WAE (+ Trusts) Flashcards

Question

inheritance tax -- death -- step 7

Answer 1

325 k deceased spouse unused proportion? 0% then 40% Step 7: Identify and apply basic NRB and calculate Inheritance Tax * Amount of basic NRB is £325,000 * Does the deceased have a spouse/civil partner who died before them and who did not use their own NRB at the time? If yes, the unused proportion can be claimed by the survivor’s estate. * Reduce the total NRB by the value of the cumulative total (from Step 1). * Apply rate of 0% to the value of the remaining taxable estate up to the total NRB amount. * Apply death rate of 40% to the remainder – this is the IHT due.

Answer 2

* PET (transfer to another person) which has failed because the donor died within 7 years of making the transfer. * LCT (transfer to a trust), which is chargeable when it is made @ 0/20%, and later, charged again @ 0/40% if the donor dies within 7 years of making the transfer

Answer 3

5- 7 steps (A-F) If, after the donor dies, IHT becomes payable in respect of lifetime transfers (failed PETs and re-assessed LCTs) this IHT is in addition and separate to the IHT due in respect of the death estate assets. A -- cumulative total B -- identify value transferred C -- apply exemptions and reliefs D -- Apply NRB and calculate tax Steps E and F are only considered if the donor has died E -- Taper F -- Credit for tax already paid

Answer 4

Step A: Cumulative Total * Cumulative total = the total chargeable value of all the chargeable transfers made in the 7 years before the transfer being taxed i.e. chargeable value of any failed PETs or LCTs. * Chargeable value = the value of a chargeable transfer after exemptions and reliefs have been applied – so is unlikely to be same figure as the amount transferred. * The effect of the cumulative total is to reduce the NRB for the lifetime transfer under consideration. * The cumulative total from Step A is taken into account later at Step D.

Answer 5

* The value of a transfer is assessed by reference to the loss to the donor at the date of the transfer. * If the transfer is cash the loss to the donor will be the same as the amount transferred. For other assets, it will usually be the market value of the item / same as the value received by the donee. * Where there is a transfer for less than full consideration the “loss” to the donor is the difference between the price paid and the market value. * If IHT is payable when an LCT is made and the donor pays the IHT (in addition to the gift itself), the reduction in the value of his estate includes the amount of IHT paid as well as the gift itself and the amount of the gift must be ‘grossed up’ to find the total ‘value transferred’ for IHT purposes before the tax due is calculated. You are not required to carry out any calculation where grossing up is required, but should be aware of the legal principles.

Answer 6

exempt beneficiaries: spouse+ charity reliefs: AE 3000 (x2?) (6-5 April) small gifts MAX 250 per per marriage per donor: 5000 (parent), 2500 grandparent, 1000 (other) BPR 2 years (not investment eg let property) -- 100% private company shares, partnership interests or sole trader business -- 50% quoted shares if donor had control or owned assets used by a business. APR 2/7 years 100% or 50% (tenancy pre 1955° * Reduce the value of the transfer by deducting the value of any exemptions or reliefs that apply – the chargeable value is what remains after the exemptions and reliefs have been applied. * Consider the following for lifetime transfers: o Spouse/civil partner exemption: 100% of value of the transfer. o Charity exemption: 100% value of the transfer. o Family maintenance exemption : uncapped amount – transfer to a) child for maintenance, education, or training (full time required if child is over 18), or b) to provide care for dependent relative o Annual exemption: £3,000 per tax year (6 April – 5 April). Use tax year of gift first, and if more is needed, use of any from previous tax year that is still available – ie. maximum of £6,000 o Small gifts allowance: £250 per tax year per person (no limit to number of different people). Cannot be combined with any other exemptions / does not apply at all if transfer is more than £250. o Normal expenditure from income: uncapped amount. Transfers are exempt provided they are made from income (not capital), part of a regular pattern of giving and do not affect the donor’s standard of living. o Marriage exemption : £5,000 if made by parent, £2,500 re grandparent, £1,000 re everyone else. Relief applies per marriage, and per donor. o Business property relief: 2 year qualifying period of ownership (unless special rules following death apply). o Relief at 100% for private company shares, partnership interests or sole trader business. Relief at 50% for quoted shares but only if donor had control, or if the donor owned the assets which were used by a business. NB: no relief for investment assets e.g. let property. Further detail can be found in the adapt element. o Agricultural property relief: 2/7 year qualifying period of ownership, depending on whether donor occupied the land for agricultural purposes, or if it was owned by the donor but occupied by someone else for agricultural purposes. o Relief applies to the agricultural value of the land (usually less than the market value). Most often at a rate of 100%, but in limited circumstances a 50% rate applies (for detail see adapt element).

Answer 7

Step D: Apply NRB and calculate tax * Establish the value of the NRB (and any transferred NRB if calculating IHT due following death of the donor). * Reduce the total NRB by the value of the cumulative total (from Step A). * Apply a rate of 0% to the chargeable value of the transfer up to the total NRB amount. * Apply the lifetime rate of 20% (LCT when made) or death rate of 40% (for failed PET or re-assessed LCT) to the balance to establish the IHT due. * RNRB does not apply to lifetime transfers. * NRB amount applicable to an LCT when it is first made is the NRB at the date of the transfer. The NRB that applies to a failed PET or re-assessed LCT is the NRB amount at the date of death.

Answer 8

Step E (Taper) <3 years 100% payable then every year after an extra 20% less * If, following the donor’s death, a failed PET or re-assessed LCT results in IHT becoming due (i.e. at Step D the NRB is used up and there is a tax charge) taper should be considered. If there is no tax payable at Step D there is nothing to taper so Steps E and F are irrelevant. * Taper relief reduces the tax charge by a % based on the number of years the donor survived after making the lifetime gift: Up to 3 years before death - reduction in IHT: nil - amount of IHT still payable: 100% 3 to 4 years before death - reduction in IHT: 20% - amount of IHT still payable: 80% 4 to 5 years before death - reduction in IHT: 40% - amount of IHT still payable: 60% 5 to 6 years before death - reduction in IHT: 60% - amount of IHT still payable: 40% 6 to 7 years before death - reduction in IHT: 80% - amount of IHT still payable: 20%

Answer 9

Step F (Credit for tax already paid) no refund! * If an LCT is being reassessed following the donor’s death any tax that was paid at the lifetime rate can be deducted from the amount still due after Step E. Only the balance then needs to be paid to HMRC. * If the balance is nil after crediting the lifetime amount already paid, there will be no further tax to pay. * It is not possible to obtain a refund for the lifetime payment if the balance is negative.

Answer 10

no stat presume yes common law presume if validly executed, rational, raise no doubt if doubt raised, no common law and propounded (eg PR) must prove * There is no statutory presumption of testamentary capacity unlike the general test for capacity in the Mental Capacity Act 2005. * The burden of proving testamentary capacity lies with those propounding the will i.e. usually the PRs when submitting the will for probate. * However, there is a common law presumption of testamentary capacity if the will is properly executed, rational on its face, and there is no reason to doubt the testator’s testamentary capacity. * If real doubt is raised, the common law presumption does not apply and the propounder must demonstrate testamentary capacity was present.

Answer 11

burden of proof: propounder presume: duly executed + testamentary capacity + signed after read no presume: blind/illiterate; foreign language; signed on behalf; suspicious sol: attestation clause, if not then affidavit evidence for probate application * The burden of proof lies with the propounder of the will. However, there is a presumption of knowledge and approval where the will is duly executed, the testator had testamentary capacity, and the testator signed their own will having had the opportunity to read it. * The presumption does not apply (and the propounder must prove knowledge and approval) if: o the testator is blind or illiterate, or the will is written in a language the testator cannot read and understand o someone else signs the will on behalf of the testator o there are suspicious circumstances * If the presumption will not apply, the attestation clause should be amended to reflect any steps taken to ensure the testator had knowledge and approval. For example, where a will is read out loud to a blind testator who confirms their understanding and approval before signing. In this way, the attestation clause acts as evidence of knowledge and approval. * If the presumption does not apply, and the attestation clause does not expressly confirm that appropriate steps were taken, an affidavit of knowledge and approval should be submitted to the probate registry as part of the application for probate.

