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FLK 2 - CORE > TRUSTS LAW > Flashcards

TRUSTS LAW Flashcards

1
Q

In basic terms, describe a ‘trust?’

A

A trust is a legal mechanism whereby property is held by one party for the benefit of another. It involves the** division of legal and equitable title to trust property**… Neither the trustee nor the beneficiary is an absolute owner of the property; both are limited owners. CONSIDER BARE TRUST: A sole beneficiary has the absolute and immediate right to the capital and assets within the trust, in addition to income generated from these assets. This is a simple form of a fixed trust.

A trust is a fiduciary relationship in which a **TRUSTEE holds LEGAL title **to specific property under a duty to:

  1. MANAGE;
  2. INVEST;
  3. SAFEGUARD/PRESERVE; and
  4. ADMINISTER the trust assets and income…

for the **BENEFIT of DESIGNATED BENEFICIARIES, who hold EQUITABLE title. **

NOTE: Trustee –> Legal Title
Beneficiary –> Equitable Title

Law Answered SQE Core Guide p.g. 771

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2
Q

What is ‘fiduciary’? (TRUSTS) + Discuss Duty of Care

A

A fiduciary relationship is one of “trust and confidence.” The distinguishing obligation of a fiduciary is the “obligation of loyalty.”

NOTE: The Trustee - Beneficiary relationship IS fiduciary. This gives rise to a DUTY OF CARE:
1. In administering the trust, the trustee must exercise REASONABLE CARE AND SKILL in all the
circumstances S1 TA 2000.
2. There is a higher standard for professional trustees, assessed with reference “to any special knowledge
or experience that they have or holds themself out as having.”
3. Trustees must exercise the same level of care as “an ordinary man (or person) of business [would]
when looking after the assets of another.”

TA 2000
Law Answered SQE Core Revision Guide

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3
Q

What is an ‘express trust?’

A

A trust which is created by settlor with EXPRESS INTENTION:

  1. INTER VIVOS: an express trust created in the settlor’s lifetime by: DECLARING THEMSELF trustee of property they own; OR, TRANSFERRING property to one or more trustees.
  2. TESTEMENTARY: trust may be created in a testator’s will, and takes effect on the testator’s death.

OR by NATURE OF BENEFICIAL INTEREST CREATED:

a. PRIVATE TRUSTS: created for the benefit of CERTAIN ASCERTAINABLE PERSONS and are either/or:

  i)  FIXED: "to T on trust for my husband for life, and at his death to my children in equal shares." 

  ii) DISCRETIONARY: "to T on trust for my children in such shares as T shall in his absolute discretion decide." 

  iii) PURPOSE: E.g., maintenance of a cat.

b. CHARITABLE TRUST: a type of purpose trust benefitting a recognized charity for the benefit of an indefinite class of persons.

SEE CHARITABLE EXEMPTIONS FC.

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4
Q

What is ‘trust property?’

A

The trust property, or subject matter of the trust, can be any kind of property: personalty (personal property) or real property.

Land, money, shares etc., or a combination.

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5
Q

What is an ‘implied trust?’

A

A trust may be implied IN EQUITY when the settlor has not expressed a desire to create a trust, but a trust should be presumed in order to ensure that an equitable result is achieved.

  1. RESULTING TRUST: arises when i) an interest under an express trust fails, ii) an express trust fails to exhaust BI iii) a person makes a voluntary transfer or purchase in the name of another.
  2. CONSTRUCTIVE TRUST: equitable remedy imposed by a court (NOTE: fraud, undue influence, breach of fiduciary duty).

Barbri SQE Prep Notes

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6
Q

What are the 3 certainties?

A
  1. INTENTION to create trust
  2. The SUBJECT MATTER (or property)
  3. The OBJECTs of the trust (beneficiaries)

All needed for an express private trust to be valid.

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7
Q

Expand: certainty of intention

A
  1. Settlor must have manifested the intention to create the trust whilst they owned the property (subject matter of trust).
  2. Settlor must have adequate mental capacity - for GIFTS, the higher the value in the gift, the higher the threshold for sufficient capacity.
  3. The word ‘trust’ is not needed.
  4. The intention must be that the trust takes effect immediately.
  5. Precatory words are not sufficient (e.g., ‘hope’, ‘wish’ etc.)

NOTE: Void for intention? –> the property passes as an outright GIFT to the person who would have been the trustee.

