TRUSTS LAW Flashcards
In basic terms, describe a ‘trust?’
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:
- MANAGE;
- INVEST;
- SAFEGUARD/PRESERVE; and
- 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
What is ‘fiduciary’? (TRUSTS) + Discuss Duty of Care
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
What is an ‘express trust?’
A trust which is created by settlor with EXPRESS INTENTION:
- 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.
- 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.
**What is ‘trust property?’ **
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.
**What is an ‘implied trust?’ **
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.
- 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.
- CONSTRUCTIVE TRUST: equitable remedy imposed by a court (NOTE: fraud, undue influence, breach of fiduciary duty).
Barbri SQE Prep Notes
What are the 3 certainties?
- INTENTION to create trust
- The SUBJECT MATTER (or property)
- The OBJECTs of the trust (beneficiaries)
All needed for an express private trust to be valid.
Expand: certainty of intention
- Settlor must have manifested the intention to create the trust whilst they owned the property (subject matter of trust).
- Settlor must have adequate mental capacity - for GIFTS, the higher the value in the gift, the higher the threshold for sufficient capacity.
- The word ‘trust’ is not needed.
- The intention must be that the trust takes effect immediately.
- 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.
Expand: certainty of subject matter
- Subjective phrases generally not sufficent - must be clearly defined (e.g., ‘bulk of my estate’, or ‘most’ etc.).
- A trust of a FRACTIONAL SHARE can be sufficient.
- 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.
- The interest must presently exist.
- Property to be inherited cannot be place into a trust - this is a MERE EXPECTANCY.
- 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
Expand: certainty of object (beneficiaries)
- 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.’)
- If a concept, it must be capable of OBJECTIVE DETERMINATION (e.g., ‘kindest friends’ would not be sufficient).
- If FIXED TRUST: Trustee must be able to draw up a COMPLETE LIST - this means EVIDENTIAL and CONCEPTUAL CERTAINTY.
- Where concept is certain, trust will not fail in circumstance where members of class are difficult to find.
- If DISCRETIONARY TRUST: Apply GIVEN POSTULANT test - only CONCEPTUAL CERTAINTY needed.
- 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.
What happens if the trust fails on one of the certainties?
- 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. - Where more than one certainty is missing? = trust FAILS i.e., to be VOID.
Number of trustees?
- No minimum or maximum number needed, generally.
- H/W, TRUST OF LAND: at least 2 trustees required.
- By STATUTE, a trust of land may not have more than 4 TRUSTEES (i.e., carrying the LEGAL TITLE).
How do you transfer property into a trust?
- 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.
- IF SHARES: The donor must sign STOCK TRANSFER FORM, which must be REGISTERED WITH COMPANY.
- IF CHATTELS: the owner must have INTENTION TO TRANSFER the chattels and must DELIVER them to recipient.
- IF BANK ACCOUNT: legal title is transferred by providing a SIGNED, WRITTEN NOTICE of transfer to the BANK.
Equity will not perfect an imperfect gift. Exception?
- 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.
- 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.
- 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
What are the various types of interests in a fixed trust?
- VESTED: No conditions attached to a gift.
- CONTINGENT: Are there conditions B must fulfil before being entitled?
- LIMITED: No right to the CAPITAL.
- ABSOLUTE: Right to CAPITAL /and INCOME.
Saunders v Vautier?
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.