Trusts Principles

Question 1

What is a trust

Answer 1

Divides ownership and management of property

Trustee - legal title (proprietary)
Beneficiary - equitable title (proprietary) - true owner - ‘object’

Chattels (tangible items except land) and chose in action (intangible rights) can be held on trust

Trust ceases to exist if property is destroyed/ consumed. If it’s Ts fault they are personally liable for restoring trust property using their own funds or paying compensation to be subject to the trust

Ts can be Bs

Ts personally liable to Bs if don’t act in accordance with their duties

Permitted purpose trusts (charitable and closed category of non-charitable) where purpose is the object

Question 2

Benefits of trusts

Answer 2

• Separate ownership and mgmt of property
• Expert to manage it
• Protection of Bs (eg minor)
• Flexibility (different Bs get different interests in property, discretionary interests, future/ contingent interests)
• Original owner retains some control (which wouldn’t do if gifted property)
• Trust not part of Ts estate for bankruptcy/ insolvency regimes because of Bs equitable proprietary interest = cannot go to creditors (= B has priority over unsecured creditors in event of insolvency)
• Tax benefits
• B’s interest is a right in rem = enforceable against 3rd parties and against the property itself (eg painting sold to C by T by mistake can be recovered) BUT cannot be enforced against purchaser of legal interest who has no notice of the trust (such a transfer extinguishes Bs equitable proprietary interest)

Question 3

Use of trusts

Answer 3

Commercial

Publicly traded shares held on trust; investment funds involve trusts; pension funds; tax-efficient employee renumeration; corporate tax avoidance

Private

Generational wealth - testamentary planning; land ownership; tax planning

Charitable purpose

Question 4

Categories of trusts (often fall into >1 category)

Answer 4

Express (arise by intention to create it)

Implied (arise by operation of law)

• RESULTING (automatic; presumed): legal owner transfers ownership to 3rd party but equity recognises that they should retain/ regain beneficial interest in that property
• CONSTRUCTIVE (institutional; as remedy; common intention): arise due to unconscionably

Institutional = automatically imposed because a qualifying event means the conscience of the legal owner is affected in some way which prevents them from denying the beneficial interest of another person (eg to prevent fraud; perfect imperfect gift)

Awarded by court as a remedy = successful promissory estoppel claim; fiduciary makes personal profit in breach of no-profit rule; end of tracing process following breach of trust or fiduciary duty

Common intention = resolve disputes over beneficial ownership of land occupied by unmarried cohabited

• STATUTORY

Testamentary: created by will

Inter vivos: created in settlor’s lifetime

Fixed: Bs’ interests fixed by settlor/ T knows what they want to give Bs

Discretionary: T knows by Bs are but uses power to determine who benefits/ in what shares. Very flexible

Charitable purpose: exception to GR that trust must have a B

Non-charitable: private trusts for very specific purposes. Also exception to beneficiary principle

Bare trust: T just holds levels title for B/ has no active mgmt duties. Just follow Bs instructions (eg stockbroker T of shares for B)

Question 5

Full legal owner

Answer 5

Owns property legally and beneficially