Answer 12

burden of proof: claimant invalid if so as no intention A will executed under the duress or undue influence does not reflect the true intention of the testator and therefore knowledge and approval will not be present, and the will is invalid. The burden of proof is with the person alleging duress or undue influence occurred.

Answer 13

attestation clause not legally required but lack may require affidavit if no due execution o Compliance with s.9 is a matter of fact. There is no legal obligation to include an attestation clause nor is any specific form of attestation required. o However, a properly drafted attestation clause raises a presumption that the will was executed in accordance with the requirements of s 9 (a presumption of due execution). In the absence of, or a poorly worded, attestation clause proof of due execution is required, usually by way of an affidavit of due execution sworn by the witnesses.

Answer 14

- Identifies testator and purpose of document - Date can be included in the commencement or at the end of the will. - A will is valid without a date but a missing date causes confusion if there is more than one will /codicil

Answer 15

implied revocation for inconsistencies with latest - ensures all previous wills/codicils are revoked so there is only one valid will - a will is valid without a revocation clause - if a testator has more than one will, the later will impliedly revokes the earlier will but only to the extent that it is inconsistent with the earlier will

Answer 16

max 4 + divorce nullifies + no = NCPR 20 + lay: no money - An executor’s power derives from their appointment under the will - Any adult with mental capacity may be appointed (solely or jointly) - A testator may name a substitute executor in the event that an original executor does not act - A sole executor may act even if life or minor interests arise, but a maximum of four may be named on the grant - Executors are often also appointed as trustees - S.18A/C WA: the appointment of the testator’s spouse/civil partner is ineffective if the testator later divorces/dissolves the civil partnership - If no executor is named/able/willing to act, NCPR 20 applies and an administrator will be appointed - Lay executors cannot charge for their time so an express charging clause should be considered - S.15 WA has no effect on the appointment of a beneficiary as executor

Answer 17

- A testator with parental responsibility can appoint a legal guardian for their infant children by will - The appointment would not normally take effect until after the death of the surviving parent

Answer 18

- Gift of a specific item which is distinguished from other property of a similar type - The subject matter is identified at the date of the will because the word “my” demonstrates a contrary intention to the general rule in s.24 WA - The gift will therefore adeem (fail) if the item is not owned by the deceased at the date of death and the beneficiary receives nothing unless an express substitution clause is as included - Unlike a gift of a specific item, a gift of a specific collection (“my chattels”, “my shares in [ ] plc”, “my rosewood antique furniture”) takes effect with reference to the items in the collection on the date of death

Answer 19

- A gift of property which is not distinguished from property of a similar type. In this example, it does not matter which shares are given. - If the deceased does not own the items referred to the gift does not adeem, instead the PRs would have to buy the specified property - Most pecuniary legacies (gifts of cash) are general in nature e.g. “I give £1,000 to [ ]”

Answer 20

- Where the will directs that the gift should be paid out of a specified fund - The legacy will not fail if there are insufficient assets in the specified fund - To the extent the specified fund is inadequate the balance is paid as a general legacy from other assets in the estate

Answer 21

- A gift of all of the testator’s property capable of passing by the will which has not already been disposed of under the will or any later codicil and is not needed to meet debts, liabilities, taxes and expenses. - The residue estate will often be defined before the terms of the gift are stated - If the residue clause or any part of it fails e.g. if a beneficiary of a specific share has pre-deceased there may be a partial intestacy if no substitution provisions apply

Answer 22

- If no express administrative powers are included only statutory and common law powers will apply - If express powers are included, they take priority over the default powers to the extent of any discrepancy

Answer 23

Signed by [ ] in our joint presence and then by us in hers Date: [ ] - The attestation describes the circumstances in which the will was signed and confirms the requirements of s. 9 WA are met. It should be amended to note special circumstances surrounding the execution e.g. if the will was read out loud. - A will is valid without an attestation clause but affidavit evidence may be required to demonstrate s.9 compliance. - If beneficiary (or their spouse) witnesses the will although the will remains valid, the beneficiary loses their entitlement under the will (s 15 WA) - The date usually appears with the attestation or commencement. A will is valid without a date but results in confusion if there is more than one will/codicil.

Answer 24

beneficiary ID: from date of execution unless class (1st vested interest = closed) no IHT but yes costs codicil republishes (date) issue to issue substitution * Objects of a gift (i.e. identity of the beneficiary): the will is deemed to speak from the date of execution, unless there is express wording to the contrary. If a gift is given to a “class” of beneficiaries, unless express words clarify when members of the class are identified, ‘class closing’ rules apply and the class closes when the first beneficiary in the class obtains a vested interest. * Effect of codicils: a codicil republishes the will it amends to the date the codicil is signed. * IHT: gifts are made free of tax unless otherwise stated * Transfer costs: gifts are subject to transfer costs unless otherwise stated * Charges: a charged asset bears liability for payment of the secured loan unless will directs otherwise s.35 AEA * Survivorship provisions: there are no deemed survivorship provisions, so these need to be expressly drafted * Substitution provisions: there is no deemed substitution effect and a gift to a beneficiary who has pre-deceased would usually fail if there is no express substitution clause. However, s.33 WA is an exception; if a testator makes a gift to issue (children, grandchildren, great-grandchildren etc) who pre-decease, leaving their own issue, that issue can take by way of substitution the share the original beneficiary would have taken * Legacies can be drafted as contingent or vested - the most common contingency is the requirement to reach a specific age Trusts law: the equitable rules in relation to creation of a valid gift or express trust apply to the dispositive clauses within a will. You should be able to review these and conclude whether a valid gift/ fixed interest trust/ discretionary trust/ power of appointment has been created.

Answer 25

grant of probate grant of administration (with will) grant of administration

Answer 26

The grant of probate is required for estates where: The deceased left a valid will The will appoints executors At least one of the executors appointed is going to act power of attorney okay The grant of probate is issued in the name(s) of those executors who apply. A grant of probate is required even if the will does not dispose of any/all of the deceased’s property. For example, the whole or part of the estate is left to a pre-deceased family member by will and no substitution provisions apply. If the appointment of an executor under the will is limited e.g. to specific assets, jurisdiction or by time, then this will be reflected in the authority conferred by the grant. Only those named may take out the grant and they cannot simply give that right to someone else. Yet a named executor may formally appoint someone to act on their behalf under a power of attorney.

Answer 27

A grant of letters of Administration (with will) is the appropriate grant where: the deceased left a valid will but the will appoints no executors who are willing/able to act. This is the correct grant even if the will fails to dispose of all the estate. Administrators are appointed under the Non-Contentious Probate Rules 1987 (‘NCPR’). Rule 20 applies and lists, in order of priority, those entitled to apply for the grant. Administrators (not executors) are appointed. Their entitlement to apply derives from Rule 20 NCPR not the will. Rule 20 lists, in order of priority, those entitled to make an application for the grant. The order in Rule 20 broadly follows the entitlement to the estate assets

Answer 28

A grant of Letters of Administration is the appropriate grant where the deceased died without having made a valid will (i.e. died intestate). This may be because they did not make a will at all, had revoked a will they did make, or the will they made is invalid. Administrators are appointed under NCPR 22 which lists, in order of priority, those entitled to apply for the grant. Administrators (not executors) are appointed. Their entitlement to apply derives from Rule 22 NCPR. Rule 22 lists, in order of priority, those entitled to make an application for the grant. The order in Rule 22 follows the entitlement to the estate under intestacy.

