Unit One Flashcards
Which ONE of the following scenarios creates a trust?
(A) A singer signs a contract with a nightclub. The singer agrees to perform from 8pm until midnight on Friday and Saturday nights for the next month.
(B) W died recently. Their will contained the following provision: “I give £ 50,000 to Paul and leave it to his good judgement whether he gives part of it to Rachel”
(c) X also died recently. Their will contained the following clause: “I give £ 100,000 to Jessica and she is to use this money to pay for Kevin to attend the sixth form at The Grange Academy.”
Kevin is 16 and will be starting in the sixth form next September.
(D) Y wrote a letter which contained the following clause: “I am giving £10,000 to Laura to hold on trust for herself.”
The answer is C where the £100,00 is to be held by Jessica but used for the benefit of Kevin.
Scenario (A) did not create a trust because trusts can exist only over property and the singer held no property which could be the subject of a trust. Scenario (B) did not create a trust because no binding obligation was imposed on Paul to give any part of the £50,000 to Rachel. Scenario (D) did not create a trust because the legal and equitable interests in the £10,000 both belonged to Laura. A trust exists when the legal and equitable interests are owned by different people or separate groups of people.
Is this statement TRUE or FALSE?
Last week, a father declared that he was going to hold his shares in Betabuild plc on trust for his daughter until she should attain 25. As a result, the father became the trustee, and the daughter became the beneficiary of the shares. As trustee, the father continued to be the absolute owner of the shares but owed a duty to apply all profits and benefits for his daughter
The statement is false. A trustee is not an absolute owner. Absolute ownership means outright ownership of the property in question. Where a trust exists, the trustee holds the legal title to the property, but the equitable interest belongs to the beneficiary.
A year after creating the trust in Question 2, the father saw that the value of Betabuild shares was particularly high and thought that it would be a good idea to sell them and re-invest the money.
Who would be the correct person to sell the shares?
(A) The father, in his capacity as trustee.
(B) The daughter, as beneficiary.
(C) Nobody can sell the shares.
(D) The father and the daughter must both be parties to any sale.
The answer is A. As the owner of the legal title to the shares, the father would be able to sell them. The daughter’s equitable interest would transfer to the sale proceeds and, subsequently, to any replacement property purchased. B is not correct because Amy could sell no more than the equitable interest which she owns, and the question referred to selling “the shares” meaning the legal and equitable interests. C is not correct because trust assets can be sold at any time by the trustee as legal owner (and the sale proceeds reinvested). D is not correct because only the trustee as legal owner needs to be a party to any sale of the shares.
Two years ago, Xavier created a trust for his children. He appointed Sam, Tania and Victor to be the trustees. Six months ago, Sam was declared bankrupt and last month, Victor died.
Which ONE of the following statements is CORRECT?
(A) On Victor’s death, part of the trust property will pass to his heirs under his will or intestacy.
B) The trust must come to an end as one of the appointed trustees has died
(C) On Sam’s bankruptcy, her creditors will be able to claim the trust property for it to be shared among her creditors.
(D) The beneficiaries’ interest in the trust property means that it will still be held on trust for them by Tania and Sam, notwithstanding Victor’s death.
The answer is D. The beneficiaries’ proprietary interest in the trust property means it is still held on trust for them by trustees, notwithstanding Victor’s death and Sam’s bankruptcy. A is not correct because on Victor’s death, the trust property does not pass to his heirs under his will or intestacy. Even though Victor has a part interest in the legal title, this is merely an administrative interest. In equity, the trust property belongs to the beneficiaries of the trust. Trustees are joint tenants. Therefore, the trust property would have automatically passed by survivorship to the other two trustees. They will continue to act as trustees or can appoint another trustee to replace Victor, so option (B) is not correct. On Sam’s bankruptcy, the trust property would not have been shared among her creditors even though she was a part-owner of the legal title. The trust property was not hers beneficially, so (C) is not correct.
Susan created a trust two years ago. She appointed Wayne as the sole trustee, asking him to hold £100,000 on trust for her two children, Emma and William. Last month, Susan discovered that Wayne has spent some of the trust fund buying a car for himself.
