000 to the beneficiary for any purpose. The trustee must advance £30,000 to the beneficiary for the requested purpose. The trustee may not advance any capital to the beneficiary until she attains the age of 18. The trustee may advance £30,000 to the beneficiary for the requested purpose. The trustee may not advance any capital to the beneficiary until she attains the age of 25.

Answer 184

The trustee may advance £30,000 to the beneficiary for the requested purpose. The power of advancement in s32 TA 1925 gives the trustee the power, but not the obligation, to advance the money for the beneficiary’s education.

Question 185

Trustees have been holding a trust fund for a woman for life, remainder to the woman’s daughters in equal shares when they reach the age of 25. The woman has just died. Her younger daughter is 21 and her older daughter is 27. Advise the trustees on their obligations with respect to the trust income and capital. The trustees must distribute the older beneficiary’s share of the capital as soon as possible. They must continue to hold the younger beneficiary’s share of the capital on trust unless she directs them to transfer it to her. They must distribute the income to her in the meantime. The trustees must continue to hold the capital on trust unless the beneficiaries direct them to transfer it to them. They must distribute the income to both beneficiaries in the meantime. The trustees must distribute the capital to both beneficiaries as soon as possible. The trustees must continue to hold the capital on trust but must distribute the older beneficiary’s share of the capital if she requests it. They must continue to hold the younger beneficiary’s share on trust until she reaches the age of 25. They must distribute the income to both beneficiaries in the meantime. The trustees must continue to hold the capital on trust unless the beneficiaries request their shares of the capital. They must accumulate the income unless the beneficiaries request it.

Answer 185

The trustees must distribute the older beneficiary’s share of the capital as soon as possible. They must continue to hold the younger beneficiary’s share of the capital on trust unless she directs them to transfer it to her. They must distribute the income to her in the meantime. The older beneficiary’s interest in the capital has vested in possession, meaning the trustees must distribute her share as soon as possible. The younger beneficiary’s share has vested in interest only. The trustees must continue to hold it on trust unless she exercises her Saunders v Vautier rights and collapses the trust. As she is over 18 they must distribute the income.

Question 186

Trustees hold a £10,000 trust fund on trust for a sole beneficiary (currently aged 17). The beneficiary has asked the trustees for an advancement of £4,000 capital to buy a car. The beneficiary also wants the trustees to use the trust income to fund the running costs of the car. How should the trustees deal with the request? The trustees must advance the £4,000 capital and apply the income for the car’s running costs. The trustees may advance the £4,000 capital and apply the income for the car’s running costs. The trustees must advance the £4,000 capital but may not apply the income for the car’s running costs. The trustees may advance the £4,000 capital but may not apply the income for the car’s running costs. The trustees may not advance the £4,000 capital or apply the income for the car’s running costs.

Answer 186

The trustees may advance the £4,000 capital and apply the income for the car’s running costs. The trustees have the power under ss 31 and 32 LPA 1925 to advance capital for the benefit of the beneficiary and to apply income for their maintenance.

Question 187

A woman is the trustee of a family trust, the assets of which include a majority shareholding in a company. The terms of the trust instrument expressly permit the trustees to use the shareholding to appoint themselves as directors of the company (although it is silent regarding the payment of any associated remuneration). The woman is appointed as a director of the company and is paid an annual salary of £45,000. Which of the following best describes the woman’s position in relation to the salary? The woman can keep the salary unless the beneficiaries of the trust object. If they object, the beneficiaries are entitled to seek an account of profits. The woman can keep the salary because her position as director of the company is separate from her role as a trustee. The woman can keep the salary because it is paid as remuneration for her work as the director of the company. The woman cannot keep the salary. If she does, the beneficiaries may seek an account of profits. The woman cannot keep the salary. If she does, the beneficiaries may elect between a constructive trust or account of profits.

Answer 187

The woman cannot keep the salary. If she does, the beneficiaries may elect between a constructive trust or account of profits. The woman has only been appointed as a director as a result of her position as trustee and keeping the salary would be a breach of the no profit rule. Following FHR European v Cedar Capital Partners the remedy for breach of the no profit rule is the proprietary remedy of a constructive trust.

Question 188

A trust fund is held for two adult beneficiaries, A and B. B wants to raise money to start their own business. B has no significant assets other than their interest under the trust which they would like to sell. One of the trustees is interested in buying B’s interest. Which of the following would be the most appropriate advice for the trustee? The proposed sale would be self-dealing and therefore voidable unless the trustee obtains the informed consent of both beneficiaries. The proposed sale would be fair-dealing and therefore voidable unless the trustee obtains the informed consent of both beneficiaries. The proposed sale would be self-dealing and therefore void unless the trustee obtains the informed consent of both beneficiaries. The proposed sale would be self-dealing. The trustee should therefore not proceed. The proposed sale would be fair-dealing. The trustee should ensure that B gets independent advice on the sale and that the interest is independently valued.

Answer 188

The proposed sale would be fair-dealing. The trustee should ensure that B gets independent advice on the sale and that the interest is independently valued. The proposed sale is an example of fair dealing. The trustee may purchase the equitable interest of a beneficiary if they can prove they acted fairly, there was no undue influence, they gave full value and the beneficiary was fully informed. These can be demonstrated by the practical steps suggested.

Question 189

A flat owned by a family trust has increased in value since it was acquired by the trustees. Following professional advice, the trustees decide to sell the flat and re-invest the proceeds. One of the trustees (‘T’) wants to purchase the flat and obtains three independent valuations. The trustees sell the flat to T for the average of the three valuations (the ‘Sale’). Which one of the following best describes the Sale? The Sale is self-dealing but is not voidable because professional advice was obtained. The Sale is self-dealing and voidable. It does not matter how much T pays. The Sale is self-dealing but is not voidable because a fair price was paid. The Sale is self-dealing and voidable because T did not pay a price equal to the highest valuation. The Sale is not self-dealing because T paid a fair price for the flat.

Answer 189

The Sale is self-dealing and voidable. It does not matter how much T pays. The Sale is self-dealing and is therefore voidable regardless of whether a fair price has been paid. T should have sought the consent of the beneficiaries before entering into the Sale.]

Question 190

A solicitor working in the commercial property team of a law firm is advising a company, acting by its directors. The company is the trustee of a trust. The company has instructed a firm of estate agents to identify a suitable property as a trust investment. The estate agents have identified a property which the company will purchase with a mortgage provided by a bank. In relation to this transaction, which of the following parties does not owe any fiduciary duties to any of the others? The estate agents The company The directors The solicitor The mortgagee bank

Answer 190

The mortgagee bank The mortgagee bank (lender) does not owe any fiduciary duties to the company (borrower). The parties have entered a commercial agreement and there is no reason to suppose any fiduciary relationship exists.

Question 191

A trust includes several valuable vintage sports cars. In breach of trust the trustee gives one of the sports cars to her girlfriend. The girlfriend is confused as the trustee has recently been complaining about how short of money she is. When the girlfriend asked where the car came from the trustee replies that this is a “perk of the job” and that “what you don’t know, won’t hurt you”. The girlfriend knew that the trust contained vintage cars but decided to ask no further questions and took the car out for a drive. She crashed the car and it is now worthless. Which one of the following statements best describes the girlfriend’s liability to the beneficiaries? The girlfriend is an innocent volunteer but is not liable for knowing receipt because the car is now worthless. The girlfriend is an innocent volunteer so the beneficiaries can make a personal claim against her for knowing receipt. The girlfriend had knowledge making it unconscionable for her to retain the car. The beneficiaries can make a personal claim against her for knowing receipt. The girlfriend is an innocent volunteer so is not personally liable to the beneficiaries. The girlfriend had knowledge making it unconscionable for her to retain the car but is not liable for knowing receipt because the car is now worthless.

Answer 191

The girlfriend had knowledge making it unconscionable for her to retain the car. The beneficiaries can make a personal claim against her for knowing receipt. The girlfriend beneficially received the car. She has knowledge which would indicate the facts to a reasonable person and arguably ought to have made further enquiries. She is therefore likely to be liable for knowing receipt.

Question 192

A trustee transfers £20,000 from a trust bank account into a business account in the trustee’s sole name. The trustee’s spouse manages the finances of this business and is surprised to see this large deposit as they are aware the business is struggling. The spouse checks the account details and realises the money was transferred from the trust account. The trustee’s spouse asks the trustee why they have received money from the trust account but is told to ‘stop asking stupid questions’. The spouse chooses not to enquire further and uses the money in the account to pay creditors of the business. The trust account is now completely empty and the trustee is bankrupt. Advise the trustee’s spouse as to any personal liability they may have to the beneficiaries of the trust. The spouse cannot be personally liable to the beneficiaries because they do not know that there has been a breach of trust. The spouse is likely to be personally liable for breach of fiduciary duty. The spouse is likely to be personally liable for dishonestly assisting the breach of trust. The spouse will not be personally liable to the beneficiaries as they have not personally received any of the money from the trust fund. The spouse is likely to be personally liable for knowing receipt.

Answer 192

The spouse is likely to be personally liable for dishonestly assisting the breach of trust. The spouse has assisted in a breach of trust by paying out the funds to the trustee’s creditors. They are likely to satisfy the objective test for “dishonesty” in Royal Brunei Airlines v Tan (an honest person in possession of the same facts would have considered their actions to be dishonest) because they choose not to pursue further enquiries.

Question 193

A woman is a professional trustee for a number of trusts. She is having financial difficulties at home. The woman’s husband tells her that he has tried to pay a large household bill but their bank has refused the payment. The woman tells her husband not to worry as she has access to money through her work. She emails her husband the bank details for a trust account and tells him to use this to pay the bill, which he does. The husband is a law graduate and is aware of the woman’s profession. He is reassured by the woman that the money will be repaid to the trust as soon as possible. Which one of the following statements best describes whether the husband is liable for the loss caused to the trust fund? The husband is likely to be liable because he assisted the breach of trust and an honest person would consider his actions to be dishonest. The husband is unlikely to be liable because although he assisted the breach of trust an honest person would not consider his actions to be dishonest. The husband is not liable because he has not acted in breach of trust or of fiduciary duty. The husband is unlikely to be liable because he did not assist the breach and an honest person would not consider his actions to be dishonest. The husband is likely to be liable because he benefitted from the breach of trust and had knowledge making it unconscionable to do so.

Answer 193

The husband is likely to be liable because he assisted the breach of trust and an honest person would consider his actions to be dishonest. The husband is likely to be liable because he assisted the breach of trust and an honest person would consider his actions to be dishonest (particularly in light of his legal background).

Question 194

In breach of trust, a trustee misappropriated £20,000 of a trust fund and paid the money into their own bank account, which contained £5,000. The trustee used all of the £25,000 to buy a new car. The car has now increased in value. Which of the following claims is most appropriate for the beneficiary to pursue? A proprietary claim to equitable ownership of the car A proportionate share (80%) of the ownership of the car A charge over the car to secure the personal claim against the trustee for £20,000 A personal claim against the trustee for £20,000 A charge over the bank account to secure the personal claim against the trustee for £20,000

Answer 194

A proportionate share (80%) of the ownership of the car The trustee has used a wrongful mixture containing 80% trust money and 20% of their own money to purchase the car. As the car has increased in value, a proportionate claim is the most appropriate for the beneficiary to pursue as they will benefit from the increase in value.

Question 195

In breach of trust, a trustee misappropriates £10,000 of the trust fund. They use £5,000 of the money to pay off the mortgage debt they incurred when they purchased their house. They use the other £5,000 to pay a debt they incurred when they purchased their car. They purchased the house and the car five years before their appointment as a trustee. Which statement best describes the beneficiary’s rights? The beneficiary can trace into the house. The beneficiary only has a personal claim against the trustee. The beneficiary can trace into the car. The beneficiary can be subrogated to the rights of the mortgagee. The beneficiary can trace into the house and the car.

Answer 195

The beneficiary can be subrogated to the rights of the mortgagee. The beneficiary can assume (by subrogation) the rights of the mortgagee immediately before the receipt of the £5,000. Thus, the beneficiary can recover £5,000 from the trustee and, if the trustee is unable to pay, can enforce the mortgage.

Question 196

A person is the trustee of two trusts, Trust A and Trust B. In breach of trust they misappropriate £5,000 from each trust. They use the £10,000 to purchase a painting. The seller of the painting does not know that the buyer is a trustee or that they have misapplied trust funds. The painting is currently worth £8,000. The seller still has the £10,000 they were paid for the painting. Which statement best describes the beneficiaries’ rights? The beneficiary of Trust A can assert a lien over the painting to secure payment of £5,000. The beneficiaries of Trust A and Trust B can claim the £10,000 from the seller of the painting. The beneficiary of Trust B can assert a lien over the painting to secure payment of £5,000. The beneficiaries of Trust A and Trust B can only make personal claims against the trustee. The beneficiaries of Trust A and Trust B can claim a proportionate share of the painting.

