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FLK2 > trusts law > Flashcards

trusts law Flashcards

1
Q

how does an implied trust arise?

A

it arises by operation of law

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2
Q

what are the 2 types of implied trusts?

A

resulting trusts and constructive trusts

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3
Q

what is a testamentary trust?

A

created via a will

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4
Q

what is an inter vivid trust?

A

these are created in the lifetime of the settlor

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5
Q

what are the 2 different ways that an express trust can be created?

A

self declaration of trust and transfer of trust

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6
Q

what is a self-declaration of trust?

A

requires settlor to manifest an intention to hold one of their assets on trust for the beneficiary. once trust has been created, settlor remains legal owner of asset but is divested of their beneficial interest.

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7
Q

what is a transfer on trust?

A

requires settlor to transfer property to a third party and manifest an intention that the third party should hold the property on trust for the beneficiary.

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8
Q

what are the 3 certainties?

A

1) certainty of intention
2) certainty of subject matter
3) certainty of objects

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9
Q

what is the beneficiary principle?

A

there needs to be identifiable beneficiaries or objects (if there isn’t there is no one to enforce the trust)

requires objects of the trust to be legal persons

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10
Q

what is a fixed trust?

A

trust in which the entitlement of the beneficiaries is fixed by the settlor (fixed interest trust)

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11
Q

what is a discretionary trust?

A

trust under which trustees have a discretion to distribute between objects of the trust

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12
Q

what proprietary rights does a beneficiary of a fixed trust have?

A
  • their right may be vested or contingent
  • assert against 3rd party
  • can dispose of interest
  • right to terminate trust (Saunders v vautier)
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13
Q

what personal rights does a beneficiary of a fixed trust have?

A
  • compel administration
  • be informed
  • sue trustees for breach
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14
Q

what is a life interest trust?

A

a successive interest trust, where beneficiary receives income during their lifetime, and another beneficiary becomes entitled to capital after the income beneficiary’s death

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15
Q

what is an income beneficiary?

A

beneficiary entitled to income produced by a successive interest trust (income beneficiary of life interest trust = life tenant)

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16
Q

what is a capital beneficiary?

A

beneficiary entitled to capital held on a successive interest trust (known as remainder man)

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17
Q

what is a discretionary trust?

A

trustee has distributive discretion - settlor determines the potential beneficiaries and then trustee determines who from within that class is to receive what sum.

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18
Q

what is the key difference between powers of appointment and discretionary trusts?

A

powers of appointment are powers that give the donee complete discretion on how to exercise those powers (can choose whether to even use their power or not).

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19
Q

are powers of appointment trusts?

A

no they are not trusts, but it is common for trusts to include powers.

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20
Q

what is a fiduciary power of appointment?

A

power of appointment given to a trustee. trustee doesnt need to exercise it bit must periodically consider whether to do so.

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21
Q

what is a personal power of appointment?

A

power of appointment given to someone who is not a trustee. they are not even required to consider exercising it

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22
Q

what 3 factors should you consider when deciding if something is a discretionary trust or a power of appointment?

A

1) ‘must’ suggests discretionary trust whereas words like ‘may’ suggest power of appointment
2) if discretion has been given to third party (not trustee) it is power of appointment, not discretionary trust
3) presence of a gift-over indicates power of appointment (because it means power doesnt need to be exercised) but lack of a gift-over is not determinative

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23
Q

what is a vested interest?

A

have current right to enjoy property

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24
Q

what is contingent interest?

A

has conditions on it

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25
Q

what is the rule in Saunders v vautier?

A

sole adult beneficiary of sound mind, with vested interest in trust property, is entitled to direct trustee to transfer legal title to them bringing the trust to an end early

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26
Q

if multiple beneficiaries what do you need to consider when deciding if they can exercise Saunders v vautier?

A

look at whether their interests are severable - if no, then all need to meet the requirements of Saunders v vautier and agree to do so.

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27
Q

what is required under S53(1)(b) LPA 1925 for declaration of trust for land?

A

declaration of trust over land must be evidenced in writing and signed by person declaring trust; or
by their will

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28
Q

what is the requisite intention for certainty of intention?

A

intention to impose or assume the duty which is characteristic of a trust (eg, duty to hold property or apply it for the benefit of a beneficiary or object)
desire is not sufficient

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29
Q

how is intention for certainty of intention ascertained? (what test - objective or subjective)

A

objective approach = did person intend to create a trust

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30
Q

what are the 2 requirements that are needed to be proven for certainty of subject matter?

