Trusts 2 Flashcards
What are the three certainty requirements for the creation of an express private trust?
- Certainty of intention to create a trust - Settlor’s words, written or spoken, or conduct* Certainty of subject matter - trust property* Certainty of objects - BeneficiariesIf one is absent, the trust will fail.
What is required in order for there to be certainty of intention to create a trust?
The settlor must show by written or spoken words, or by conduct, that they intend to subject the trustee to a binding obligation. * It must be manifested while the settlor owns the property and prior to transfer* They must intend for the trust to take effect immediately* Precatory expressions will indicate there was no intention* Informal words or actions may show intention * If intention is uncertain, property will pass as a gift
Does a settlor need to communicate their intention to create an express private trust to the beneficiaries?
No
Are any particular words or form of words required by a settlor in order for them to have the required intention to create an express private trust to the beneficiaries?
No
Can an intention to create an express private trust manifested after property has been transferred satisfy the requirement of certainty of intention?
No* An intention to create a present trust must have been externally manifested by the settlor at the time the settlor owned the property and prior to its transfer to another.* Note,, the conduct of the parties subsequent to the conveyance may be evidence of an earlier intent.
Can a future intention to create an express private trust satisfy the requirement of certainty of intention?
No, the settlor’s intent must be that the trust take effect immediately, not at some future time - although a future interest can be trust property.
Can a precatory expression made by the settlor satisfy the requirement of certainty of intention to create an express private trust?
A settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way is called precatory language. The usual inference is that precatory expressions do not create a trust as they do not show an intention to impose a binding obligation on the trustee.
When the words are written in a professionally drafted trust deed, what will the court look at to determine whether there was certainty of intention?
The document as a whole in order to determine the settlor’s meaning. The don’t look for ‘stock’ or commonly used phrases
In terms of the creation of an express private trust, how are the words “in full confidence” likely to be interpreted by the courts in determining whether certainty of intention exists?
In two cases, Re Adams and the Kensington Vestry [1884] and Comiskey v Bowring-Hanbury [1905], similar language (“in full confidence”) was used in each clause, but the context was important to determining the meaning. * In Re Adams, the wording was used alongside a statement that the trustee would “do what is right”, which the court determined was more an expression of hope and therefore did not create a trust. * However, in Comiskey, “in full confidence” was used alongside an instruction to distribute at the trustee’s discretion, and failing the exercise of discretion, the property would pass equally to the beneficiaries. The language therefore showed the intention to create a trust.
J wishes to set up a trust and transfers £50,000 to S telling her that he hopes she will hold it on trust for the benefit of B. Is there certainty of intention in the wording?
No. The wording used is precatory, so the trust will fail for lack of certainty of intention.
Can certainty of intention to create an express private trust arise from informal words or actions?
Yes but in such a situation there is an issue of proof. * The word “trust” is not needed to create the obligation necessary to create the trust. This is because of the equitable maxim that equity looks at the intention of the settlor, not the words used. * However, if the language used is ambiguous or capable of different meanings, a trust is likely not created.
Where informal words or actions suggest intention to create an express private trust, what sort of evidence may support this?
- Independent witnesses* Irrefutable evidence of conduct e.g. joint withdrawals from a bank account for joint use might also indicate joint beneficial ownership of a bank account in the name of one party alone.* Words used that were repeated frequently over a period of time e.g. as “money is as much your money as it is my money” may suffice.
What happens to property where a trust is void for uncertainty of intention?
The property passes as an outright gift to the person who would have been the trustee.
J wishes to set up a trust and transfers £50,000 to S telling her that he hopes she will hold it on trust for the benefit of B. What happens to the £50,000
It passes to S for her own purposes due to the use of precatory language by J which caused the trust to fail.
What is the ‘certainty of subject matter’ requirement for creating an express private trust?
It must be clear what property is to be bound by the trust. * Generally, subjective phrases are not sufficient e.g. a trust of “the bulk of my estate” will fail as it is not clear where the line should be drawn beyond the halfway point. * An apparently uncertain description of property may be valid if it can be objectively defined e.g. a trust to pay “a reasonable income” to the beneficiary was valid. * Fractional shares of an intangible asset will not fail* Trust property must be an existing interest in existing property* When a trust is void for uncertainty of subject matter, the property reverts to the settlor.
What rules apply to certainty of subject matter in the context of fractional shares?