Answer 196

The beneficiaries of Trust A and Trust B can claim a proportionate share of the painting. Where an asset is purchased with money misapplied from two or more trusts, the beneficiaries of the respective trusts can claim a proportionate share of the asset.

Question 197

In breach of trust, a trustee misappropriates £5,000 of the trust fund. The trustee pays the money into their personal current account (‘the Account’) which already contains £10,000 of the trustee’s own money. The trustee withdraws £5,000 from the Account and dissipates it. The trustee then withdraws £5,000 from the Account and uses it to purchase shares. Finally, they withdraw £5,000 from the Account and use it to purchase a painting. The shares are currently worth £15,000 and the painting is currently worth £20,000. The trustee is bankrupt. Which statement best describes the beneficiary’s position? The beneficiary can trace into the shares. The beneficiary can trace into the shares and the painting. The beneficiary can trace into the painting. The beneficiary can only make a personal claim against the trustee. The beneficiary cannot trace into any asset.

Answer 197

The beneficiary can trace into the shares. The trustee mixed misapplied trust money with their own money. The trustee is bankrupt and, as a result, the beneficiary is competing with the trustee’s unsecured creditors. In these circumstances the beneficiary can attribute any part of the mixed fund which was dissipated to the trustee. But the beneficiary cannot attribute the misapplied trust money to the most profitable applications of the mixed fund.

Question 198

In breach of trust, a trustee misappropriates £5,000 of the trust fund. The trustee pays the money into their personal current account (‘the Account’) which already contains £10,000 of the trustee’s own money. The trustee withdraws £5,000 from the Account and dissipates it. The trustee then withdraws £5,000 from the Account and uses it to purchase shares. Finally, they withdraw £5,000 from the Account and use it to purchase a painting. The shares are currently worth £15,000 and the painting is currently worth £20,000. The trustee is bankrupt. Which statement best describes the beneficiary’s position? The beneficiary can trace into the shares. The beneficiary can trace into the shares and the painting. The beneficiary can trace into the painting. The beneficiary can only make a personal claim against the trustee. The beneficiary cannot trace into any asset.

Answer 198

The beneficiary can trace into the shares. The trustee mixed misapplied trust money with their own money. The trustee is bankrupt and, as a result, the beneficiary is competing with the trustee’s unsecured creditors. In these circumstances the beneficiary can attribute any part of the mixed fund which was dissipated to the trustee. But the beneficiary cannot attribute the misapplied trust money to the most profitable applications of the mixed fund.

Question 199

Question1 A man recently died. His valid will contains the following clause: ‘I give £10,000 to my husband to hold for such of our children and in such shares as he sees fit.’ The executor of the man’s will has paid £10,000 to the man’s husband. The husband wishes to know what he is allowed to do with this money. Which of the following statements best describes the husband’s position in relation to the £10,000? Select one alternative: The husband is the full legal owner of the money. The clause is void and the husband receives nothing. The husband holds the money on a fixed trust for himself and the children. The husband holds the money on a discretionary trust for the children. The husband holds the money on a fixed trust for the children.

Answer 199

This question assessed your understanding of certainty of intention and the distinction between gifts and different types of trust. The husband holds the money on a discretionary trust for the children. The best interpretation of the testator’s intention is a discretionary trust for the children. The language ‘to hold for’ is sufficiently imperative to create a trust and it is apparent that the husband has a discretion as to which children benefit and in what proportions.

Question 200

A woman recently died. Her valid will contains the following clauses: ‘1. I give £10,000 to my trustees, out of which they must pay an appropriate sum to my brother. 2. I give £10,000 to my trustees to be distributed equally amongst my nieces and nephews.’ Which statement best describes the status of the trusts in clauses 1 and 2? Select one alternative: The trustees can determine whether the trusts are valid or void. The trust in clause 1 is valid but the trust in clause 2 is void. The trusts in clauses 1 and 2 are valid. The trusts in clauses 1 and 2 are void. The trust in clause 2 is valid but the trust in clause 1 is void.

Answer 200

The trust in clause 2 is valid but the trust in clause 1 is void. This question assessed your understanding of certainty of subject matter. Certainty of subject matter comprises two requirements. The second requirement is the beneficial entitlement requirement: it must be possible to ascertain the nature and extent of the beneficiary’s interest in the trust property. Clause 2 is a fixed trust and contains a mechanism for ascertaining the extent of each beneficiary’s interest (with ‘nieces and nephews’ being a conceptually certain class of objects). However, in relation to clause 1, it is not possible to ascertain the extent of the beneficiary’s interest because ‘appropriate sum’ is an uncertain measure. (How much is an ‘appropriate sum’?) As a result, the trust in clause 1 is void for uncertainty of subject matter.

Question 201

The owner of 20 ordinary shares in a private company and 20 bars of gold bullion orally declared themselves to be a trustee of 10 of the shares and 10 of the bars for a beneficiary. They did not segregate or otherwise identify the shares or bars which were to form the subject matter of the trust. Which one of the following statements describes the effect of the declaration? Select one alternative: There is a trust of 10 shares. There is no trust of shares or bars. There is a trust of 10 bars. There is a trust of 20 shares and 20 bars. There is a trust of 10 shares and 10 bars.

Answer 201

This question assessed your understanding of certainty of subject matter and, in particular, the case law on segregating assets from a wider mass. There is a trust of 10 shares. There is a trust of 10 shares because a person can declare a trust of x shares out of a larger number of such shares without identifying which x shares are to form the subject matter of the trust, provided that they are all shares of the same type and in the same company: Hunter v Moss [1994] 1 WLR 452. However, there is not a trust of any of the bullion because a person cannot declare a trust of x physical items out of a larger number of such items without identifying the particular x items which are to form the subject matter of the trust: In re Goldcorp [1995] 1 AC 74.

Question 202

A trustee holds money on trust for a woman for life, remainder to her two children who are aged 19 and 17. The woman and her children are unhappy that they cannot spend the money themselves and wish to bring the trust to an end using the rule in Saunders v Vautier. Which of the following best summarises how the rule applies to this trust? Select one alternative: The beneficiaries cannot collapse the trust until the youngest beneficiary turns 18. Answered and correct The two older beneficiaries can collapse the trust and take their shares immediately. The youngest beneficiary must wait until they turn 18 before they can receive their share. The beneficiaries cannot collapse the trust immediately because it contains a life interest and remainder interests, which cannot be easily shared between the three beneficiaries. The beneficiaries can collapse the trust immediately and share the property in any way that they agree. The beneficiaries cannot collapse the trust before the youngest beneficiary turns 18 unless the trustee agrees.

Answer 202

This question assessed your understanding of the rule in Saunders v Vautier. The beneficiaries cannot collapse the trust until the youngest beneficiary turns 18. Two of the beneficiaries meet the criteria for exercising Saunders v Vautier but the third is under 18. Because of the nature of the interests in this trust, it is not possible for the adult beneficiaries to sever their shares and collapse their interests in the trust now. They must wait until the remaining beneficiary is 18. At this stage, the beneficiaries can direct the trustees to transfer the property to them (or in fact to anyone else) in such shares as they agree.

Question 203

A settlement contains a discretionary trust and a power of appointment. The objects of the discretionary trust are ‘all 18-25 year olds living in the United Kingdom.’ The objects of the power of appointment are ‘all 18-25 year olds in the world.’ Which statement best describes the status of the trust and the power? Select one alternative: The trust is valid but the power is void. The trust and the power are void. The trustees can determine whether the trust and the power are valid. The power is valid but the trust is void. The trust and the power are valid.

Answer 203

This question assessed your understanding of the difference between the tests of validity for powers of appointment and discretionary trusts, with a focus on administrative unworkability. The power is valid but the trust is void. The discretionary trust has millions of objects: it is administratively unworkable and void. Although the fiduciary power has an even larger class of objects, this does not affect the validity of the power.

Question 204

By the terms of a trust the trustee is instructed to pay the trust income to a man during his lifetime and, after the man’s death, to transfer the trust capital to a woman if she marries or forms a civil partnership. The man is alive. The woman is unmarried. Which statement best describes the nature of the man’s and the woman’s rights? Select one alternative: The man and the woman have vested interests in remainder. The man and the woman have interests in possession. The man has a vested interest in possession and the woman has a vested interest in remainder. The man has a vested interest in possession and the woman has a contingent interest in remainder. Answered and correct The man and the woman have contingent interests.

Answer 204

This question assessed your understanding of vested and contingent interests. The man has a vested interest in possession and the woman has a contingent interest in remainder. The man has an immediate right to income. The woman’s interest is contingent because she is only entitled to the capital if she marries or forms a civil partnership. Her interest is in remainder because she is only entitled to the capital after the man dies.

Question 205

The adult niece of a deceased testator visits a solicitor for advice on the following clause of the testator’s valid will: ‘I give one hundred thousand pounds on trust for such of my nieces and nephews as shall survive me and in such shares as my trustees shall in their absolute discretion determine.’ Which of the following best describes the niece’s rights under this clause? Select one alternative: The niece can compel the trustees to divide the trust fund equally between the named objects. The niece can compel the trustees to provide her with an income from the trust. The niece can compel the trustees to transfer her share of the trust fund because she is over 18. The niece can compel the trustees to exercise their discretion and make a selection as to who will receive funds from the trust. Answered and correct The niece can compel the trustees to provide her with capital from the trust.

Answer 205

This question assessed your understanding of the rights of the objects of discretionary trusts. The niece can compel the trustees to exercise their discretion and make a selection as to who will receive funds from the trust. This is a discretionary trust and therefore it is therefore for the trustees to determine how the trust assets are divided. The beneficiary can compel the trustees to exercise this discretion.

Question 206

A trust fund is held on trust for two adult beneficiaries. There are no express investment provisions in the trust deed. The sole trustee is not a professional trustee and takes advice from an expert financial adviser on how to invest the trust fund. The expert advises buying land in France. One beneficiary consents to this proposal. The other beneficiary does not know about the proposal. The trustee therefore invests some of the trust fund in land in France. There has since been an unexpected crash in the French property market and the land has fallen in value. Which of the following best explains whether the trustee is personally liable for the loss? Select one alternative: The trustee is liable because they have breached the statutory duty of care and duty to review investments. The trustee is not liable because the adult beneficiary consented. The trustee is not liable because they are not a professional trustee. The trustee is not liable because they took expert advice. The trustee is liable because they made an unauthorised investment.

Answer 206

This question assessed your understanding of the investment powers of trustees. The trustee is liable because they made an unauthorised investment. A trustee does not have power to invest in land outside the UK unless authorised by the trust instrument (see ss 3 and 8 Trustee Act 2000). There are no express powers in the trust deed permitting investments abroad, so the investment was unauthorised and a breach of trust (by virtue of misapplying the trust property). The trustee did not have the consent of all beneficiaries, nor is it sufficient to have relied on the adviser’s advice. The trustee needed to put their own mind to it and should have appreciated that this was an unauthorised investment. It is no excuse that they are not a professional trustee.

Question 207

Trustees hold property on trust for a woman for life, remainder to her two children aged 15 and 19. The trust fund includes a building supplies company. As the company is not performing well the trustees of the estate would like to sell it. One of the trustees would like to buy the company. Which of the following would be the best advice to the trustees regarding the proposed transaction? Select one alternative: The transaction constitutes self-dealing but it will not be voidable if the purchaser can demonstrate that a fair price is paid for the company. The transaction constitutes self-dealing so the trustees should seek the consent of the beneficiaries if they wish to proceed. The transaction constitutes self-dealing but the trustees may proceed if this is authorised by the trust instrument. The transaction will not constitute self-dealing if the purchaser can demonstrate that a fair price is paid for the company. The transaction constitutes self-dealing and is not permitted in any circumstances.

Answer 207

This question assessed your understanding of the self-dealing rule and the circumstances in which self-dealing may be permitted. The transaction constitutes self-dealing but the trustees may proceed if this is authorised by the trust instrument. The transaction does constitute self-dealing. Self-dealing transactions are voidable unless explicitly authorised by the trust instrument or carried out following the fully informed consent of all beneficiaries. Beneficiary consent would not be possible in these circumstances because one of the beneficiaries is a minor.

Question 208

A newly qualified solicitor (the ‘NQ’) works in a private client department of a firm. Late one Friday evening the Managing Partner asked the NQ to arrange a bank transfer of £10,000 out of the firm’s client account and into the Managing Partner’s own personal bank account. The NQ assumed that the instructions were legitimate because they came from the Managing Partner, so carried out the transfer without questioning it. It has now become apparent that the Managing Partner was involved in a major fraud involving the misappropriation of thousands of pounds of client funds. Which of the following statements best explains whether the NQ is liable for dishonestly assisting the Managing Partner’s breach of fiduciary duty? Select one alternative: The NQ may be liable for dishonest assistance because they were aware that their actions were dishonest. The NQ is likely to be liable for dishonest assistance because an honest newly qualified solicitor would consider their actions to be dishonest. The NQ is not likely to be liable for dishonest assistance because they did not actively assist in the breach of trust. The NQ is not likely to be liable for dishonest assistance because they were not aware that their actions were dishonest. The NQ is not likely to be liable for dishonest assistance because an honest solicitor would follow the instructions of a more senior solicitor at the firm.