A

1) (trust property) must be possible to identify trust property
2) (beneficiary entitlement) must be possible to ascertain beneficiary’s interest in trust property

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31
Q

which trust is enforceable?
20 of 100 ordinary shares in X
20% of 100 ordinary shares in X

A

20% of 100 ordinary shares in X is enforceable as the beneficiary has a fractional share in every asset - whereas 20 of 100 ordinary shares fails for lack of certainty of subject matter

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32
Q

what is a fungible asset?

A

an asset that is identical and readily exchangeable eg, ordinary shares

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33
Q

what is non-fungible asset?

A

not identical and not interchangeable
eg, diamonds = all could be different cuts and have different value

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34
Q

what type of asset is the only type of asset that it is possible to declare trust over specific number (bulk)?

A

fungible, intangible asset

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35
Q

what is the consequence of no certainty of intention on a testamentary trust?

A

there is no trust and instead becomes a gift from the will

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36
Q

what is the consequence of uncertainty as to subject matter or objects for a testamentary trust?

A

trust fails and the property falls into the residue

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37
Q

what is the consequence of uncertainty of intention for lifetime trust (inter vivos)? (when legal title has been transferred)

A

if there is no certainty of intention then there is a presumption of a resulting trust

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38
Q

what is the consequence of lack of certainty on either subject matter or objects for lifetime trust (inter vivos)? (when legal title has been transferred)

A

an automatic resulting trust arises

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39
Q

what is the consequence of a lack of any of the 3 certainties for a lifetime (inter vivos) trust? (no transfer of legal title)

A

there is no change in beneficial ownership unless all three certainties are established

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40
Q

what are the formalities that need to be met for a trust of land?

A

declaration of trust f land must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will

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41
Q

what is the consequence of non-compliance of formalities?

A

it renders the trust unenforceable NOT void

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42
Q

what is constitution of a trust?

A

it refers to the transfer of legal title from one party to another

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43
Q

what does Milroy v Lord say about trusts?

A

equity will not assist a volunteer, perfect an imperfect gift or treat a failed gift as a self-declaration of trust

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44
Q

what are the 4 exceptions to Milroy v Lord?

A

1) principles in Re Rose
2) fortuitous vesting
3) DMC
4) the unconscionable principle

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45
Q

what are the 3 elements of the exception of Re Rose?

A

1) correct method of transfer is used
2) transferor has done everything in their power to effect the transfer
3) document ends up in the hands of the person/organisation capable of effecting the transfer

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46
Q

how did mescall v mescall extend the rule in Re Rose? (registered land)

A

it is not necessary for the transferor to have done everything in their power to effect the transfer (2nd limb of Re Rose) - instead transferor needs to ‘put the matter beyond their control’

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47
Q

if Re Rose or Mescall v Mescall apply - how is property held?

A

property is held on constructive trust for the intended donee

48
Q

when does the rule in Strong v Bird apply?

A

applies when the intended recipient of an imperfect gift later acquires legal title to the gift as the executor of the estate and there was a continuing intention to make the gift until the donor died.

49
Q

what are the 3 requirements needed for a trust to have charitable status (charitable purpose trust)?

A

1) be for a charitable purpose
2) satisfy the public benefit test; and
3) be wholly or exclusively for charity

50
Q

what are the Re Endacott exceptions for when a non-charitable purpose trust can be made? [what are the categories there are 3]

A

1) maintenance of a particular animal
2) erection and maintenance of monuments and graves
3) saying private masses

51
Q

if a trust is created to provide scholarships - how does it pass the public benefit requirement for a charitable trust?

A

a trust that provides scholarships must ensure that the scholarships are available to those in financial need to satisfy the public benefit requirement

52
Q

who does the statutory rules against remoteness of vesting apply to? [who is their object?]

A

apply to trusts with people or charities as their objects

53
Q

how long is the statutory perpetuity period?

A

125 years - the trust property must vest in a person or charity before or at the end of that period

54
Q

what is the ‘wait and see’ rule for perpetuity of a trust?

A

if it is not clear from the outset of the trust when the perpetiuity period is then ‘wait and see’ rule means the trust can subsist until it becomes apparent that the interest cannot vest within the perpetuity period (anything done before this will remain valid)

55
Q

what type of trust does the common law rule against inalienability (perpetuity) apply to?

A

non-charitable purpose trusts

56
Q

how long is the common law perpetuity period?

A

21 years [must be clear from the outset when the trust comes to an end - cannot use the wait and see rule]

57
Q

what happens if the interest in the trust doesnt vest within the statutory perpetuity period of 125 years?