Answer 29

Where the following assets are included in the succession estate, no grant is required for the PRs to deal with them: - Assets which can be distributed under Administration of Estates (Small Payments) Act 1965 - Personal household possessions - Cash

Answer 30

Orders made under this Act permit payments to be made to persons who appear to be beneficially entitled to the assets without formal proof of title. There is a restricted category of assets to which the Act applies. National Savings (inc. Bank accounts, Savings Certificates and Premium Bonds) Friendly Society and Industrial and Provident Society deposit accounts. Arrears of salary and wages Pensions where the deceased was a member of the police, fire authority, air force or army. Building society accounts There is an upper financial limit of £5,000 per asset. If the value of the asset is greater than £5,000 a grant is required to establish title to the whole sum, not just that in excess of £5,000. The provisions only make payments permissible, they do not compel those holding the assets to do so. In practice, these statutory provisions are rarely required because most banks and financial institutions adopt their own policy and will release sums (commonly up to £15,000 but sometimes larger amounts) without sight of the grant. Each institution will have its own evidential requirements before closing an account. Most will require sight of the death certificate and will (or confirmation of entitlement under intestacy) as evidence that the recipient is entitled to the money. The PRs may also be expected to sign an undertaking confirming their right to administer and give an indemnity to the bank in the event the payment is made to the wrong person. Example: An estate incudes a Building Society account worth £60,000 Premium Bonds worth £2,000 High street bank current account worth £10,000 Building Society Account: A grant is required because the value is greater than the statutory limit under the Act. Premium Bonds: The Act would apply and these could be administered without a grant. Current Account: although technically not subject to the Small Payments Act, the bank, following its own polices, may agree to close the account without sight of the grant.

Answer 31

Title to personal household possessions passes by delivery and proof of ownership is not required when they are sold (with the exception of cars where registration documents are needed). Therefore, PRs are normally able to dispose of chattels without having to produce formal proof of their authority. This applies where items were owned solely by the deceased. If there was a joint owner they would need to consent before the PRs could effect a sale. Before any items are sold PRs should check whether any particular items were gifted specifically by the deceased's will. A PR does not need a grant to take possession of cash found at the deceased’s home.

Answer 32

Assets which pass outside of the succession estate (in other words, cannot pass by a will or intestacy) do not require a grant in order for them to be released. For these assets the PRs will need to produce the death certificate, together with any other documentation the asset holder requires. Items passing outside of the succession estate and process for dealing with these following death: x4 - Property owned as joint tenants (commonly land and bank accounts): On the death of one owner the property passes automatically to the survivor under the rules of survivorship and this does not rely on the issue of a grant. The land registry / bank will transfer title into the name of the surviving owner. - Donationes mortis causa (DMC): Here the deceased would have transferred ownership or control of the asset to the beneficiary during their lifetime. - Life policies written in trust, discretionary pension lump sums nominated for a third party, and other nominated assets. On production of the death certificate these funds would be payable to the named beneficiary. - Assets held in a trust in which the deceased had an interest: The trustee should be notified of the death. The trust deed will determine what happens to the trust fund (if anything) following the death of a beneficiary.

Answer 33

There are advantages to having some assets in an estate that can be administered without a grant: releases money which can be made available to beneficiaries without waiting for the grant or administration to be completed provides a source of funds to meet expenses, including IHT if the estate is small or comprises only assets which do not require a grant, it can be a cost-effective way to carry out the administration Note that unless an estate comprises only assets where a grant is not required the PRs will need to obtain a grant of representation. Once a grant is required, it is usually simpler to administer the whole estate with reference to the grant, rather than try and administer some assets without it, even if in principle that might be possible.

Answer 34

executor trustee of residue beneficiary of residue/estate under intestacy PR of ^ other than a trustee or life tenant of residue any other beneficiary or creditor PR of ^ The statutory order of entitlement to be appointed as administrator under a grant of letters of administration (with will) is shown below. Legislation: NCPR 20 a) executor; b) trustee of the residuary estate; c) any residuary beneficiary (whether taking absolutely or for life), or, where there is a partial intestacy, a beneficiary of the estate under intestacy; d) the PRs of anyone in (c) other than a trustee or life tenant of the residue; e) any other beneficiary or a creditor; f) PRs of anyone in (e). Entitlement to the grant correlates with the distribution of the estate under the will, not the applicant's familial relationship with the deceased. A person in one category cannot apply if anyone in a higher category is able and willing to act as administrator. A trustee of the residue (b) cannot apply if there is an executor (a) willing and able to act. A residuary beneficiary (c) cannot apply if there is either an executor (a) or trustee of the residue (b) willing and able to act. Those within the same category have an equal right to apply (a beneficiary with a vested interest is preferred over one with a contingent interest). If there are 3 residuary beneficiaries (c) [and no executor (a) or trustee of the residuary estate (b)] all 3 beneficiaries have an equal right to apply. The applicant(s) must explain why anyone with a better right to apply is not doing so (known as “clearing off”). Applicants do not need to explain why a person in the same category i.e. with an equal entitlement is not making the application. If one of two residuary beneficiaries (c) applies for the grant, the applicant must “clear off” (b) by e.g. confirming no trustee of residue is appointed, and (a) by e.g. confirming the sole appointed executor has pre-deceased. But the applicant is not required to “clear off” anyone in (c), i.e. explain why the other residuary beneficiary is not applying. Example 1 The deceased left a valid will that appoints their spouse as executor. The residue of the estate is left on trust for their adult children. The deceased’s brothers are appointed as the trustees. The deceased’s spouse has pre-deceased. Who will apply for the grant? Under what authority? Check: Does NCPR 20 apply? Yes, the deceased left a valid will but because their spouse pre-deceased the will does not appoint an executor who can act. So who will apply? Either or both of the brothers could apply as residuary estate trustees under NCPR 20(1) (b) (not in their capacity as the deceased’s siblings). The brothers would have an equal right to apply and will need to “clear off” the deceased’s spouse. Example 2 The deceased left a will that does not appoint any executors. The will gives £10,000 to the deceased’s friend and the residuary estate absolutely to the deceased’s adult niece and nephew. Who will apply for the grant? Under what authority? Check: Does NCPR 20 apply? Yes, the deceased left a valid will but the will does not appoint any executors. So who will apply? Either or both of the niece or nephew would have an equal right to apply as residuary beneficiaries under NCPR 20 (1) (c). They would need to clear-off the executors (a) and trustees of the residue (b), by showing that there was no-one appointed

Answer 35

!! same as statutory order for intestacy but logically include spouse/issue before! but must also show beneficial entitlement see example below The statutory order of entitlement to apply to be appointed as administrator under a grant of letters of administration is shown under NCPR 22. NCPR 22 a) surviving spouse or civil partner b) children of the deceased c) father and mother of the deceased d) whole blood siblings (share both parents) e) half-blood siblings (share one parent) f) grandparents g) uncles / aunts of whole blood h) uncles / aunts of half blood Issue of b, d, e, g, and h are included where their parent has pre-deceased. If there is no-one who can apply from (a) – (h): The Crown (claiming bona vacantia) may apply (22(2)) If the Crown does not apply, a creditor, or person who does not receive benefit (but would have done if the estate was larger) may apply (22(3)) Similarly to Rule 20: a person in one category cannot apply in priority to someone in a higher category, those within the same category have an equal right to apply, and applicants must “clear-off” anyone with a better (but not equivalent) right to apply. Under Rule 22(4), the PR of any applicant who survived the deceased but died before taking a grant may apply on their behalf, although an application by a living person within the same category is preferred. Applicants must demonstrate the nature of their familial relationship with the deceased (to evidence which category they fall within). In addition, they must also have a beneficial entitlement under the estate. Commonly, the applicant next in order to apply will have an entitlement to the estate, but this will not always be the case. Consider the example below. Beneficial Entitlement Example: A man dies intestate leaving an estate worth £200,000. The man is survived by his spouse and two adult children. The spouse has the best right to apply (a) but cannot do so until at least 28 days after the man’s death. This is because under the intestacy rules she is not beneficially entitled to the estate unless she survives the man by 28 days (s 46(2A) AEA). And, if the spouse choses not apply…. The adult children are the next category entitled (b). However, the value of the man’s estate is less than the statutory legacy so the whole estate passes to the spouse. The children therefore have no beneficial entitlement. Where no-one in a)–h) with a beneficial entitlement to the estate will apply, a person with no immediate entitlement may do so, provided they would have benefited if the estate were larger (22(3)). As the children would have taken a share of the estate with the spouse if the man’s estate was more valuable, they are able to apply. Example NCPR 22 A deceased died intestate and was survived by their mother and brother. The deceased was never married or in a civil partnership, did not have any issue, and their father had predeceased. Who will apply for the grant? Under what authority? Check: Does NCPR 22 apply? Yes, the deceased died intestate. So who will apply? The deceased's mother is entitled to the whole estate. She has the best right to apply under (c) and will clear-off (b) (explaining there are no issue), and clear-off (a) (explaining the deceased never married). She does not need to clear-off the father’s right to apply because he falls within the same category. The deceased's brother has no right to apply because he falls in a lower category of applicant (d). However, even if the mother decided not to act the brother would still be unable to apply. He would be next in order under Rule 22 but he has no beneficial interest in the estate. No matter how large the estate is, it all passes to the mother. The brother would only be able to apply if he were a creditor of the estate under Rule 22(3).