- A trust of a fractional share of an intangible asset (e.g. “50% of my shares in X Ltd”) will not fail for lack of certainty. * Where the assets are tangible property (e.g. “20 bottles of the wine stored in X warehouse”), the trust will fail unless the assets subject to the trust have been segregated from the rest of the stock. This is true even if the objects described are all identical (e.g. all wine in X warehouse is of the same type and vintage).
A company which held gold investments went into liquidation. The investors who had paid for the gold upfront claimed their investments. Some gold had been segragaged from the assets. Which investors were successful in their claim?
The claims by investors whose gold was segregaged were successful. However, the gold which was unsegregated became part of the assets of the company and available to its unsecured creditors.
Can a future interest be held on trust?
Yes, a future interest may be held in trust, but an interest not yet in legal existence (a mere expectancy, e.g. the right to inherit property under the will of a living person) cannot be held in trust.
Will an express private trust fail if the beneficial interest of trust property is uncertain?
Yes, the beneficial entitlement must also be certain. * When the beneficial entitlement is given as an objective phrase (e.g. “reasonable income”), the courts tend to be comfortable as this is consistent with other areas of law where ‘reasonableness’ is invoked. Thus, leaving £1 million on trust “to be invested to produce a reasonable income for the beneficiary” may be valid. * It must also be clear how much of the property left on trust the beneficiary is to receive. Failure to identify the amount with sufficient clarity will render the trust void.
A settlor leaves two houses on trust for his two children. Child A is to choose a house first, and Child B is to have the other house. Child A dies before picking a house. Can Child B claim their house?
No, the trust will fail as it will not be clear which house Child B should receive.
Will an express private trust of £1 million “to be invested to produce a reasonable income for the beneficiary” fail for uncertainty?
No the courts tend to be comfortable as this is consistent with other areas of law where ‘reasonableness’ is invoked.
What happens to trust property if the trust fails for lack of certainty of subject matter?
The property reverts to the settlor.
R declares that L is to hold the bulk of a valuable art collection that he expects to inherit from his mother on trust for S. Is this a valid express private trust?
No, The intended trust will fail for lack of certainty of subject matter and R will retain full ownership of the art collection that he inherits on his mother’s death. It fails for use of the wording “the bulk” and the fact that R didn’t own the art collection at the time he tried to give it to L on trust.
What is required in order for an express private trust to have certainty of objects?
The beneficiaries (or “objects”) of the trust must be defined with sufficient certainty. * They can be identified by their names or by reference to a concept which defines the class of beneficiaries e.g “my nephews and nieces”. * When a concept is used, it must be capable of objective determination; e.g. “nephews and nieces” would be the children of the settlor’s siblings. * Generally, subjective expressions like “my friends” “ are not sufficient. * When a concept is used to define the class, the test used to determine certainty depends on the type of trust created i.e. whether the trust is fixed (Complete List test) or discretionary (Given Postulant test)
When is the ‘Complete List’ test used?
To determine whether there is certainty of objects in an express fixed trust * The trustee must be able to draw up a complete list of beneficiaries in order to complete the task and discharge their obligation. * The beneficiaries must be named or described in such a way that it is possible to make a complete list. * Note: beneficiaries need not yet be in existance at the date of the trust (e.g. unborn child) but the description must be both conceptually and evidentially certain* If a trust is void for uncertainty of objects, a resulting trust in favour of the settlor or the settlor’s successors is presumed.
Can the Complete List test be satisfied where beneficiaries are unascertained?
Yes, as long as they are ascertainable by the time their interests are to come into enjoyment (e.g. “for my son for life, with remainder to his children living at his death in equal shares”).
What is conceptual certainty in the context of the Complete List test?
Conceptually certainty in the description of beneficiaries is required if a fund is to be divided equally between a group of people who are described but not named e.g. “my kindest friends in equal shares” fails because the concept is uncertain.
What is evidential certainty in the context of the Complete List test?
In addition to conceptual certainty, there must be evidential certainty for the Complete List test to be satisfied * a trust for “my former employees in equal shares” is conceptually certain but will fail if there are insufficient records to enable the trustees to establish how many former employees there are. * The fact that a beneficiary who is known to exist cannot be traced (‘ascertainability’) will not cause a fixed trust to fail. The trustees should apply to the court for directions when they are holding funds for a beneficiary who cannot be located.
