1) Intro Flashcards
(70 cards)
1
Q
What is a trust?
A
An equitable duty relating to property
Essential features:
* Property component = fundamental
* Obligation component
2
Q
Property component of a trust can be…
A
- Legal interest - trustee is an owner
- Equitable interest - beneficiary has equitable and beneficial interest (= true owner)
3
Q
What can be held on trust?
A
Almost every asset or right
* Can be a trust of a chattel
* Or a chose in action
* Or right or obligation under an ordinary legal contract
* Just as much as a trust of land
Lord Strathcona Steamship Co Ltd v Dominion Coal Company Lt
4
Q
Chattel
A
A tangible item (toher than land)
5
Q
Chose in action
A
An intangible right such as a debt (eg an amount credited to a bank account) or a company share giving the shareholder rights.
6
Q
What are trusts useful for?
A
Dividing ownership and manageent of property
7
Q
Legal Interest
A
Under common law, trustee is the equivalent of the owner and can deal with the property
8
Q
Equitable Interest
A
- Reconises proprietary interest of the beneficiary. .
- Can give away or sell their interest
- Cannot deal with the legal interest, as that is held by the trustee
- Managed by trustee, but equitable and beneficial interest is in the beneficiary.
- In effect the true owner
9
Q
What can be held on Trust?
A
Almost every asset or right.
* The scope of trusts in equity is unlimited.
* Can be a trust of chattel, of a chose in action, a right or obligation under an ordinary legal contract, just as much as a trust of land
Lord Strathcona Steamship Co Ltd v Dominion Coal Company Ltd
10
Q
What is a Chattel?
A
- A tangible item, other than land.
11
Q
What is a chose in action?
A
- An intangible right such as debt (eg an amount credited to a bank account.
- A commpany share, giving voting rights and the right to receive dividends.
12
Q
What happens if a trust property is destroyed or consumed, without any fault on the part of the trustee?
A
Trust ceases to exist
13
Q
Does selling property destroy the trust?
A
No it simply changes the trust assets
14
Q
What happens if a trust property is destroyed or consumed, whilst trustee is at fault on the part of the trustee?
A
- Trustee at fault will be personally liable to restore the trust property using their own funds
- If trustee cannot replace the trust proeprty - will need to pay compensation instead
- Compensation will be subject to a trust
- Likely a new trustee will be appointed
15
Q
Obligation component of a trust
A
- A trustee owns the trust property and has the rights and powers of legal ownership/
- Trustee must exercise those rights and powers for the benefit of the beneficiary
16
Q
Trustee Duties
A
- Equitable obligations to the beneficiary
- Equity restricts the legal right by placing duties upon the trustee to act in benefit of the trustee
- If does not act in accordance with those obligations - beneficiary has personal rights against the trustee.
17
Q
Are the functions and duties of trustees all the same?
A
They are not unitary, and can vary.
* Determined by the nature of the trust
18
Q
Are trustees entitled to renumeration?
A
- If profesional trustees
- Usually a voluntary office that is unpaid
19
Q
Object of a trust
A
A trust must have abeneficiary or be for a permitted purposes.
* These are the objects of a trust
20
Q
A Purpose Trust
A
- A trust for the promotion or realisation of a purpose
- (without a beneficiary)
- Must be a permitted purpose - not any purpose
- Usually charitable trusts.
- Small (closed) category of non-charitable trusts.
21
Q
Can a trustee also be a beneficiary?
A
A trustee can never make use of trust property for their own benefit
* Person is not a trustee of property which they hace absolute right to use for their own benefit..
* Can be one of the beneficiaries of a trust, but still owe duties to the other beneficiaries
Souh Australian INsurance Co
22
Q
Customs and Excise Commissions v Richmond THeatre Management
Was it a trustee?
A
- Theatre company tookk ticket money “upon trust” for purchaser.
- No restrictions on the use of money by Theatre.
- Not required to account to customers.
-
Company was not a trustree as could freely use moeny for own purposes
Therefore not a trust
23
Q
Re Bond Worth
Was it a trust?
A
- Use of fibres in manufacturing process was inconsistent with a company holding the fibres on trust for unpaid seller.
- Right to mix tangible assets or moneys with their own = incompatible with present trust
24
Q
Commercial example of a trust
A
- Securities listed are dematerialised or uncertificated.
- Legal ownership requires registration on e-register called CREST
- Banks hold on trust for their clients
CREST Member = trustee;
Broker = sub-trustee;
Investor = beneficiary
25
Benefits of using a trust
* Separation of ownership and management of property
* Expertise
* Protection
* Flexibility
* Control
* Ringfencing on insolvency
* Tracing and proprietary claims
* Tax
26
Separation of ownership and management of property
## Footnote
Benefits of using a trust
* Allow management by someone else, ie if don't have time to manage themselces
27
Expertise
## Footnote
Benefits of using a trust
A manager can be an expert in a type of property
*eg fund manager*
28
Protection
## Footnote
Benefits of using a trust
* Beneficial owner may be incapable of managing own property
* A minor, or lack ability
29
Flexibility
## Footnote
Benefits of using a trust
* Can divide property up in different ways
* Conditional interests in property
* Create future interests, not just immediate
* Trustee can determine based on need
30
Control
## Footnote
Benefits of using a trust
* Enables original owner a degreee of control even after diveting legal interest in property.
