Trusts Flashcards
What is a trust?
A settlement/trust is an arrangement under which assets are transferred to a trustee to look after on behalf or the beneficiaries
What are the names and roles of the 3 parties involved in setting up a trust?
- Settlor - the person transferring the assets into the trust and therefore giving up ownership
- Trustee - looks after the assets, this can be one or more individuals or a corporation
- Beneficiary
What ways can a trust be created? (7)
Oral statement Circumstances that imply a trust Execution of a deed Statute Will Court order Operation of law
What are the requirements to be a trustee?
- Legal owners of the asset ( however this will never form part of their estate)
- Over 18
- Mentally capable
- Act within the terms of the trust
Can a settlor be a trustee and a beneficiary?
Yes
What is a contingent beneficiary?
This is a secondary beneficiary whose interest is dependent on the circumstances. They are second in line so will only receive assets if the primary beneficiary dies before the settlor
What happened with the ruling in Saunders v Vautier?
It stated that beneficiaries can end their trust provided that they are:
- 18
- have full mental capacity
- between them they have absolute entitlement to trust assets
- there is no possibility of other people becoming beneficiaries in the future
How many trustees can you have?
Any number ( however it is sensible to have more than one)
How many trustees are required for land?
Must be a minimum of 2 and maximum of 4 trustees
Can a professional trustee charge fees?
Yes provided they are professional. If non professional then they can’t.
What are the expenses that a trustee can be reimbursed with?
*Provided they are properly incurred with the running of the trust
*Can apply for expenses of the agents
Nominees
Custodians
How will trustees be appointed
- Deed
- Will ( normally the executors)
- Intestacy
- Court order
When can a trustee be replaced? (6)
- on death
- Remains outside the UK for more than 1 year
- Wishes to be charged
- Refuses to act
- Is unfit/mentally incapable
- is under 18
In what 4 circumstances can the trustee retire without being replaced?
- Where there is an express power in the trust deed
- If at least 2 trustees of a corporate remain and they consent
- by court order
- By direction of the beneficiaries
What happens if a trustee dies?
- Their powers can be exercised by the remaining trustees
- if the last trustee dies, their legal representatives will act as trustees until a new appointment is made by the appointor
- the death of a trustee does not make the will invalid
Is a trustee liable for their own actions and the co-trustees?
They would be liable for their own actions but not those of their co-trustees
What is a breach of trust in reference to the trust?
This is where the trusteed acts outside of their powers or fails to act as required under the duties of a trustee
Can a beneficiary take legal action against a trustee if they think they are going to commit a breach of the trust?
Yes
What are the potential remedies that can take place if a court agrees to take action against the trustee? (5)
*Issuing an injuction to prevent the trustee from acting in breach
Ordering the trustee to make a payment to the beneficiary
*Setting aside a transaction
*Ordering the return of property wrongly transferred
*Removal of a trustee
When did the Trustee Act 2000 come into force?
1st February 2001
Its powers however are retrospective and therefore cover trusts created before that date
What is a general power of investment in respect to the trustee Act 2000?
The trustee can make any type of investment that could be made if the trustee were absolutely entitled to the trust assets.
(this does not apply to pensions, unit trusts, charitable trusts)
How often does the trust require that the investments are reviewed?
At least annually
Consider whether they should be varied
What is the standard investment criteria?
- The suitability of the investment to the trust i.e is it in the best interest of the beneficiaries
- The need for diversification
- Advice to be given where necessary for a qualified and experienced individual ( if a trustee cannot)
What is apportionment?
Trustees should act impartially between beneficiaries
How is apportionment covered with an interest in possession trust?
Interest in possession beneficiaries have different interests - ie one for income and one for capital. Therefore the trustees need to act and invest in such a way that both growth and income is achieved
What responsibilities of the trustees can never be delegated? (4)
- Distribution of assets
- How fees are allocated
- appointment of new trustees
- Any specified powers set out in a will
What is the definition of a bare trust? (4)
Known as an absolute trust
Specified beneficiaries that have absolute interest to the trust assets
Beneficiaries can access the funds at 18
What is a trust for a vulnerable beneficiary?
A trust set up for a mentally or physically disabled person
What is the specification for a trust for a disabled person?(2)
Trust assets must only be capable of being used to benefit the disabled person
The disabled person must be entitled to all the income if there is any
What is the definition of a disabled person? (6)
- By reason of mental disorder or of the Mental Health Act 1983 incapable of managing their own affairs
- increased disablement pension
- attendance allowance
- care component of the disability allowance at the high or middle rate
- Personal independence payment
- Armed forces independence payment
What must happen to the trust if this is part for a vulnerable person and part for a non vulnerable person? (2)
- Identified and kept separate
* Assets for the vulnerable will be used only for the vulnerable party
Explain an interest in possession trust?
- Two classes of beneficiary - income and capital (capital is referred to as remainderman)
- income beneficiary is referred to as the life tenant
- At the end of the period of time or on death of the income beneficiary the remainder man will receive the capital. The interest is referred to as reversionary interest.
What is an immediate post-death interest (IPDI)?
This is where someone becomes an income beneficiary ( in an interest in possession trust) upon the death of the individual, the trust being created by a will or the laws of intestacy
What is a discretionary trust?
Allows its trustees the discretion about how to use the trust income and the capital
On death of the beneficiary, then this trust does not form part of the estate
What is a power of appointment trust or flexible trust?
Trustees have the flexibility to change or appoint other beneficiaries.
What is an accumulation and maintenance trust?
Special trust for young beneficiaries, where income is accumulated until the individual reaches 25. Any income that is not accumulated can be used for maintenance, education or benefit of the beneficiary.