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8
Q

Expand: certainty of subject matter

A
  1. Subjective phrases generally not sufficent - must be clearly defined (e.g., ‘bulk of my estate’, or ‘most’ etc.).
  2. A trust of a FRACTIONAL SHARE can be sufficient.
  3. H/W trust of ‘20 bottles from my wine collection’ [Re London Wine Co] is not sufficiently certain. The trust property must be identifiable. It must be possible to identitfy and segregate the specific property intended.
  4. The interest must presently exist.
  5. Property to be inherited cannot be place into a trust - this is a MERE EXPECTANCY.
  6. IF property is intangible (i.e., 20 out of 100 shares of the same type): sufficiently certain; no need to be specificially segregated.

NOTE: Void for uncertainty of subject matter> –> property REVERTS to settlor.

Re London Wine Co

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9
Q

Expand: certainty of object (beneficiaries)

A
  1. B’s under a trust can be identified by their NAMES or by reference to a concept defining a CLASS of Bs (e.g., ‘to my nieces.’)
  2. If a concept, it must be capable of OBJECTIVE DETERMINATION (e.g., ‘kindest friends’ would not be sufficient).
  3. If FIXED TRUST: Trustee must be able to draw up a COMPLETE LIST - this means EVIDENTIAL and CONCEPTUAL CERTAINTY.
  4. Where concept is certain, trust will not fail in circumstance where members of class are difficult to find.
  5. If DISCRETIONARY TRUST: Apply GIVEN POSTULANT test - only CONCEPTUAL CERTAINTY needed.
  6. DISCRETIONARY TRUST will fail if class is too wide. i.e., trust is ADMINISTRATIVELY UNWORKABLE.

NOTE: Void for uncertainty of object? –> a RESULTING TRUST in favour of the SETTLOR or SETTLOR’S SUCCESSORS in presumed.

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10
Q

What happens if the trust fails on one of the certainties?

A
  1. Where one of the certainties is missing?
    –> Certain intention but UNcertain subject matter = trust is VOID.
    –> Certain subject matter but UNcertain intention = a GIFT to trustee.
    –> UNcertain objects = a RESULTING TRUST back to the settlor.
  2. Where more than one certainty is missing? = trust FAILS i.e., to be VOID.
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11
Q

Number of trustees?

A
  1. No minimum or maximum number needed, generally.
  2. H/W, TRUST OF LAND: at least 2 trustees required.
  3. By STATUTE, a trust of land may not have more than 4 TRUSTEES (i.e., carrying the LEGAL TITLE).
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12
Q

How do you transfer property into a trust?

A
  1. IF LAND: Legal owner must execute a TRANSFER DEED, which must be registered at the LAND REGISTRY. The settlor must also evidence DECLARATION OF TRUST in SIGNED WRITING.
  2. IF SHARES: The donor must sign STOCK TRANSFER FORM, which must be REGISTERED WITH COMPANY.
  3. IF CHATTELS: the owner must have INTENTION TO TRANSFER the chattels and must DELIVER them to recipient.
  4. IF BANK ACCOUNT: legal title is transferred by providing a SIGNED, WRITTEN NOTICE of transfer to the BANK.
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13
Q

Equity will not perfect an imperfect gift. Exception?

A
  1. EVERY EFFORT TEST: Settlor has completed the transfer to the trustees but has NOT YET registered transfer at the land registry, the trust will NOT FAIL.
  2. STRONG V BIRD/FORUITOUS VESTING: Intending settlor dies before transfer is completed, but, intended trustee becomes S’s PR - transfer is COMPLETE IN LAW and trust is ENFORCEABLE.
  3. REASONABLE RELIANCE: trust may be enforceable if the trustee can prove that they reasonably relied to their detriment on an assurance from the settlor that the gift would be made.

Check PE.

Strong v Bird

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14
Q

What are the various types of interests in a fixed trust?

A
  1. VESTED: No conditions attached to a gift.
  2. CONTINGENT: Are there conditions B must fulfil before being entitled?
  3. LIMITED: No right to the CAPITAL.
  4. ABSOLUTE: Right to CAPITAL /and INCOME.
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15
Q

Saunders v Vautier?

A

To end a trust:
1. All B’s are ADULTS (18 +).
2. All B’s are of SOUND MIND.
3. All B’s AGREE.
4. All B’s have an ABSOLUTE interest.