A settlor leaves “£400,000 to be divided equally between my nieces and nephews”. The list of beneficiaries is incomplete because there is some uncertainty over the number of nieces and nephews the settlor has. Does the trust fail for lack of certainty of objects?
No, the trustees can apply to court for an order to distribute the fund if they are able to demonstrate that efforts have been made to find all the beneficiaries.
When is the ‘Given Postulant’ test used?
To determine whether there is certainty of objects in an express discretionary trust* The test is whether it can be said with certainty that any given individual is or is not a member of the class (the whole range of potential beneficiaries need not be ascertainable)* Definition of the class is sufficiently clear to enable the trustees to assess the range of potential beneficiaries and make decisions as to how to distribute the funds.* Note, a discretionary trust will fail if administratively unworkable or there are no ascertainable human beneficiaries.* If a trust is void for uncertainty of objects, a resulting trust in favour of the settlor or the settlor’s successors is presumed.
An employer leaves a discretionary fund to be distributed between “directors, ex-directors, their relatives, and their dependants”. Does this trust have certainty of objects?
Yes, the trust is valid.
Does the given postulant test require conceptual certainty?
Yes
Does the given postulant test require evidential certainty?
No* A potential beneficiary who cannot prove they are within the class will have no right to be considered by the trustees. * As with a fixed interest trust, the fact that the trustees may be aware of the existence of potential beneficiaries whom they cannot trace will not affect the validity of a discretionary trust.
What does ‘administratively unworkable’ mean in the context of the given postulant test?
The objects are too wide to form a class and therefore the trust will fail. This can occur when:* there is a very large number of potential beneficiaries or * there is nothing to link the members of the class so as to enable the trustees to make a sensible choice between them (sometimes called ‘capriciousness’). Example: a discretionary trust for “all or some of the inhabitants of West Yorkshire” (2.5 million people) is deemed too wide to enable the trustees to carry out their duty of selection.
If an express private trust is void for lack of certainty of objects, what happens to the property?
A resulting trust in favour of the settlor or the settlor’s successors is presumed.
What is the ‘beneficiary principle’ in relation to certainty of objects?
A trust cannot exist without someone to enforce it - it must have ascertainable human beneficiaries. * A trust for an abstract purpose will normally fail unless it falls within the exceptional cases of ‘honorary trusts’ * Note, the beneficiary principle does not apply to charitable trusts which are enforceable on behalf of the public by the Attorney General.
In his will, T gives his estate to trustees “on trust to preserve the freedom of the press”. The purpose does not fall within the requirements of the Charities Act. Is the trust valid?
No. The trust offends the beneficiary principle and will fail. The trustees hold the property on resulting trust for T’s estate which, if he has made no further provision in the will, passes to his next of kin on intestacy.
What are the elements required to create a valid private trust?
- Certainty of intention to create a trust (manifested by settlor’s words, writing, or conduct)* Certainty of subject matter (property subject to the trust defined with certainty)* Certainty of objects (must be able to identify beneficiaries of fixed and discretionary trusts)* Trustee (inter vivos trusts only; a testamentary trust will not fail for lack of a trustee)* Ascertainable human beneficiaries (the beneficiary principle)
Once established, if a trustee dies, refuses to accept appointment, or resigns, will the trust fail?
No. The court will appoint a successor trustee unless it is clear that the settlor intended the trust to continue only so long as a particular trustee served.
When will an absence of a trustee at creation cause a trust to fail?
It may cause an attempted inter vivos trust to fail for lack of delivery.
What is required for a person to be capable of being a trustee?
Anyone who has capacity to acquire and hold property for their own benefit may be a trustee. * A trustee may be a private individual, a professional person, or a trust corporation (a company whose object is to act as a trustee). * However, a minor cannot be a trustee, even if the trust property is personal property.
What is the minimum and maximum number of trustees permitted in a trust?
There is no minimum or maximum (except for trusts of land). * A sole trustee may act, but appointing a minimum of two trustees has practical advantages* However, because trustees are required to act with unanimity (unless the trust deed permits decision by majority), it is advisable not to appoint too many trustees.
Why is it beneficial to appoint more than one trustee?
Trustees can observe one another’s behaviour and highlight a breach of trust, and they can bring a second viewpoint to a trust decision.
What is the minimum and maximum number of trustees permitted in a trust of land?
