Trusts (Q1) Flashcards
What is a trust?
- A trust is an arrangement where a truster transfers property to a trustee to benefit a beneficiary
- Trusts separate legal title (trustee) from beneficiary title (beneficiary).
Can be: - intentionally created
- imposed by law
Why might someone set up a trust?
- estate planning (e.g. managing property after death)
- protecting assets for children or those lacking capacity
- inheritance or other tax mitigation
- pension funds (e.g staff pension schemes)
- investment structures (unit/investment trusts)
- political impartiality (e.g. blind trusts)
- charitable purposes
What are the legal requirements for a valid/legally effective trust?
- identified or identifiable parties
- transfer or property from truster to trustee
- clearly stated purposes
- declaration of trust making clear the intention to create a trust
- trust purposes must be possible and not illegal or contrary to public policy
RELEVANT CASES: MacPherson v MacPherson Curator Bonis (1994), McCaig’s Trustees v Kirk Session of United Free Church of Lismore (1915)
What are the types of trusts?
Inter vivos
Mortis causa
Private trusts
Public trusts
What is an mortis causa trust?
- after death
- created in a will
- effective upon death
- truster can revoke/alter before death
- trustees & beneficiaries only exist after death
What is an inter vivos trust?
- during life
- created during lifetime of truster
- trustees, truster & beneficiaries exist at the same time
When can a mortis causa trust be revoked?
When:
- the truster is still alive
- there are no binding declarations or actions making it irrevocable
- assets haven’t already been transferred in a way that can’t be reversed
When is writing required to create a trust?
Written trusts are always better but only essential in relation to circumstances where:
- when trust related to land/buildings
- where the trust is a testamentary trust, to apply on death
- where the truster is the sole trustee of his own property
What is capricious trust?
A trust with no useful purpose, often vain or wasteful, and therefore invalid
RELEVANT CASES: McCaig’s Trustees v Kirk Session of United Free Church of Lismore (1915)
Can trustees be personally liable for breach?
Yes, if they:
- act outside the trust purpsoes
- fail to invest prudently
- allow a conflict of interest
- breach fiduciary duties (honesty, loyalty, no profit)
What are some advantages of trusts?
- flexibility in asset management
- protects assets from direct ownership
- can lower tax burdens
- long-term support for beneficiaries
What are some disadvantages of trusts?
- can be complex and costly to set up
- requires ongoing legal/financial oversight
- risk the trustee managment
- may be inflexible depending on the terms
What if a trustee benefits personally?
This is a conflict of interest
RELEVANT CASE: Inglis v Inglis (1983)
How does a truster change or dissolve a trust?
- requires the consent of all beneficiaries OR court approval under s.1 Trust (Scotland) Act 1961 (must prove prejudice)
- mortis causa trusts can be revoked at any time before death
- trustees cant just change it unilaterally unless allowed
What do you need to establish a trust?
- identifiable truster, trustee & beneficiary
- transfer of property to trustee
- clear trust purpose
When can a trust be ended?
- purposes are fulfilled
- trust period ends
- court allows variation or termination
Macpherson v MacPherson’s Curator Bonis (1984)
Facts:
- money was left in her will saying it was going to Katherine MacPherson for the benefit of herself and her sister, Jane
Issue: Did this wording actually create a binding trust?
Decision:
- court recognised the trust
- the phrase “for the benefit of” showed an intention to create a fiduciary relationship - a trust
- even though the language wasn’t technical the structure of the arrangment implied a trust obligation
MacCaig’s Trustees v Kirk Session of United Free Church of Lismore (1915)
DUTY TO ADHERE TO TRUST PURPOSE
Facts:
- Miss McCaig left money in her will to build a large monument to commemorate her family
- Structure was meant to be decorative and served no charitable or public purpose
- her trustees questioned whether this was a valid use of the estate
Issue: Was the trust valid or contrary to public policy?
Decision:
- The court invalidated the trust
- ruled that the trust was capricious, wasteful & contrary to public policy as it had no beneficial purpose for the public or any identifiable person.