Is the following statement TRUE or FALSE?
Susan, as the settlor of the trust, can sue Wayne for the breach of his duty to the trust.
The statement is false. Wayne has clearly committed a breach of his duty to the trust; even though he has the legal title to the trust fund, he can only use it for the benefit of the beneficiaries. Buying the car has caused the trust to lose value and he can be made liable for that loss of value and can be sued for this breach. However, it is the beneficiaries, Emma and William, who can bring any action against him rather than Susan. Settlors lose control over trusts after they have been created (unless they appoint themselves to be trustees or reserve powers in the declaration of trust).
John’s will created a trust of £100,000 for George if he attains 21. When John died, George was aged 19. Sadly, George died before his 21st birthday.
Will the £100,000 be paid to George’s estate? YES or NO.
The answer is no. George’s interest was contingent on his attaining 21. This contingent interest failed when he died before attaining 21; he was not entitled to anything and so there was nothing to pass to his estate. The $£ 100,000$ will pass on resulting trust back to the John’s estate to the residuary beneficiaries under the will.
Susan’s will contains the following trust: “I give £100,000 to my trustees to hold on trust for my husband, Ben for life remainder to my children, Nicholas and Jane.” Susan is alive.
Is the following statement TRUE or FALSE?
Ben, Nicholas, and Jane have vested interests.
The statement is false. None of the beneficiaries have vested interests (or any interests at all) because a will has no effect until the testator dies. In the meantime, the testator can revoke or change his will, or the prospective beneficiaries’ interests may fail because, for example, the beneficiaries might predecease the testator.
Harriet’s (validly executed) will contains the following gifts:
Clause 3 “I give £1,000 to Paul.”
Clause 4 “I give the residue of my estate after payment of all debts and legacies to Jenny”’.
Which one of the following statements is correct?
(a) If Paul’s legacy fails to have effect because Paul predeceases Harriet, the £1,000 will pass into Paul’s estate. If the gift to Jenny fails to have effect, the residue will pass on Jenny’s intestacy.
(B) If Paul’s legacy fails to have effect because Paul predeceases Harriet the £1,000 will pass into residue. If the residuary gift fails because Jenny predeceases Harriet, the residue will pass to Jenny’s estate.
(C) If Paul’s legacy fails to have effect because Paul predeceases Harriet, the £1,000 will pass into residue. If the residuary gift fails because Jenny predeceases Harriet, the residue will pass to Harriet’s next of kin on her intestacy.
(D) If Paul’s legacy fails to have effect because Paul predeceases Harriet, the £1,000 will pass into residue. If the residuary gift fails because Jenny predeceases Harriet, the residue will pass to Jenny’s next of kin on her intestacy.
Answer C is the correct statement. Legacies (such as the gift to Paul in Clause 3) fail if the beneficiary dies before the testator/testatrix. This is called lapse. Legacies which fail pass as part of the residuary gift in the will (the gift to Jenny in Clause 4). If a residuary gift fails because the beneficiary dies before the testator/testatrix and the will does not specify what is to happen, the residue will pass to the next of kin of the testator/testatrix (in this case Harriet).
Jonathan is a trustee holding land (which is let to tenants) and shares on trust for Barbara for life, remainder to her son, Paul who is aged 20 years.
Which ONE of the following statements about this trust is not accurate?
(A) The trust property will produce income in the form of rent and dividends.
(B) The trustee must pay all the income to Barbara
(C) When Barbara dies, the trustee must transfer the trust land and shares to Paul (unless he directs otherwise).
(D) During Barbara’s lifetime, she is the sole owner of the equitable interest in the trust property.
D is the only inaccurate statement. Both Barbara and Paul have equitable interests in the trust fund. All the other statements are correct.
Can these beneficiaries end the trust under Saunders v Vautier? YES or NO.
A trust for ‘Harriet for life remainder to her children, Elizabeth and Laura’. Elizabeth and Laura are respectively aged 20 and 23 .