At least two trustees (or a trustee that is a trust corporation) but no more than four.At least two trustees are required to give a valid receipt for money received on the sale of land.
What are the rules against perpetuity in relation to the creation of express private trusts?
They prevent a settlor from creating interests under trusts which will take effect long into the future, thereby tying up property for very long periods. The rules have two aspects:* Remoteness of vesting rule* Inalienability rule
What is the remoteness of vesting rule in relation to the creation of express private trusts?
An interest under a trust is void if it is not certain that it will vest/if it does not vest within 125 years (this is the perpetuity period since 6 April 2010).
What is the inalienability rule in relation to the creation of express private trusts?
The following are acceptable perpetuity periods for noncharitable purpose trusts: * A human life in being plus 21 years * A fixed period of up to 21 years* A period expressed as being “for as long as the law allows”, which will be taken as 21 years and * A period assumed to be 21 years when no period is permitted (e.g. if a trust for the erection and maintenance of a monument to the memory of the deceased has no perpetuity period, it may be assumed that it will be erected within the perpetuity period). If there is scope for the trust to exceed any of the above, the trust will fail on the basis of the inalienability rule
A settlor conveys land to a trustee “on trust for the benefit of A so long as the existing house on the land remains standing, and then for the benefit of the then living descendants of A”. Is this trust valid?
The equitable interest of the descendants of A is void because it is not certain to vest or fail within 125 years after the life of any person living at the time the trust is created. (It is possible that the house could remain stand- ing on the land for more than 125 years after the life of any person living at the time the trust is created.)
For a trust to be created by self declaration of the trustee, what is required?
Settlor must demonstrate by words or conduct that they intend to be legally bound. The following requirements must be satisfied:* certainty, * the beneficiary principle, and * the perpetuity rules Once the declaration has been made, the settlor is legally bound and may not retract.
For a trust to be created by transfer of property to another as trustee, what are the two requirements?
- The settlor must transfer the trust property to the trustee(s) in the appropriate legal fashion and * The settlor must make a declaration of trust i.e. the settlor must demonstrate by words or conduct that they intend the trustee(s) to be legally bound, satisfying the requirements of certainty, the beneficiary principle, and perpetuity.
What are the elements required to create a valid private trust?
- Certainty of intention to create a trust (manifested by settlor’s words, writing, or conduct)* Certainty of subject matter (property subject to the trust defined with certainty)* Certainty of objects (must be able to identify beneficiaries of fixed and discretionary trusts)* Trustee (inter vivos trusts only; a testamentary trust will not fail for lack of a trustee)* Ascertainable human beneficiaries (the beneficiary principle)* No violation of perpetuity rules
A settlor conveys land to a trustee “on trust for the benefit of A so long as the existing house on the land remains standing, and then for the benefit of the then living descendants of A”. Is this trust valid?
The equitable interest of the descendants of A is void because it is not certain to vest or fail within 125 years after the life of any person living at the time the trust is created. (It is possible that the house could remain standing on the land for more than 125 years after the life of any person living at the time the trust is created.)
When do formal requirements apply to a declaration of trust?
- A trust of land is unenforceable unless there is written evidence of the declaration of trust, signed by the settlor. This rule applies both where the settlor declares themselves trustee and where the settlor transfers property to another as trustee. * Note: there are no formal requirements for a declaration of trust of personalty.
What are the requirements for transfer of the following types of trust property?* Land* Shares* Chattels * Legal title to a bank account
- Land: the legal owner must execute a transfer deed, which must then be registered at HM Land Registry, usually by the transferee. * Shares: the donor must sign a stock transfer form, which must then be registered with the company, by either the donor or the donee. * Chattels: the owner must have the intention to transfer the chattels and must deliver them to the recipient. Alternatively, the transfer may be made by deed. * Legal title to a bank account : providing a signed, written notice of the transfer to the bank.
What are the two types of inter-vivos trusts?
- A trust created by a person declaring themselves trustee for another* A trust created by the transfer of property to another with a declaration that the transferee holds as trustee.
A settlor writes and signs a document that says, “I declare myself trustee of my interest in Blackacre, income to my brother for life, remainder to his issue”. Does this create a trust?
Yes, this is a trust created by self declaration of the trustee. The settlor is legally bound by this declaration.
On Monday, A orally declared a trust of his house for the benefit of B. On Tuesday, A wrote on paper what he had done and signed it, giving the signed paper to B. Has a trust been created?