* Cannot do this if making an outright ift.
31
Ringfencing on insolvency
## Footnote
Benefits of using a trust
* Protect individuals against risks of insolvency.
* Does not form part of the trustee's estate for the purpose of bankruptcy and insolvency regimes. **Cannot be distributed to trustee's creditors**
* Beneficiary enjoys "priority" over unsecured creditors of trusteee
32
Why is the beneficiary's interest protected against trustee insolvency?
* Trustee does not have beneficial interest in the trust property
33
Tracing and Proprietary Claims
## Footnote
Benefits of using a trust
* Can assert an interest over the **traceable proceeds of money**
* Ie what the proceeds are used to buy
* **Can be enforced against third parties** - although not anyone
* Can only be enforced if buyer had **notice of the trust** - *must be aware.*
## Footnote
Akers v Samb Financial Group
34
Tax Benefits
## Footnote
Benefits of using a trust
* Can have tax benefits, but can also trigger taxes/
*
35
Key uses for trusts
**Commercial Arrangements**
* **Share Ownership**
* **Investment funds**
* **Pension funds** - delay payment, make use of expertise & tax benefits
* Other forms of **tax-efficient employee remuneration** - tax benefits.
* **Corporate tax avoidance**
36
Key uses for trusts
**Private Arrangements**
* **Testamentary Planning:** In wills to control use of property after they die
* **Land Ownership:** Joint ownerhsip of land by trust arrangement. llow more individuals than can be legal owners.
* **Tax Planning**: Good for inheritance tax planning, care to avoid triggering unwanted charges.
37
Key uses for trusts
**Charitable Arrangements**
* It is possible to set up a trust for a purpose rather than a person
38
Express Trusts
## Footnote
Categories of trusts
* Deliberately created
* Arises in response to intention.
39
Implied Trusts
## Footnote
Categories of trusts
Arise from an **operation of trust**
* Resulting Trusts
* Constructive Trusts
* Statutory Trusts
40
**Resulting Trusts**
## Footnote
Categories of trusts: **Implied Trusts**
* Arise where a legal owner has transferred ownership to third party
* But equity recognises that the transferor should retain or regain beneficial interest in that property.
=
1) *Automatic resulting trusts*
2) *Presumed resulting trusts*
41
Constructive Trusts
## Footnote
Categories of trusts: **Implied Trusts**
* All constructive trusts arise to **correct unconscionability**
1. Institutional Constructive Trusts
2. Constructive Trusts as remedy
3. Common Intention Constructive Trusts
42
Institutional Constructive Trusts
## Footnote
Categories of trusts: **Implied Trusts** - *Constructive Trusts*
* Arise because **conscience** of legal owner affected, to prevent them from denying the beneficial interest of another person
* Imposed automatically in response to a **qualifying event**.
*- focus on precention of fraud*
*-imperfect gift or trust*
43
Constructive trusts as remedy
## Footnote
Categories of trusts: **Implied Trusts** - *Constructive Trusts*
Can be awarded as remedy by court.
1. Following successful **proprietary estoppel** claim
2. When **fiduciary** makes a **personal profit** in breach of the no-profit rule
3. **End of the tracing proces**s, following breach of trust or fiduciary duty.
44
Common Intention constructive trust
## Footnote
Categories of trusts: **Implied Trusts** - *Constructive Trusts*
Used to resolve disputes over beneficial ownership of land occupoied by **unmarried cohabitees**.
45
Statutory Trusts
* Arise from the application of a specific statutory rule.
46
Difference between **Testamentary** and **inter vivos** trusts
Testamentary = created via a will
Inter vivos = created in a lifetime of the settlor
47
Fixed Trusts
* Trustee know exactly what they need to give to each beneficiary
* Interests of beneficiaries are fixed
48
Discretionary Trusts
* Trustee knows who potential beneficiaries are
* Has the power to determine who benefits and in what shares
49
Charitable Trust
* An exception to the general rule that a trust must have a beneficiary.
50
Non-charitable purpose trusts
* Private trusts set up for very specific purposes
51
Bare Trusts
* Trustee simply hold legal title on trust for the sole benefit of a beneficiary.
* Trustee has no discretion and no management duties.
* Trustee to follow instructions of the beneficiary.
* Common with *shares* where stock broker may hold legal title
52
Can trusts fall into more than one category?
* Not mutually exclusive
* Canand do fall into more than one category.
53
Are trustees contractually appointed?
* Must be willing to act
* No requirement for an agreement in the contractual sense.
54
Similarities between trusts and contracts
* Create obligations
* Create personal liabilities
* **Possible to contract to create a trust**
55
Differences in contracts and trust
* Contracts arise from obligations to each other, creation of common law.
