Unit Two Flashcards
In the term “certainty of objects”, which ONE of the following most clearly describes the meaning of the word “objects”?
(A) The trustees.
B) The reasons or motives behind the settlor/testator’s decision to create a trust.
(C) The beneficiaries, or, in the case of a discretionary trust, the potential beneficiaries.
(D) The chattels, or things, the settior/ testator is making into trust property
The answer is C. The term “objects” equates to the (already chosen) beneficiaries of a fixed trust and the (potentially chosen) beneficiaries of a discretionary trust.
Which ONE of the following instructions would be sufficient to create a trust?
In his will, the late Robert Carol provided:-
(A) I give my art collection to George Carol, hoping that he will give a painting to each of my children.
(B) ‘I give my art collection to George Carol and express the wish that he will give a painting to each of my children.’
(C) ‘I give my art collection to George Carol, trusting that he will give a painting to each of my children.
(D) ‘I give my art collection to George Carol to distribute a painting to each of my children:’
The answer is D. A trust can be created even if the settlor does not use the word ‘trust’. Settlors have an intention to create a trust if they impose a duty on the trustee to deal with the property in a certain way. ‘To distribute’ imposes a duty on George to give a painting to each child. The other options contain precatory words which do not create trusts (Re Adams and the Kensington Vestry).
Which ONE of the following is MOST LIKELY to fail due to uncertain subject-matter?
(A) £100,000 to be held on trust for my children equally.
B) £100,000 to be held on trust for my children
C) £100,000 to my trustees to hold on trust for such of my children and in such shares as my Trustees think fit.
D) A will gives trustees ‘the residue of my estate on trust to give my children the amounts which they deserve’
The answer is D. Here, the trust property is ‘residue’. This is what is left of the estate after debts and legacies have been paid and it is certain. However, the beneficiaries’ respective interests (‘the amounts which they deserve’) are uncertain and no discretion is given to the trustees. Therefore, D is likely to fail due to uncertainty of subject-matter. In A, the trust property is £100,000, which is certain, and there is a formula for working out the children’s beneficial interests (“equally”). In B, nothing is said about the size of each the child’s interest, but where property or money is held on trust for a group of people and nothing is said about their shares, they are assumed to share equally. C is a discretionary trust where the trustees decide on the extent of each beneficiary’s share.
Sami wants to transfer £10,000 to Taj to hold on trust for his son, Banjul.
Which ONE of the following is CORRECT to achieve this?
(A) Sami signs a cheque in favour of Banjul and hands it to Taj
(B) Sami signs a cheque in favour of Taj and hands it to Taj.
C) Sami signs a cheque in favour of Taj and hands it to Taj, telling him to hold it on trust for Banjul.
(D) Sami writes a letter to Taj as follows: “Please hold this cheque for $£ 10,000$ on trust for Banjul”, but forgets to sign a cheque and so does not include one with the letter to Taj
The answer is C. To create a trust over personalty by transfer to trustee there are two stages. First, the intended trust property must be effectively transferred to the trustee. This was achieved in answers B and C, but not in answers A and D. Second, the trust must be declared i.e., the trustee must be instructed to hold on trust, and the trust property and beneficiary must be clear (the three certainties). Only in option C is there both the necessary transfer of trust property and the required declaration of trust.his was done in answer C only.
At a family meeting, James makes an oral announcement, ‘From now on, I am holding all my shares in Delta Diggers Ltd on trust for Kimberley until she has her 21st birthday’. Kimberley is James’ nineteen- year-old daughter who is keen to get involved in the family company.
Which ONE of the following statements is CORRECT?
(A) James has not created a valid trust because he has not transferred the trust property to the trustee by stock transfer form and registration of the trustee at the company.
(B) James has not created a valid trust because he should have declared the trust in writing.
(C) James has created a valid trust, but he can change his mind and reclaim the shares.
(D) James has created a valid trust and it is too late for him to change his mind and reclaim the shares.
The answer is D. The first step for you to take when answering a question on validity of a trust is to decide which of the three methods of creating the trust the settlor intended to use. Here, James wanted to declare himself a trustee in his lifetime. The statement made by James satisfies the requirements for a valid declaration (there is certainty of intention, subject-matter, and object as well as compliance with the beneficiary principle and the relevant rule on perpetuity). Lifetime trusts over personalty can be declared orally, so (B) is not correct. A transfer of the shares was not required because James, who will now be the trustee, already holds legal title to the shares, so (A) is not correct. Once a trust has been validly created, it is too late for the settlor to back out, so (C) is not correct.