This would be a valid declaration of a trust which allowed B to prove the trust was declared.
What is required to transfer each of the following types of property?* Land * Shares* Chattels * Legal title to a bank account
- Land: the legal owner must execute a transfer deed, which must then be registered at HM Land Registry, usually by the transferee.* Shares: the donor must sign a stock transfer form, which must then be registered with the company, by either the donor or the donee.* Chattels: the owner must have the intention to transfer the chattels and must deliver them to the recipient. Alternatively, the transfer may be made by deed.* Legal title to a bank account: providing a signed, written notice of the transfer to the bank.
What does ‘constitution’ of a trust mean?
Constitution is the process of transferring legal title to property from one party to another. When the settlor is not to hold as trustee themselves, the settlor must transfer the legal title in the property to the trustee(s) in order to constitute the trust. Until the appropriate transfer is made, the trust is said to be ‘incompletely constituted’.
In a question where a settlor is setting up a trust of land with a third party as trustee, what two separate things must be distinguished?
Distinguish between the requirement for signed writing to evidence the declaration and the requirement for a deed, registered at HM Land Registry, to make the transfer.
What does the equitable maxim “equity will not assist a volunteer” mean in the context of creation of trusts?
If an intending settlor declares that a third party is to hold some property as trustee but fails to make the necessary transfer, equity will not enforce the trust. The incompletely constituted trust fails. Note, there are four exceptions to this rule:* “Every Effort” Test* Donatio Mortis Causa (Gift by reason of death)* Fortuitous Vesting - the rule in Strong v Bird* Proprietary Estoppel* Unconscionability
What is the “Every Effort” test for the creation of a trust?
An imperfect gift is enforceable if the donor (settlor in the case of a trust) has:* done everything required of them to transfer the property and * has put the property outside the donor’s control (i.e. if the settlor retains possession of the completed transfer, the rule will not apply)
What is required in relation to land and shares to satisfy the “Every Effort” test?
Donor has: * executed the necessary deed or transfer, and * handed over the document to the donee but the process of registration has not been completed
S signs a document declaring that T is to hold Blackacre on trust for her son, J, provided he attains the age of 25. S also executes a deed of transfer and hands it to T. S dies before T has sent the deed to HM Land Registry. Has a trust been validly created?
Yes, the every effort test is satisfied. Even though the legal title to the land remains in S’s estate, the trust is regarded as completely constituted and enforceable against S’s executors. (Note that the written declaration satisfies the requirement that a declaration of trust of land must be evidenced in writing signed by the settlor.)
S signs a document declaring that T is to hold Blackacre on trust for her son, J, provided he attains the age of 25. S also executes a deed of transfer. S dies before T has sent the deed to HM Land Registry. Has a trust been validly created?
No. S does not hand the deed of transfer to T, and it remains in his possession at his death. S has not relinquished control of the property, and so the every effort test is not satisfied. Blackacre remains part of S’s estate and passes under his will.
What are the 3 requirements for the Donatio Mortis Causa rule to apply in the creation of a trust?
A gift mortis causa may be enforced if:* the donor delivers the property (actual or constructive) to a donee while in contemplation of imminent or impending death* with the intention that the property be given to the donee if the donor dies and be returned if the donor survives (i.e. it is conditional on death) and * the donor diesIf the donor had no objective basis to believe that death is imminent, a gift mortis causa will not be made out.
What is constructive delivery for the purposes of the donatio mortis causa rule?
When the parties conduct themselves as if a transfer of property has occurred without an actual or symbolic transfer e.g. a car by delivery of the keys to it or a house by handing the title deeds to the donee.
A man is diagnosed with a terminal illness and is given only a few weeks to live. He sends a message to his friend to join him at his hospital bed. When the friend arrives, the man hands his friend a Rolex watch. He says that he feels that he is “done for” and that the friend should have the watch if he does not make it. The man dies a few days later. Is the gift enforceable?
Yes as the donatio mortis causa rule applies.
Two days before taking a flight, A purported to give her shares in B Ltd to A’s sister, C. A then took the flight, the aeroplane crashed, and A was killed. Is the gift valid?
No because death was not objectively contemplated as imminent; it was merely possible.
What is the rule in Strong v Bird for the creation of a trust?