A

the interest becomes void and the property will typically revert to the settlor’s estate or be distributed according to any gift-over provisions in the trust instrument.

58
Q

how do automatic resulting trusts arise?

A

they arise when there is uncertainty of subject matter, uncertainty of object, non-compliance with beneficiary principle or surplus fund remaining at the end of the trust period.

59
Q

how does a presumption resulting trust arise?

A

when a person either transfers property to another person or contributes towards the acquisition of an asset which is transferred to another person. the presumption can be rebutted by evidence of the transferor or contributor’s actual intention

60
Q

does a resulting trust arise when A gives a painting to B and then A asks for it back 6 months later?

A

no, because when a transfer is made without consideration and there is no evidence of the transferor’s intention to make a gift, the equitable interest results back to the transferor.

61
Q

what happens if there is a gratuitous transfer or property without clear evidence of the transferor’s intention to make a gift?

A

the law presumes that the transferee holds the property on a resulting trust for the transferor. (this presumption can be rebutted by evidence showing that a gift was intended)

62
Q

under stack v Dowden the presumption is that equity follows the law in family house cases = what does this mean?

A

equitable title reflects legal title
1) sole legal owner is presumed the sole beneficial owner
2) joint legal owners are presumed to be equitable joint tenants

63
Q

in sole legal ownership cases, if an individual seeks to establish a beneficial interest they need to establish they have acquired an interest under a common intention constructive trust - what are the 2 things they need to prove to establish this?

A

1) common intention that they should have a beneficial interest; and
2) detrimental reliance upon that interest

64
Q

can the presumption of joint tenancy be rebutted after it has been acquired?

A

yes it can because the court looks at the actual intention of the parties (express and inferred) therefore, if circumstances change after acquiring joint tenancy then it can be rebutted as a presumption

65
Q

what are the 3 key elements for a proprietary estoppel claim?

A

1) an assurance made to the C
2) reliance by the C on that assurance; and
3) detriment to the C in consequence of their reliance

66
Q

if A and D have lived in a house for 10 years and A bought house solely before relationship but S contributes significantly to house payments and mortgage ect. can S claim beneficial interest?

A

yes, S can claim a beneficial interest by establishing a common intention constructive trust, showing that there was a common intention to share the property and that S detrimentally relied on that intention

67
Q

how should the court approach the quantification of beneficial interests when working out the beneficial interest in family home trusts?

A

court should consider the whole course of conduct between the parties to determine their actual intentions.
holistic approach = take into consideration all factors; including financial and non-financial to infer the parties intention on ownership

68
Q

if a legacy is given to a minor as a beneficiary can the trustees pay the minor?

A

no they cannot until they reach 18 as a minor cannot give valid receipt

69
Q

when a trustee wants to retire without needing to be replaced = what is the process on things they should do to complete the retirement process?

A

1) retiring trustee sign a deed declaring their intention to retire
2) obtain written consent by deed of the co-trustees
3) any action required to vest the trust property in the remaining trustees must be carried out

70
Q

what are the legal requirements that must be met for trustee to be compelled to retire (Saunders v vautier and trustee act 1925)? [beneficiary powers]

A

beneficiaries can compel a trustee to retire if all beneficiaries agree in writing, provided that after retirement there is at least 2 trustees or a trust corporation remaining.

71
Q

what happens if a trustee predeceases the testator - who has power to appoint a new trustee?

A

personal representatives have authority under s36(1) TA 1925 to appoint a new trustee in writing

72
Q

who has the authority to appoint new trustees if a named executor wises to renounce their position?

A

the named executor who wishes to renounce their position has the power to appoint new trustees before doing so. [ensuring the the trust continue without interruption]

73
Q

can a settlor if they have express clause power to allow them to remove trustee at their discretion - even if the trustee hasn’t breached any duties?

A

yes, the settlor has an express clause in the trust instrument which grants them the power to remove any trustee at their discretion regardless of whether the trustee has breached any duties

74
Q

can a trustee retire without being replaced?

A

they can only retire without being replaced if after their retirement there is at least 2 trustees or a trust corporation that remain. [if not then they need to appoint]

75
Q

if an intended trustee disclaims their trusteeship - who can appoint their replacement?

A

either the intended trustee can appoint their own replacement or if they dont wish to exercise this power then the settlor can appoint a new trustee as the legal title was never fully transferred to the intended trustee

76
Q

can a trustee appoint a new additional trustee?

A

yes they can as long as the current trustees appoint the additional one in writing, but the total number of trustees cant exceed 4 unless the trust instrument permits otherwise.

77
Q

can a trustee pay capital to or for the benefit of a beneficiary before their interest vests in possession?