Answer 36

adult on behalf of minor < adult with equal entitlement Capacity to act Someone who lacks mental capacity may not apply for a grant. Ideally, there would be someone else with an equal or greater entitlement to apply. However, if there is not, Rule 35 will determine who can act. The detail of Rule 35 is outside the scope of the module. A minor may not act as administrator, although it is possible for someone to apply for a grant on their behalf. However, an application by an adult with equal entitlement to apply is given priority over an application made on behalf of a minor (Rule 32). An application on behalf of a minor may be appropriate where: No adult with equal or greater entitlement will act The minor is the only person within the category having the greatest entitlement, or, all those within the category are minors. Number of Administrators — for both letters of administration (with will) & letters of administration: Only one administrator is required, unless, there are minor or a life interests in the estate, in which case two will be required (s.114 Senior Courts Act 1981). i.e. two are needed if any part of the estate is passing to a minor beneficiary or is to be held on a life interest trust. Where two administrators are required but there is only one able/willing person in the category with best entitlement to apply, that person may apply for the grant with somebody from the next category of entitlement (Rule 25(1) NCPR). A maximum of four applicants may apply.

Answer 37

A potential administrator may renounce at any time before the grant is issued. They are not prevented from renouncing even if they have intermeddled with the estate. unlike an executor An executor who renounces their right to apply for a grant of probate, does not automatically renounce their right to apply as administrator under NCPR 20/22 so they may may need to renounce both rights.

Answer 38

before or after grant has been obtained After the administrator has been appointed under the grant: s.25 Trustee Act 1925 confirms that a PR may delegate their functions to an attorney for a maximum of 12 months. This can be renewed if needed. Notice should be given to the other administrators. Once appointed the attorney can carry out administrative steps on behalf of the donor. Before a grant has been obtained: in this case the applicant is delegating the power to apply for a grant, which is permitted under Rule 33 NCPR. The power of attorney must be provided to the probate registry as part of the application.

Answer 39

executor: only if no intermeddle; can reserve power (grant of double probate) administrator: even if intermeddle; cannot reserve power both: power of attorney An unwilling executor may renounce probate (unless they have intermeddled), have power reserved (provided another executor takes out the grant) or may appoint an attorney. An executor who has power reserved may apply later to administer the estate under a grant of double probate. An unwilling administrator may renounce their right to apply for a grant (even if they have intermeddled) or appoint an attorney. They cannot have power reserved. A minor or someone who lacks capacity cannot be appointed as a PR. Citations may be used to force an unwilling PR to act, remove their right to act, or authorise another to act in their place.

Answer 40

Needed for all applications: Online application or PA1A or PA1P Application fee + £ per sealed grant Needed for some applications: Certified copy of the death Certificate Original Will / Codicil (if testator made one) Form of Renunciation (if an executor is renouncing) IHT 421 (if the estate is not excepted) Affidavit evidence Power of Attorney (if an attorney is applying)

Answer 41

eg due execution; alterations An affidavit can sometimes be required when an application is made for the grant of representation. Affidavits can be needed where there is evidence to suggest a problem with the validity or enforcement of a will or codicil. An affidavit: of due execution can be used to confirm compliance with s 9 Wills Act 1837, that knowledge and approval were present, and the date on which the will was signed. as to alterations can be used to confirm the timing of alterations made to a will. of plight and condition can be used to confirm the physical condition of the will at execution and after death. of search can be used to confirm steps taken to locate missing documents.

Answer 42

PRs should collect in the assets using the method prescribed by the asset holder. Estate cash should be held in a PR bank account and/or a law firm client account. The PRs owe a duty to estate creditors to pay the deceased’s debts. An estate is solvent where its value is sufficient to meet debts, liabilities and administration expenses (even if legacies cannot be paid in full). Subject to a contrary intention in the will: an asset subject to a charge bears the burden of the debt secured to it the application of assets to meet debts/expenses is prescribed by statute.

Answer 43

PR: IT during administration and CGT disposal (not death/transfer to beneficiary) PRs are required to finalise the IT and CGT for the deceased. PRs will pay IT in respect of income generated during the administration and CGT in relation to gains made on the disposal of estate assets during the administration. Death does not constitute a CGT disposal. Transferring assets to a beneficiary does not constitute a CGT disposal. Post death gains are taxed in the hands of PRs if assets are disposed by PRs during the administration or taxed in the hands of a beneficiary who disposes of the asset after it has been transferred to them by the PRs.

Answer 44

priority: specific, general, residue general/residue: PR discretion re assets for entitlement (full or part) PRs must work out who should inherit the deceased's assets and what they are entitled to receive by reference to the deceased’s will and/or intestacy rules. PRs must establish whether there are sufficient funds to pay all the debts/expenses as well as the legacies. If funds are insufficient to meet all the legacies, the residue followed by the general legacies abate in priority to the specific legacies. PRs have the power to decide which assets to appropriate in full or part satisfaction of an entitlement to a general or residuary legacy. PRs should obtain receipt from the beneficiaries when making distributions. PRs are subject to a statutory duty to keep estate accounts. Signing the estate accounts indicates the end of the administration.

Answer 45

In general law, unless the will states otherwise, legacies are paid in the following order: specific general residuary -- within each: proportionately If it is not possible to pay all of the legacies they abate (reduce) in reverse order. So: - If funds are insufficient to pay all other legacies the residuary beneficiary takes no benefit. - If funds are insufficient to pay all specific legacies, the general beneficiaries take no benefit. - If there are sufficient funds to meet all specific gifts but not all general legacies, the general beneficiaries take a reduced inheritance. (Demonstrative legacies abate with general legacies once the specific fund set aside has been exhausted.) - specific gifts take priority. Within each category, if not all of the legacies can be paid, they abate proportionately.

Answer 46

Essential features: property + obligation Property: trustee holders property for beneficiary As far as common law is concerned, trustee = owner Trustee has all rights of legal ownership Equity recognises another proprietary interest: beneficiary Beneficiary equitable interest so beneficiary can give away their interest under their trust but they cannot deal with the legal interest Ownership of the property is split: legal and equitable Trustee: formal and legal interest — responsible for managing Beneficiary: equitable and beneficial interest — true owner Obligation: trustee must exercises rights on behalf of beneficiary How beneficiary stops trustee from exercising legal right in any way that they choose Trustee owes equitable obligations to the trustee If trustee does not, beneficiary has personal rights against the trustee Beneficiary can sue trustee for breach of trust Both trustee & beneficiary have proprietary interests (trustee = legal/ beneficiary = equitable)

Answer 47

trustee = legal/ beneficiary = equitable

Answer 48

intention, timing, nature, purpose, process Express trusts: deliberately created Trusts arising by operation of law: resulting, constructive and statutory trusts -- imposed by the court aka implied trusts Testamentary trusts: created by a will Inter vivos trusts: created during lifetime Fixed trusts: trustee knows exactly what to give to each beneficiary (interest of beneficiary is fixed) Discretionary trusts: trustee knows who potential beneficiaries are but has power to determine who benefits and in what shares Charitable purpose trusts: exception to beneficiary principle Non-charitable purpose trusts: private trust set up for very specific purposes Bare trusts: trustee holding legal title — no discretion/follows instruction of beneficiary Trusts involving active management duties

Answer 49

Trusts are a temporary way of dealing with property This gives rise to two different but essential rules 1) Perpetuity rules: trusts cannot last indefinitely (unless a charitable trust!) 2) The rule in Saunders v Vautier: the beneficiary or beneficiaries can ‘collapse’ the trust Transfer legal title to beneficiaries or another person chosen by beneficiaries Former results in legal and equitable interest merging

Answer 50

Intention: how How are the beneficiaries intended to benefit Subject matter: what What property is subject to terms of the trust and how much of it is to be held for each beneficiary/purpose Objects: who Who or what the trust property is to be used for

Answer 51

express trust? Gift? Implied trust? Nothing?