A transfer is complete in law and a trust is enforceable if:* the intending settlor dies before the transfer is made * the trustee becomes their personal representative* the donor has a continuous unbroken intention to give the gift between the donor’s initial intention to give and the donee’s appointment as personal representative.If there is evidence to suggest that the donor changed their mind before they died - by doing something inconsistent with the giving of the gift - the rule does not apply.
A writes a letter to her friend T in which she states “I give all my jewellery to you to hold on trust for G”. The jewellery remains in A’s possession when she dies. In her will, Anne appoints T to be her executor. Is the trust enforceable?
Yes. The trust is incompletely constituted as A has not transferred the jewellery to T by delivery or by deed. However, as T has now acquired the legal title as executor, the rule in Strong v Bird applies and he holds the jewellery on trust for G.
A writes a letter to her friend T in which she states “I give all my jewellery to you to hold on trust for G”. The jewellery remains in A’s possession when she dies. A executed her will after the date of the letter, and in the will she gives all her jewellery to L. Is the trust enforceable?
No A’s legacy to L, made after the attempted trust, shows that she changed her mind, and T must transfer the jewellery to L under the terms of the will.
What is the proprietary estoppel rule for the creation of a trust?
A donee may be able to establish that a gift is complete if they can prove that:* by reliance on an assurance (note, can be a formal representation or a situation where an individual allows another to acquiescence in a belief)* they have acted to their detrimentThe claimant’s reliance must be reasonable - that is, a consequence of the assurance - and they must suffer a detriment in consequence of the reliance.
The owner of a house repeatedly told his partner that the house was hers. She relied on this and spent large sums of money to improve the house. Was a trust created?
Yes. Although the trust was not correctly constituted, proprietary estoppel assisted the partner and she was found to have an interest in the property.
What is the unconscionability rule in equity?
In the case of an imperfect gift, it has been held that the gift may be enforceable if it would be ‘unconscionable’ for the donor to change their mind and go back on their intention, even though the property has not been transferred to the intended donee. This principle has not as yet been applied in the case of an incompletely constituted trust.
D signs a stock transfer form in which she transfers shares in her family company to her nephew, N. D tells N that she has transferred the shares to him so that he may become a director of the company. N gives up his job and takes the paid directorship. D dies. The shares remain registered in D’s name and she retains possession of the transfer form. Is the gift of the shares valid?
Yes, it would be unconscionable for D to deny N’s interest, and the gift was regarded as complete in equity.
Which 4 elements are required to create a trust of personalty with settlor as trustee?
- Three certainties* Beneficiary principle met* Perpetuity rules satisfied* No formality - may be oral
Which 4 elements are required to create a trust of land with settlor as trustee?
- Three certainties* Beneficiary principle met* Perpetuity rules satisfied* Evidence in writing signed by the settlor
Which 5 elements are required to create a trust of personalty with a third party trustee?
- Three certainties* Beneficiary principle met* Perpetuity rules satisfied* No formality - may be oral* Transfer chattles by delivery or deed/Transfer shares by signed stock transfer form registered with company
Which 5 elements are required to create a trust of land with a third party trustee?
- Three certainties* Beneficiary principle met* Perpetuity rules satisfied* Evidence in writing signed by the settlor* Transfer land by deed of transfer registered at HMLR
What is a testamentary trust?
A trust which is to take effect on death and is to remain revocable until then. It may be express, secret or half secret
What are the 4 requirements to create a testamentary trust?
- Contained in a will duly executed under the Wills Act (usually all terms must be in the will) * Three certainties* Beneficiary principle* Perpetuity rules must be satisfied. There is no requirement for transfer as the property will be vested in the trustees by the testator’s personal representatives after death.
What is the difference between a ‘secret’ and a ‘half secret’ trust?
- Fully secret: the existence of the trust is not revealed in the will. It like an outright gift to a nominated person* Half secret: the existence of the trust is only partially revealed in that the beneficiary is not identified but the fact of a trust is mentioned. Fundamentally, they allow the testator to keep the beneficiary out of the will (e.g. lovers/illegitimate children).
Whilst T Testator was writing his will, he decided he wanted to leave £200,000 to his mistress M. Not wanting to reveal M’s identity, T sent a letter to his friend F, informing F that he will leave him £200,000 in his will but that the money is on trust to be used for the benefit of M. T sent a copy of the letter to M as well. What type of trust is this?