A

yes they can they have a statutory power under s32 TA 1925

78
Q

what type of beneficiary can a trustee use their power of advancement in favour of?

A

can use the power of advancement in favour of any beneficiary, even if they interest is contingent, but require the consent of beneficiaries with a prior interest

79
Q

what type of beneficiary does the statutory power of maintenance apply to?

A

statutory power of maintenance applies to minor beneficiaries with vested interests and contingent interests which carry the immediate income

80
Q

what can the power of maintenance be used to pay for?

A

used for the maintenance, education of benefit of a minor beneficiary

81
Q

if the power of maintenance is not used before a beneficiary turns 18 - what happens to the accumulated income?

A

the previously accumulated income which has not been paid out using the power of maintenance must be added to the capital

82
Q

do trustees have a statutory duty to obtain proper advice?

A

trustees have a statutory duty to obtain and consider proper advice before exercising their powers of investment unless they reasonably conclude that in all circumstances it is unnecessary.

83
Q

do trustees have a statutory duty for reviewing investments even if the investment is not making a loss?

A

trustees are required to regularly review the trust’s investment to ensure they remain suitable and diversified. duty to review investments is ongoing and doesnt depend solely on occurrence of a financial loss

84
Q

can the statutory power of maintenance under s31 TA 1925 be overridden by the terms of the trust instrument?

A

yes - therefore, if they compete with each other then the trust instrument can override the statutory power of maintenance.

85
Q

what are the 2 key fiduciary duties that a trustee has?

A

1) no conflict: must not put themselves in position where personal interests conflict with their duties
2) no profit: must not obtain an unauthorised benefit as a result of their position either for themselves or a 3rd party

86
Q

what is the effect if there is a breach of self-dealing rule or fair-dealing rule?

A

the transaction is voidable and beneficiaries may seek rescission

87
Q

what are the 2 remedies that a beneficiary may elect when there is a breach of no-profit rule?

A

account for costs: personal claim requiring trustee to pay principal amount equivalent to profit they made
constructive trust: profit made by fiduciary is held on constructive trust for principal

88
Q

what are the 2 reasons why a principal would want a proprietary claim of the creation of a constructive trust = the profit the fiduciary made was held on constructive trust for principal?

A

1) constructive trust provides protection against insolvency of fiduciary = can rank above creditors
2) constructive trust allows principal to trace into any accepts acquired with the profit

89
Q

what is the no-profit rule?

A

trustee made a profit from an opportunity that arose due to his fiduciary position, constituting a breach of the no-profit rule. appropriate remedy is to account fro profits

90
Q

what is an appropriate remedy when a trustee makes an unauthorised investment (especially one that involves a conflict of interest)?

A

account for any profit made from investment = requires trustee to restore the trust fund to the position it would have been in if the breach had not occurred, including any profits made from the unauthorised action

91
Q

if trustee distributes 100 shares in violation of trust agreement and at time of distribution shares were worth £1,500 and are now worth £2,500 at time of trial - what remedy is appropriate?

A

trustee is required to restore trust fund to its position had breach not occurred so needs to restore 100 shares but if this is not possible then trustee must pay equitable compensation equivalent to the value of the property at the time of trial which is £2,500

92
Q

what is the only type of liability that an exemption clause cannot protect trustees from liability?

A

cannot protect liability if it is a fraudulent breach

93
Q

under s61 TA 1925 the court has discretion to relieve a trustee from liability in what circumstances?

A

trustee must demonstrate that he acted honestly, reasonably and ought fairly to be executed for the breach of trust considering all the circumstances

94
Q

what is the appropriate remedy for a trustee who fails to obtain proper advice and consult co-trustees before making high-risk investment?

A

equitable compensation to restore the loss to the trust fund

95
Q

what is the safest option for trustees to take in order to protect themselves of liability for breach of trust when there is ambiguity in the trust instrument?

A

safest option is to protect trustees from liability when facing ambiguity in trust instrument is obtaining court’s guidance.
trustees ensure that their interpretation aligns with legal standards and reduces the risk of a future claim for breach of trust

96
Q

what are the 3 advantages to a proprietary claim against property or its traceable proceeds?

A

1) not affected by D’s bankruptcy or insolvency
2) it enables beneficiaries to capture increases in the value of traceable proceeds
3) it doesnt depend on fault; it can be maintained against the defaulting trustee and against innocent recipients of the trust property or its traceable proceeds

97
Q

what is ‘following’ (trust assets)?

A

process of following the same asset as it moves from hand to hand

98
Q

what is ‘tracing’ (trust assets)?