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16
Q

Resulting trust in X & Y (only X holding legal title) scenario?

A
  1. If BOTH have contributed to the PURCHASE PRICE, but legal title is held by X alone, X will be PRESUMED to hold the legal title on trust for both themselves and Y, in PROPORTION TO THEIR RESPECTIVE CONTRIBUTIONS.
  2. The person claiming to be B of resulting trust must prove by CLEAR AND CONVINVING EVIDENCE that they supplied the money.
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17
Q

Can the presumption of a resulting trust be rebutted?

A
  1. Holder of LEGAL TITLE (i.e., ‘X’ as above) may rebut presumption by submitting eveidence that no trust was INTENDED.
  2. I.e, the money used as consideration was actually: i) a gift ii) a loan or iii) payment of debt.
  3. NO PRESUMPTION ARISES IF: i)
  4. Presumptions of an RT can be rebutted by acts or statements of a person BEFORE or AT THE TIME of transaction.

CHECK NO PRESUMPTIONS…

18
Q

Does the court have powers to make property adjustment orders post divorce/dissolution of a civil partnership dividing the family home?

A
  1. On divorce, yes - the court has wide powers to make adjustments.
  2. On separation of cohabitees who are not married - the courts have less discretion but will apply LEGAL and EQUITABLE principles to determine how to divide the family assets (INC a shared home).
19
Q

What does ‘legal ownership’ in the property allow for in issues of the family home?

A
  1. IF in SOLE NAME of ONE of the parties, the NON-OWNING party can attempt to establish it has been HELD on TRUST for BOTH.
  2. IF registered in BOTH names, LEGAL TITLE is held as JOINT TENANTS. H/W, beneficial interests may be different.
  3. EXECUTED a DECLARATION OF TRUST? –> the terms are CONCLUSIVE as to their interests.

NOTE: DoT can be set aside if a party can show FRAUD, MISTAKE, UNDUE INFLUENCE or facts establishing PROPRIETARY ESTOPPEL (must show assurance, reliance and detriment for PE).

20
Q

Where there is a joint tenancy and no express declaration of trust?

A
  1. It will be PRESUMED that parties hold EQUALLY as JOINT TENANTS.
  2. Rebut the assumption? –> If a party can prove that both parties INTENDED otherwise.
  3. Courts will look at the entire COURSE OF CONDUCT.
21
Q

What factors will the court look in deciding if ‘equal’ JT or other?

A

COURSE OF CONDUCT:
1. children? who’s responsibility is it to provide a home?
2. How have the parties arranged their finances?
3. The way in which the parties paid their bills and other outgoings in relation to the property.

22
Q

How to establish ‘proprietary estoppel?’

A

The claimant must demonstrate that the other party gave the claimant an ASSURANCE which they RELIED on to their DETRIMENT.

23
Q

How to establish common intention constructive trust?

A

CICT will be imposed if a claimant can establish that:
1. The parties had a common intention (EXPRESS OR INFERRED);
2. The claimant has an EQUITABLE interest in the property; AND
3. The RELIED to his DETRIMENT on the COMMON INTENTION.
4. The claimant MUST show that there were ACTUAL discussions between the parties which LED the claimant to this belief.

24
Q

How do courts infer common intention? (COMMON INTENTION CONSTRUCTIVE TRUST)

A
  1. Direct contribution to the purchase price
  2. Payment of household expenses made specifically to enable the legal owner to make mortgage payments
  3. Quantification of C’s share - what did the parties agree? –> consider the whole course of dealings between the parties.
25
Q

Who can enforce and regulate a CHARITABLE TRUST?

A

Charitable trusts are enforced by the Attorney General and regulated by the Charity Commission. The Commission will decide whether the trust satisfies the conditions set out in the Charities Act 2011:
1. the trust must be for a charitable purpose;
2. the trust must have sufficient public benefit; and
3. the trust must be exclusively charitable

26
Q

How will a trust qualify as a CHARITABLE TRUST? (Purpose)

A

Only if it is for a recognised charitable purpose, including:
- the advancement of education, religion, health, human rights, citizenship or community, environmental protection, the arts, science, heritage, animal welfare, and amateur sports.
- The prevention of poverty.
- Relief of the disadvantaged (youth/age/disability/ill-health/financial hardship), promotion of the efficiency of emergency services.
- EXCLUDING the advancement of political views or attempting to effect political/legal change/attempting to influence government.