This is a secret trust because not even the fact of the trust is revealed on the face of the will.* F may instead be tempted to keep the £200,000 himself. * Note, T could have informed F of the trust nature of the gift to him a year after T executed his will, or two years, or the day before T dies - it doesn’t matter. * if F responded to the letter to say that he wants no part of that scheme, but T does not change his will, F can keep the £200,000.* If the details of the trust were in a letter that T gave to M, which he told her to deliver to F after his death, F would be informed of the trust too late – after T’s death– and so can keep the gift outright.
T leaves a will, one clause of which provides, “£200,000 to F on trust for the purposes which I have made known to him”. What type of trust is this?
This is a half secret trust because a trust is revealed but the beneficiary is not revealed.
Is a secret trust enforceable?
- The intended beneficiary of a secret trust may enforce it if they can prove the terms of the trust by clear and convincing evidence. * The trust will be enforceable even if the communication describing the trust was not made until after the will was executed. * If the legatee expressly refused to accept the trust, or did not know of the intended trust until after the testator’s death, there is no trust and the legatee will take the property free from any trust. * If the legatee merely failed to respond to the communication, acceptance is implied. Subjective intention of the legatee is irrelevant; all that matters is that they did not refuse to accept it.
Is a half secret trust enforceable?
The beneficiary under a half secret trust can enforce the trust provided that their identity was communicated to the trustee at or before the making of the will and the language of the will is consistent with such communication.
In his will, D gives “£5,000 to J to be held on the trusts I have communicated to him”. Before he signed the will, D told J that he was to hold the legacy for M, and J agreed. Is the half secret trust enforceable?
Yes. The trust is valid, and J must hold the money for M.
In his will, D gives “£5,000 to J to be held on any trusts I may communicate to him before my death”, is the half secret trust enforceable?
No. The trust fails regardless of whether D gave instructions to J before or after the date of the will, because the language used in the will points to a future communication. J is named as a trustee in the will, so he must hold the legacy on resulting trust and the funds pass with the residue of D’s estate.
How do secret and half secret trusts differ in terms of:* Will Contents* Communication from Testator/Settlor* Additional Requirement
Will Contents: * Secret: No trust in will* Half secret: Trust declared in will but beneficiary not identifiedCommunication from Testator/Settlor* Secret: Trust communicated to legatee/apparent trustee before death* Half secret: Beneficiary’s identity communicated to trustee at or before making willAdditional Requirement* Secret: Legatee agreed to carry out the trust expressly or by silence* Half secret: Will’s wording must be consistent with communication to trustee
At what point is the beneficial entitlement under a fixed trust determined?
The date of the trust’s creation
What is the difference between a vested and a contingent interest in a trust?
Vested: no conditions attached to an interestContingent: an interest with conditions attached (e.g. the attainment of a particular age, or surviving another beneficiary)
In her will, J gives “the residue of my estate to T and V on trust for my son S”. When J dies, S is 10 years old. What type of interest does S have?
S has a vested interest. * He is definitely entitled to the residue of J’s estate. T and V hold the property on trust for S until he reaches majority at 18 years of age. S cannot claim the property before he is 18, as he cannot give the trustees a valid receipt during his minority. * When he is 18, the trustees must transfer the trust property to S as he is absolutely entitled. * In the meantime, the trustees have powers to apply the income and/or capital for S’s benefit under the Trustee Act. * If S dies before he is 18, his interest under the trust is part of his estate, which will pass on his death to his next of kin under the intestacy rules.
In her will, J gives “the residue of my estate to T and V on trust for my son S provided he attains the age of 25”. What type of interest does S have?
S has a contingent interest. * When S reaches the age of 18 he cannot claim the trust fund, but must wait until he is 25. * The trustees have statutory powers to apply income and capital for his benefit in the meantime. * If S dies before he is 25, his interest fails and passes under the terms of J’s will. The will should contain a substitutional gift to provide for this possibility.
A trust fund is left to a wife for her lifetime and then to her children in equal shares. What type of interest do the wife and children have?
Both have vested interests (even though the children’s don’t kick in until she dies)
What is the difference between limited and absolute interests?
- Limited: If the beneficiary’s interest does not give them the right to the capital of the fund e.g. an interest limited as to time, usually for the beneficiary’s life, meaning that the beneficiary has an interest only in the income of the fund. * Absolute: the beneficiary’s interest is full entitlement to trust assets.
