1 - Trusts Flashcards
(38 cards)
Definition of a Trust
A trust is a legal obligation binding a person (the trustee) to deal with property (the trust property) transferred by the settlor, over which they have control, for the benefit of certain people (the beneficiaries).
Two types of trust property
Realty: Freehold interest in land
Personalty: Everything else
Types of Personalty
Chattels Real
Leashold interest in land
Chattels Personal
Choses in action - Intangible assets (shares, life assurance policies etc.)
Choses in possession - Tangible assets (furniture, works of art etc.)
5 differences between trusts and contracts
- Offer and acceptance are not needed for trusts;
- No consideration is required for a trust;
- All parties must be aware of a contract, but beneficiaries may not know about a trust;
- Minors can be benficiaries, but contracts with minors are not enforceable;
- Trustees are legal owners but beneficiaries can enforce trust terms, for a contract only the parties to the contract have any rights under it.
Who is the settlor?
The settlor is the original owner of the property who transfers ownership to the trustees.
They are often also a trustee, but don’t need to be.
What is a protector?
A protector is sometimes established for offshore trusts, they have the power to veto trustees decisions or remove trustees.
Definition of trustees
Number
Requirements
2 types of trustees
Trustees are the legal owners of the property
Usually can be any number of them, unless the property is land.
Must be 18 or over and of sound mind.
Can be either individuals or corporations.
Number of trustees required if trust property is land
Usually a minimum of 2, maximum of 4.
However you can have a single trustee if it is a corporation.
Advantages (3) and disadvantages (3) to a corporation as a trustee
- Corporations cannot die;
- they have professional expertise;
- no conflicts of interest.
Disadvantages:
- Disadvantage is the scale of charges;
- They may not understand wishes of the deceased/beneficiaries;
- Process may be slower.
Summary of the duties of trustees
To hold trust property and administer it for the benefit of the beneficiaries, as directed by the provisions of the trust.
Trustee Duties
What are the 3 categories of trustee duties?
- General duties (to do with charges and responsibilities);
- Administrative duties (registering title etc.);
- Investment duties (looking after the investment assets).
Trustee Duties
What are the 5 general trustee duties?
- Act for benefit of beneficiaries;
- Follow the deeds of the trust (or general law);
- Abide by statutory duty of care;
- Act in the way a prudent business person would;
- Only charge fees if they are professional trustees.
Trustee Duties
What are the 4 investment related trustee duties?
- Invest money properly and monitor investments regularly;
- Invest any cash coming into the trust, unless it is being paid out immediately;
- Abide by standard investment criteria, considering suitability and diversification, getting advice if required;
- Use utmost diligence to avoid loss and are liable to the beneficiaries for any breach in this duty;
Trustee Duties
What are the 3 administrative trustee duties?
- Keep proper accounts (they are liable for losses caused by their default);
- Hold title documents (eg share certificates);
- Register as legal owners (eg land registry).
What is the expected level of competence of a trustee?
They are expected to act as a prudent business person would.
However the law allows for the skills and experience of the trustee.
Trustee Act 1925
What does section 31 say?
Section 31 of the trustee act 1925 allows trustees to apply trust income for infant beneficiaries to pay for maintenance or education.
Trustee Act 1925
What does section 32 say?
Section 32 of the trustee act allows trustees to apply capital for the advancement of a beneficiary.
This was updated in the 2014 Inheritance Tax and Trustees’ powers act so that 100% (up from 50%) can be advanced subject to the agreement of any other beneficiary.
Trustee Act 1925
What does section 36 say?
A new trustee can be appointed to replace one who is:
- Dead;
- Out of the UK for over 12 months;
- Desires to be discharged;
- Refuses to act;
- Is incapable of acting;
- Is under 18.
Also if a sole trustee dies, their legal representative can act as trustee until a replacement is made.
How are trustees appointed?
If the trust is created by a trust deed it will name the trustees.
If it is created by a will then the will should name the trustees, who would usually be the executors of the will.
If set up under intestacy laws the administrators will be trustees.
Impact of death of a trustee
A trust is not void by the death of a trustee.
s36 says their legal representatives can take over until a replacement is found.
Can trustees delegate?
The role is not usually delegated, but Trustee Act 2000 allows them to appoint agents and delegate all roles except:
- Powers over distribution of assets;
- How fees are dealt with;
- Appointment of new trustees;
- Delegation of trustees powers.
If a beneficiary takes a trustee to court, what could the court order?
- An injunction preventing the trustee taking a course of action;
- Order the trustee to make restitution;
- Order return of any property wrongly transferred;
- Removal of trustees.
Trustees are liable to compensate the beneficiary for their losses in the case of breach of trust.
Description of the beneficiary
They are the equitable owners of the trust property.
Who can be a beneficiary?
Anybody can be a beneficiary.
They can be named individually or as a class of beneficiaries (eg the descendants of X).
