TRUSTS LAW

Question 1

In basic terms, describe a ‘trust?’

Answer 1

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

Question 2

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

Answer 2

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

Question 3

What is an ‘express trust?’

Answer 3

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.

Question 4

**What is ‘trust property?’ **

Answer 4

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.

Question 5

**What is an ‘implied trust?’ **

Answer 5

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

Question 6

What are the 3 certainties?

Answer 6

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.

Question 7

Expand: certainty of intention

Answer 7

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.

Question 8

Expand: certainty of subject matter

Answer 8

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

Question 9

Expand: certainty of object (beneficiaries)

Answer 9

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.

Question 10

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

Answer 10

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.

Question 11

Number of trustees?

Answer 11

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).

Question 12

How do you transfer property into a trust?

Answer 12

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.

Question 13

Equity will not perfect an imperfect gift. Exception?

Answer 13

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

Question 14

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

Answer 14

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.

Question 15

Saunders v Vautier?

Answer 15

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.

Question 16

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

Answer 16

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.

Question 17

Can the presumption of a resulting trust be rebutted?

Answer 17

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…

Question 18

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

Answer 18

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).

Question 19

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

Answer 19

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).

Question 20

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

Answer 20

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.

Question 21

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

Answer 21

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.

Question 22

How to establish ‘proprietary estoppel?’

Answer 22

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

Question 23

How to establish common intention constructive trust?

Answer 23

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.

Question 24

How do courts infer common intention?

Answer 24

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 whole course of dealings between the parties.