Answer 52

Arguably most important intention Objective test Must manifest an intention to assume/impose duty which is characteristic of a trust Self declaration: show intention of taking on obligations of trustee Transfer on trust: impose trustee duties on someone else No need to subjectively intend to create a trust No need to even know what a trust is! Ascertaining intention Words and conduct I am holding the money in my bank account on trust for you This money is as much mine as it is yours Actings consistently with assurances as to beneficial ownership of an asset Transferring money into a segregated account intended use for a particular purpose No need for writing or to use the word “trust” Context is key Stronger intention for commercial — Formal documents “Hold on trust… in equal shares”/“Hold… in their absolute discretion shall determine” No: “in full confidence” “and trust that they will…”

Answer 53

What property the trust attaches x2: trust property + beneficial entitlement Trust property: what property trustee is holding on trust My shares in X PLC = entire shareholding (certainty) 50/150 shares in X PLC = case law (certainty)= possible to declare a trust over specific number of identical intangible assets (shares okay as long same class!) Half the bottles of wine my cellar = uncertainty as tangible (corked) same for gold bars 50% of the wine in my wine cellar = certainty as 50% in every single bottle The bulk of my estate: uncertainty (failure as fixed trust but could work as discretionary) Beneficial entitlement: how property is to be divided between beneficiaries/purposes A reasonable income: case law = certainty as objective yard stick My sister shall select which of my two Picasso paintings to have for herself, and my trustees shall hold the remaining painting on trust for my niece: uncertainty arises if sister dies as mechanism for trust allocation fails (solution: gift over or power to trustee)

Answer 54

fixed v discretionary v power fixed: complete list? discretionary: within? workable? Fixed trust Trustee has no discretion Fixed mechanism for distribution Can be coupled with a power Eg: my trustee must hold the trust fund for my children in equal shares Can trustees make a complete list of the objects at the date when they need to distribute? --Identifiable class --Mechanism to identify at point of distribution Discretionary trust Aka as a “trust power” Power/discretion must be exercised Power is held by trustee Eg my trustee must hold the trust fund for such of my children and in such shares as my trustee shall in their absolute discretion determine No need for complete list but class of objects must be conceptually certain Children and relatives certain but not friends! Is it possible to say whether a person is or is not within the class of object? Trustees can require an individual to prove they fall within the class Is the class of so wide as to make the trust administrative unworkable? Power of appointment Power may be exercised It may be given to a trustee or third party It can be given to a third party as it may be exercised: ie does not impose obligation Attached to a gift or trust You do not find a power on its own Eg Third party: my trustee must hold the trust and for such of my children and in such shares as my wife may determine and if no such direction is made in equal shares Trustee: my trustees may pay all or part to for the benefit of any of my grandchildren No failure for administrative unworkability: possible to create for everyone in the world

Answer 55

Look for permissive language + third party or trustee? Evidence of gift over: power as it may be exercised BUT lack of gift over does not mean it is not a power No gift over + power not exercised= resulting trust to settlor

Answer 56

Lifetime (inter vivos) - No transfer of legal title: no change in beneficial ownership unless all 3 certainties satisfied - Legal title transferred If no certainty of intention, presumption of resulting trust applies If clear intention for transferee to be trustee, automatic resulting tests arises if there uncertainty as to either subject matter or objects If absence of 3 certainties, resulting trust unless can show intended a gift (and not trust) Testamentary No certainty of intention: gift Uncertainty as to subject matter or object: trust fails and property falls into residue

Answer 57

Gift Self-declaration of trust Transfer on trust

Answer 58

Most straightforward If dealt properly, should only even involve full legal ownership from donor to donee So only need to consider formalities of transferring legal title

Answer 59

Creation of legal and equitable legal interests in property Simple scenario: full legal owner creating a new equitable interest in the same property No change in legal ownership but settlor now holds the legal title in a new capacity ie as trustee so no need to consider formalities of legal interests Need to consider formalities for creating equitable interest

Answer 60

Settlor transferring legal title to a trustee who then holds it for a beneficiary More complex than self-declaration as changes in both legal and equitable title Formalities for both creation of equitable interest and transfer of legal interest

Answer 61

Personal property: no formalities Land declaration must comply with s53(1)(b) LPA 1925 non-compliance renders trust unenforceable Manifested and proved by some writing signed (oral declarations are possible but…) Evidential requirement: oral declaration will be valid but unenforceable until evidence Trust has existed from date of declaration but beneficiary cannot enforce until evidence

Answer 62

Gift: legal title must be transferred from donor to donee Transfer on trust: legal item must be transferred from settlor to trustees(s) Self-declaration of trust: automatically constituted Transfer on trust to multiple trustees, of which the settlor is one: automatically constituted No need to transfer legal title into all the trustees Only one trustee needs to have the legal title as they hold it on the terms of the trust (and will then transfer it to the other trustees) Constitution depends on type of property Land requires registration for legal title to be properly transferred Other property like personal chattels can be transferred more informally If gift not properly constituted = void

Answer 63

Equity will not perfect an imperfect gift Equity will not Treat an intended gift as a self-declaration of trust Treat a failure to constitute a trust as a self-declaration of trust Exceptions x3 (x3) 1) Re rose (equity will impose a constructive trust for the transferee) Correct method Transferor does everything in power Or put beyond own control 2) Strong v bird (transferor has died) Intend immediate gift Intention continues until death Transferee is executor or administrator (at this point, it perfects the transaction) 3) Donatio mortis cause (DMC= legal title transfer upon death/survival= failure) Intend conditional gift (not necessarily immediate like strong v bird) In contemplation of death Actual or constructive delivery

Answer 64

gift: Legal title must be transferred to donee self declaration: Requires compliance with s53(1)(b) LPA 1925 transfer on trust: Compliance with s53(1)(b) LPA 1925 and must be constituted by transferring legal title to trustee

Answer 65

gift: Legal title must be transferred to donee self declaration: No formalities transfer on trust: No formalities for declaration of trust. Must be constituted by transferring legal title to trustee.

Answer 66

Split of legal and equitable interests: separation of ownership and management Proprietary component Trustee has legal title (common law) Beneficiary has equitable title (can assign it or declare a sub trust over it) Personal component Trustee owes obligations to beneficiary Beneficiary has personal rights

Answer 67

Capital: tree & Income: fruit Capital asset may produce income (eg land produces rental income; money in bank account produces interest; shares produces dividend)

Answer 68

Beneficial interest is fixed Trustee has no discretion Beneficiary(s) has a share in any income that arises (depending on %) Adult: entitled to share on the income as it arises Minor: share of the income will be accumulated

Answer 69

Beneficiaries benefiting at different times Eg life interest trusts (life tenant and remainder man) Life tenant entitled to income when they die their interest ceases remainder interest takes effect Remainder man becomes entitled to capital Life tenant is provided for during lifetime but has no control over capital When life interest trust includes family home, settlor gives life tenant also the right to reside in the property during their life time — in practice = not actual income from property

Answer 70

Trustee has discretion Flexible so useful when settlor is unsure how they want property distributed Common in wills as can be a need by need basis Beneficiaries only have a proprietary interest once discretion exercised in their favour Beneficiaries only have hope before discretion is exercised in their favour Beneficiaries cannot assert rights against third parties BUT can compel return of property to the trust fund if misapplied by the trustee AND can compel trustee to exercise their discretion (just not how ie in their favour!)

