Trusts (Underlying Law) Flashcards
What interest does a beneficiary of a trust have?
An equitable proprietary interest in the trust property
To be a valid charitable trust, even if there are some charitable purposes, what must be satisfied in relation to all the purposes?
To be valid the public benefit test must be met in respect of all the intended purposes
What trusts does the rule against remoteness of vesting apply to?
Trusts with people or charities as their objects
What trusts does the rule against inalienability apply to?
Consider when advising on
non-charitable purpose trusts
What is the rule against remoteness of vesting?
A person or charity must obtain a vested interest in the trust property within a perpetuity period.
This is within 125 years unless the trust instrument expresses a shorter period.
What is the effect of a trust which does not vest within the statutory perpetuity period?
The ‘wait and see’ rule
The trust is void.
It need not be clear from the outset of the trust - it subsists until it becomes apparent that the interest cannot vest within the perpetuity period
Anything done with the trust before it becomes apparent will remain valid
What can sometimes be used to save a trust failing due to perpetuity?
The class closing rules can operate to exclude objects that might cause the trust to fail because their interest would vest outside the perpetuity period
What is the rule against inalienability?
This only applies to
non-charitable purpose trusts.
The perpetuity period is 21 years
It must be clear from the outset that the trust will end within 21 years. In the absence of such an express clause, the trust usually fails.
However, the perpetuity period can be extended by reference to a ‘royal lives clause’ - that time onlt starts running at the death of a named period.
What effect does a ‘royal lives clause’ have on a non-charitable purpose trust?
For example, £5,000 to my trustees on trust to maintain my grave for a period not exceeding 21 years following the death of my last surviving descendant of Queen Elizabeth II alive at the date of my death’
The 21 years only starts running at the death of a named person.
What three certainties must exist for a valid express trust?
- Intention
- Subject Matter
- Objects
What is the requriment that an express trust has certainty of intention?
An express trust is brought into existence by an intention to create it.
The required intention is an intention to impose/assume the duty which is the characteristic of the trust (e.g. hold property for X, or apply for the benefit of X)
What is the problem with giving property to X with a “desire” that they make provision for her son?
It fails to show certainty of intention
A desire carries no legal obligation.
How is certainty of intention ascertained?
From words spone or written, and conduct.
The courts adopt an objective approach - if X manifests an intention to impose a characteristic of a trust, they intend to create one.
For example, stating over and over again that ‘this money is as much yours as mine’ has been held to objectively give rise to a trust (joint bank account) even if the account holder did not subjectively understand (a) what a trust was; or (b) that a trust could even arise.
What impact does the use of the word ‘trust’ have on certainty of intention?
The use of the word is a good indicator of intention
However, it is not determinative.
The use of the word trust/lack of the word ‘trust’ is not conclusive.
What is the relevance of Segregation of the Alleged Trust Property for intention?
If there is nothing to indicate that T was to treat the property as separate from her own, that could be a strong indication that no trust was intended.
After all, a feature of a trust is that the trustee is not free to use the property entirely for her own benefit
Can a trust be a sham?
For example, D sets up a clear trust but D at all material times regarded all the trust assets as belonging to him and had intended to retain ultimate control.
No.
- Where the real, subjective intentions of the settlor and trustee are to mislead or deceive, the appearance of an express trust conceals the true intentions which do not involve a trust relationship at all.
- In such cases, the subjective intentions of the parties trump the objective appearance of a trust, and the court will find the trust to be a sham.
- It will be considered to be void. Any property transferred will be held on resulting trust for the settlor.
What are the two requirments for certainty of subject matter?
- You can identify the trust property; and
- You can ascertain the beneficiary’s interest in the trust property
Can you declare a trust over property you do not yet have?
No
You cannot declare a trust over property you do not yet have
What is the effect of leaving a ‘bulk’ of your estate?
No trust—‘bulk’ too uncertain and fails to satisfy certainty of subject matter if you cannot determine which assets in the residuary estate were part of the ‘bulk’ that was to be held on trust.
What does it mean to query whether it is clear upon which property the trust bites?
How does this relate to segregation of tangible physical assets?
For example, wine bottles, gold, diamonds
If property is said to be held on trust (e.g. a bottle of wine) the specific property must be clear.
It is insufficient to have multiple as ‘part of a bulk’ and assume that any could satisfy the condition of certainty.
For example…
- London Wine Co > Wine Company allowed people to purchase wine and they store it. The purchased bottles were not segregated from the rest of the stock. There was no trust since the subject matter of the trust was uncertain.
- Goldcorp > A company dealing in gold had not segregated specific parcels of bullion to the individual purchasers, but held it in bulk and handed certificates of sale to their customers. No trust.
This rule does not change for tangible assets whether the items are fungible (identical and interchangeable) or non fungible (different)
D owns 100 tangibe diamonds.
They are non-fungible since they each contain different cuts and qualities.
Does D have to make it clear which diamon is held on trust?
Yes, for certainty of objects, tangible non-fungible items need to be segregated.
If it isn’t clear which exact diamond is held on trust, the trust fails.
How are shares treated for certainty of subject matter?
For example, A owns 950 shares in a company with 1,000. A makes an oral declaration of trust in favour of B in respect of 50 shares. Is this void?
No. The trust is not void for uncertainty despite not knowing which exact 50 shares constitute the trust property.
This is because shares are intangible and fungible.
Shares are not separate pieces of property, and so it is nonsense to talk about specifying particular shares in a declaration of trust
What happens if a trust fails due to uncertainty of subject matter?
- If A purported to declare himself a trustee, A would remain legally and beneficially entitled to that property as if no declaration had been made.
- If A purported to transfer legal title to uncertain property to B to hold on trust, then the disposition of legal title to B would fail, and A would remain legal and beneficial owner.
- If A transferred certain property to B, but B was to hold an uncertain portion of it on trust for C, then B would hold all the property on resulting trust for A.
What is the certainty of objects requirment?
The declaration of trust must make it sufficiently clear who are the beneficiaries or what is the object to which the trust property is to be applied.
The declaration of an object trust will fail if the description of the object to which the trust property is to be applied is too vague to enable the court to enforce it.