27
Q

When would Cy-près be applied in relation to charitable purpose trusts?

A

Cy-près allows the wishes of the donor to be carried out even if the original purpose has failed. I.e., it becomes impractical or impossible to carry out.

  1. At the time it comes into operation (only if settlor has shown general charitable intention).
  2. After it comes into operation (no additional requirement).

EXAM TIP: Check date of closure. If it is after the testator’s death, the gift has already vested and you do not need to show charitable intention.

28
Q

What characterizes a NON-CHARITABLE PURPOSE TRUST?

A

These are honorary trusts - there are no ascertainable human beneficiaries. A closed list. These existing exceptions are defined restrictively and will not be added to.

If a purpose trust is not charitable, it will only overcome the beneficiary principle and the rule against inalienabilty of capital if…

…Either: 1. Re Denley Trust; or 2. Trust of Imperfect Obligation.

29
Q

What is a Re Denley construction/trust? Requirements for validity?

A
  1. The purpose must be sufficiently clear and give rise to a sufficiently tangible benefit;
  2. the persons who stand to benefit from the carrying out of the purpose must be ascertainable (I.e., satisfy the given postulant test and class must be conceptually certain);
  3. the trust must not offend the rule against inalienability of capital. I.e., it must be limited to 21 years, or the trustees must be able to spend all the trust capital on the purpose and bring it to an end.

EXAM TIP: Look out for words like ‘maintenance’ - this type of trust will offend RAIC.

30
Q

What is a Trust of Imperfect Obligation? Give examples.

A

In these trusts, there is no human beneficiary who can enforce the trust and therefore, offends the BP.

These trusts are valid but unenforceable.

  • Trusts for the maintenance of specificed animals (pets) (a gift for animal’s maintenance will fail unless specific provisions are made limiting its duration). [Re Dean]
  • Trusts for the saying of private mass
  • Trusts for the erection and maintenance of monuments and graves. [Re Hooper]

There must be a limiting duration: I.e., ‘as long as the law allows.’

31
Q

Explain, using the Law, how a trustee or an additional trustee may be appointed.

A
  1. Check the trust instrument - if the settlor has set up trust without naming a trustee, the court has power to appoint someone suitable.
  2. A trustee can only disclaim or refuse to accept position before accepting position.
  3. There is no minimum or maximum, unless a trust over land - in which case, a minimum of 2 and a maximum of 4.
  4. Check for express wording in the trust instrument. If none, additional appointment can be made using s36 TA ‘25 power; the appointment must be made in writing.
  5. S41 TA ‘25 can be used for the court to make appointment of a trustee if it would be expedient to do so; following an application by a trustee or beneficiary.
  6. s19 TLATA ‘96 allows for beneficiaries to serve written direction on the current trustees, requiring them to appoint an additional trustee.
32
Q

Explain, using the Law, how a trustee may retire.

A
  1. Check trust instrument for any express provision (rare).
  2. S29 TA ‘25 allows trustees to retire following conditions satified (a. 2 trustees or a TC remain; b. trustee retires by deed; c. the other trustees consent by deed).
  3. S36(1) TA ‘25: retiring trustee is replaced with appointment of new trustee and is appointed by either a. the person nominated in the trust instrument or b. if no express provision provided, by the continuing trustee. This must be in writing (advantageous if deed - automatic vesting of the trust property).
  4. Retiring trustee remains liable for their own breaches, but not future breaches, unless facilitated.
33
Q

Explain, using the Law, how a trustee is removed and/or replaced.

A
  1. Check trust instrument for express provision (rare).
  2. S36(1) TA ‘25 can be used to replace trustee if one of the following grounds are satisfied: a. the trustee dies; b. trustee leaves the UK for more than 12 months; c. desires to retire; d. unfit to act; f. incapable of acting due to mental or physical incapacity; g. is a minor. Remember, s36 states that the appointment must be made in writing.
  3. S41 TA ‘25 can be used to replace the trustee by court direction if expedient and court decides it is in the best interest of the trust.
  4. s19 TLATA ‘96 allows for beneficiaries to serve written direction on the current trustees, requiring them to appoint an additional trustee. This can be excluded by the trust instrument, and Saunders v Vautier must also be satisfied.
34
Q

How can a trustee delegate its power to a ‘deputy’ or ‘attorney?’