Legal Principle:
- a trust must have a lawful, practical and beneficial purpose
- a private memorial or monument with no public benefit or charitable purpose is not a valid trust
Inglis v Inglis (1983)
DUTY TO AVOID CONFLICT OF INTEREST
👨⚖️ What happened:
A trustee got a tenancy (like a lease) transferred to himself from the trust. He didn’t do it sneakily, and he genuinely thought it was fine. But guess what? He made a profit from it.
🚨 The issue:
Even though he meant well and acted in good faith, he personally benefited from a trust decision. That’s a big no-no for trustees.
👩⚖️ The court said:
Doesn’t matter if you didn’t mean any harm — if you benefit from trust property or decisions, it’s a breach of your fiduciary duty.
🧠 Moral of the story:
Trustees must keep their personal interests completely separate. Even the appearance of personal gain is enough for the court to say: ❌ breach.
Legal Principle:
- the strict nature of fiduciary duties in trust law
- the rule against aucto in rem saum (acting in your own benefit in your fiduciary role)
- that fairness is irrelevant, what matters is the duty, not the outcome.
Rae v Meek (1889)
DUTY OF CARE
Key Point: Trustees must take independent advice
What Happened:
Trustees invested in a speculative building project based only on advice from the architect — it failed.
Court Held: Trustees breached their duty of care and had to repay losses.
How to Apply:
Use when a trustee has acted without due diligence — e.g. didn’t consult professionals before making key decisions.
Millar’s Trustees v Polson (1897)
DUTY OF CARE
👩⚖️ The situation:
There were a few trustees (people in charge of managing someone else’s money or property). One of them did something wrong — basically messed up or misused the money. The other trustee knew about it but just sat around and did nothing for way too long.
😬 The problem:
That trustee who didn’t act wasn’t the one who caused the problem — BUT because they didn’t stop it in time, the court said they were grossly negligent. That means they weren’t just careless — they were really careless.
💥 The result:
The court called this “culpa lata”, which is just a fancy Latin phrase for serious carelessness.
🔑 The key takeaway:
If you’re a trustee, even if you didn’t mess up, you still have a duty to stop your co-trustee from doing something wrong. If you don’t? You can be in trouble too.
Melville v Noble’s Trustees (1896)
DUTY OF INVESTMENT
💰 What happened:
A trustee left money just sitting in a boring low-interest bank account for 19 years. Like… nearly two decades. No investments, no effort to grow it.
📉 The issue:
They didn’t lose the money, but they also didn’t try to make it grow. That’s a missed opportunity — especially when they had a duty to make it work harder.
👩⚖️ The result:
The court said: You had a duty to do more with that money. Because the trustee didn’t even try, they were held liable.
🧠 Moral of the story:
Trustees must actively manage the money — not just let it sit there collecting dust. They need to look for reasonable returns and spread risk.
Ross v Ross (1896)
DUTY TO KEEP ACCOUNTS
🧾 Facts:
A mother (trustee) was managing her son’s trust estate. She overspent and didn’t keep clear financial records or justify the use of funds.
⚖️ Issue:
She couldn’t properly account for how the trust money was used. This lack of financial discipline triggered the court’s concern.
👩⚖️ Held:
She was found to have breached her duty and was ordered to repay the money. Trustees must be financially transparent and avoid casual use of funds.
💡 Application:
Use this case when:
A trustee overspends or acts without budget control
There are missing or unclear records
A trustee fails to report properly on how funds were managed
Stewart v Chalmers (1904)
DUTY TO ADHERE TO TRUST PURPOSES
🔑 Key Point: Trustee removal due to misconduct and obstruction.
📖 What Happened: One trustee refused to cooperate with co-trustees, withheld trust funds, and improperly demanded extra remuneration.
⚖️ Court Held: The court removed the obstructive trustee, citing misconduct, and permitted the remaining trustee to appoint replacements.
💡 How to Apply: Useful authority showing that courts can and will remove trustees who act in bad faith, obstruct trust administration, or seriously breach their duties. Reinforces the court’s supervisory role in ensuring trusts are properly managed.