S wishes to create a trust for the benefit of his daughter D but also to retain control over the ultimate destination of the property. He transfers £50,000 to T and V “on trust for D for life, with remainder on her death to her children G and H in equal shares”. What types of interest D, G and H have?
D has a limited interest. * The trustees must invest the fund and pay the income to D for her life. G and H have absolute interests in remainder. * Their interests are vested because there are no conditions attached. * They each own the right to half the fund on their mother’s death and, should either die before D, this interest would form part of their estate, passing under their will or by intestacy.
S declares a trust “for D for life, with remainder on her death to G and H in equal shares provided they attain age 25 and are living at D’s death”. What types of interest D, G and H have?
D has a limited interest. * The trustees must invest the fund and pay the income to D for her life. G and H have contingent interests in remainder. * Their interests will not vest until D dies and they respectively attain 25 years. * S should make provision for what should happen if either beneficiary dies before D.
If there is a failure by a trustee to perform the obligations under a fixed trust, do the beneficiaries have any remedies?
- The beneficiary has a right to receive what they are identified as being able to receive.* The beneficiary has the right to restrain improper exercise of the trust obligation.
If there is a failure by a trustee to perform the obligations under a discretionary trust, do the beneficiaries have any remedies?
Each member of the class:* has a right to see the trust enforced (by asking that the trustees exercise their discretion) and * may sue the trustee for breach of trust e.g. an injunction to prevent the trustee from distributing trust funds to someone who is not a beneficiary. However, no member may insist that the discretion be exercised in their favour.
T is the trustee under a discretionary trust for the benefit of A and B. T fails to consider distributing any funds this year despite the trust having income to distribute. Do A and B have any remedies available to them?
A or B may bring suit against T to force him to exercise his discretion. A does so, and T distributes 50% of the income to B and 50% to C, who is not a beneficiary under the trust. A and B can sue T for breach of trust for distributing funds to C, but A cannot complain that he did not receive any of the income.
What is a mixed trust?
A trust may be drafted to include both a fixed and a discretionary element to it. * A trust may permit for discretionary payments of income, allowing unused income to be accumulated (i.e. saved and re-invested if not needed) but * fix the capital which each of the beneficiaries is to receive under the trust.
A settlor creates a trust “to use the income between A, B, and C, for life, as the trustees may, in their absolute discretion, determine, with remainder to D and E equally”. What type of trust is this?
A mixed trust. The income part of this trust is discretionary, but the payment of the remainder to D and E is fixed.
What is the rule in Saunders v Vautier
The rule allows for the termination of a trust by all of the beneficiaries if:* all of the beneficiaries have an absolute interest in the trust and * are of full age and sound mind, they can call for the transfer of the trust property, and the trustees are required to obey the instruction.The rule may be used in relation to a fixed or a discretionary trust.
Will the rule in Saunders v Vautier apply where there are minor beneficiaries?
No, minor beneficiaries are not able to consent to the use of the rule.
A trust was established with three beneficiaries, A, B, and C. At the date of the trust’s creation, B and C were aged 22 years while A was age 16. Last week, A turned 18. The three beneficiaries agree that they want the trust property outright. They instruct the trustees to transfer legal title of the trust property to them. Are they permitted to do this?
Yes, under the rule in Saunders v Vautier, the trustees must obey this instruction. The trust collapses, and the beneficiaries should divide the property between them.
A trust was established with three beneficiaries, A, B, and C. Currently, B and C are age 19, and A is 16 years of age. The three beneficiaries agree that they want the trust property outright, and they instruct the trustees to transfer legal title to them. Are they permitted to do this?
No. This instruction has no effect because C is not of full age. The beneficiaries must wait until C is age 18 to call for the transfer of the trust property to them.
What rule applies to use of the rule in Saunders v Vautier in fixed trusts?
There must be no diminution in the value of the beneficiaries’ interests.
Can the rule in Saunders v Vautier be used in discretionary trusts?
Yes* In a large discretionary trust, it would be difficult for the beneficiaries to engage the rule because it is unlikely that they would be able to reach a collective agreement to call for the title (e.g. it is unlikely that 20 unrelated beneficiaries under a discretionary trust could agree who is to get what part of the trust property). * However, it is perfectly possible for a small family discretionary trust with only a handful of beneficiaries to take advantage of the rule.