Answer 208

This question assessed your understanding of the requirements for dishonest assistance and, in particular, the objective test of dishonesty. The NQ is likely to be liable for dishonest assistance because an honest newly qualified solicitor would consider their actions to be dishonest. The appropriate test of dishonesty is the objective test under Royal Brunei Airlines v Tan as confirmed by Ivey v Genting Casinos. This test takes into account the personal characteristics and knowledge of the NQ. An honest solicitor, even a newly qualified one, should appreciate that this behaviour is dishonest.

Question 209

In breach of trust, a trustee appropriated £10,000 of the trust fund for their own benefit. They used the money to purchase shares in a company. They are still registered as the shareholder of the shares. Which one of the following statements describes the claims the beneficiary can make against the trustee? Select one alternative: The beneficiary can elect between a lien over the shares and a claim to equitable ownership of the shares. The only claim available to the beneficiary is a personal claim against the trustee for £10,000. The only claim available to the beneficiary is a lien over the shares. The only claim available to the beneficiary is a claim to equitable ownership of the shares. The beneficiary can elect between a lien over the shares and a personal claim against the trustee for £10,000.

Answer 209

This question assessed your understanding of the remedies available at the end of the tracing process. The beneficiary can elect between a lien over the shares and a claim to equitable ownership of the shares. Where a trustee misapplies trust money and uses it to purchase an asset, the beneficiaries can bring against the trustee: (a) a personal claim for the misapplied money, or (b) a personal claim for the misapplied money coupled with a proprietary security claim to the asset, or (c) a proprietary ownership claim to the asset: Foskett v McKeown [2001] 1 AC 102.

Question 210

In breach of trust, a trustee paid £10,000 of the trust fund to a non-beneficiary. The recipient had no knowledge of the trust and received the money in good faith but did not give any value for it. The recipient dissipated £9,000 but still has £1,000. Which one of the following statements describes the beneficiary’s equitable rights? Select one alternative: The beneficiary can make a proprietary claim to the £1,000 and bring a personal claim against the recipient for £9,000. The beneficiary can make a proprietary claim to the £1,000 and bring a personal claim against the trustee for £9,000. The beneficiary can bring a personal claim against the recipient for £1,000. The beneficiary can make a proprietary claim to the £1,000 and bring a personal claim against the trustee for £10,000. The beneficiary can bring a personal claim against the recipient for £10,000.

Answer 210

This question assessed your understanding of claims that may be brought against innocent recipients of the traceable proceeds of a breach of trust. The beneficiary can make a proprietary claim to the £1,000 and bring a personal claim against the trustee for £9,000. The beneficiary can make a proprietary claim to the £1,000: Re Diplock [1948] Ch 465. However, the beneficiary cannot bring a personal claim against the trustee in respect of the same £1,000. The recovery of the £1,000 via the proprietary claim reduces the personal claim against the trustee to £9,000. --- The beneficiary can make a proprietary claim to the £1,000 and bring a personal claim against the recipient for £9,000. Revisit your materials on the claims available against innocent recipients of traceable property. Is a personal claim available against the recipient?

Question 211

A testator’s validly executed will contains the following clause: “My trustees shall hold my two classic cars on trust until my daughter reaches the age of 18. She may then choose one car for herself. After my daughter makes her choice, my trustees shall give the other car to my son.” The testator’s daughter dies before reaching the age of 18. The son is still alive. Advise the trustees on what to do with the classic cars. Select one alternative: The trustees can choose one car to give to the son. They hold the other car on a resulting trust for the testator’s estate. The daughter’s personal representatives can choose one car. The trustees must give the other car to the son. The trustees must give both cars to the son. The trustees hold both cars on a resulting trust for the testator’s estate. The son can choose one car. The trustees hold the other car on a resulting trust for the testator’s estate.

Answer 211

The trustees hold both cars on a resulting trust for the testator’s estate. This question assessed your understanding of certainty of subject matter and, in particular, certainty of beneficial entitlement. The settlor's intention was for the daughter to choose a car. By choosing, she would resolve the uncertainty as to which car the son was to receive. As the daughter died without making a choice, there is no mechanism for resolving that uncertainty and the trust fails as in the case of Boyce v Boyce.

Question 212

In breach of trust, a trustee takes £10,000 from Trust A and deposits it in their personal savings bank account (the ‘Account’), increasing the balance to £10,000. The next day, the trustee takes £5,000 from Trust B and deposits it in the Account, bringing the balance up to £15,000. The trustee withdraws £6,000 from the Account and spends it on a holiday, leaving £9,000 in the account. How much of the money left in the account can be attributed to Trust A? Select one alternative: £10,000 £6,000 Answered and correct £3,000 £4,500 £0

Answer 212

This question assessed your understanding of the rules that apply when tracing out of innocent mixtures. £6,000 The Account contains an innocent mixture from Trust A and Trust B. Immediately before the withdrawal there was £15,000 in the Account representing £10,000 from Trust A (i.e. 2/3 of the balance) and £5,000 from Trust B (i.e. 1/3 of the balance). The withdrawal from the account is allocated in the same proportions, meaning £4,000 of the withdrawal is from Trust A and £2,000 is from Trust B. The remaining £9,000 is shared in the same proportions meaning £6,000 is attributed to Trust A and £3,000 to Trust B.

Question 213

In breach of trust, a trustee takes £4,000 from a trust fund and deposits it in their personal bank account (the ‘Account’), which already contains £2,000. The next day, the trustee withdraws £3,000 from the Account and dissipates it. How much of the £3,000 left in the Account can be attributed to the trust fund? Select one alternative: £1,000 £3,000 Answered and correct £2,000 £0 £1,500

Answer 213

This question assessed your understanding of the tracing rules and, in particular, wrongful mixtures. £3,000 The Account contained a wrongful mixture of trustee and beneficiary money. The trustee is treated as dissipating their own money and preserving the beneficiary's money in the Account. The first £2,000 of dissipated money is therefore trustee money. The next £1,000 dissipated must be beneficiary money, meaning that the £3,000 left in the account is attributed to the trust fund.

Question 214

A woman recently died. Her valid will contains the following clauses: I give £75,000 to my brother and sisters in equal shares. I give £25,000 to my trustees to hold for such of my nieces and nephews and in such proportions as my brother may direct during his lifetime and, if no such direction is made, in equal shares. Which statement best describes the trusts in clauses 1 and 2? Select one alternative: Clause 1 is a gift. Clause 2 is a discretionary trust. Clause 1 is a fixed trust. Clause 2 is a fixed trust with a power of appointment exercisable by the woman’s brother. Clause 1 is a fixed trust. Clause 2 is a discretionary trust. Clause 1 is a gift. Clause 2 is a fixed trust with a power of appointment exercisable by the woman’s brother. Clause 1 is a gift. Clause 2 is a gift with a power of appointment exercisable by the woman’s brother.

Answer 214

This question tested your knowledge and understanding of the difference between gifts, trusts and powers. Clause 1 is a gift. Clause 2 is a fixed trust with a power of appointment exercisable by the woman’s brother. Note that the first clause uses the word “give” and contains no reference to trustees or “holding” the property. There is a straightforward direction to share the property equally between a defined class of objects (the brother and sisters). In contrast, the second clause clearly indicates an intention to create a trust. The trustees have no discretion. They are told to hold the property for such of a defined class of objects (the nieces and nephews) as a third party (the brother) may direct. This gives the brother a power of appointment. The presence of a gift-over in default of the exercise of the power is another hallmark of a power (although the absence of a gift-over would not be fatal to the recognition of a power as a resulting trust would arise if the power wasn’t exercised).

Question 215

A trustee holds a trust fund on trust for a man for life, remainder to a woman. The man is unhappy with the way the trustees are administering the trust. The settlor has reserved a power to appoint trustees in the trust instrument. Which statement best describes whether the man has any right to change the trustees? Select one alternative: The man cannot compel the trustees to retire but can agree with the woman to collapse the trust and resettle the property on a new trust. The man has the power to compel the trustees to retire and appoint new trustees. The man has the power to compel the trustees to retire and appoint new trustees but only if the woman agrees. The man cannot do anything to change the trustees. The man cannot compel the trustees to retire but can exercise his Saunders v Vautier rights to take his own share of the trust fund.

Answer 215

This question tested your knowledge and understanding of Saunders v Vautier rights, including the power to appoint trustees. The man cannot compel the trustees to retire but can agree with the woman to collapse the trust and resettle the property on a new trust. Although the man and woman together have Saunders v Vautier rights, they cannot exercise the s 19 TLATA 1996 power to compel the trustees to retire because there is someone with a power to appoint trustees (i.e. the settlor). However, because they have Saunders v Vautier rights, they could still choose to collapse the trust and either share the property or resettle it on a new trust (i.e. transfer to new trustees on whatever terms they choose).

Question 216

A woman is the registered owner of a plot of land. She wishes to hold the land on trust for her son. Which of the following most accurately describes the formalities requirements for this transaction? Select one alternative: The woman must declare a trust over the land in favour of her son. The declaration must be made by deed. The woman must declare a trust over the land in favour of her son. This trust must be evidenced in signed writing but this does not need to happen at the same time as the declaration. The woman must declare a trust over the land in favour of her son. The trust must be evidenced by deed but this does not need to happen at the same time as the declaration. The woman must declare a trust over the land in favour of her son. The declaration must be made in signed writing. The woman must declare a trust over the land in favour of her son. The declaration must be made in writing.

Answer 216

This question tested your knowledge and understanding of the formalities for transferring land on trust. The woman must declare a trust over the land in favour of her son. This trust must be evidenced in signed writing but this does not need to happen at the same time as the declaration. This is a self-declaration of trust over land. A self-declaration is automatically constituted so there are no formalities for dealing with the legal title but as it is a trust of land it is necessary to comply with the formalities for declaration in s53(1)(b) LPA 1925. This requires signed, written evidence of the declaration. As s53(1)(b) LPA 1925 is an evidential requirement only, it does not need to be contemporaneous with the declaration but the trust will be unenforceable until the signed, written evidence is created.

Question 217

A trustee holds property on trust for the settlor’s wife for life remainder to their daughter if she reaches the age of 18 (with a gift-over to charity if she does not). The wife is still alive. The daughter is currently 17. Which of the following best describes the nature of the wife and daughter’s respective interests under the trust? Select one alternative: The wife and daughter’s interests are both vested in interest. The wife’s interest is vested in possession. The daughter’s interest is vested in interest. The wife’s interest is vested in possession. The daughter’s interest is contingent. The wife and daughter’s interests are both vested in possession. The wife’s interest is vested in interest. The daughter’s interest is contingent.

Answer 217

This question tested your knowledge and understanding of vested and contingent interests. The wife’s interest is vested in possession. The daughter’s interest is contingent. The wife has a current right to the income produced by the trust, meaning her interest is vested in possession. The daughter has a contingent remainder interest. She must survive the wife in order to benefit from the trust. If she does not, the property passes to charity via the gift-over instead of to the daughter’s estate.

Question 218

A man wants to make a gift of land to his son. The man completes the necessary transfer documentation and sends it to his solicitor. The man dies unexpectedly before the solicitor sends the documentation to the Land Registry. The man’s will leaves his entire estate to charity. Which of the following statements most accurately describes what will happen to the land? Select one alternative: The man held the land on a resulting trust for the son before his death. His personal representatives must therefore transfer legal title to the son. The son became the full legal owner of the land before the man’s death. The man remained the full legal owner of the land at his death. It therefore passes to the charity under his will. The man held the land on a constructive trust for the son before his death. His personal representatives must therefore transfer legal title to the son. The man held the land on an express trust for the son before his death. His personal representatives must therefore transfer legal title to the son.

Answer 218

This question tested your knowledge and understanding of constitution of gifts and the rule in Milroy v Lord. The man remained the full legal owner of the land at his death. It therefore passes to the charity under his will. The man was attempting to make a gift of land but failed to constitute the gift. The rule in Milroy v Lord applies, meaning he will not be treated as having intended to declare himself a trustee. The exception in Re Rose is not applicable here as the solicitor is the man’s agent, meaning he has not put the matter beyond his own control.

Question 219

A man is involved in a traffic accident. As he waits for an ambulance, he hands his Rolex watch to his friend and says “If I don’t make it, this is yours.” The man makes a full recovery. His friend is now refusing to return the Rolex. Advise the man as to the legal and beneficial ownership of the Rolex. Select one alternative: The man did not make a valid gift. His friend holds the Rolex on a resulting trust for him. The man did not make a valid gift. His friend holds the Rolex on a constructive trust for him. The man made a valid donatio mortis causa. The friend is now the full legal owner of the Rolex. The man expressed an intention to make a donatio mortis causa but title to the Rolex has not passed because he survived. He remains the full legal owner of the Rolex. The man made a valid lifetime gift. The friend is now the full legal owner of the Rolex.