Nathan wants to declare a trust over his holiday cottage “Seaview” in favour of his nephew Owen, aged 16.
Which TWO of the following will achieve this? (To obtain credit for this question you must identify BOTH correct statements.)
(A) Nathan tells Owen, “I’m holding Seaview on trust for you”.
(B) Nathan tells Owen, “I’m holding Seaview on trust for you” and a week later writes a letter to Owen confirming the conversation, signed “Uncle Nathan”
(C) Nathan tells Owen’s father “I’m going to hold Seaview on trust for Owen”.
(D) Nathan signs a memorandum, “From now on, I’m holding Seaview on trust for Owen”.
Both B and D achieve this. The correct formalities for a declaration of trust over land are stated in section 53 (1)(b) LPA 1925. The declaration of trust must be manifested and proved by some writing signed by the person creating the trust (here Nathan) and this signed writing must contain all the terms of the trust. It is sufficient for Nathan to sign as “Uncle Nathan”. The declaration may actually be in writing, as in answer D, or an oral declaration subsequently evidenced in writing, as in answer B.
Which ONE of the following clauses found in a will creates a valid trust?
(A) I give my jewellery to Bridget Lloyd trusting that she will give my cousin, Patricia Powell, one of my rings
(B) I give £10,000 to Bridget Lloyd hoping she will give some of the money to Patricia Powell.
(C) I give £10,000 to Bridget Lloyd on trust to be divided equally between my closest friends
(D) I give £10,000 to Bridget Lloyd to be divided equally between my employees.
he answer is D. To be valid, the trust must satisfy the three certainties of intention, subject matter, and objects. The testator has not used the word ‘trust’ but the phrase, ‘to be divided’, is sufficiently imperative to suggest certainty of intention. The subject matter is £10,000. The test for certainty of objects depends on the type of trust. This is a fixed trust. Therefore, the complete list test applies. In Re Baden’s Deed Trust No 2 it was held that the word, ‘employees’, was certain.
The attempted trusts in (A) and (B) lack certainty of intention. ‘Trusting’ and ‘hoping’ are precatory words which do not create trusts (Re Adams and the Kensington Vestry). In (B), there is also lack of certainty of subject-matter.
The objects are uncertain in (C) - it is a fixed trust and you could not draw up a complete list of ‘my closest friends’ because the description is conceptually uncertain.
Is this statement TRUE or FALSE?
If the directors of a company create trusts for their new customers and then the company goes into insolvent liquidation, the trusts will be void because they will be unlawful preferences of creditors.
The statement is false as it is not entirely accurate. If the company creates trusts for existing customers who are already owed money/goods by the company, then the company is preferring existing creditors, and this is likely to be unlawful. However, where the trust is created for money which customers will send in the future, there is no unlawful preference of creditors because these customers never become creditors; they are beneficiaries under a trust all along (Re Kayford).
Six months ago, Max decided he wanted to give an antique table he owned to his daughter Anna. He told her to collect it from his house. Three months later, Anna had not yet collected the table, so he told another daughter, Becky, she could have it, saying, “Come and collect it this Saturday”. Becky never did collect the table. When he died in last month, Max’s estate, after paying debts he owed to his creditors at his death, was worth about £35,000 (including the table, worth £5,000). In his will, validly executed three years ago, he appointed Anna as executor, and left everything to his third daughter, Cath.
As executor, Anna asks, “Who gets the table?!”
Which ONE of the following is CORRECT?
(A) Anna
(B) Becky
(C) Cath
(D) Max’s creditors
The answer is C, Cath. It cannot be D, his creditors, because Max died with enough to satisfy them, his estate still being worth £35,000 after all the debts has been paid. It is not B, Becky because Max intended to make a lifetime gift to her of a chattel, which requires delivery. There might have been a perfected gift to her had there been delivery, but this did not occur as she never took possession of the table. There is a possible perfect lifetime gift to A, Anna. As with Becky there was no immediately perfect gift because of the lack of delivery. However, the rule in Strong v Bird can save transfers in similar circumstances. An immediate lifetime gift must have been intended, the intention must continue until death, and the intended donee must become the donor’s personal representative. While the intended gift was immediate and Anna has been appointed executor in Max’s will, the attempted subsequent gift to Becky indicates a change of mind, negating the original attempted gift to Anna. The result is that the table passes to Cath under the will.