Answer 71

Vested: an unconditional right Vested in possession: a current right to enjoyment Vested in interest: a current right to future enjoyment To my wife for life, remainder to my children in equal shares Wife: vested in possession Children: vested in interest If children die before wife (their mother) their share passes to their estate as it is vested Contingent: a conditional right To my daughter IF she reaches the age of 25 — contingent To my daughter WHEN she reaches the age of 25 — vested in interest To such of my children AS REACH the age of 25 in equal shares — contingent Need to wait until all children are 25 or over as need to be distributed in equal shares 1000 to each of my children upon reaching the age of 25 — vested in interest

Answer 72

A (the trustee) holding the entire trust fund on trust for B (the beneficiary) B’s interest is vested in possession. They are entitled to 100% of the trust property If adult, have right to collapse the trust by directing trustee to transfer legal title to them B then becomes full legal owner of trust property: equitable merges with legal interest B could also use this right to direct the trustee to transfer the trust to someone else If B is a minor beneficiary, they cannot do this until they reach the age of 18 Vested in interest: If an adult beneficiary has a vested interest in the trust property, they can use Saunders v Vautier to bring the trust to an end early Contingent interest: B would not be the only person with an interest in the trust property so they would not be able to exercise Saunders v Vautier on their own.

Answer 73

minor? severable? Key: terms of the trust and the nature of the different beneficial interests. A is 18 years old but B is only 14. A has Saunders v Vautier rights but B does not. Distinct shares but is the trust fund itself is easily severable? If it is made up of liquid assets (such as cash and shares) then it is likely that A will be able to exercise Saunders v Vautier and take their share of the trust fund. If family trust where bulk of trust fund consists of a house, and the trust terms provide that A and B have a right to reside in that house. A will need to wait until B is over 18. If terms of trust provide for distribution when both beneficiaries are 18, trustee obligation to share the property between them when B reaches 18 = sell house But what if the terms of the trust provide for it to go on longer? Eg what if trust should continue until both A and B have passed the age of 25? By the time B reaches 18, both A and B have S v V rights. They can choose to collapse trust early and direct trustee as to how to distribute it. YET they must both agree. If they do not agree trust continues until B reaches 25. Different if A and B had severable interests eg if the trust fund consisted entirely of liquid assets such as cash and shares, then either beneficiary could exercise S v V and take their distinct share of the trust fund before the age of 25. When a sole adult beneficiary wants their share: can they do so without prejudicing any other beneficiaries who either cannot, or do not wish to, exercise S v V. If so, they can exercise Saunders alone and will cease to be a beneficiary. If not, they must either agree with the others to collapse or wait until it comes to an end.

Answer 74

Not possible for a beneficiary to collapse alone, even if > 18, as interests not severable (can collapse if all >18 + agree) A has an interest in the income and B has an interest in the capital. A clearly can’t collapse the trust because they do not have an interest in the capital at all. B can’t collapse and take capital because this would extinguish A’s interest in the income. Yet if both >18 they can collapse it together and share property in any way they choose.

Answer 75

What about if B’s remainder interest is contingent upon surviving A? A and B can’t S v V alone as they are not the only people entitled to the trust property. If an interest is contingent, someone else entitled to property if the contingency fails. Eg a trust for A to life, remainder to B if they survive A and a gift-over to charity if B dies before A — possible for A, B and the charity to agree to collapse the trust using S v V. In practice, it is incredibly unlikely that they would reach such an agreement.

Answer 76

Same point as contingent — objects of a discretionary trust do not have proprietary rights but together they can be seen to hold the entire beneficial interest in the trust property If all the objects are over 18 they can agree to collapse and share in any way they choose. In practice, possible with a very small discretionary trust for members of a family Extremely unlikely to happen with larger, more complicated discretionary trusts

Answer 77

Look out for conditional wording such as “if” Presence of a gift-over is also good evidence but is not essential.

Answer 78

Vested in possession, beneficiary obtains benefit of property immediately eg life tenant Vested in interest only is an unconditional right to benefit in future eg remainder interest

Answer 79

Sole beneficiary, check whether they are over 18, of sound mind and have a vested interest in the property. If these conditions are met, they can collapse the trust. Multiple beneficiaries - Fixed trust: whether interests of beneficiaries are severable. If not, they will all need to meet the conditions for exercising S v V and agree This will always be the case for successive interest trusts - Successive/discretionary/contingent interests: agreement of everyone It is necessary to identify all the people who are potentially entitled to the property, including anyone who has an entitlement under a gift-over. They must all be over 18, of sound mind and agree to collapse the trust. No single beneficiary can do so alone because they do not have vested interests.

Answer 80

‘Every…trust must have a definite object. There must be somebody, in whose favour the Court can decree performance.’ Morice v Bishop of Durham Beneficiary principle: requires the object or objects of a trust to be legal persons. because objects of the trust have the power to hold the trustees accountable Without a beneficiary, there is nobody who can enforce the trust A trust which has as its object a purpose, rather than a person, is void for non-compliance with the beneficiary principle — 2 exceptions Charitable purpose trusts Non-charitable purpose trusts

Answer 81

In order for a trust to be charitable it must meet the following conditions: Charitable purpose One of the recognised heads of charity in s 2 Charities Act 2011. 12 heads of charity + additional 13 category allows for recognition of additional charitable purposes by analogy and recognises that charities law evolves over time. Public benefit Benefits of the charity cannot be limited to a narrow class of private individuals Charity must not be set up in a way which means the poor are excluded from benefit. Wholly and exclusively charitable A trust may fail as a charitable trust it is a mixture of charitable/non-charitable purposes Unless non-charitable purposes seen as ancillary to the primary, charitable purpose. Certainty: charitable intent? Failure of purpose: cy-pres Perpetuity: statutory Enforceable: charity commission

Answer 82

x3 Will only be recognised if one of the exceptions recognised in the case of Re Endacott. closed class of anomalous exceptions which will not be extended by way of analogy only to maintain their grave, say prayers for their soul or look after their pets when drafting a non-charitable purpose trust it is therefore essential to very clearly bring the purpose within one of these recognised categories. Certainty: purpose must be certain Failure of purpose: resulting trust Perpetuity: common law Enforceable: imperfect obligation

Answer 83

Non-charitable purpose trust: the objects (i.e. the purpose) must be certain. If there is any doubt as to the purpose, the trust will fail. Court will uphold a charitable purpose trust even if the precise purpose is unclear If clear/general charitable intent, trustees can cure uncertainty by selecting a purpose Court or Charity Commission can also specify purposes for the trust property

Answer 84

Court uphold charitable purpose trust even if specified purpose cannot be performed If general charitable intent: funds to be used for charitable purposes generally Rather than intending funds to be used only for the very specific purpose If a charitable purpose is clear from outset but later fails, property can be applied cy-pres. trust property can be applied for an alternative charitable purpose Failure of a non-charitable purpose trust will produce a resulting trust.

Answer 85

Charitable purpose trusts are subject only to the statutory rule against remoteness of vesting trust property must vest in the charity (i.e. trustees) within 125 years of trust being declared (or, if a gift to charity, within 125 years of provision creating gift) Once vested in a charitable trust, the trust itself can continue indefinitely Non-charitable purpose trusts: common law perpetuity rules duration must be limited to 21 years (can extend by reference to a life in being). must be certain from outset that trust will definitely end within this period non-charitable purpose trust should have express perpetuity clause saying when it ends

Answer 86

Beneficiary principle is necessary because it is the beneficiary who can enforce the trust. Although it does not have a beneficiary, a charitable purpose trust is enforceable by the Charity Commission (using powers delegated by the Attorney General). Non-charitable purpose trusts are not enforceable. They are known as trusts of imperfect obligation. recognised as exceptions to beneficiary principle but no mechanism for enforcement they require a willing trustee In practice, trustee: required undertaking to court that they perform obligations. If no comply, residual beneficiaries (i.e. people who would have received property under settlor’s will if trust had not been recognised) can enforce = a Pettingall order.