Answer 219

The man expressed an intention to make a donatio mortis causa but title to the Rolex has not passed because he survived. He remains the full legal owner of the Rolex. This question tested your knowledge and understanding of donationes mortis causa. The man’s intention appears to be to make a donatio mortis causa i.e. a gift in contemplation of death as he anticipated his death from a specific cause and gave the friend the watch specifying that he should have it “if” the man died. As a donatio mortis causa is conditional upon death, legal title doesn’t pass until the death. As the man has survived he remains the legal owner of the watch.

Question 220

A man’s validly executed will contains the following provision: “My trustees shall hold £100,000 on trust to apply the income for the maintenance of the pitches used by the amateur hockey clubs in Leeds.” Which one of the following statements is the best advice as to the validity of the trust? Select one alternative: It is likely to be void for lack of public benefit. It is likely to be a valid non-charitable purpose trust under an Endacott exception. It is likely to be void because the purpose is not charitable. It is likely to be void for lack of a valid perpetuity period. It is likely to be a valid charitable purpose trust.

Answer 220

It is likely to be a valid charitable purpose trust.

Question 221

A woman holds a bank account in her sole name, mistakenly believing that she cannot open a joint account with her girlfriend. The woman and her girlfriend both regularly pay small amounts of money into the account which they use to fund shared recreational activities including meals in restaurants and weekend trips away. The woman regularly refers to the bank account as “our account” and assures her girlfriend that “it doesn’t matter that it’s in my name, we both know it’s half yours”. The woman dies without leaving a valid will. Her girlfriend wishes to know if she has an entitlement to the money in the account. It is not possible to precisely quantify how much money each of the women paid into the account. Which of the following is the most likely way in which the court will determine beneficial ownership of the account? Select one alternative: The girlfriend has a beneficial interest under an automatic resulting trust The girlfriend has a beneficial interest under a common intention constructive trust The girlfriend has a beneficial interest under a presumed resulting trust The girlfriend has no beneficial interest in the account The girlfriend has a beneficial interest under an express trust

Answer 221

This question tested your knowledge and understanding of the formalities requirements in sections 53(1)(b) and (c) LPA 1925. The girlfriend has a beneficial interest under an express trust This fact pattern is very similar to Paul v Constance. It is likely that the woman is holding the account on a trust for herself and her girlfriend.

Question 222

The sole beneficiary of a trust has an interest in the £50,000 trust capital which is contingent upon attaining the age of 25. The beneficiary is currently 17 years old. The beneficiary has asked the trustee to advance her £30,000 from the trust fund so that she can fund her studies to become an educational psychologist. Which of the following best describes the powers and duties of the trustee? Select one alternative: The trustee may advance £30,000 to the beneficiary for any purpose. The trustee may not advance any capital to the beneficiary until she attains the age of 18. The trustee must advance £30,000 to the beneficiary for the requested purpose. The trustee may not advance any capital to the beneficiary until she attains the age of 25. The trustee may advance £30,000 to the beneficiary for the requested purpose.

Answer 222

This question tested your knowledge and understanding of the case of Vandervell v IRC. The trustee may advance £30,000 to the beneficiary for the requested purpose. The trustee may exercise the power of advancement in these circumstances. It is possible to do so even when a beneficiary has a contingent interest and is under 18. However, the trustee has no obligation to do so. It is a power, not a duty.

Question 223

A testator has just died. Their validly executed will includes a clause providing £5,000 on trust to maintain their pet tortoise (which is currently five years old). The clause includes sufficient detail to meet the certainty requirement. There is no express perpetuity clause. The named trustee is willing to carry out the trust. Which of the following best describes the effect of the provision? Select one alternative: The trust is a valid charitable trust. The trust is valid but unenforceable. The money can be used to maintain the tortoise for up to 21 years. The trust is void as it cannot be said with certainty that the trust will come to an end within the statutory perpetuity period of 125 years. The trust is valid but enforceable. The trustee can use the money to maintain the tortoise for up to 125 years. The trust is void as it cannot be said with certainty that the trust will come to an end within the common law perpetuity period.

Answer 223

This question tested your knowledge and understanding of Denley trusts. The trust is void as it cannot be said with certainty that the trust will come to an end within the common law perpetuity period. As this is a non-charitable purpose trusts it is necessary to include an express perpetuity clause, making clear when the trust will end (which must be within the common law perpetuity period of 21 years plus a life in being).

Question 224

A woman and man acquired a house 15 years ago as a family home. They were registered as joint legal owners and made no express declaration of trust. The man paid 25% of the deposit and the woman paid 75%. The mortgage was in their joint names. They paid the mortgage from a joint bank account. The woman contributed significantly more towards this account than the man, due to her higher salary. The couple were not married or in a civil partnership. They have recently decided to separate and the woman is claiming that she is entitled to a greater proportion of the house than the man, based on her greater financial contributions. Which statement is the best advice about the equitable ownership of the house? Select one alternative: It is presumed that the parties were equitable joint tenants at the time of purchase. The woman is likely to be able to establish that the presumption was rebutted, based on her greater financial contributions. It is presumed that the parties were equitable joint tenants at the time of purchase. This presumption is unlikely to have been rebutted during the course of the relationship. It is presumed that the woman was entitled to 50% of the equitable interest at the time of purchase. The woman is likely to be able to establish that the presumption was rebutted, based on her greater financial contributions. It is presumed that the woman was entitled to 50% of the equitable interest at the time of purchase. This presumption is unlikely to have been rebutted during the course of the relationship. It is presumed that the woman was entitled to 75% of the equitable interest at the time of purchase. This presumption is unlikely to have been rebutted during the course of the relationship.

Answer 224

It is presumed that the parties were equitable joint tenants at the time of purchase. This presumption is unlikely to have been rebutted during the course of the relationship. This question tested your knowledge and understanding of how beneficial ownership is determined when family homes are held as joint legal owners. Feedback on It is presumed that the parties were equitable joint tenants at the time of purchase. The woman is likely to be able to establish that the presumption was rebutted, based on her greater financial contributions. Do you think the facts are unusual enough to rebut the heavy presumption of joint beneficial ownership? Unanswered Feedback on It is presumed that the woman was entitled to 50% of the equitable interest at the time of purchase. The woman is likely to be able to establish that the presumption was rebutted, based on her greater financial contributions. The couple were legal joint tenants. If equity follows the law, what is the presumption? And how easy is it to rebut that presumption? Unanswered Feedback on It is presumed that the woman was entitled to 50% of the equitable interest at the time of purchase. This presumption is unlikely to have been rebutted during the course of the relationship. The couple were legal joint tenants. If equity follows the law, what is the presumption? Unanswered Feedback on It is presumed that the woman was entitled to 75% of the equitable interest at the time of purchase. This presumption is unlikely to have been rebutted during the course of the relationship. The couple were joint legal owners. According to Stack v Dowden, what presumption applies?

Question 225

A woman is the freehold owner of a house. She is in a long-distance relationship with a man who she encourages to give up his job and move across the country to live with the woman and her 10 year old son. The woman assures the man that he does not need to get a new job and that he has a home for life. In reliance on these assurances, the man gives up his job and moves in with the woman. They live together for 15 years. The woman dies unexpectedly without leaving a will, meaning her son inherits the house. The son commences proceedings to evict the man. Which of the following is the best advice to the man on whether he has a claim for proprietary estoppel? Select one alternative: The man is unlikely to be able to establish proprietary estoppel because he did not contribute financially towards the house. The man is likely to be able to establish proprietary estoppel. The court is most likely to direct the son to transfer the freehold to him. The man is likely to be able to establish proprietary estoppel. The court is most likely to award him a right to live in the house for life. The man is unlikely to be able to establish proprietary estoppel because the assurances were not made by the woman’s son. The man is likely to be able to establish proprietary estoppel. The court is most likely to direct the sale of the house and divide the proceeds between the man and the son.

Answer 225

The man is likely to be able to establish proprietary estoppel. The court is most likely to award him a right to live in the house for life. This question tested your knowledge and understanding of proprietary estoppel. The man is likely to be able to demonstrate the requirements of proprietary estoppel. The woman made an assurance that he would have a home for life, and in reliance upon that he gave up his job. In the circumstances, the court would likely consider it unconscionable for the woman’s son to deny the man’s interest in the house. The remedy awarded must be the minimum to do equity. As the man was promised a right to live in the house for life, this is the most likely remedy.

Question 226

Trustees hold a trust fund equally for two beneficiaries until they reach the age of majority. The older beneficiary has just turned 18. The younger beneficiary is 16. Advise the trustees on their obligations with respect to the trust income and capital. Select one alternative: The trustees must distribute the capital to both beneficiaries as soon as possible. The trustees must continue to hold the capital on trust unless the beneficiaries direct them to transfer it to them. They must distribute the income to both beneficiaries in the meantime. The trustees must distribute the older beneficiary’s share of the capital as soon as possible. They must continue to hold the younger beneficiary’s share of the capital on trust until she reaches 18. They must distribute her income in the meantime. The trustees must distribute the older beneficiary’s share of the capital as soon as possible. They must continue to hold the younger beneficiary’s share of the capital on trust until she reaches 18. They must accumulate the income in the meantime. The trustees must continue to hold the capital on trust unless the beneficiaries direct them to transfer it to them. They must distribute the income to the older beneficiary but must accumulate the income for the younger beneficiary.

Answer 226

The trustees must distribute the older beneficiary’s share of the capital as soon as possible. They must continue to hold the younger beneficiary’s share of the capital on trust until she reaches 18. They must accumulate the income in the meantime. This question tested your knowledge and understanding of the dispositive duties of trustees. The older beneficiary has reached the age of 18, meaning that the trustees must distribute their share of the capital. (Any income accumulated prior to this date will be added to the capital for these purposes.) The younger beneficiary does not yet have a right to receive either the capital or income. The trustees must therefore accumulate the income. (They do have a power of maintenance but note that the question asks about the trustees’ duties – The duty is to accumulate the income until the beneficiary reaches 18, subject to any exercise of the power.)

Question 227

The sole beneficiary (currently age 16) of a £75,000 trust fund wants to use £10,000 of the capital to fund a vocational training course and also wants to use the income from the trust fund to pay their rent during the course. What powers do the trustees have in respect of these requests? Select one alternative: The trustees must apply the income and advance the capital. The trustees may apply the income and advance the capital. Answered and correct The trustees may apply the income but may not advance the capital. The trustees must apply the income and may advance the capital. The trustees may advance the capital but may not apply the income.

Answer 227

The trustees may apply the income and advance the capital. This question tested your knowledge and understanding of trustee powers of maintenance and advancement. The trustees may exercise both the power of maintenance and power of advancement here but have no obligation to do so.

Question 228

Two trustees hold property on trust for a minor beneficiary. One of the trustees dies. The trust instrument contains no express powers to appoint trustees. Who has the power to appoint a new trustee? Select one alternative: The personal representatives of the deceased trustee and the court. The surviving trustee and the personal representatives of the deceased trustee. The surviving trustee only. The surviving trustee and the court. The surviving trustee, the personal representatives of the deceased trustee and the court.

Answer 228

The surviving trustee and the court.

Question 229

By the terms of a valid trust, a house is held on trust for a man, remainder to his daughter. The daughter dies before the man. The man is still alive. Which one of the following statements best describes the daughter’s interest in the house? Select one alternative: The daughter’s interest is contingent. The house will pass to the man’s estate when he dies The daughter’s interest is vested in possession. The house will pass to her estate when the man dies. The daughter’s interest is vested in interest. The house will pass to the man’s estate when he dies. The daughter’s interest is vested in interest. The house will pass to her estate when the man dies. The daughter’s interest is contingent. The house will return to the settlor on a resulting trust when the man dies.

Answer 229

The daughter’s interest is vested in interest. The house will pass to her estate when the man dies. This is a Trusts Law question. This question tested your knowledge and understanding on vested and contingent interests. The trust is a life interest trust under which both the man and his daughter have vested interests. The man’s interest is vested in possession (i.e. he has an immediate right to the income) and the daughter’s is vested in interest (i.e. she has a future right to the capital). When the daughter dies, her vested interest remains part of her estate. It remains vested in interest only until her father’s death. When her father dies, it will therefore vest in possession and her estate will be entitled to the house.

Question 230

A woman creates a trust over £50,000. Her wife has a life interest and their daughter (17) has a remainder interest. The woman’s daughter wants to use some of the £50,000 to fund a university course. What powers do the trustees have in respect of this request? Select one alternative: The trustees may not advance any of the capital because the daughter has a contingent interest The trustees may not advance any of the capital because the daughter has a remainder interest which has not yet vested in possession The trustees may not advance any of the capital because the daughter is under 18 The trustees may advance some of the capital for the requested purpose if the woman consents The trustees may advance some of the capital for the requested purpose if the wife consents

Answer 230

The trustees may advance some of the capital for the requested purpose if the wife consents This is a Trusts Law question. This question tested your knowledge and understanding of the trustee power of advancement. As the daughter has a remainder interest in the capital, the trustees have a statutory power to give her some or all of her capital early for the purposes of her advancement or benefit. The power of advancement may be exercised even though the daughter is under 18. However, the wife has a prior interest so it is necessary to obtain her consent to the exercise of the power.

