Trusts Flashcards
How is a trust best described?
As a mechanism of giving away your property to someone in trust for your their benefit.
Who are the parties in a trust?
- The truster (person who sets up the trust)
- The trustee (person who must act in the interests of someone else)
- Beneficiaries (person who benefits)
What is the difference between an inter vivos trust and a mortis causa trust?
- Inter Vivos trusts are set up by someone who is alive
- Mortis Causa trusts in contrast are created by a persons will
What are the differences between a public and private trust?
- Public trusts are set up for the benefit of the public or some section of the public (e.g. supporting cancer research)
- Private trusts are for the benefit of a particular person, either name or unnamed but identifiable immediately or in due course ( e.g. usually trusts funds set up by wealthy grandparents for their grandchildren)
Describe what a discretionary trust is.
- where trustees are given an element of discretion as to the extent beneficiaries will benefit
What is a trustee an example of?
A fiduciary
- The trustee must act in the interests of someone else
What distinguishes trustees from other fiduciaries?
That assets they adminster will actually belong to the trustee.
What may be recognised as the most important feature of a trust?
The insolvency effect
- That being trust property cannot be touched by a trustee’s peronal creditors during insolvency
- The beneficiaries rights overrule the rights of the trustees creditors
Identify what the scenario is an example of;
- Tom owns some land in trust for Beatrice.
He sells that land.
- The money he receives from the sale becomes trust money. He then uses that money to purchase UK Government stock.
-The stock is a trust asset, just as the money was.
Q. Does Tom still have the same duties to Beatrice due to the fact the trust property is no longer there.
(b) What is the term used to describe the replacement of one asset with another
(a) Tom will still have the same duty he had when dealing with the trust property, and Beatrice the same rights. Now they will relate to stock rather than land
(b) Real subrogation
the Recognition of Trusts Act 1987 provides certain characteristics that a trust possesses.
Q.(a) Where in the act can these be found
(b) What characteristics do trusts have according to the Act.
(a) Characteristics of a trust can be found in Schedule 1, Article 2 of the Act.
(b) Three characteristics as stated by the Act;
- The assets (of the trust) constitute a seperate
fund and are not part of the trustee’s own
estate
- Title to the trust assets stands in the name of
the trustee or in the name of another person
on behalf of the trustee
- the trustee has the power and the duty, in
respect of which he is accountable, to
manage, employ or dispose of the assets in
accordance with the terms of the trust and the
special duties imposed upon him by law.
How is a mortis causa trust created?
- The trust is created from the will of the truster who has passed away
- this is a straighforward type of trust as assets are identified and so are the trustees
In creation of an inter vivos trust, what are the two distinct steps?
(a) A ‘declaration of trust’
(b) The vesting of property in trustees
Give facts about the ‘declaration of trust’, used in the creation of inter vivid trusts.
(a) What typical form does a ‘declaration of trust’ take?
(b) What is the role of the truster and trustee
(c) What does the deed contain?
(d) Where may the deed be registered?
(a) Declaration of trust will take the form of a deed of trust
(b) This deed will be signed by the truster and then delivered to the trustee
(c) The deed will contain details about the beneficiaries and the trust purposes
(d) In the Books of Council and Session, however, this is not a legal requirement
It is common that in the creation of an inter vivid trust the ‘declaration of trust’ will identify some trust property which is usually nominal e.g. £10.
Why is this?
Reason for this is that it may be convenient for the trust to be established before it is possible to transfer over the main assets.
What did the case of ‘Allan’s Trustees v Lord Advocate 1971’ establish?
That truster-as-trustee trusts were lawful
What are truster-as-trustee trusts?
Where the truster has named themselves sole trustee of certain assets that he/she already have.
How have truster-as-trustee trusts been described as by a Scottish Law Commission discussion paper?
Uncertain and Contentious
How may a truster-as-trustee trust be created?
By written declaration of trust intimated to at least one beneficiary.
What was the problem in the case of ‘Garden’s Executors v More 1913’?
- In this case the testator directed his trustees to convey certain assets to his wife
- He added that he would like not less than £50 to be left to the widow of his brother if she predeceases his wife
- He added that he desired his wife to make a settlement providing for this
- The wife inherited but later died without making any provision
HELD - the quoted words did not create a trust
Are Mortis Causa and Inter Vivos trusts required to be in writing?
YES
Inter Vivos trusts are bound to be in writing by the Requirements of Writing (Scotland) Act 1995, s1(2)(a)(iii)
Do trust deeds have to be registered?
NO (unless registered property is involved such as shares or land then transfer to the trustee will require registration)
Why was it not possible to give effect to the trust in ‘Hardie v Morrison (1899)’?
- In the truster’s will he stated the idea to set up a shop which promoted “free thought”
- this confused the Courts and was HELD to be too vague
- the trust was no valid
How can one check the validity of trusts?
By considering the purposes the newly created trust purports to have been created for.
Why was the trust not valid in the case of ‘Shaw’s Trs v Greenock Medical Aid Society 1930’?
‘Secret’ trusts are invalid
- In this case the trust was void due to uncertainty
- Gift of residue to husband as trustee to make payments to religious or benevolent societies
- the truster stating “regarding which he knows my mind”
- Trust purposes known only to the trustee and therefore invalid.
Why in ‘McCaig v UoG 1907’ was no trust established?
As no specific beneficiaries were identified
- In this case the testator, in a holograph settlement, gave details of trustees and that revenue from his heritable property should be used to erect statues of himself and members of his family
- And, for artistic towers to be built on his estate
- He directed that his plan was to inspire young artists and prizes should be given to those with the best planned statues/towers
HELD - that by these purposes no beneficial interest was conferred upon any person
Who can be a trustee?
Legal, juristic or natural persons can be trustees
Why is the role of the trustee important?
As they are the ones tasked with ensuring the trust is carried out in the fashion set down by the truster’s instructions.
How are trustees physically appointed?
-They are created by the trust deed itself
The trust deed appoints trustee, what else may the trust deed state in regard to appointment of trustees?
- They may contain provisions on how further trustees might be appointed
What default rule is given to trustees under the Trusts (Scotland) Act 1921 s3(b)?
Trustees have the power to assume new trustees in the absence of regulation in the trust deed
What is an ‘ex officio trustee’?
Where a person becomes a trustee due to the ‘office’ they hold e.g. minister of a parish
How would a trusteeship be terminated?
- Death
- Resignation, in most circumstances trustee can resign from their office as a trustee as per the Trusts (Scotland) Act 1921 s3(a)
- May be removed (number of grounds for removal including insanity)
What duties must a trust fulfil?
Investment duties
- they have an obligation to invest the trust funds in an appropriate manner
- this is a common law duty and detailed in s4A of the Trusts (Scotland) Act 1921
What must a trustees investments be?
- Within the trustees power and ‘proper’
A trustee must demonstrate awareness that ‘diversification’ of investments might be in best interests of the beneficiaries.
What is meant by this?
That a trustee will not put all their eggs in one basket when investing trust money.