Trusts Revision Flashcards
Once an interest has vested, the beneficiary is entitled to it and the interest will not fail
In the case of land, the declaration must be evidenced by some writing signed by the settlor
A declaration stating how the beneficial interest is held is conclusive
The legal title to chattels is transferred either by delivery or by deed but if this doesn’t take place before the settlor’s death but the intended trustee later acquires the legal title as personal representative of the settlor, the trust is regarded as completely constituted provided that the settlor’s intention to create the trust continued until death.
Where an individual contributes to the purchase of property in the name of another and there is no evidence that a gift was intended, the usual presumption is that the legal owner holds on resulting trust for himself and the other party in proportion to their respective contributions. This presumption does not apply where the contributor was the father or husband of the legal owner, or was acting in loco parentis to the legal owner. In these cases the presumption of advancement applies and it is presumed that the contributor intended to make a gift unless he can prove that he did not.
A constructive trust is one imposed by the court on grounds of conscience
The usual rule is that a trust which is to take effect on death must be declared in a valid will. Where a trust is declared in a will but the beneficiary is not identified, there will be a valid half-secret trust only if the identity of the beneficiary was communicated to the trustee before the will’s execution and the wording of the will is consistent with that communication.
A trust of land must be evidenced by signed writing, then constituted by transferring legal title by deed. The title then must be registered in accordance with the requirements of the relevant statutory provision.
A deed is used to transfer legal title to the trustee, not to create a trust
If a property transfer was made as part of an illegal or fraudulent transaction, the court must decide whether it is in the public interest to allow a claim. The court would take into account all relevant factors, including the underlying purpose of the relevant law and the respective conduct of the parties.
A trustee may retire without replacement only if he leaves in office 2 trustees or a trust corporation, and his co-trustees consent by deed.
A trustee may be replaced where he desires to be discharged provided that a replacement is appointed and the appointment is made in writing. The appointment must be made by the retiring and continuing trustees.
The ‘fair dealing rule’ applies to the purchase by a trustee of a beneficiary’s interest. A trustee may purchase the interest of a beneficiary provided that the price is fair and full disclosure of all material facts is made.
Where a breach has occurred, trustees are only liable to make good the loss caused by the breach.
Trustees may delegate investment decisions to an investment manager and will not be liable if they follow the procedures laid down by statute.
A trustee may delegate administrative functions and may also delegate investment decisions to an investment manager provided they take account of the requirements laid down in the Trustee Act 2000.
The personal representatives of a deceased trustee only have power to appoint new trustees where a sole trustee dies
Where a beneficiary has an interest in the capital of a fund, the trustees have power to advance capital for the beneficiary’s advancement or benefit. The trustees must obtain the consent of any beneficiary with a prior interest in the income of the fund.
Where a third party acts as an accessory to a breach of trust, they become personally liable as if they were a constructive trustee. To establish accessory liability, it must be shown that the third party accessory was dishonest-that is, they did not act as an honest person would in the circumstances. It is not necessary to show that the third party knew that a breach of trust was committed.
A private trust must comply with the inalienability rule, which means that the capital of the fund must not be tied up for longer than the perpetuity period.
If a property transfer was made as part of an illegal or fraudulent transaction, the court must decide whether it is in the public interest to allow the claim. The court would take into account all relevant factors, including the underlying purpose of the relevant law and the respective conduct of the parties.
A person who receives trust property is personally liable in equity if their state of knowledge was such as to make them liable as if they were a constructive trustee. This applies where the recipient had sufficient knowledge as to make it unconscionable for them to retain the property-that is, where they knew of the breach or where they were suspicious but chose not to ask questions
An individual must transfer the property to the trustee and to make a valid declaration of trust for a trust to be valid
When a trustee places trust funds into a bank account with the trustee’s own money, the beneficiaries may claim a charge over the account for the amount of the trust funds in it. If the trustee has drawn money out of the account, the basic rule is that the trustee is treated as withdrawing their own money first. If the trustee dissipates the trust money and then subsequently receives their own money, the limit of the beneficiary’s claim is the lowest intermediate balance, which is the balance after the last payment out but before the next payment in.
The court will not take judicial notice of the likely lifespan of the animal, so a gift for an animal’s maintenance will fail unless specific provisions are made limiting its duration.
A trust needs a valid perpetuity period. If the trust may continue for longer than 21 years, it fails.
The number of trustees may be increased, and the trustees may appoint an additional trustee. In the absence of special provisions in the trust instrument, statutory power is given to the existing trustees to appoint additional trustees provided that they do not increase their number no more than 4.
The general rule is that a trustee may not profit from their position, and that a trustee holds any profit received as a result of their trusteeship on trust for the beneficiaries. The rule does not apply where the profit would have been received regardless of the trusteeship.
A trustee may not purchase property owned by the trust. This is self-dealing and a breach of the trustee’s fiduciary duty.