Question 231

A woman orally declares that she holds 100 of her 500 ordinary shares in a company on trust for her friend. Which one of the following statements best describes the effect of the declaration? Select one alternative: No trust has been created because the subject matter of the trust is not evidentially certain. No trust has been created because the subject matter of the trust is not conceptually certain. A trust has been created over 100 of the 500 shares. The woman now holds 100 shares on trust for her friend and is the full legal owner of the remaining 400 shares. A trust has been created over 100 of the 500 shares. The woman now holds 100 shares on trust for her friend and 400 shares on trust for herself. No trust has been created because the woman has not specified which of the 500 shares are subject to the trust.

Answer 231

A trust has been created over 100 of the 500 shares. The woman now holds 100 shares on trust for her friend and is the full legal owner of the remaining 400 shares. This is a Trusts Law question. This question tested your knowledge and understanding of certainty of subject matter. The declaration has given rise to a valid and enforceable trust. It is possible to declare a trust over some out of a wider bulk of identical, intangible property such as shares. It is not necessary to identify which 100 shares are the subject matter of the trust. The woman holds 100 shares on trust for her friend and remains the full legal owner of the rest.

Question 232

A person recently died. Their valid will contains the following clause: “I give £50,000 to my trustees to be distributed between such of my children and in such proportions as my civil partner may determine and, if no such direction is made within one year, equally between them.” Which one of the following statements best describes the effect of the clause? Select one alternative: A discretionary trust. A discretionary trust with a power of appointment exercisable by the civil partner. A fixed trust. A fixed trust with a power of appointment exercisable by the civil partner. A power of appointment exercisable by the civil partner.

Answer 232

A fixed trust with a power of appointment exercisable by the civil partner. This is a Trusts Law question. This question tested your knowledge and understanding of the distinction between fixed trusts, discretionary trusts and powers of appointment. The provision is a fixed trust with a power of appointment exercisable by the civil partner. The trustees have no discretion as to what to do with the £50,000. They must distribute it as directed by the civil partner. The power of appointment is limited in duration to one year and there is a gift over in default of its exercise, requiring the trustees to share the funds equally between the objects if the power is not exercised within the specified timeframe.

Question 233

A woman is the registered owner of a house and has a savings account containing £50,000. She wishes to hold the house and the £50,000 on trust for her son. She telephones the son and says to him: “I now hold my house and the £50,000 in my savings account on trust for you.” She takes no further action. Which one of the following statements best describes the status of the intended trusts? Select one alternative: The trust of the house is valid and enforceable. The trust of the £50,000 is valid but not enforceable. The trusts of both the house and the £50,000 are valid and enforceable. The trusts of both the house and the £50,000 are valid but not enforceable. The trust of the house is void. The trust of the £50,000 is valid and enforceable. The trust of the house is valid but not enforceable. The trust of the £50,000 is valid and enforceable.

Answer 233

The trust of the house is valid but not enforceable. The trust of the £50,000 is valid and enforceable. This is a Trusts Law question. This question tested your knowledge and understanding of the formalities required for declaration of a trust. The declaration of trust over the house must comply with s53(1)(b) LPA 1925 in order to be enforceable. As there is no signed, written evidence of the declaration it will be valid but unenforceable. These formalities only apply to trusts of land so the trust over the £50,000 in the savings account is valid and enforceable.

Question 234

By a valid will, a testator made the following disposition: “I give £30,000 to my trustees to hold on the following trusts: Trust 1: £20,000 is to be distributed equally between such of my siblings who are alive on the date of my death. Trust 2: £10,000 is to be distributed between my best friends in such shares as my trustees shall determine.” Which one of the following statements best describes the status of the intended trusts? Select one alternative: Trust 1 is a valid fixed trust. Trust 2 is a valid discretionary trust. Trust 1 is a valid fixed trust. Trust 2 is void for uncertainty of objects. Trust 1 is a valid fixed trust. Trust 2 will be valid if it is possible to draw up a complete list of the testator’s best friends. Trust 1 and Trust 2 are both valid fixed trusts. Trust 1 is void for uncertainty of objects. Trust 2 is a valid discretionary trust.

Answer 234

Trust 1 is a valid fixed trust. Trust 2 is void for uncertainty of objects. This is a Trusts Law question. This question tested your knowledge and understanding of certainty of objects. The £20,000 is held on a fixed trust for the siblings alive at the testator’s death, which is a conceptually certain class. There is a clear mechanism for distribution and the trustees have no discretion as to how to distribute. They must distribute equally between the siblings. The £10,000 is intended to be held on a discretionary trust. However, the class (“best friends”) is conceptually uncertain so the trust fails.

Question 235

You are advising the trustees of a discretionary trust. The trust instrument contains an exemption clause which absolves the trustees from liability for loss to the trust fund “as a result of any innocent, negligent or fraudulent breaches of trust”. The following breaches of trust have been committed, each of which has caused loss to the trust fund: Trustee A fraudulently misappropriated trust funds to pay off their personal credit card. None of their co-trustees were aware of the misappropriation. Trustee B agreed to urgently consult the trust fund’s financial adviser about rumours that a company in which the trust fund held shares was in financial difficulties. Trustee B became distracted by a family emergency and forgot to contact the financial adviser until the company became insolvent. Trustee C recommended making a distribution out of the trust fund to an individual without properly checking their identity. The recipient was not an object of the discretionary trust. Trustee D authorised a payment from the trust bank account to the recipient in reliance on Trustee C’s recommendation. Which of the trustees is likely to be able to rely on the exemption clause to absolve them from all liability to the trust fund in relation to the identified breaches? Select one alternative: Trustees C and D only. Trustee B only. Trustee D only. All four trustees. Trustees B, C and D only.

Answer 235

Trustees B, C and D only. This is a Trusts Law question. This question tested your knowledge and understanding of exemption clauses. It is possible for the liability of trustees for breach of trust to be excluded or limited by an exemption clause other than where the breach is fraudulent. Trustee A’s actions were fraudulent and Trustee A therefore cannot rely on the exemption clause. The actions of Trustees B, C and D were not fraudulent and they can therefore rely on the exemption clause to absolve them from liability.

Question 236

A settlor successfully transfers company shares to a trustee to hold in accordance with the provisions of a validly executed trust deed. There is a dispute about the interpretation of the trust deed and it is concluded that the trust is void for uncertainty of objects. Which one of the following statements best describes the legal and beneficial ownership of the shares? Select one alternative: The trustee holds the legal title to the shares on a presumed resulting trust for the settlor. The trustee holds the legal title to the shares on an automatic resulting trust for the settlor. The settlor is the full legal owner of the shares. The trustee is the full legal owner of the shares. The trustee holds the legal title to the shares on a constructive trust for the settlor.

Answer 236

The trustee holds the legal title to the shares on an automatic resulting trust for the settlor. This is a Trusts Law question. This question tested your knowledge and understanding of resulting trusts. The question confirms that the legal title of the shares has been transferred to the trustee. Where property has been transferred to a trustee but the trust fails, the equitable interest results back to the transferor on an automatic resulting trust.

Question 237

A testator has just died. Their validly executed will includes a clause providing for £10,000 to be held on trust to maintain their elderly pet dogs. The clause includes sufficient detail to meet the certainty requirement and the named trustee is willing to carry out the trust. There is no express perpetuity clause. Which one of the following statements best describes the effect of the provision? Select one alternative: The trust is likely to be a valid non-charitable purpose trust. There is no need for an express perpetuity clause because it is possible to wait and see whether the dogs live longer than 21 years. The trust is unlikely to be a valid non-charitable purpose trust because there is no express perpetuity clause. It may be a valid charitable purpose trust under the head of “the advancement of animal welfare” because it is for more than one dog. The trust is unlikely to be a valid non-charitable purpose trust because there is no express perpetuity clause. It will not be a charitable purpose trust because it is for the benefit of specific animals. The trust is likely to be a valid non-charitable purpose trust. There is no need for an express perpetuity clause because the dogs are unlikely to live longer than 21 years. The trust is likely to be a valid non-charitable purpose trust. There is no need for an express perpetuity clause because the dogs will clearly not live longer than 125 years.

Answer 237

The trust is unlikely to be a valid non-charitable purpose trust because there is no express perpetuity clause. It will not be a charitable purpose trust because it is for the benefit of specific animals. This is a Trusts Law question. This question tested your knowledge and understanding of charitable and non-charitable purpose trusts. The provision does not create a valid charitable purpose trust because it is for specific animals. A valid non-charitable purpose trust must come to an end within the common law perpetuity period of 21 years and it must be certain at the time the trust is created that the trust will come to an end within that time.

Question 238

In breach of trust, a trustee takes £4,000 from Trust A and deposits it in their personal savings account. The trustee then takes £6,000 from Trust B and deposits it into the same savings account, bringing the balance up to £10,000. The trustee then withdraws £5,000 from the account and dissipates it. How much of the £5,000 left in the account can be attributed to each trust fund? Select one alternative: Trust A: £2,000. Trust B: £3,000. Trust A: £2,500. Trust B: £2,500. Trust A: £3,000. Trust B: £2,000. Trust A: £4,000. Trust B: £1,000. Trust A: £0. Trust B: £5,000.

Answer 238

Trust A: £2,000. Trust B: £3,000. This is a Trusts Law question. This question tested your knowledge and understanding of the tracing rules relating to innocent mixtures. Withdrawals from innocent mixtures are attributed rateably to the contributors to the mixture. 40% of the money in the bank account was contributed by Trust A, and 60% was contributed by Trust B. 40% of the £5,000 withdrawn from the account (i.e. £2,000) can therefore be attributed to Trust A, leaving £2,000 in the account. 60% of the £5,000 withdrawn from the account (i.e. £3,000) can be attributed to Trust B, leaving £3,000 in the account.

Question 239

A trustee decides to invest £10,000 of trust money in shares in a company. She intends to seek advice but the trust’s appointed investment adviser is away on holiday. The trustee thinks that the opportunity is too good to miss and invests the £10,000 in the shares for the trust without obtaining the advice. The shares have now increased in value. The adviser has returned from their holiday and confirmed that it was a good investment decision. The trust deed does not include any provisions in relation to investment. Which one of the following statements best describes whether the trustees have acted in breach of trust? Select one alternative: The trustee has acted in breach of trust because she did not obtain and consider proper advice. A personal remedy is unlikely to be available because the trust fund has not suffered a loss. The trustee has acted in breach of trust because the shares were an unauthorised investment. A personal remedy is unlikely to be available because the trust fund has not suffered a loss. The trustee has not acted in breach of trust because the shares were an authorised investment. The trustee has acted in breach of trust because she did not obtain and consider proper advice. A personal remedy is likely to be available. The trustee has not acted in breach of trust because the trust fund has not suffered a loss.

Answer 239

The trustee has acted in breach of trust because she did not obtain and consider proper advice. A personal remedy is unlikely to be available because the trust fund has not suffered a loss. A trustee decides to invest £10,000 of trust money in shares in a company. She intends to seek advice but the trust’s appointed investment adviser is away on holiday. The trustee thinks that the opportunity is too good to miss and invests the £10,000 in the shares for the trust without obtaining the advice. The shares have now increased in value. The adviser has returned from their holiday and confirmed that it was a good investment decision. The trust deed does not include any provisions in relation to investment.

Question 240

A and B bought a house for £200,000. A contributed £9,000 to the deposit and B contributed £1,000. The house was registered in their joint names but the transfer did not contain any declaration as to their beneficial interests. The balance of the purchase price was provided by a mortgage in both their names. A and B were not married or in a civil partnership. They lived together in a quasi-matrimonial relationship sharing the outgoings for 5 years. 10 years ago, A left B and stopped contributing to the household including mortgage re-payments. A is now claiming a share of the house, which has increased in value since the couple split up. Which one of the following statements is the best advice to A about the current equitable ownership of the house? Select one alternative: It is presumed that the parties were equitable joint tenants at the time of purchase. This presumption is likely to have been rebutted subsequently. A is therefore likely to be entitled to less than 50% of the equitable interest. It is presumed that A was entitled to 50% of the equitable interest at the time of purchase. This presumption is unlikely to have been rebutted. It is presumed that the parties were equitable joint tenants at the time of purchase. This presumption is unlikely to have been rebutted. A is therefore likely to be entitled to 50% of the equitable interest. It is presumed that A was entitled to 90% of the equitable interest at the time of purchase. This presumption is likely to have been rebutted subsequently. A is therefore likely to be entitled to less than 90% of the equitable interest. It is presumed that A was entitled to 90% of the equitable interest at the time of purchase. This presumption is unlikely to have been rebutted.