Seatco Ltd has gone into liquidation. It holds many customer pre-payments and will now be unable to fulfil their orders.
In which ONE of the following cases is there likely to be a trust for customers?
(A) Customer Green sent Seatco £2,000 with a covering letter saying that it was to purchase a black leather “Sofia” sofa.
(B) Seatco has spent Customer Green’s £2,000 on overheads. It has three black Sofia sofas in its warehouse.
(C) Customer Green stated that the £2,000 was not to be at the general disposal of Seatco but was to be held separately until the sofa was delivered to Green.
(D) Seatco opened a bank account containing £30,000 and called it the “Loyal Customers’ Protection Fund.
The answer is C. In C the customer has indicated that the money is to remain in the customer’s beneficial ownership until the goods are delivered and this suggests a trust. In A, there is simply a contract to buy the goods. In B, there is no trust of the money because it has been dissipated. There is no trust of a sofa because there is uncertainty of subject-matter. Which of the three sofas is the subject of the trust? In D, any attempted trust could be void as a preference or due to uncertainty of objects.
Under the terms of a valid will, a woman appointed her son to hold her residuary estate on trust ‘for such promising young tennis players living in Wales and in such shares as my son thinks fit’. The woman was a past Chair of a tennis club and grew up in Cardiff. Her residuary estate was made up of money held in various UK bank accounts.
The woman’s son asks a solicitor whether this trust is valid. The son wants to carry out the woman’s wishes as much as possible and has already put together a list of people who he thinks should benefit from the trust.
Is the trust valid?
(A) Yes, because the son has identified people he thinks would benefit from it.
(B) Yes, because it is not capricious.
(C) Yes, because it is contained in a valid will.
(D) No, because there is insufficient certainty of subject-matter.
(E) No, because there is insufficient certainty of objects.
Well done, Option E is correct. The trust is not valid because it lacks certainty of objects. The trust is discretionary and therefore must comply with the given postulant test. This requires that the description of the class of objects be conceptually certain. That is not the case here. For instance, it is unclear what is meant by ‘promising’ and ‘young’ (e.g., does the latter mean people under the age of 16, 18, 21 years or some other age?) The trust therefore fails.
Last month, a woman wrote to a banker as follows, ‘You will hold my house in Edale for my nephew, who shall become entitled to the house when he reaches the age of 25 years’. The woman executed a TR1 in favour of the banker.
Last month, a woman wrote to a banker as follows, ‘You will hold my house in Edale for my nephew, who shall become entitled to the house when he reaches the age of 25 years’. The woman executed a TR1 in favour of the banker.
Is the house held on trust for the nephew?
(A) Yes, because the woman executed a valid TR1 to transfer legal title to the banker.
(B) Yes, because the woman made every effort to transfer legal title to the banker.
(C) Yes, because the fact that the banker is the woman’s executor in this case constitutes the trust.
(D) No, because the daughter is the sole beneficiary under the woman’s will.
(E)
No, because the woman failed to transfer legal title in the house to the banker while she was alive.
Option C is correct. The woman tried to create a valid lifetime trust with the banker as the trustee. This would usually require the woman to transfer legal title in the house to the banker while she was alive. However, as an exception to the rule that ‘equity will not assist a volunteer’, equity can constitute this trust using the rule in Strong v Bird. This is because the woman intended to create an immediate trust; that trust was not immediately created due to a failure to comply with a relevant transfer rule; there is nothing to suggest that the woman’s intention did not continue up to her death; and the banker acquired legal title to the trust property by becoming the woman’s executor.
During his lifetime, an accountant wrote a letter to a teacher, in which he said, ‘I have decided to give you my holiday home in Bowness-on-Windermere. I would like you to think of giving this home to your daughter when she reaches the age of 18 years’.
The daughter is now aged 18 years. She has found a copy of the letter and she says that she is entitled to the home in Bowness-on-Windermere. The teacher fell out with his daughter two years ago. The teacher does not want to transfer the home to his daughter.
Must the teacher transfer the home to his daughter?
(A) Yes, because there was a trust over the home in the daughter’s favour and, having reached the age of 18 years, the daughter is now entitled to the home.