A

process of identifying a new asset as the substitute for the old

99
Q

what is ‘claiming’ (trust asset)?

A

assertion of a personal or proprietary right in relation to misapplied trust property or its traceable proceeds

100
Q

what are the 2 conditions that a claimant needs to study to use tracing/following/claiming (Re Diplock)?

A

1) Claimant had a ‘right of property recognised by equity’ in the asset which the seek to follow and/or trace
2) asset was held by a person who was in a fiduciary relationship with eh claimant

101
Q

what is the main defence to an equitable proprietary claim?

A

purchaser of a legal interest without notice of the trust (bona fide purchaser for value without notice)

102
Q

what is the rule for tracing when there is an innocent mixture in current bank account?

A

first in, first out rule

103
Q

what is the general rule applying to withdrawals from an innocent mixture?

A

the withdrawal is attributed to a % of the contribution that the trust put in eg, trust A and B both put in £1,000 and £500 is withdrawn then both have 50% in the dissipated funds and then both have a proprietary claim in £750 each of the remaining money in the account and then a personal claim of £250 in the dissipated fund

104
Q

when are the 2 times that the 1st in, 1st out rule doesnt apply?

A

1) impractical
2) unfair

105
Q

what method is used if 1st in, 1st out rule is deemed as impractical and unfair?

A

rolling charge method: each individual withdrawal is attributed fractionally to the contributors of the account immediately before the withdrawal - fraction attributed to any specific contributor being equivalent to their fractional contribution to the account immediately before withdrawal;.

106
Q

what are the 2 thins a beneficiary can do when an asset is purchased exclusively with trust money?

A

1) assert beneficial ownership of the asset; and
2) making personal claim against trustee for breach of trust and enforcing an equitable lien on the asset (eg, beneficiary becomes secured creditor)

107
Q

what is the basic rule for wrongful mixture of trust property?

A

beneficiaries can treat any dissipation as trustee’s money and attribute the identifiable funds or traceable proceeds to the trust. - not limited to only claiming the most profitable assets only; can claim all identifiable assets unless 3rd party rights are involved

108
Q

what can beneficiaries do when trust money is mixed with trustee’s own money to buy an asset?
eg £4,000 trust money and £6,000 trustee money to buy a £10,000 car

A

when trust money is mixed with trustee’s own money to purchase an asset then beneficiaries can claim a proportionate share of the traceable proceeds
(therefore, trace 40% of the purchase price of the car, so entitled to 40% of sale proceeds even if car sells for more eg, £12,000 then entitled to 40% which is £4,800)

109
Q

what is accessory liability (dishonest assistance)?

A

form of secondary liability which gives a claimant the right to sue a third party for the loss caused by the trustee or fiduciary (as well as any profit received by the third party)

110
Q

how do you establish a claim in accessory liability (dishonest assistance)?

A

need to show: third party assisted the breach (by helping to plan it, carry it out or cover it up) and acted objectively dishonestly in doing so

111
Q

what is recipient liability?

A

allows claimant to recover the amount of money beneficially received by a third party. knowing receipt is available in cases where third party has knowledge making it unconscionable for them to retain the funds

requires an assessment of the circumstances and their level of knowledge

112
Q

what are the 4 requirements for s claim for accessory liability (dishonest assistance)?

A

1) trust in existence at the material time
2) trustee committed a breach of that trust
3) D assisted the trustee to commit that breach of trust
4) D’s assistance was dishonest

113
Q

what remedies are available for dishonest assistance? (accessory liability)

A

loss occasioned by the breach which they assisted (need to show conduct assisted the breach of trust and that but for the breach of trust the loss would not have occurred)

potentially liable for profits they acquire by reason of participation in the breach [C must demonstrate that their participation was the ‘real’ or ‘effective’ cause of the profits

114
Q

what are the 4 requirements for knowing receipt claim (recipient liability)?

A

1) misapplication of trust property, or property held in another fiduciary capacity
2) beneficial receipt by the D of the misapplied trust property or its traceable proceeds
3) persistence of the C’s equitable proprietary interest in the property received by the D; and
4) knowledge of the circumstances on the part of the D which makes it unconscionable for them to retain the benefit of the receipt

115
Q

what are the 5 types of knowledge according to the Baden scale?

A

1) actual knowledge
2) wilfully shutting one’s eyes to the obvious
3) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make
4) knowledge of circumstances which would indicate the facts to an honest and reasonable man
5) knowledge of circumstances which would put an honest and reasonable man on inquiry

FLK2 (9 decks)

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