A
  1. Delegation must be made by deed in form prescribed under s25 TA ‘25.
  2. Can be for a period of time not longer than 12 months.
  3. A written notice must be given to the other trustees within 7 days.
  4. All trustees can collectively delegate, e.g., to a financial advisor.
  5. Delegating trustee is vicariously liable for acts/omms by attorney.
35
Q

What are the 3 DISCRETIONARY POWERS available to trustees?

A
  1. Power of investment.
  2. Power of maintenance.
  3. Power of advancement.
36
Q

Explain the POWER OF INVESTMENT (TA 2000).

A
  1. Has the power arisen? Check the trust instrument for express provisions. If silent, statute implies power to invest in a way T would himself if using his own funds.
  2. T must exercise reasonable care and skill in the circumstances (statutory duty). This places higher standard on a professional trustee.
  3. T must exercise same level of care an ordinary man of business would.
  4. T must pay attention to the standard investment criteria and consider the suitability of type of investment and of that specific investment.
  5. Ts are not required to consider making ethical investments and only bound to nurture financial interests of Bs.
  6. Not come close to conflict of interest.
  7. A prudent business man should diversify investments.
  8. Proper advice should be taken; Ts are free to consider and do not have to blindly follow.
  9. If delegating, this should be in writing, the agent must be suitably qualified and free from conflicts of interest. The delegation should not exceed 12 months. If Ts abide by their duty of care, they will not be liable for the act or default of their agent.
37
Q

Explain the POWER OF MAINTENENCE (TA 2000).

A
  1. The POM ends on B’s 18th birthday.
  2. Must not be any prior interest - I.e., no one else should be entitled to the income.
  3. POM only applies to Bs entitled to trust income.
  4. POM can be applied for B’s education, maintenance and benefit.
  5. B has no right to income during minority, however, POM allows T to use rather than accumualte the income and pay/apply for purpose or parents/guardians.
  6. B is entitled to all income after the age of 18 (even if interest in capital is contingent on reaching e.g., 25) and entitled to any leftover accumulated income which will accrue to capital. Any remainderman’s views does not change T’s duty to pay B if is 18+.
38
Q

Explain the POWER OF ADVANCEMENT (TA 2000).

A
  1. Check trust instrument for any express provisions, and if silent, implied POA kicks in.
  2. Check if prior interest/life tenant exists, agreement is needed with the life tenant to advance capital and must be in writing.
  3. T’s can advance up to B’s full presumptive entitlement unless trust was created before October 2014, in which case they can only advance 1/2 of B’s share.
  4. Any advanced capital will be brought into account upon final distribution. Lump sums are not ‘topped up.’
  5. B’s cannot demand reason for T’s decisions to advance or not, unless legitimate expectation exists.
39
Q

Explain the NO CONFLICT rule (Fiduciary duties)

A
  1. Self-dealing: If T sells the trust property to himself, the sale is voidable by any B. I.e., the transaction may be set aside.
  2. Fair-dealing: If T purchases BI of any of his Bs, the transaction is not voidable, but can be set aside, unless T can show: a) no abuse of power; b) made full disclosure; c) the transaction was fair and honest.
  3. If T acts for a competitor, he will be liable for any profits made. An injunction may also be an appropriate remedy.
40
Q

Explain NO PROFIT rule (Fiduciary duties)

A
  1. Ts can keep person profit if: a) authorised by declaration of trust; b) all Bs are 18 or over, know all the facts and consent; or c) authorised by court order or statute.
  2. Inside information from being T? all money to be accounted for and paid back to trust.
  3. If Trust Corporation, and T is paid for activities undertaken on behalf of trust, T holds payment on constructive trust for B. EXCP: T can show he would have been paid if not in control of the trust.
  4. Ts can be reasonably remunerated, but must not be sole trustee and co trustees must consent.
  5. The court has an inherent jurisdiction to authorise remuneration for valuable services, but that power to be used sparingly. Guinness v Saunders: Remuneration will be limited to cases where it cannot have the effect of encouraging trustees to place themselves in a position of conflict of interest.
41
Q

What is the remedy for a BREACH of fiduciary duty?

A

Account of profits - the fiduciary must pay back any profits that he has made. I.e., all the benefit which the fiduciary has received during the course of the fiduciary relationship.
- Look out for any cases of ‘secret commission’ (Murad v Al-Saraj).

42
Q
A

FLK 2 - CORE (1 decks)

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