Answer 240

It is presumed that the parties were equitable joint tenants at the time of purchase. This presumption is likely to have been rebutted subsequently. A is therefore likely to be entitled to less than 50% of the equitable interest. This is a Trusts Law question. This question tested your knowledge and understanding of trusts of the family home. When a family home is registered in joint names, but there is no express declaration of trust, equity is presumed to follow the law. In other words, the parties are presumed to be equitable joint tenants. This presumption can be rebutted by evidence of a different common intention. Common intention is ascertained by reference to the whole course of dealing between the parties and is ambulatory, meaning the intention can change over time. In this case, it is unlikely that the presumption could be rebutted from the outset but, as in Jones v Kernott, the common intention is likely to have changed when A moved out and stopped contributing to the property. The couple’s interests in the property are likely to have crystalised at this time, meaning B will benefit from any subsequent increases in value. As the property has increased in value, A is likely to be entitled to less than a 50% share.

Question 241

The assets of a trust include a number of freehold properties. After taking appropriate investment advice the trustees of the trust decide to sell the freehold properties and invest the proceeds of sale in more diversified assets. One of the trustees is a property developer and wishes to purchase one of the properties from the trust. He seeks an independent valuation of the property and then purchases it via his wholly owned property investment company for the valuation price. Which one of the following statements best describes the rights of the beneficiaries of the trust? Select one alternative: The transaction cannot be set aside because appropriate investment advice was obtained. Whether the transaction can be set aside depends on whether the trustee makes a profit. The transaction cannot be set aside because the purchaser of the property was the company not the trustee. The transaction is void. The transaction is voidable and can be set aside at the request of the beneficiaries.

Answer 241

The transaction is voidable and can be set aside at the request of the beneficiaries. This is a Trusts Law question. This question tested your knowledge and understanding of fiduciary duties and, in particular, the rule against self-dealing. The trustee has committed self-dealing by purchasing a property from the trust. Trustees are not allowed to do this because it involves acting as both buyer and seller in the same transaction and therefore involves a clear conflict between their duties and their self-interest. Purchasing the property via a wholly-owned company is treated the same way as if the trustee had personally purchased the asset because they control the company. The transaction is voidable and can be set aside at the request of the beneficiaries.

Question 242

A family trust has two individual trustees. By the terms of the trust the trustees are instructed to pay the trust income to a woman for her lifetime, remainder to her children. The children, who are all adults, would like to remove one of the trustees. There is no provision in the trust instrument relating to the removal of trustees. Which one of the following statements best describes the rights of the children? Select one alternative: The children have the power to direct the trustee to retire. They must do so in writing and must appoint a new trustee first. The children have the power to direct the trustee to retire provided the woman also agrees. They must do so in writing and must appoint a new trustee first. The children cannot do anything to change the trustees of the trust. The children have the power to direct the trustee to retire provided the woman also agrees. They must do so by deed and must appoint a new trustee first. The children have the power to direct the trustee to retire but must appoint a new trustee first.

Answer 242

The children have the power to direct the trustee to retire provided the woman also agrees. They must do so in writing and must appoint a new trustee first. This is a Trusts Law question. This question tested your knowledge and understanding of the rules on removal of trustees. The correct answer was that the children have the power to direct the trustee to retire provided the woman also agrees. As all the beneficiaries are adults, they have Saunders v Vautier rights and can therefore together use s19 TLATA to direct the trustee to retire. As this would result in the trust having fewer than two trustees, it is necessary to appoint a new trustee before the trustee can be directed to retire. The beneficiaries also have the power (again under s19 TLATA) to direct the trustees to appoint a new trustee. Both directions must be made in writing.

Question 243

What is a trust?

Answer 243

Equitable duty relating to property Useful mechanisms for diving ownership and management of property

Question 244

Trust: essential features

Answer 244

Essential features: property + obligation Property: trustee holders property for beneficiary As far as common law is concerned, trustee = owner Trustee has all rights of legal ownership Equity recognises another proprietary interest: beneficiary Beneficiary equitable interest so beneficiary can give away their interest under their trust but they cannot deal with the legal interest Ownership of the property is split: legal and equitable Trustee: formal and legal interest — responsible for managing Beneficiary: equitable and beneficial interest — true owner Obligation: trustee must exercises rights on behalf of beneficiary How beneficiary stops trustee from exercising legal right in any way that they choose Trustee owes equitable obligations to the trustee If trustee does not, beneficiary has personal rights against the trustee Beneficiary can sue trustee for breach of trust Both trustee & beneficiary have proprietary interests (trustee = legal/ beneficiary = equitable)

Question 245

Both trustee & beneficiary have proprietary interests

Answer 245

trustee = legal/ beneficiary = equitable

Question 246

Caterogies of trusts

Answer 246

intention, timing, nature, purpose, process Express trusts: deliberately created Trusts arising by operation of law: resulting, constructive and statutory trusts -- imposed by the court aka implied trusts Testamentary trusts: created by a will Inter vivos trusts: created during lifetime Fixed trusts: trustee knows exactly what to give to each beneficiary (interest of beneficiary is fixed) Discretionary trusts: trustee knows who potential beneficiaries are but has power to determine who benefits and in what shares Charitable purpose trusts: exception to beneficiary principle Non-charitable purpose trusts: private trust set up for very specific purposes Bare trusts: trustee holding legal title — no discretion/follows instruction of beneficiary Trusts involving active management duties

Question 247

Temporary nature of trusts

Answer 247

Trusts are a temporary way of dealing with property This gives rise to two different but essential rules 1) Perpetuity rules: trusts cannot last indefinitely (<125 years unless a charitable trust!) 2) The rule in Saunders v Vautier: the beneficiary or beneficiaries can ‘collapse’ the trust Transfer legal title to beneficiaries or another person chosen by beneficiaries Former results in legal and equitable interest merging

Question 248

3 certainties

Answer 248

Intention: how How are the beneficiaries intended to benefit Subject matter: what What property is subject to terms of the trust and how much of it is to be held for each beneficiary/purpose Objects: who Who or what the trust property is to be used for

Question 249

Uncertainty conclusion

Answer 249

express trust? Gift? Implied trust? Nothing?

Question 250

Certainty of intention

Answer 250

Arguably most important intention Objective test Must manifest an intention to assume/impose duty which is characteristic of a trust Self declaration: show intention of taking on obligations of trustee Transfer on trust: impose trustee duties on someone else No need to subjectively intend to create a trust No need to even know what a trust is! Ascertaining intention Words and conduct I am holding the money in my bank account on trust for you This money is as much mine as it is yours Actings consistently with assurances as to beneficial ownership of an asset Transferring money into a segregated account intended use for a particular purpose No need for writing or to use the word “trust” Context is key Stronger intention for commercial — Formal documents “Hold on trust… in equal shares”/“Hold… in their absolute discretion shall determine” No: “in full confidence” “and trust that they will…”

Question 251

Certainty of subject matter

Answer 251

What property the trust attaches x2: trust property + beneficial entitlement Trust property: what property trustee is holding on trust My shares in X PLC = entire shareholding (certainty) 50/150 shares in X PLC = case law (certainty)= possible to declare a trust over specific number of identical intangible assets (shares okay as long same class!) Half the bottles of wine my cellar = uncertainty as tangible (corked) same for gold bars 50% of the wine in my wine cellar = certainty as 50% in every single bottle The bulk of my estate: uncertainty (failure as fixed trust but could work as discretionary) Beneficial entitlement: how property is to be divided between beneficiaries/purposes A reasonable income: case law = certainty as objective yard stick My sister shall select which of my two Picasso paintings to have for herself, and my trustees shall hold the remaining painting on trust for my niece: uncertainty arises if sister dies as mechanism for trust allocation fails (solution: gift over or power to trustee)

Question 252

Certainty of objects

Answer 252

fixed v discretionary v power Fixed trust Trustee has no discretion Fixed mechanism for distribution Can be coupled with a power Eg: my trustee must hold the trust fund for my children in equal shares Can trustees make a complete list of the objects at the date when they need to distribute? --Identifiable class --Mechanism to identify at point of distribution Discretionary trust Aka as a “trust power” Power/discretion must be exercised Power is held by trustee Eg my trustee must hold the trust fund for such of my children and in such shares as my trustee shall in their absolute discretion determine No need for complete list but class of objects must be conceptually certain Children and relatives certain but not friends! Is it possible to say whether a person is or is not within the class of object? Trustees can require an individual to prove they fall within the class Is the class of so wide as to make the trust administrative unworkable? Power of appointment Power may be exercised It may be given to a trustee or third party It can be given to a third party as it may be exercised: ie does not impose obligation Attached to a gift or trust You do not find a power on its own Eg Third party: my trustee must hold the trust and for such of my children and in such shares as my wife may determine and if no such direction is made in equal shares Trustee: my trustees may pay all or part to for the benefit of any of my grandchildren No failure for administrative unworkability: possible to create for everyone in the world

Question 253

Power v discretionary trusts

Answer 253

Look for permissive language + third party or trustee? Evidence of gift over: power as it may be exercised BUT lack of gift over does not mean it is not a power No gift over + power not exercised= resulting trust to settlor

Question 254

Consequences of uncertainty

Answer 254

Lifetime (inter vivos) No transfer of legal title: no change in beneficial ownership unless all 3 certainties satisfied Legal title transferred If no certainty of intention, presumption of resulting trust applies If clear intention for transferee to be trustee, automatic resulting tests arises if there uncertainty as to either subject matter or objects If absence of 3 certainties, resulting trust unless can show intended a gift (and not trust) Testamentary No certainty of intention: gift Uncertainty as to subject matter or object: trust fails and property falls into residue

Question 255

Full legal owner can do x3

Answer 255

Gift Self-declaration of trust Transfer on trust

Question 256

Gift

Answer 256

Most straightforward If dealt properly, should only even involve full legal ownership from donor to donee So only need to consider formalities of transferring legal title

Question 257

Self-declaration of trust

Answer 257

Creation of legal and equitable legal interests in property Simple scenario: full legal owner creating a new equitable interest in the same property No change in legal ownership but settlor now holds the legal title in a new capacity ie as trustee so no need to consider formalities of legal interests Need to consider formalities for creating equitable interest

Question 258

Transfer on trust

Answer 258

Settlor transferring legal title to a trustee who then holds it for a beneficiary More complex than self-declaration as changes in both legal and equitable title Formalities for both creation of equitable interest and transfer of legal interest

Question 259

Formalities for declaring a trust

Answer 259

Personal property: no formalities Land declaration must comply with s53(1)(b) LPA 1925 non-compliance renders trust unenforceable Manifested and proved by some writing signed (oral declarations are possible but…) Evidential requirement: oral declaration will be valid but unenforceable until evidence Trust has existed from date of declaration but beneficiary cannot enforce until evidence

Question 260

Formalities for constitution of trusts (for trust to take effect)

Answer 260

Gift: legal title must be transferred from donor to donee Transfer on trust: legal item must be transferred from settlor to trustees(s) Self-declaration of trust: automatically constituted Transfer on trust to multiple trustees, of which the settlor is one: automatically constituted No need to transfer legal title into all the trustees Only one trustee needs to have the legal title as they hold it on the terms of the trust (and will then transfer it to the other trustees) Constitution depends on type of property Land requires registration for legal title to be properly transferred Other property like personal chattels can be transferred more informally If gift not properly constituted = void

Question 261

Milroy v Lord

Answer 261

Equity will not perfect an imperfect gift Equity will not Treat an intended gift as a self-declaration of trust Treat a failure to constitute a trust as a self-declaration of trust Exceptions 1) Re rose (equity will impose a constructive trust for the transferee) Correct method Transferor does everything in power Or put beyond own control 2) Strong v bird (transferor has died) Intend immediate gift Intention continues until death Transferee is executor or administrator (at this point, it perfects the transaction) 3) Donatio mortis cause (DMC= legal title transfer upon death/survival= failure) Intend conditional gift (not necessarily immediate like strong v bird) In contemplation of death Actual of constructive delivery

Question 262

Formalities depend on type of transaction and type of property -- LAND

Answer 262

gift: Legal title must be transferred to donee self declaration: Requires compliance with s53(1)(b) LPA 1925 transfer on trust: Compliance with s53(1)(b) LPA 1925 and must be constituted by transferring legal title to trustee

Question 263

Formalities depend on type of transaction and type of property -- PERSONAL PROPERTY

Answer 263

gift: Legal title must be transferred to donee self declaration: No formalities transfer on trust: No formalities for declaration of trust. Must be constituted by transferring legal title to trustee.