A trust of land is unenforceable unless there is written evidence of the declaration of trust, signed by the settlor.
Constitution is the process of transferring legal title to property from one party to another, this does not need to be done if the settlor is holding the property as trustee
The normal rule is that trustees may not profit from their trusteeship, so a trustee may not charge unless there is an express power in the trust instrument. However, by statute, a professional trustee may charge their normal professional charges for their services in relation to the trust provided that: (1) they are not a sole trustee, and (2) their co-trustee(s) consent in writing to their charges.
A single trustee has power to appoint a co-trustee.
Where a trust for a charitable purpose has taken effect but subsequently fails because it is impossible or impractical to carry out, the funds will be applied cy-pres to a similar charitable purpose.
The limitation period for bringing an action against a trustee for breach of trust is 6 years from the date on which the breach was committed.
There are some private purpose trusts which are considered valid (but unenforceable), including trusts for the maintenance of monuments and graves.
Where trustees have been accumulating surplus income during a child’s minority, the accumulated income accrues to capital once the child attains the age of 18. When the beneficiary’s interest in capital vests, he becomes entitled to the accumulated income as well as the capital.
Once a beneficiary turns 18 the trustees have no further discretion in relation to the income or the accumulations of income.
If a trustee mixes funds of 2 trusts in a current account, the traditional rule is that the first money into the account is the first money out of the account. However, courts will instead divide the money proportionately if: (1) applying the first-in, first-out rule is contrary to the express or implied intention of the claimants, (2) it is impractical to apply the rule, or (3) applying the rule would cause injustice to the parties.
Where an individual wishes to create a trust of personalty with herself as trustee, there must be certainty of intention to be legally bound, of subject matter (the trust property), and objects (the beneficiary). There are no formal requirements for a declaration of trust of personalty.
A secret trust arises where the testator, at any time before death, communicates to the apparent beneficiary her intention that the apparent gift should be held on trust for some third party and the apparent beneficiary agrees, either expressly or impliedly (by silence). The apparent beneficiary holds on trust as instructed by the testator.
The rule that communication must take place before the date of the will applies only to half-secret trusts
Where a family home is registered in joint names but there is no express declaration relating to the equitable interests, the usual starting point is an assumption that the equitable interests are equal. However, the court does have power to conclude that the equitable interests are held in unequal shares in exceptional circumstances. According to the leading case, the court does not have discretion to award a fair share to the claimant, but must look at the whole course of dealing between the parties to infer their intentions. This includes all relevant circumstances, not just contributions to the purchase price and mortgage or just the financial arrangements between the parties.
Three certainties
- Intention
- Subject matter
- Objects
If a trust is void for uncertainty of intention, the transfer is a gift to the recipient
What is the certainty of object rule for a discretionary trust?
Given postulant test
The trustees of a discretionary trust need not be able to identify every potential beneficiary
When creating a trust by transferring property to the trustee, the settlor must transfer the property and make a declaration of trust. In the absence of a declaration of trust, there will be no certainty
When creating a trust of land by transferring to a trustee, the settlor must execute a deed to transfer the land and evidence the declaration of trust with a signed writing.
If the settlor (having already signed a declaration of trust) signs a deed of transfer of land and hands it to the trustee, the trust is constituted even though the transfer has yet to be registered with the Land Registry.
A donatio mortis causa is enforceable if the donor delivers the property to the donee in contemplation of imminent death, the gift is conditional on death and the donor dies
The rule in Strong v Bird can apply only if the intended transferee becomes the transferor’s executor or administrator.
A person with a life interest in a trust has a limited interest. They are entitled to the income of the trust property and not capital.
When an individual transfers property to another without consideration, a resulting trust will be implied only when there is no evidence of the reason for the transfer
The perpetuity rule does not apply to charitable trusts
A legacy to benefit the employees of a company by providing them with cultural opportunities, whilst not valid as a charitable trust, might still be valid as a Denley trust provided the trust is limited to the perpetuity period
Power of maintenance relates to income
Power of advancement relates to capital
Can trustees use the power of advancement to advance capital to a life tenant?
No
Any advance must be taken into account when a beneficiary reaches a contingency age but need not be returned if they die before that age.
A solicitor trustee who advised a breach of trust is likely to be ordered to indemnify any other trustees who are liable for the breach.
Which type of claim would be preferable for the beneficiaries to bring when the liable trustee is bankrupt?
Proprietary claim because the beneficiaries will have priority over the trustee’s other creditors
Beneficiaries of a trust make a proprietary claim against an innocent volunteer who received trust property in ignorance of the breach of trust even if a personal claim is unavailable
Noncharitable purpose trusts, such as trusts for the maintenance of tombs, may not continue beyond the perpetuity period of 21 years.
The trustee of a noncharitable purpose trust does not have to be a charitable organisation
Certainty of intention requires merely that the settlor intends to create a trust
A trust can be partly void due to lack of the three certainties but the other part of the trust can be valid
A trustee is not vicariously liable for the actions of their co-trustee but is liable for loss caused by their own breach of trust
Trustees must act jointly and must keep the trust property in their joint control.