* Trusts are a creation of equity - no requirement for an agreement between any of the parties.
* Trusts do not need intention of both parties; can be an express trust.
56
Difference between trust and debts
* Debts do not relate to specific assets or funds
* Creditor cannot compel the debtor to apply any specific asset or fund for their benefit.
* Creditor has a**mere personal right** to payment.
* Beneficiary of a trust has an **equitable proprietary interest** in the trust property
* Creditor **does not have any recourse** to debtor's assets to discharge detb
## Footnote
Foley v Hill
57
Foley v Hill
* Bank and customer = debtor- creditor
* Bank is not a trustee of money deposited by its customers
58
Is a debt and trust mutually exclusive?
* No, they can be combined into a a single transaction.
* **Quitclose Trusts**
59
Quitclose Trusts
## Footnote
Loan and Trusts
* Quitclose lent money to Rolls to pay dividend = trust
* Rolls went bust
* Barclays had notice of trust so could not set off the sum against Roll's overdrawn accounts.
* Not Part of Roll's assets, had to be returned to
**Flexible interplay of law and equity**
60
Twinsectra Ltd v Yardley
## Footnote
Quitclose
* **Not sufficient to demonstrate that money was advanced to the borrower for a particular purpose**
* Must demonstrate **parties mutual intention** that the money be applied for the **purpose** and was **not at the free disposaL** of the borrower. = TRUST
* Requirement for *certainty of purpose*
1. a) Purpose sufficiently certain
1. b) Certain if it is possible to determine whether any given application of money does or does not fall within it
1. c) If th purpose is uncertain, the borrower cannot make any use of the moneya nd simply holds it on trsut for the lender
61
Requirement for certainty of purpose?
## Footnote
Twinsectra Ltd
a) The borrower's power to apply the money is **valid only if the purpose sufficiently certain**
b) A **purpose is certain** if it is possible to determine whether any given application of money does or does not fall within it
c) If the purpose is uncertain, the borrower cannot make any use of the money and simply **holds it on trust** for the lender
62
Explanation of the basic operation of a *Quitclose* Trust
* Lender advances money to borrower for specific purpose
* If used for a specific purpose lenders equitable interest is extinguished
* Reverts to debtor-creditor relationships
* If used for another purpose = breach of trust = lender can apply equitable interest
* If impossible to apply money for purpose then borrower must return to a lender
63
In Re Farepak Food and Gifts Ltd
## Footnote
Quitclose
* Christmas saving scheme - vouchers
* Went into administration
* No Quitclose trust
* Would have required the money be kept in a separate bank account untouched = implausible
64
Extension of Quitclose Trust outside of loan context
* Not restricted to loan circumstances
* Arise in any situation where property is transferred and restrictd to someone for a specific purpose
* Where property is not at free disposal of the transferee
## Footnote
Ali v Dinc
65
Comparing Trusts with Charges
* Both beneficiary and chargee have a proprietary interest
* Unlike a trustee a chargor can use charged property for own benefit
* Chargee's interest is limited to amount of debt secured.
* Defining characteristic of a charge, but not a trust, is the right to redemption
66
Comparing trusts with agency
* Agents account for the proceeds to their principal
* Agents and trustees usually both subject to fiduciary duties.
* A Trustee cannot commit a beneficiary to a contract with a third party.
* Trustee acts as a principal in their transactions with third parties
* Agent and principal relationship is ordinarily a debtor-creditor relationship
* Agent can be a trustee of money
* **Determining a trust relationship with reference to parties *expressed or inferred intentions***
67
What is bailment?
* Bailment is the transfer of possession of chattels from one person to another.
* Transferor is the "bailor" and the transferee is the "bailee".
68
Comparing trusts with bailment
* Only chattels (tangible personal property) can form the subject matter of a bailment, whereas almost any asset can be held on trust.
* Bailment involves transfer of possession, but does not impact legal title for property. Transfer of assets to trustee divests a settlor of interest in property.
* A bailor's interest survives misapplication of bailed property to third party. As a possessory right.
* Trustee can transfor legal ownership, meaning beneficiary's interest will not survive misapplucation without notice
69
Comparing trusts with companies
* Both can be used as vehicles for holding proeprty, similar role of trustee and director = both fiduciary in nature.
* Unlike a company, a trust does not have a legal personality
* Trust cannot bring legal action in own name, trusteees must carry out these functions
* Trustees must act in best interest of beneficiaries.
* Shareholders do not have a proprietary interest - interest is in company itself.
* Obligations of the company directors are general owed to company.
70
Comparing trusts with estate adminsitration
Personal representatives
* Executors = appointed by deceased
* Adminsitrators = appointed by court
Must distribute deceased estate in accordance with their will or intestacy rules
Distinctions
* Function of personal representatives is to administer and distribute the deceased estate as quickly as practicable (ideally within a year)
* Express trusts endure for many years - trustees often have enduring asset management functions
* Beneficiary of a trust = a person interested in deceased person's estate does not have an equitable interest = personal right against executor relating to proper administration