(B) Yes, because the accountant has identified the home and the daughter with sufficient certainty.
(c) Yes, because the accountant created an express trust in favour of the daughter and that trust was manifested and proved in signed writing.
(D) No, because what the accountant said in this letter did not amount to a trust in favour of the daughter as there was insufficient certainty of intention.
(E) No, because the daughter is too young to hold legal title in land.
Option D is correct. What the accountant says is not sufficient to give rise to a trust, i.e., there is no certainty of intention. He used precatory wording – ‘I would like you to …’. There is no binding obligation on the teacher to give the home to his daughter. When the accountant transferred the home to the teacher, the teacher became the absolute owner of the home.
Option A is wrong. As the accountant’s letter did not declare a trust over the home, the age of the daughter is irrelevant.
Option B is wrong. Whilst the accountant did identify the home and the daughter with sufficient certainty, a declaration of trust needs to comply with all three certainties and, in this case, there is no certainty of intention. The daughter therefore has no interest in the home.
Option C is wrong. The accountant’s letter did not declare a trust over the home (for the reasons set out above).
Option E is wrong. A person aged 18 years or over can hold a legal estate in land.
During a telephone conversation with a friend, a manager asked the friend whether she would look after her flat in Nottingham and transfer that flat to her friend’s son when he turned 25 years of age. The son is currently aged 15 years. The friend agreed.
The manager then wrote to a solicitor who was looking after the manager’s affairs. The manager advised the solicitor that, going forward, the friend would ‘hold my flat in Nottingham on trust’.
Which of the following statements best describes why the trust is not enforceable?
(A) The trust is not enforceable because during the telephone conversation with the friend, the manager never used the word ‘trust’.
(B) The trust is not enforceable because there is no certainty of subject-matter.
(C) The trust is not enforceable because the manager cannot delay the son’s entitlement to the flat beyond the age of 18 years.
(D) The trust is not enforceable because the manager must have written to the friend to record that the flat would be transferred to theson.
(E) The trust is not enforceable because the manager has not set out all the material terms of the trust when writing to the solicitor.
Option E is correct. The manager is attempting to create a trust over land. She must therefore comply with the requirements of s 53(1)(b) of the LPA 1925, namely that the declaration of trust must be evidenced in signed writing. The letter to the solicitor does not satisfy this formality, as it does not record the material terms of the trust. For instance, it does not identify who is the beneficiary under the trust and when his interest will vest. The trust therefore is unenforceable.
An artist writes a letter to her brother saying, ‘The two of us shall be trustees over the sum of money in my savings account for your daughter until such time as your daughter marries or turns 30 years of age (whichever is the earliest), when it will become hers’. The daughter is aged 21 years.
The artist dies two weeks later. The artist had taken no steps before her death to put the money into a joint bank account in the names of herself and her brother. In her will, the artist named the daughter as the executrix of her estate.
Which of the following statements best describes why the money in the savings account belongs beneficially to the daughter?
(A) The money belongs beneficially to the daughter because the letter is a valid declaration of trust and it would be unconscionable for the trust not to take effect.
(B) The money belongs beneficially to the daughter because the letter comprises a deed of transfer of that money to the brother, which constitutes the trust.
(C) The money belongs beneficially to the daughter because the letter demonstrates that the woman made every effort to constitute the trust
(D) The money belongs beneficially to the daughter because of the rule in Strong v Bird.
(E) The money belongs beneficially to the daughter because the trust had already self constituted prior to the artist’s death
Option A is correct. The artist intended to create a trust with herself and her brother as trustees. Ordinarily, the artist in this situation would have had to take whatever steps were required to put the legal title to the money into the joint names of herself and her brother. However, having made a valid declaration of trust, it would have been unconscionable for the artist to back out of constituting the trust. As a result, the trust is valid in equity and the money belongs beneficially to the daughter.
Last month, having taken legal advice that he should start to transfer some of his wealth to lower his potential future inheritance tax bill, a man telephoned an ex-colleague to say, ‘I would like you to have my shares in Wright Stuff Limited in case you want to give some for such of my friends that stood by me whilst I was having treatment for my cancer and in such shares as you think is right’. Following the call, the man executed a stock transfer form over his Wright Stuff Limited shares and sent this to his ex-colleague together with his share certificate. The ex-colleague forgot to tell the man during the call that she was about to take her children on a long holiday to Florida, so was not around when the documents arrived at her house.