Answer 87

there are two distinct ways in which trusts can be created expressly (i.e. intentionally) or they can arise by operation of law. three key types of trust arising by operation of law 1) resulting -Automatic -Presumed 2) constructive 3) statutory trusts constructive trusts correct some sort of unfairness & statutory trusts are imposed by statute

Answer 88

a type of trusts arising by operation of law Resulting in trusts arise in response to very specific circumstances a default mechanism for situations where legal owner is not true beneficial owner sub-divided into two distinct categories; automatic and presumed resulting trusts

Answer 89

Equity does not know who beneficial owner is so it gives it back to original owner Automatic resulting trust: a default mechanism when an intended trust has failed but the legal title has already been transferred to the trustee may arise when a trust fails from outset, eg because problem with certainty of objects. or when a trust fails subsequently, eg a private purpose trust where the purpose can no longer be carried out but there is a surplus fund remaining. In these cases, a resulting trust arises, giving beneficial ownership back to the settlor There is no where else that the beneficial interest could go

Answer 90

legal owner transfers legal title to someone for no consideration but no evidence that a gift or trust intended equity presumes the transferor intended transferee to hold the property on trust for them also arises where people contribute to acquisition of an asset owned legally by another common way of dealing with disputes relating to family homes but following the landmark case of Stack v Dowden mechanism is too inflexible and unsophisticated to deal with such cases For acquisition of land for investment purposes, but not purchased as a family home

Answer 91

Trusts/equitable doctrine of proprietary estoppel used to resolve disputes re family homes not considering divorce/dissolution of a civil partnership: statute for ownership property breakdown of a less formal relationship there is no such thing as a common law marriage courts have no powers to determine what happens to property when relationship breaks down YET trusts law or the doctrine of proprietary estoppel can death of the owner claimant seeking to establish an interest in land which was owned by deceased but stands to be inherited by someone else. claimant may have been in a relationship with deceased and believe they already have a beneficial interest in land which is not reflected by legal ownership so want to establish an interest under a common intention constructive trust Or a claimant may have been led to believe that they were going to inherit the land, in which case a proprietary estoppel claim maybe appropriate. one of the parties is in financial difficulty bankrupt and it is necessary to determine the value of their assets or perhaps have defaulted on mortgage and lender wants to enforce security For both: important to determine extent of their interest in the house = disputes about whether the legal title accurately reflects the true beneficial ownership

Answer 92

Legal title Sole legal owner Joint tenants (up to 4) As a matter of law, there are only two ways to hold land. It can either be held as a sole legal owner or as legal joint tenants (up to a maximum of 4 legal owners). Equitable title None (full legal ownership) Sole beneficiary Joint tenants Tenants in common If there is an express trust, it will be conclusive. In the absence of an express trust, equity is presumed to follow the law. If there is a dispute as to beneficial ownership of the property, it will therefore be necessary to either rebut that presumption or establish that an interest has arisen by way of proprietary estoppel.

Answer 93

Presumed equitable joint tenants 1. Rebut presumption 2. Quantify interests

Answer 94

Presumed sole beneficial owner 1. Establish common intention 2. Establish detrimental reliance 3. Quantify interests

Answer 95

1. Assurance 2. Detrimental reliance 3. Unconscionable to resile 4. Remedy

Answer 96

Equitable duty re property + mechanisms for dividing ownership/management of property Two key components: property and obligation The role of trustee is fundamental to the existence of a trust. Role varies depending on nature of trust but always to hold property for the benefit of others Trustees usually = legal owners of trust property all the rights/powers of legal owner & beneficiary has equitable/beneficial interest = property component of the trust. Trustee must exercise rights of legal ownership for benefit of beneficiary. owe obligations to the beneficiary: can be enforced personally against trustee. = obligation component of the trust.

Answer 97

Not a completely separate category of trust eg in family and commercial context A trust where trustee has very limited obligations Hold legal title to trust property for adult beneficiaries who have fully vested interests Beneficiaries: S v V rights and can collapse trust when they wish Trustee just needs to distribute trust property re trust terms or instructions of Bs

Answer 98

Voluntary + joint office + powers vs duties Voluntary Onerous obligations = no one is required to accept the office of trustee A person named as trustee can refuse and an alternative trustee will be appointed instead Equity will not allow a trust for fail for want of a trustee. Typically unpaid (except professional trustees) Voluntary position = traditionally unpaid (although they are able to recover expenses) BUT professional trustees entitled to payment for their services= higher standard Joint office It is good practice for trusts to have more than one trustee Where there are multiple trustees, they must act together All trustees should take an active role: failure to do so may = liable for breach of trust Where breach of trust: trustees found to have committed will be jointly/severally liable. Broad powers curtailed by duties Although settlor has significant discretion as to precise duties of a trustee, it is not possible to have a trust in which the trustees have no enforceable obligations at all. For the trust mechanism to work, there must be an obligation component. Irreducible core: general duty to act honestly/in good faith, for benefit of beneficiaries, is common to all trusts = fundamental to the concept of a trust.

Answer 99

will; court; S v V; charity comission Usually appointed by settlor trust established although circumstances when settlor’s choice is not possible eg a trustee can refuse Settlor can simply ask another trustee but this may not be possible Eg trusts found in a will, where settlor = executor so not able to appoint a new trustee Even if named trustee is not willing/able to act, possible for alternative trustee by court. Other people may have be given power to appoint power may be in trust instrument but also statutory powers where a trustee has died If trust is charitable, Charity Commission has a power to appoint trustees Beneficiaries of a trust can also use their S v V rights to appoint new trustees.

Answer 100

Trustees can voluntarily retire or compelled to by beneficiaries (S v V rights)

Answer 101

x5: instrument; stat power; S v V; court (insolvent/unable/innaprorpriate); charity comission Similar rules apply to appointment rules dealing with removal in the trust instrument general statutory power to remove trustees Charity Commission also has the power to remove charity trustees Court has power to remove where trustee is insolvent or unable to exercise their functions Court has inherent jurisdiction to remove trustees, which is exercised where not appropriate for the trustee to remain in office (such as where they have acted dishonesty)

Answer 102

Trustee powers What a trustee may do Actions authorised, either by the trust instrument or by law Trustee duties What a trustee must do. Prescribed by the trust instrument or by law Fiduciary duties What a trustee must NOT do These duties control how trustees perform their role and are framed in the negative Fiduciary duties are not just applicable to trustees — they apply to all fiduciaries

Answer 103

x3: outside powers; no comply; breach fiduciary Acting outside powers act will be unauthorised and therefore a breach of trust Eg misapplying trust property, wrongful distribution, making an unauthorised investment Failing to comply with trustee duties Even if trustee authorised (within their powers), still breach if failure to comply with duties Eg a trustee permitted investment but fails to act with duty of care = breach of trust Acting in breach of fiduciary duty Conflict: where their duties to the beneficiaries conflict with their personal interest Profit: if they make an unauthorised profit from their role as trustee Even if they have complied with all relevant trustee duties Eg trustee authorised, and profitable, investment on behalf of the trust will breach fiduciary duty if it that they have also made an unauthorised personal profit (eg secret commission)

