Validity of Trusts

Question 1

What are the 5 steps you need to work through to determine whether a trust is valid?

Answer 1

Step 1. Consider settlor intent

Step 2. Identifiable Corpus

Step 3. Ascertainable Beneficiaries

Step 4. Proper Purpose

Step 5. Mechanics and Formalities

Question 2

In terms of your intention to create a trust, do you need to use specific language (like calling it a “Trust”)?

Answer 2

No, formal words aren’t required

Question 3

When creating a trust, what two things does the trust consists of (and must exist to demonstrate settlor’s intent)?

Answer 3

1. Intent to split the legal and equitable title;

AND

2. Impose fiduciary duties on the Trustees

Question 4

The settlor states to his daughter that, next week, he intends to put £5,000 in a trust for her. He decides to give the money to his grandson instead. Was the promise to create a future gift to his daughter sufficient to create a trust?

Answer 4

No, you need PRESENT INTENT.

Therefore, the promise to create a trust in the future is NOT binding, unless supported by consideration.

Question 5

Must you tell the beneficiaries that you are forming a trust for them?

Answer 5

No, communication to the beneficiaries is not required.

Question 6

In terms of the intention of the settlor to create a trust, he must split the legal and equitable title. What is the core rule regarding the split of the title?

Answer 6

Any split of title is ok, provided the sole trustee is not the same person as the sole beneficiary.

Question 7

What happens if the sole trustee and sole beneficiary are the same person?

Answer 7

Merger occurs and the trust terminates.

Question 8

Sam creates a trust, with Jenny and Vanessa as the Trustees. Jenny is also the beneficiary? Has legal and equitable title been split, forming a valid trust?

Answer 8

Yes, because the trustees are not the same as the sole beneficiary.

Question 9

The second requirement to create a valid trust is to have identifiable corpus. What does that mean?

Answer 9

The property must be ascertainable with certainty.

Question 10

What type of property can you place into a trust?

Answer 10

Any property YOU can TRANSFER

Question 11

Broadly, what are the 5 rules regarding ascertainable beneficiaries?

Answer 11

Beneficiary just have CAPACITY

You can make a CLASS GIFT, provided beneficiaries have generic designations

Beneficiaries may be I ascertainable at the time of trust creation, provided they are ascertainable at the time they would benefit

Trustees/third party permitted to select beneficiaries

Membership of trust must be ascertainable

Question 12

What happens if the settlor attempts to form a trust, but the beneficiaries are not ascertainable?

Answer 12

Property reverts back to settlor or this successors.

Question 13

What are Honorary (Purpose) Trusts?

Are they permitted?

Answer 13

Trusts established to benefit a non-human, non-charitable purpose.

States vary as to whether they are permitted.

Question 14

For what purpose can a settlor create a trust?

Answer 14

For any purpose, provided it’s not illegal or against public policy.

Question 15

What is an inter vivos trust?

Answer 15

Created during the lifetime of the settlor.

Settlor can act as trustee and keep legal title OR instruct another person to do this and retain equitable title.

Question 16

What is a testamentary trust?

Answer 16

Created in the settlor’s Will.

Question 17

In terms of the formalities of creating the trust, what are the two requirements when it comes to appointing a Trustee?

Answer 17

Designate a Trustee (with real powers/duties)

Transfer/deliver property to Trustees

Question 18

How does the settlor convey (1) personal property; and (2) real property to the trustee in order to fund the trust?

Answer 18

(1) personal property must be identified, segregated and delivered to the trustee
(2) real property must be conveyed by Deed to trustee.

Question 19

Does the trust need to be in writing?

Answer 19

Can be oral, unless it involves real property, contained in a Will.

Question 20

What is a pour over will?

Answer 20

A Will that leaves property to an already existing (inter vivos) trust

Question 21

Can amendments be made to the inter vivos trust AFTER the pour over will is written?

Answer 21

Yes, they are effective to govern pour-over property

Question 22

“Pour-over” property can act as the initial trust funding if…?

Answer 22

The trust is identified in the Will

AND

The trust is executed before the testator’s death.

Question 23

What is a testamentary secret trust?

Answer 23

A a testator’s will is silent on the nature of the trust, and the settlor agreed with the trustee that they will hold the property of the beneficiary’s behalf. However, absent the Will describing the Trust, trustee claims it was an outright gift from the settlor. To avoid this unintended outcome, the court can create a constructive trust in favour of the beneficiary.

Question 24

What is a Testamentary Semi-Secret Trust?

Answer 24

The property is already held in trust, but the settlor’s will does not indicate the beneficiaries nor state the terms of the trust.

Question 25

What happens to the property held in a semi-secret trust?

Answer 25

The Trust fails and the property passes through the testator’s estate — known as a resulting trust.

Question 26

What is an inter vivos secret trust?

Answer 26

Similar to that of a testamentary secret trust, but here there is only oral evidence that the grantee was going to use the property for the beneficiary’s benefit.

Question 27

When will the Grantee be bound to follow the oral terms of the inter vivos secret trust?

Answer 27

Beneficiary must show either:

• Abuse of confidential relationship between grantee and grantor
• Fraud
• Undue Influence; OR
• Wrong-doing by grantee.