For example, if a trustee withdraws money from the trust bank account and disappears the co-trustee is in breach of trust as they have not ensured that the trust bank account required the consent of both trustees to withdraw the funds.
A minor beneficiary is entitled to receive trust INCOME once they reach the age of 18. A minor is not entitled to receive income regardless of whether their interest is vested or contingent
Once the court has decided that there is a common intention constructive trust based on express or implied intention and detrimental reliance, it will look at the whole course of dealing between the parties. The court’s aim is not to impose a fair solution but to infer the parties’ intentions from their conduct over the whole period.
A trustee who has been domiciled outside the UK for a continuous period of more than 12 months can be replaced
A trustee is permitted to purchase the life interest if they pay a fair price, make full disclosure of all material facts to the beneficiary, and in no way abuse their position. This is known as the fair dealing rule, which applies to trustee purchases of beneficial interests.
Under the rule of fortuitous vesting (also known as the rule in Strong v Bird), if an intending donor dies before a transfer is made and the donee becomes the donor’s personal representative, the transfer is complete in law and the gift is enforceable. The donor must have a continuous unbroken intention to give the gift between the donor’s initial intention to give and the donee’s appointment as personal representative.
Where two trustees are in breach of trust they are jointly and severally liable to make good the loss to the fund, with interest from the date of the breach.
Existing trustees may not use their power to increase the number of trustees to more than 4
Beneficiaries cannot bring personal claims against innocent recipients but may make proprietary claims to recover the property. However, if the funds are dissipated, the beneficiary cannot recover them.
The trustees should invest so as to take into account the differing interests of the beneficiaries.
The duty of the trustees is to look at the financial interests of the beneficiaries and not the presumed wishes of the settlor
The consent of co-trustees does not prevent the application of the self-dealing rule
When a beneficiary has an interest in the capital of a fund, the trustees have power to advance capital for the beneficiary’s advancement or benefit. The trustees must obtain the consent of any beneficiary with a prior interest in the income of the fund.
There is no requirement that there must be 2 trustees for a trust of land, only that 2 trustees are required to give a valid receipt when land subject to a trust is sold
A settlor must transfer trust property to the trustee. Where no such transfer is made, the trust is said to be incompletely constituted. Such a trust will usually fail unless one of the exceptions applies.
- The every effort test applies where the settlor has done everything required of him to complete the transfer of the legal title, and has put the property outside his control. The man has not satisfied this test because he did not complete a deed transferring the legal title and deliver it to the trustee.
- A second exception is the rule in Strong v Bird which applies when the settlor makes an attempt to transfer the title which fails, his intention continues up to his death, and the intended trustee or donee acquires the legal title as his personal representative.
If a third party received trust money with the requisite degree of knowledge of the breach of trust, they will be treated in equity as if they were a constructive trustee. The recipient will be personally liable to the beneficiaries to make good the loss to the trust fund. A recipient may be liable even though they were not aware of the nature of the breach. It is sufficient that they were suspicious about the source of funds but failed to make enquiries as a reasonable and honest person would have made.
The requirement for a declaration of trust to be evidenced in signed writing applies only to trusts of land.
A gift of chattels requires transfer of the legal title by delivery or by deed
The inalienability rule does not apply to charitable trusts
The requirement for certainty of objects does not apply to charitable trusts
A trustee may retire without replacement provided: (1) they obtains the consent by deed of all his co-trustees and the person, if any, given power to appoint new trustees by the trust instrument, and (2) they leaves in office at least 2 trustees or a trust corporation
The power of advancement applies to minor and adult beneficiaries
Trustees have the discretionary power to advance trust capital for a beneficiary’s advancement or benefit when the beneficiary has an interest in the capital.
Where a trust for a charitable purpose has taken effect but subsequently fails because it is impossible or impractical to carry out, the funds will be applied cy-pres to a similar charitable purpose.
It is only necessary to find evidence of general charitable intention in a case of initial failure.
Beneficiaries have the power to remove a trustee from office when three requirements are met. First, there must be no person nominated in the trust instrument to appoint new trustees. Second, the beneficiaries must be of full age and capacity and, taken together, must be absolutely entitled to the trust property. Third, the beneficiaries must act unanimously
A dishonest accessory is a person who dishonestly facilitates a breach of trust. Dishonesty is described as unconscious impropriety.
Trustees’ power to advance capital is discretionary. When there is a trust of successive interests, any beneficiary with a prior interest must give their written consent to an advance.
If co-owners cannot agree how or when to dispose of a property, a trustee or any other person with an interest in property subject to a trust (which includes co-owners) can apply to the courts for an order relating to the trustee’s duties, including an order to sell.
Provided there are not more than 3 trustees, the existing trustees may by writing appoint an additional trustee.