Question 264

the trust concept

Answer 264

Split of legal and equitable interests: separation of ownership and management Proprietary component Trustee has legal title (common law) Beneficiary has equitable title (can assign it or declare a sub trust over it) Personal component Trustee owes obligations to beneficiary Beneficiary has personal rights

Question 265

Capital v income

Answer 265

Capital: tree & Income: fruit Capital asset may produce income (eg land produces rental income; money in bank account produces interest; shares produces dividend)

Question 266

Fixed interest trusts

Answer 266

Beneficial interest is fixed Trustee has no discretion Beneficiary(s) has a share in any income that arises (depending on %) Adult: entitled to share on the income as it arises Minor: share of the income will be accumulated

Question 267

Fixed trusts: successive interests

Answer 267

Beneficiaries benefiting at different times Eg life interest trusts (life tenant and remainder man) Life tenant entitled to income when they die their interest ceases remainder interest takes effect Remainder man becomes entitled to capital Life tenant is provided for during lifetime but has no control over capital When life interest trust includes family home, settlor gives life tenant also the right to reside in the property during their life time — in practice = not actual income from property

Question 268

Discretionary trusts

Answer 268

Trustee has discretion Flexible so useful when settlor is unsure how they want property distributed Common in wills as can be a need by need basis Beneficiaries only have a proprietary interest once discretion exercised in their favour Beneficiaries only have hope before discretion is exercised in their favour Beneficiaries cannot assert rights against third parties BUT can compel return of property to the trust fund if misapplied by the trustee AND can compel trustee to exercise their discretion (just not how ie in their favour!)

Question 269

Vested vs contingent

Answer 269

Vested: an unconditional right Vested in possession: a current right to enjoyment Vested in interest: a current right to future enjoyment To my wife for life, reminder to my children in equal shares Wife: vested in possession Children: vested in interest If children die before wife (their mother) their share passes to their estate as it is vested Contingent: a conditional right To my daughter IF she reaches the age of 25 — contingent To my daughter WHEN she reaches the age of 25 — vested in interest To such of my children AS REACH the age of 25 in equal shares — contingent Need to wait until all children are 25 or over as need to be distributed in equal shares 1000 to each of my children upon reaching the age of 25 — vested in interest

Question 270

Saunders v Vautier Sole beneficiary

Answer 270

A (the trustee) holding the entire trust fund on trust for B (the beneficiary) B’s interest is vested in possession. They are entitled to 100% of the trust property If adult, have right to collapse the trust by directing trustee to transfer legal title to them B then becomes full legal owner of trust property: equitable merges with legal interest B could also use this right to direct the trustee to transfer the trust to someone else If B is a minor beneficiary, they cannot do this until they reach the age of 18 Vested in interest: If an adult beneficiary has a vested interest in the trust property, they can use Saunders v Vautier to bring the trust to an end early Contingent interest: B would not be the only person with an interest in the trust property so they would not be able to exercise Saunders v Vautier on their own.

Question 271

Saunders v Vautier Multiple beneficiaries

Answer 271

Key: terms of the trust and the nature of the different beneficial interests. A is 18 years old but B is only 14. A has Saunders v Vautier rights but B does not.  Distinct shares but is the trust fund itself is easily severable? If it is made up of liquid assets (such as cash and shares) then it is likely that A will be able to exercise Saunders v Vautier and take their share of the trust fund. If family trust where bulk of trust fund consists of a house, and the trust terms provide that A and B have a right to reside in that house. A will need to wait until B is over 18. If terms of trust provide for distribution when both beneficiaries are 18, trustee obligation to share the property between them when B reaches 18 = sell house But what if the terms of the trust provide for it to go on longer? Eg what if trust should continue until both A and B have passed the age of 25?  By the time B reaches 18, both A and B have S v V rights. They can choose to collapse trust early and direct trustee as to how to distribute it. YET they must both agree. If they do not agree trust continues until B reaches 25. Different if A and B had severable interests eg if the trust fund consisted entirely of liquid assets such as cash and shares, then either beneficiary could exercise S v V and take their distinct share of the trust fund before the age of 25. When a sole adult beneficiary wants their share: can they do so without prejudicing any other beneficiaries who either cannot, or do not wish to, exercise S v V. If so, they can exercise Saunders alone and will cease to be a beneficiary. If not, they must either agree with the others to collapse or wait until it comes to an end.

Question 272

Saunders v Vautier Successive interests (life tenant + remainder man)

Answer 272

Not possible for a beneficiary to collapse alone, even if > 18, as interests not severable A has an interest in the income and B has an interest in the capital.  A clearly can’t collapse the trust because they do not have an interest in the capital at all. B can’t collapse and take capital because this would extinguish A’s interest in the income. Yet if both >18 they can collapse it together and share property in any way they choose.

Question 273

Saunders v Vautier Contingent interests

Answer 273

What about if B’s remainder interest is contingent upon surviving A? A and B can’t S v V alone as they are not the only people entitled to the trust property. If an interest is contingent, someone else entitled to property if the contingency fails.  Eg a trust for A to life, remainder to B if they survive A and a gift-over to charity if B dies before A — possible for A, B and the charity to agree to collapse the trust using S v V. In practice, it is incredibly unlikely that they would reach such an agreement.

Question 274

Saunders v Vautier Discretionary trusts

Answer 274

Same point as contingent — objects of a discretionary trust do not have proprietary rights but together they can be seen to hold the entire beneficial interest in the trust property If all the objects are over 18 they can agree to collapse and share in any way they choose. In practice, possible with a very small discretionary trust for members of a family Extremely unlikely to happen with larger, more complicated discretionary trusts

Question 275

Distinguish between vested and contingent interests

Answer 275

Look out for conditional wording such as “if” Presence of a gift-over is also good evidence but is not essential.

Question 276

If an interest is vested, it could be either vested in possession or vested in interest.

Answer 276

Vested in possession, beneficiary obtains benefit of property immediately eg life tenant Vested in interest only is an unconditional right to benefit in future eg remainder interest

Question 277

Saunders v Vautier: analysis will depend on the terms of the trust.

Answer 277

Sole beneficiary, check whether they are over 18, of sound mind and have a vested interest in the property. If these conditions are met, they can collapse the trust. Multiple beneficiaries Fixed trust: whether interests of beneficiaries are severable. If not, they will all need to meet the conditions for exercising S v V and agree This will always be the case for successive interest trusts Successive interest trusts: agreement of everyone Discretionary trusts + contingent interests: agreement of everyone Same for discretionary trusts and trusts where a beneficiary has a contingent interest. It is necessary to identify all the people who are potentially entitled to the property, including anyone who has an entitlement under a gift-over. They must all be over 18, of sound mind and agree to collapse the trust. No single beneficiary can do so alone because they do not have vested interests.

Question 278

The beneficiary principle

Answer 278

‘Every…trust must have a definite object.  There must be somebody, in whose favour the Court can decree performance.’ Morice v Bishop of Durham Beneficiary principle: requires the object or objects of a trust to be legal persons. because objects of the trust have the power to hold the trustees accountable Without a beneficiary, there is nobody who can enforce the trust A trust which has as its object a purpose, rather than a person, is void for non-compliance with the beneficiary principle — 2 exceptions Charitable purpose trusts Non-charitable purpose trusts

Question 279

Charitable purpose trusts

Answer 279

In order for a trust to be charitable it must meet the following conditions: Charitable purpose One of the recognised heads of charity in s 2 Charities Act 2011. 12 heads of charity + additional 13 category allows for recognition of additional charitable purposes by analogy and recognises that charities law evolves over time. Public benefit Benefits of the charity cannot be limited to a narrow class of private individuals Charity must not be set up in a way which means the poor are excluded from benefit. Wholly and exclusively charitable A trust may fail as a charitable trust it is a mixture of charitable/non-charitable purposes Unless non-charitable purposes seen as ancillary to the primary, charitable purpose. Certainty: charitable intent? Failure of purpose: cy-pres Perpetuity: statutory Enforceable: charity commission

Question 280

Non-charitable purpose trusts

Answer 280

Will only be recognised if one of the exceptions recognised in the case of Re Endacott. closed class of anomalous exceptions which will not be extended by way of analogy only to maintain their grave, say prayers for their soul or look after their pets when drafting a non-charitable purpose trust it is therefore essential to very clearly bring the purpose within one of these recognised categories. Certainty: purpose must be certain Failure of purpose: resulting trust Perpetuity: common law Enforceable: imperfect obligation

Question 281

charitable vs non charitable purpose trusts Certainty

Answer 281

Non-charitable purpose trust: the objects (i.e. the purpose) must be certain. If there is any doubt as to the purpose, the trust will fail.  Court will uphold a charitable purpose trust even if the precise purpose is unclear If clear/general charitable intent, trustees can cure uncertainty by selecting a purpose Court or Charity Commission can also specify purposes for the trust property  

Question 282

charitable vs non charitable purpose trusts Failure of purpose

Answer 282

Court uphold charitable purpose trust even if specified purpose cannot be performed If general charitable intent: funds to be used for charitable purposes generally Rather than intending funds to be used only for the very specific purpose If a charitable purpose is clear from outset but later fails, property can be applied cy-pres. trust property can be applied for an alternative charitable purpose Failure of a non-charitable purpose trust will produce a resulting trust.  

Question 283

charitable vs non charitable purpose trusts Perpetuity

Answer 283

Charitable purpose trusts are subject only to the statutory rule against remoteness of vesting trust property must vest in the charity (i.e. trustees) within 125 years of trust being declared (or, if a gift to an charity, within 125 years of provision creating gift)  Once vested in a charitable trust, the trust itself can continue indefinitely Non-charitable purpose trusts: common law perpetuity rules duration must be limited to 21 years (can extend by reference to a life in being).  must be certain from outset that trust will definitely end within this period non-charitable purpose trust should have express perpetuity clause saying when it ends

Question 284

charitable vs non charitable purpose trusts Enforceability

Answer 284

Beneficiary principle is necessary because it is the beneficiary who can enforce the trust.  Although it does not have a beneficiary, a charitable purpose trust is enforceable by the Charity Commission (using powers delegated by the Attorney General). Non-charitable purpose trusts are not enforceable. They are known as trusts of imperfect obligation. recognised as exceptions to beneficiary principle but no mechanism for enforcement they require a willing trustee In practice, trustee: required undertaking to court that they perform obligations. If no comply, residual beneficiaries (i.e. people who would have received property under settlor’s will if trust had not been recognised) can enforce = a Pettingall order.  

Question 285

Creation of trusts

Answer 285

there are two distinct ways in which trusts can be created expressly (i.e. intentionally) or they can arise by operation of law. three key types of trust arising by operation of law 1) resulting Automatic Presumed 2) constructive 3) statutory trusts  constructive trusts correct some sort of unfairness & statutory trusts are imposed by statute

Question 286

Resulting trusts

Answer 286

a type of trusts arising by operation of law Resulting in trusts arise in response to very specific circumstances a default mechanism for situations where legal owner is not true beneficial owner sub-divided into two distinct categories; automatic and presumed resulting trusts

Question 287

Automatic resulting trusts

Answer 287

Automatic resulting trust: a default mechanism when an intended trust has failed but the legal title has already been transferred to the trustee may arise when a trust fails from outset, eg because problem with certainty of objects. or when a trust fails subsequently, eg a private purpose trust where the purpose can no longer be carried out but there is a surplus fund remaining. In these cases, a resulting trust arises, giving beneficial ownership back to the settlor There is no where else that the beneficial interest could go Equity does not know who beneficial owner is so it gives it back to original owner

Question 288

Presumed resulting trust

Answer 288

legal owner transfers legal title to someone for no consideration but no evidence that a gift or trust intended equity presumes the transferor intended transferee to hold the property on trust for them also arises where people contribute to acquisition of an asset owned legally by another common way of dealing with disputes relating to family homes but following the landmark case of Stack v Dowden mechanism is too inflexible and unsophisticated to deal with such cases For acquisition of land for investment purposes, but not purchased as a family home

Question 289

Family homes disputes

Answer 289

Trusts/equitable doctrine of proprietary estoppel used to resolve disputes re family homes not considering divorce/dissolution of a civil partnership: statute for ownership property breakdown of a less formal relationship there is no such thing as a common law marriage courts have no powers to determine what happens to property when relationship breaks down YET trusts law or the doctrine of proprietary estoppel can death of the owner claimant seeking to establish an interest in land which was owned by deceased but stands to be inherited by someone else. claimant may have been in a relationship with deceased (marriage or civil partnership) and believe they already have a beneficial interest in land which is not reflected by legal ownership so want to establish an interest under a common intention constructive trust Or a claimant may have been led to believe that they were going to inherit the land, in which case a proprietary estoppel claim maybe appropriate. one of the parties is in financial difficulty bankrupt and it is necessary to determine the value of their assets or perhaps have defaulted on mortgage and lender wants to enforce security For both: important to determine extent of their interest in the house = disputes about whether the legal title accurately reflects the true beneficial ownership

Question 290

Legal and equitable title — different ways in which land can be held at law and in equity

Answer 290

Legal title Sole legal owner Joint tenants (up to 4) As a matter of law, there are only two ways to hold land. It can either be held as a sole legal owner or as legal joint tenants (up to a maximum of  4 legal owners). Equitable title None (full legal ownership) Sole beneficiary Joint tenants Tenants in common If there is an express trust, it will be conclusive. In the absence of an express trust, equity is presumed to follow the law. If there is a dispute as to beneficial ownership of the property, it will therefore be necessary to either rebut that presumption or establish that an interest has arisen by way of proprietary estoppel.