Last week, the man died. In his will, he appointed a solicitor as his executor and left his estate to the ex-colleague. The ex-colleague cut short her holiday to find the documents relating to Wright Stuff Limited on her doormat.
Do the shares belong absolutely to the ex-colleague?
(A) Yes, because what the man said over the telephone did not satisfy the test for certainty of intention.
(B) Yes, because although the man wanted to create a trust, he failed to manifest and prove the declaration of trust in signed writing.
(C) Yes, because although the man correctly declared a trust, he failed to constitute that trust during his lifetime.
(D) No, because the man satisfied the every effort test and the shares are therefore held on trust.
(E) No, because the man clearly intended that the ex-colleague hold the shares on trust for other people.
Option A is correct. Objectively speaking, the man intended to gift the shares to the ex-colleague. The rest of the wording – ‘in case you want to give some shares’ – is precatory wording only and evidences no intention that the ex-colleague should hold the shares on trust for other people. As there was no lifetime trust, the ex-colleague takes the shares absolutely. (It should be noted that there are also problems with other certainties of subject-matter and objects.)
Three months ago, the directors of a company opened a new company bank account as part of a new sales promotion. The name of the account was the X24 Customer Account. The account was to protect the deposits of customers who were required to pay for their goods in advance of delivery. The company has received £2,000 deposits from twenty different customers since the account was open. Due to an error in the company’s accounts department, the deposits were paid into the company’s Supplier Account rather than the X24 Customer Account. The company has just gone into liquidation before delivering any of the goods and there is still £40,000 in the Supplier Account.
Are the customers likely to be able to recover their deposits in full?
(A) No, because the customers were given priority over other creditors with the creation of the account.
(B) No, because the deposits were not paid into the correct account and so there is no certainty of subject-matter for any intended trust.
(C) No, because only secured creditors of the company can recover in full.
(D) Yes, because the directors intended to create a trust when they opened the account, and the company retains the money paid by the customers
(E) Yes, because any advance deposit paid by a customer can be recovered.
Option D is correct. Re Kayford established that it is possible for directors to open a ring-fenced account as a trust in relation to customer deposits. Whilst the word ‘trust’ does not appear in the title of any bank account, the directors’ actions can be sufficient to create a trust. By opening the separate account in the first place, the directors showed that the money received was not to be at the free disposal of the company, sufficient to reveal an intention to create a trust. The fact that the customer deposits were not actually paid into the correct account due to administrative error is immaterial (Re EVTR) and the balance in the Supplier Account indicates that the customers’ deposits have been retained.
Three years ago, an estate agent sent a letter, enclosing a cheque for £10,000, to a paramedic that said, ‘As agreed, cash this cheque and give most of it to your daughter and then the rest to your son when they reach the age of21years’. The daughter was then aged 18 years and the son was aged 12 years. The paramedic cashed the cheque.
The daughter has now reached the age of 21 years and has found the letter. She wants the paramedic to transfer at least a half share of the money to her (she has not discussed this with her brother). The estate agent has recently fallen out with the paramedic and has written to the paramedic demanding that she return the money to him.
Must the paramedic return the money to the estate agent?
(A) Yes, because whilst the estate agent tried to create a trust in favour of the paramedic’s children, that trust failed due to uncertain intention.
(B) Yes, because whilst the estate agent tried to create a trust in favour of the paramedic’s children, that trust failed due to uncertain subject-matter.
(C) Yes, because whilst the estate agent tried to create a trust in favour of the paramedic’s children, the trust offended the relevant perpetuity rules
(D) No, because the daughter has reached the age of 21 years and her entitlement to the money has vested.
(E) No, because the estate agent created a valid trust. Given that the declaration of trust did not specify the shares that each child would get, the law presumes that each child gets an equal share.
Option B is correct. The estate agent tried to create an express fixed trust to benefit the two children. The reason that trust is ineffective is due to the beneficial interests being uncertain (which is an aspect of the second certainty – certainty of subject-matter). The paramedic does not know how to separate the trust property between the daughter and son. All she knows is that she must give the daughter more than the son, but beyond that the distribution between the two is unclear. The estate agent has not given her any discretion to decide for herself. The paramedic therefore holds the legal title in the money on resulting trust for the estate agent. As that resulting trust is a bare trust and the estate agent is absolutely entitled, he can call for that money back.