YES. Harriet, Elizabeth and Laura could together end the trust under Saunders v Vautier. They can make the trustees transfer the trust capital to them in the shares which they agree. They are all adults and nobody else can become a beneficiary because they have vested interests - so their agreement is all that is needed.
Can these beneficiaries end the trust under Saunders v Vautier?
A trust created in a will ‘for such of my children who survive me and attain the age of 21, if more than one equally’. Three children survived the testator, namely, Anne (aged 22), Basil (aged 20) and Cara (aged 18).
The answer is yes. The three children here can agree to end the trust under Saunders v Vautier and insist on the trustees transferring the trust property to them. They constitute ‘all’ the beneficiaries - even if the two younger children do not attain 21 , their shares will pass to Anne because it is to ‘such of the children who survive and attain 21’. Therefore, nobody else can become a beneficiary. All the children are aged 18 or more.
Can these beneficiaries end the trust under Saunders v Vautier?
A trust for ‘my grandchildren whenever born in such shares as my trustees shall decide’. The settlor has a 45 -year-old son and two grandchildren aged 21 and 18 , respectively. Both wish to end the trust.
The answer is no. As this is a discretionary trust, the grandchildren do not have individual equitable interests; at this stage they merely have the right to be considered by the trustees. However, there is authority (Re Smith) suggesting that between them, the class of beneficiaries under a discretionary trust own the whole of the equitable interest. Saunders v Vautier could then apply. However, although the living grandchildren are over 18 and agree, more grandchildren could be born and so they are not yet ascertained. You cannot get their agreement. Therefore, Saunders v Vautier does not apply here.
Can these beneficiaries end the trust under Saunders v Vautier?
A trust for Yusef for life remainder to his children, Zeinab and Shamime. Zeinab is 19 years old; Shamime is 16.
The answer is No. Shamime is under 18.
Can these beneficiaries end the trust under Saunders v Vautier?
A trust for Barry for life, remainder to his daughter Henrietta provided she attains the age of 25. Barry is alive and Henrietta is currently 19.
The answer is no. Currently Henrietta’s interest in the trust is contingent on her attaining the age of 25. If she were to die before reaching this age, her interest would fail. There is no express provision as to what is to happen to the trust fund were Barry to die in these circumstances. Consequently, there will be a resulting trust of the trust capital back to the settlor (or to the residuary beneficiary of his/her estate if the settlor has died in the meantime). To utilise the rule in Saunders v Vautier, even these potential beneficiaries would have to be considered.
A mother’s valid will contained the following clause, “I give £500,000 to my Trustees to hold for my husband for life, remainder to such of my children who attain the age of 25 if more than one in equal shares. If all of my children die before attaining the age of 25 , then for the MS Society a registered charity.” When she died last year, the mother was survived by her husband and their three children, twin daughters aged 16 years and a son aged 17 years.
Which of the following statements best describes when the husband and the children could bring the trust to an end?
(A) They will be able to bring the trust to an end when the son attains the age of 18 .
(B) They will never be able to bring the trust to an end as the trust was created by will.
(C) They can end the trust at any time because the husband is an adult.
(D) They will be able to bring the trust to an end when the twins are 18.
(E) They will be able to bring the trust to an end when the son is 25 .
OptionE is correct.
If the son attains the age of 25 , at least one of the children will have satisfied the contingency. The MS Society will no longer be a potential beneficiary under the trust. As such, as the husband and the children will all then be over 18 ; if they agree, they could bring the trust to an end under the rule in Saunders v Vautier.
Option A is wrong because, even though the son is 18 , the twin daughters will only be 16 . Also, the MS Society would need to be considered as no child has satisfied the contingency.
Option B is wrong, because the rule in Saunders v Vautier can be considered by beneficiaries of any trust regardless of the circumstances of its creation.
Option C is wrong because all the beneficiaries must be considered in any decision to bring a trust to an end, not merely those who are adults.
Option D is wrong because, even though all the children are legally competent, while the contingency remains unfulfilled, the MS Society is a potential beneficiary and would have to be consulted in any possible Saunders v Vautier arrangement to end the trust.