Question 291

CICT: Joint legal owners

Answer 291

Presumed equitable joint tenants 1. Rebut presumption 2. Quantify interests

Question 292

CICT: Sole legal owners

Answer 292

Presumed sole beneficial owner 1. Establish common intention 2. Establish detrimental reliance 3. Quantify interests

Question 293

Proprietary estoppel

Answer 293

1. Assurance 2. Detrimental reliance 3. Unconscionable to resile 4. Remedy

Question 294

What is a trust?

Answer 294

Two key components: property and obligation The role of trustee is fundamental to the existence of a trust. Role varies depending on nature of trust but always to hold property for the benefit of others Trustees usually = legal owners of trust property all the rights/powers of legal owner & beneficiary has equitable/beneficial interest = property component of the trust. Trustee must exercise rights of legal ownership for benefit of beneficiary. owe obligations to the beneficiary: can be enforced personally against trustee. = obligation component of the trust.

Question 295

Bare trusts

Answer 295

Not a completely separate category of trust eg in family and commercial context A trust where trustee has very limited obligations Hold legal title to trust property for adult beneficiaries who have fully vested interests Beneficiaries: S v V rights and can collapse trust when they wish Trustee just needs to distribute trust property re trust terms or instructions of Bs

Question 296

Role of trustee

Answer 296

Voluntary Onerous obligations = no one is required to accept the office of trustee A person named as trustee can refuse and an alternative trustee will be appointed instead Equity will not allow a trust for fail for want of a trustee. Typically unpaid (except professional trustees) Voluntary position = traditionally unpaid (although they are able to recover expenses) BUT professional trustees entitled to payment for their services= higher standard Joint office It is good practice for trusts to have more than one trustee Where there are multiple trustees, they must act together All trustees should take an active role: failure to do so may = liable for breach of trust Where breach of trust: trustees found to have committed will be jointly/severally liable. Broad powers curtailed by duties Although settlor has significant discretion as to precise duties of a trustee, it is not possible to have a trust in which the trustees have no enforceable obligations at all.  For the trust mechanism to work, there must be an obligation component. Irreducible core: general duty to act honestly/in good faith, for benefit of beneficiaries, is common to all trusts = fundamental to the concept of a trust.

Question 297

trustee appointment

Answer 297

Usually appointed by settlor trust established although circumstances when settlor’s choice is not possible eg a trustee can refuse Settlor can simply ask another trustee but this may not be possible Eg trusts found in a will, where settlor = executor so not able to appoint a new trustee Even if named trustee is not willing/able to act, possible for alternative trustee by court. Other people may have be given power to appoint power may be in trust instrument but also statutory powers where a trustee has died If trust is charitable, Charity Commission has a power to appoint trustees Beneficiaries of a trust can also use their S v V rights to appoint new trustees.

Question 298

Trustee Retirement

Answer 298

Trustees can voluntarily retire or compelled to by beneficiaries (S v V rights)

Question 299

Trustee Removal

Answer 299

Similar rules apply to appointment rules dealing with removal in the trust instrument general statutory power to remove trustees Charity Commission also has the power to remove charity trustees Court has power to remove where trustee is insolvent or unable to exercise their functions Court has inherent jurisdiction to remove trustees, which is exercised where not appropriate for the trustee to remain in office (such as where they have acted dishonesty)

Question 300

Trustee powers and duties

Answer 300

Trustee powers What a trustee may do Acts authorised, either by the trust instrument or by law Trustee duties What a trustee must do. Prescribed by the trust instrument or by law Fiduciary duties What a trustee must NOT do These duties control how trustees perform their role and are framed in the negative Fiduciary duties are not just applicable to trustees — they apply to all fiduciaries

Question 301

Trustee Breach x3

Answer 301

Acting outside powers act will be unauthorised and therefore a breach of trust Eg misapplying trust property, wrongful distribution, making an unauthorised investment Failing to comply with trustee duties Even if trustee authorised (within their powers), still breach if failure to comply with duties Eg a trustee permitted investment but fails to act with duty of care = breach of trust Acting in breach of fiduciary duty Conflict: where their duties to the beneficiaries conflict with their personal interest Profit: if they make an unauthorised profit from their role as trustee Even if they have complied with all relevant trustee duties Eg trustee authorised, and profitable, investment on behalf of the trust will breach fiduciary duty if it that they have also made an unauthorised personal profit (eg secret commission)

Question 302

Protection of trustees (x6)

Answer 302

1) Exemption clause in trust instrument Trust instrument can exempt for actions which would otherwise amount to a breach Such clauses will not apply to fraudulent breaches 2) Defence: s 61 Trustee Act 1925 (TA 1925) Court discretion: trustee ‘acted honestly & reasonably, & ought fairly to be excused’ Not be used lightly by court, particularly if it will result in denying a remedy to beneficiaries 3) Consent/acquiescence/ instigation (s62 TA 1925) Trustees need consent of all beneficiaries (+ all = adults of sound mind) for a full defence Or if beneficiaries acquiesce (aware of it but choose not to take action against trustees) Or if a beneficiary has instigated or encouraged a breach, or acquiesced to it. Partial defence if multiple beneficiaries and not all of them have been involved Where a beneficiary has provided written consent or instigated breach, can impound their beneficial interest and use it to help compensate other beneficiaries. 4) Limitation period Statutory limitation period applicable to claims for breach of trust Within 6 years of breach where B's interest is vested in possession at time of breach Where Bs have future interests, limitation period starts when interest vests in possession  Limitation period only applies to personal claims for breach of trust Proprietary claims are not subject to such a limitation The limitation period does not apply to fraudulent breaches 5) Advertisements/Benjamin orders/Court directions Before potential breach, trustees can protect themselves Eg if trustees are unsure they have identified all Bs, or if they are aware of Bs but cannot locate them = advertising for Bs or seeking a Benjamin order from the court If a trustee is unsure of obligations, they could seek court directions as to how to proceed 6) Indemnity insurance: won’t exempt from breach but insurance satisfies any claim

Question 303

Equitable remedies (two distinct types of remedies)

Answer 303

Personal claim Made against an individual Monetary remedy Equitable compensation: for the loss caused by the breach Accounts of profits: for breach of fiduciary duty Proprietary claim Made against an asset: if a trustee misapplied trust property — follow/trace Recovery of misapplied trust property/unauthorised proceeds where profits for breach of fiduciary, Bs can elect for a constructive trust over profits = right to recover actual profit or their traceable proceeds Useful where proceeds of a breach traced into an asset which has increased in value Preferable where trustee/fiduciary financial difficulties cannot satisfy a personal claim   Rules for asset ID which = traceable proceeds of breach and assessing value of claim Where is seeking to make a personal claim, harder to assess the measure of liability

Question 304

Breach of trust

Answer 304

Did breach cause loss? But for test of causation: value of trust fund have been if breach had not occurred? Easy: eg payment to the wrong beneficiary/fraudulently misapplied for own purposes Hard: eg trustee power of investment but failed to take proper advice/monitor equivalent trust fund comparison: managed by non-breach trustee + expectation a breach may not have impacted value of trust fund = no remedy Objective justification: a trustee failed to take advice on an investment but concluded that a reasonable trustee would have made the same investment even after taking advice Considerer income and capital Expert advice usually needed to determine measure of liability, esp where trust fund is large or complicated, and different beneficiaries entitled to capital and income a breach might involve trustees not properly balancing interests of different beneficiaries Joint and several liability: beneficiaries can sue any or all the trustees for the full amount Apportionment between trustees / wrongdoers If trustee sued, may seek a contribution or indemnity from their co-trustees (or indeed anyone else who is liable for the same loss including a stranger to the trust). Apportionment does not affect obligation to compensate trust fund: separate claim.

Question 305

Breach of fiduciary duty

Answer 305

Did breach cause loss? But for test of causation Fiduciary liable for own breach but where a trustee in breach of fiduciary duty, co-trustees often liable for the same loss eg passive: failed to notice what co-trustee was doing/allowed to commit breach Did trustee make unauthorised profit? Trustee must account to profit Remedy account of profits or constructive trust over traceable proceeds A co-trustee will not be liable in respect of such profits

Question 306

Personal liability

Answer 306

Primary liability -- Breach of trust -- Breach of fiduciary duty Secondary liability -- Dishonest assistance -- Knowing receipt

Question 307

Accessory liability (dishonest assistance)

Answer 307

Breach of trust/fiduciary duty Assistance Dishonesty: Objective test which considers subjective knowledge/characteristics of the defendant Ie what would an honest person in their position have done They do not need to know there has been a breach of trust or fiduciary duty to be liable Sufficient to prove they assisted breach and their behaviour was objectively dishonest

Question 308

Recipient liability (knowing receipt)

Answer 308

Breach of trust/fiduciary duty Beneficial receipt of property/traceable proceeds Knowledge making it unconscionable to retain proceeds objective assessment of the circumstances and their level of knowledge if they still have the property (or its traceable proceeds) may choose proprietary claim Knowing receipt is more useful in cases where it has been dissipated by the recipient, meaning a proprietary claim is no longer available.

Question 309

Claims for accessory liability/recipient liability will be brought in the alternative against same D

Answer 309

requirements are slightly different, so one claim may succeed where the other fails remedy is also different, so it can be more beneficial to succeed in one claim or the other A claim for dishonest assistance may result in a greater remedy because the assistant will be liable for the loss caused, whether or not they personally benefitted Knowing receipt claim is limited to value of what has been beneficially received by 3rd party

Question 310

personal v proprietary claims

Answer 310

Personal claims are claims for a monetary remedy. Typically this means compensation for the loss caused by a breach. In cases of breach of fiduciary duty, however, there may also be a claim for in respect of an unauthorised profit made by the fiduciary. In contrast, proprietary claims are made against assets. They are used in cases where it is possible to identify the traceable proceeds of a breach of trust or fiduciary duty. For example, a trustee may have misapplied trust funds which have ended up in the hands of a third party. Or spent those funds on an asset which the trustee still has.  Or perhaps a trustee has breached their fiduciary duties by making an unauthorised profit. Where that money has been spent on an asset, the beneficiaries may want to make a claim over the asset itself rather than simply claiming the money from the trustee.The tracing rules give them this ability.  Proprietary remedies will either involve a claim for a security interest over an asset (i.e. a charge or lien) or a claim for a beneficial interest under a trust. Both types of claim ensure that the rights of the beneficiaries are ringfenced against the insolvency of the trustee.  Claims for beneficial ownership of the asset also enable the beneficiaries to capture the benefit of any increases in value. So the ability to make a proprietary claim can be very useful. In order to do so, however, it will be necessary to identify an asset which represents the proceeds of the breach. And that is where the following and tracing rules come in.

Question 311

claims process

Answer 311

Following —> tracing (simple vs mixed)—> claiming (proprietary/personal) Tracing Simple tracing rules Mixed fund rules Proprietary claims Trust/proportionate share Lien Subrogation Personal claims Primary liability: trustee/fiduciary Secondary liability: strangers Following is the simple process of identifying the same property moving from one person to another. Tracing is the process of identifying substitute property as a result of a transaction involving the proceeds of the breach. If the property is received by an innocent third party who gives consideration (also known as a bona fide purchaser for value without notice) it is not possible to follow the property any longer, so instead it is necessary to trace into the substitute property. Continue tracing until you either reach an asset which is still identifiable and then consider the appropriate proprietary claim. If the asset has increased in value, you will want to make a claim for beneficial ownership of the asset or a proportionate share of that asset If the asset has decreased in value, a lien is more appropriate If the asset has been used to pay off a secured debt (like a mortgage) subrogation is the appropriate remedy If no proprietary claim is available, perhaps because the traceable proceeds have been dissipated, consider personal claims that can be made against either the wrongdoer or strangers to the trust. So, is it possible to recover the money by falling back on a claim for breach of trust or fiduciary duty? Has someone dishonestly assisted the breach? Or were the traceable proceeds received by a third party who could be liable for knowing receipt?  

Question 312

tracing methods x3

Answer 312

first in, first out Pari passu ex post facto: All the withdrawals are attributed in the same proportion Rolling charge (preferable: logic and fair)

Question 313

Claims available at the end of the tracing process x5

Answer 313

Equitable ownership: most appropriate where an asset is acquired entirely with the traceable proceeds of a breach Proportionate share: If an asset is acquired with a mixture of trustee and beneficiary money, the most appropriate claim will be for a proportion of the asset as this allows the beneficiary to benefit from any increases in value. It is also the only permissible claim if an asset is acquired with a mixture of funds from innocent parties, regardless of whether the asset increases or decreases in value. Lien: will be appropriate if an asset which is purchased either entirely with beneficiary money or a wrongful mixture decreases in value. Subrogation: is only applicable in cases where the traceable proceeds of a breach are used to pay off a secured debt such as a mortgage. It is not available when the money is used to pay off an unsecured debt (such as a credit card or overdraft). There may be personal claims available in cases where there are no traceable proceeds worth making a proprietary claim over.  It is always up to the beneficiaries whether to elect for a proprietary or personal claim, even in cases where both are available.