Answer 104

exemption (not fraud) s61 from court (rare) consent (all adults of sound minds) limitation period: 6 years before: advertisement (ID) , benjamin (location), court direction indemnity insurance (satisfy claim) 1) Exemption clause in trust instrument Trust instrument can exempt for actions which would otherwise amount to a breach Such clauses will not apply to fraudulent breaches 2) Defence: s 61 Trustee Act 1925 (TA 1925) Court discretion: trustee ‘acted honestly & reasonably, & ought fairly to be excused’ Not be used lightly by court, particularly if it will result in denying a remedy to beneficiaries 3) Consent/acquiescence/ instigation (s62 TA 1925) Trustees need consent of all beneficiaries (+ all = adults of sound mind) for a full defence Or if beneficiaries acquiesce (aware of it but choose not to take action against trustees) Or if a beneficiary has instigated or encouraged a breach, or acquiesced to it. Partial defence if multiple beneficiaries and not all of them have been involved Where a beneficiary has provided written consent or instigated breach, can impound their beneficial interest and use it to help compensate other beneficiaries. 4) Limitation period Statutory limitation period applicable to claims for breach of trust Within 6 years of breach where B's interest is vested in possession at time of breach Where Bs have future interests, limitation period starts when interest vests in possession Limitation period only applies to personal claims for breach of trust Proprietary claims are not subject to such a limitation The limitation period does not apply to fraudulent breaches 5) Advertisements/Benjamin orders/Court directions Before potential breach, trustees can protect themselves Eg if trustees are unsure they have identified all Bs, or if they are aware of Bs but cannot locate them = advertising for Bs or seeking a Benjamin order from the court If a trustee is unsure of obligations, they could seek court directions as to how to proceed 6) Indemnity insurance: won’t exempt from breach but insurance satisfies any claim

Answer 105

Personal claim Made against an individual Monetary remedy Equitable compensation: for the loss caused by the breach Accounts of profits: for breach of fiduciary duty Proprietary claim Made against an asset: if a trustee misapplied trust property — follow/trace Recovery of misapplied trust property/unauthorised proceeds where profits for breach of fiduciary, Bs can elect for a constructive trust over profits = right to recover actual profit or their traceable proceeds Useful where proceeds of a breach traced into an asset which has increased in value Preferable where trustee/fiduciary financial difficulties cannot satisfy a personal claim Rules for asset ID which = traceable proceeds of breach and assessing value of claim Where is seeking to make a personal claim, harder to assess the measure of liability

Answer 106

Did breach cause loss? But for test of causation: value of trust fund have been if breach had not occurred? (no change = no remedy) Easy: eg payment to the wrong beneficiary/fraudulently misapplied for own purposes Hard: eg trustee power of investment but failed to take proper advice/monitor equivalent trust fund comparison: managed by non-breach trustee + expectation a breach may not have impacted value of trust fund = no remedy Objective justification: a trustee failed to take advice on an investment but concluded that a reasonable trustee would have made the same investment even after taking advice Considerer income and capital Expert advice usually needed to determine measure of liability, esp where trust fund is large or complicated, and different beneficiaries entitled to capital and income a breach might involve trustees not properly balancing interests of different beneficiaries Joint and several liability: beneficiaries can sue any or all the trustees for the full amount Apportionment between trustees / wrongdoers If trustee sued, may seek a contribution or indemnity from their co-trustees (or indeed anyone else who is liable for the same loss including a stranger to the trust). Apportionment does not affect obligation to compensate trust fund: separate claim.

Answer 107

Did breach cause loss? But for test of causation Fiduciary liable for own breach but where a trustee in breach of fiduciary duty, co-trustees often liable for the same loss eg passive: failed to notice what co-trustee was doing/allowed to commit breach Did trustee make unauthorised profit? Trustee must account to profit Remedy account of profits or constructive trust over traceable proceeds A co-trustee will not be liable in respect of such profits

Answer 108

Primary liability -- Breach of trust -- Breach of fiduciary duty Secondary liability -- Dishonest assistance -- Knowing receipt

Answer 109

Breach of trust/fiduciary duty Assistance Dishonesty: Objective test which considers subjective knowledge/characteristics of the defendant Ie what would an honest person in their position have done They do not need to know there has been a breach of trust or fiduciary duty to be liable Sufficient to prove they assisted breach and their behaviour was objectively dishonest

Answer 110

Breach of trust/fiduciary duty Beneficial receipt of property/traceable proceeds Knowledge making it unconscionable to retain proceeds objective assessment of the circumstances and their level of knowledge if they still have the property (or its traceable proceeds) may choose proprietary claim Knowing receipt is more useful in cases where it has been dissipated by the recipient, meaning a proprietary claim is no longer available.

Answer 111

requirements are slightly different, so one claim may succeed where the other fails remedy is also different, so it can be more beneficial to succeed in one claim or the other A claim for dishonest assistance may result in a greater remedy because the assistant will be liable for the loss caused, whether or not they personally benefitted Knowing receipt claim is limited to value of what has been beneficially received by 3rd party

Answer 112

Personal claims are claims for a monetary remedy. Typically this means compensation for the loss caused by a breach. In cases of breach of fiduciary duty, however, there may also be a claim for in respect of an unauthorised profit made by the fiduciary. In contrast, proprietary claims are made against assets. They are used in cases where it is possible to identify the traceable proceeds of a breach of trust or fiduciary duty. For example, a trustee may have misapplied trust funds which have ended up in the hands of a third party. Or spent those funds on an asset which the trustee still has. Or perhaps a trustee has breached their fiduciary duties by making an unauthorised profit. Where that money has been spent on an asset, the beneficiaries may want to make a claim over the asset itself rather than simply claiming the money from the trustee.The tracing rules give them this ability. Proprietary remedies will either involve a claim for a security interest over an asset (i.e. a charge or lien) or a claim for a beneficial interest under a trust. Both types of claim ensure that the rights of the beneficiaries are ringfenced against the insolvency of the trustee. Claims for beneficial ownership of the asset also enable the beneficiaries to capture the benefit of any increases in value. So the ability to make a proprietary claim can be very useful. In order to do so, however, it will be necessary to identify an asset which represents the proceeds of the breach. And that is where the following and tracing rules come in.

Answer 113

Following —> tracing (simple vs mixed)—> claiming (proprietary/personal) Tracing Simple tracing rules Mixed fund rules Proprietary claims Trust/proportionate share Lien Subrogation Personal claims Primary liability: trustee/fiduciary Secondary liability: strangers Following is the simple process of identifying the same property moving from one person to another. Tracing is the process of identifying substitute property as a result of a transaction involving the proceeds of the breach. If the property is received by an innocent third party who gives consideration (also known as a bona fide purchaser for value without notice) it is not possible to follow the property any longer, so instead it is necessary to trace into the substitute property. Continue tracing until you either reach an asset which is still identifiable and then consider the appropriate proprietary claim. If the asset has increased in value, you will want to make a claim for beneficial ownership of the asset or a proportionate share of that asset If the asset has decreased in value, a lien is more appropriate If the asset has been used to pay off a secured debt (like a mortgage) subrogation is the appropriate remedy If no proprietary claim is available, perhaps because the traceable proceeds have been dissipated, consider personal claims that can be made against either the wrongdoer or strangers to the trust. So, is it possible to recover the money by falling back on a claim for breach of trust or fiduciary duty? Has someone dishonestly assisted the breach? Or were the traceable proceeds received by a third party who could be liable for knowing receipt?

Answer 114

first in, first out Pari passu ex post facto: All the withdrawals are attributed in the same proportion Rolling charge (preferable: logic and fair)

Answer 115

Equitable ownership: most appropriate where an asset is acquired entirely with the traceable proceeds of a breach Proportionate share: If an asset is acquired with a mixture of trustee and beneficiary money, the most appropriate claim will be for a proportion of the asset as this allows the beneficiary to benefit from any increases in value. It is also the only permissible claim if an asset is acquired with a mixture of funds from innocent parties, regardless of whether the asset increases or decreases in value. Lien: will be appropriate if an asset which is purchased either entirely with beneficiary money or a wrongful mixture decreases in value. Subrogation: is only applicable in cases where the traceable proceeds of a breach are used to pay off a secured debt such as a mortgage. It is not available when the money is used to pay off an unsecured debt (such as a credit card or overdraft). There may be personal claims available in cases where there are no traceable proceeds worth making a proprietary claim over. It is always up to the beneficiaries whether to elect for a proprietary or personal claim, even in cases where both are available.

Answer 116

x2: low-value; exempt + no GROB + only 1 trust and NOT >250k + chargeable lifetime transfers NOT >250k low value: no IHT payable, and the reason for this is because the gross value of the estate is below the NRB. exempt: gross value not >3M + after debts are deducted and spouse and/or charity exemption are applied the net value of the estate is below the NRB. non-excepted estates = IHT 400 form