CH 3 Flashcards
Be able to list the requirements for the Creation of an Express Trust
Capacity: does the settlor of the trust have the legal capacity to create a trust?
The Three Certainties: are the three certainties required for the creation of an express trust met?
- Certainty of intention
- Certainty of subject matter; and
- Certainty of objects
Constitution: Has the trust been constituted? (settlor takes steps to put title into trustee)
Formalities: If there are formal requirements to create a trust of a particular type, have those requirements been met?
Public Policy: If all of the other requirements for the creation of a trust have been met, is the trust void on the basis that it is for an illegal purpose or contrary to public policy?
Indicate and explain the need for and nature of the legal capacity of a settlor, trustee or beneficiary must have to hold an interest in property in the context of a trust.
THE SETTLOR:
- legally recognized person (individual or corporation),
- interest (legal or equitable) in the property that he/she purported to make subject to a trust.
- legal capacity to dispose of their interest in the property.
THE TRUSTEE:
- Able to hold title - any recognized person can hold title to property. Therefore any person can be a trustee and hold property subject to a trust obligation, even if the person does not have legal capacity to deal with the property.
- SHOULD have capacity - Most trustees will have legal capacity to exercise powers because need it to manage trust property. If they dont have legal capacity they should be replaced
- Legal Personality? - Trustee can be a corporation, but CBCA says that companies under it cannot “carry on business” of a trust company - if a company is to carry on the business of a trust company they will be incorporated under special legislation
A corp as a trustee of a single trust might not be considered carrying on the business of a trust company. Question as to whether they could act as trustee.
THE BENEFICIARY:
- legally recognized as a person in order to receive and held interest in property.
- must be in existence before he/she can hold an interest but does not need to be in existence at the time the trust is created (ex trust identifies contingent beneficiaries who, when born, can hold an equitable interest).
- not necessary for ben to have capacity to deal with property.
Identify who must have legal capacity to transfer property for the creation of an express trust and explain why.
The settlor – disposing of an interest in property
Only “persons” recognized by the law can hold an interest in property. Legally recognized “persons” include both individuals and corporations. The purported settlor must, therefore, be a legally recognized “person” who has an interest (legal or equitable) in the property
Identify who else should have legal capacity to deal with property and explain why.
Trustee
In most trusts trustees will have some powers to deal with the trust property
difficult for the trustee to exercise these powers if the trustee himself, herself or itself does not have the legal capacity to exercise those powers.
Others will be reluctant to deal with a trustee where they may be unable to enforce arrangements made with the trustee. Even in a bare trust it will often be necessary for the trustee to take steps to protect the trust property until it is to be transferred to the ben
preferable that the trustee have legal capacity, and if not, should be replaced
Identify the two main types of legal incapacity.
MINORS: the law attempts to provide protection by limiting the capacity of minors
Wills/testamentary trusts - min age 16 unless in armed forces on active service
Contract creating trust - contracts w minor are voidable by minor, unless the minor has confirmed the contract after reaching the age of majority or has not repudiated the contract within a reasonable time of reaching the age of majority. BUT because ppl would be reluctant to deal w minors, law makes exception for necessaries of life or long term contracts concerning land which will be binding unless repudiated by the minor w/in reasonable time of reaching age of majority.
Disposition by minor may be controlled by statute
Considering above, an inter vivos trust over land to be created by a minor pursuant to a contract may be voidable by the minor.
Gift on Trust – Inter vivos settlement of property other than land in trust for benefit of others. May be void depending on statutory restriction of age of capacity to dispose. Age varies across canada.
Under CL gift of land voidable and gift of personal property is likely void. Leg restricts dealings with property by minors
Minor as Trustee – likely to have difficulty managing trust property since will be hard to enter binding legal contracts. Should consider removing from position of trustee
Age of majority
18 in AB, SK, MB, Ont, PEI
19 in BC, NB, NS, NFL, YK, NWT, Nunavut
Under age of majority official guardian or similar will deal with minors interests who dont have guardian.
MENTAL INCAPACITY: attempts to protect adults form being taken advantage of if they have mental incapacity that makes them unable to appreciate the nature and effect of a transaction they are entering into. It is not the same as mental illness. The question is whether the person is incapable of understanding substantially the nature and effect of the particular transaction (ie extent of property being disposed, and who will benefit)
In the context of a trust, the settlor has to be capable of understanding the nature and effect of the creation of the trust. This includes understanding the extent of the property being disposed of, who will be benefitting from the holding of that property.
Where a person is making a will, that person must understand the nature and effect of making a will, the extent of the property being disposed of and an appreciation of the needs of her or his dependent
Guardians for incompetent peepe → Adult Guardianship Act s32
Identify the circumstances in which each of these main types of legal incapacity arises.
Minors: Testamentary Trusts
A minor cannot make a valid will and therefore cannot create a testamentary trust
BC s. 36 of Wills, E & S Act that someone 16 years of age and mentally capable may make a will and s. 38 provides that a member of the Canadian forces may make a gift of property by will, regardless of age.
Minors: Inter Vivos Trusts
contracts w minor are voidable by minor, unless the minor has confirmed the contract after reaching the age of majority or has not repudiated the contract within a reasonable time of reaching the age of majority.
Statutes sometimes apply
Contracts for “necessaries” of life for the minor or long term contracts concerning land are binding unless repudiated by the minor within a reasonable time of having reached the age of majority.
Mental Incapacity:
Where the person is incapable of understanding substantially the nature and effect of the particular transaction (ie extent of property being disposed, and who will benefit)
In the context of a trust, the settlor has to be capable of understanding the nature and effect of the creation of the trust. This includes understanding the extent of the property being disposed of, who will be benefitting from the holding of that property.
Where a person is making a will, that person must understand the nature and effect of making a will, the extent of the property being disposed of and an appreciation of the needs of her or his dependent
Provincial legislation typically provides for the appointment of committees or guardians for mentally incompetent persons
Briefly describe the potential limitations on the scope of the legal capacity of minors.
Ability for a minor to make a will is limited
Entering into a binding contract is limited for a minor – normally voidable by the minor unless they have been confirmed after reaching the age of majority or are not repudiated within a reasonable time of reaching the age of majority
Many jurisdictions have statutory provisions that restrict the capacity of minors to dispose of property - particularly so of land, but may also apply to personal property
Age of majority varies across Canada
Be able to identify two other situations where legal capacity issues may be an issue
Matters that one should be cautious about in terms of a lack of capacity or limited capacity
(1) involves a mistaken assumption concerning the legal recognition as a ‘person’ and;
(2) the other is recognizing constraints on a bankrupt person in dealing with property
NOT RECOGNIZED AS A PERSON: unincorporated association is not a legally recognized person, nor is a partnership or trust. None of these entities can own property nor enter into a trust/contract (cant be settlors, bens, or trustees)
BANKRUPTS: where a person is bankrupt, his property is held in trustee in bankruptcy to be deal with according to the terms of the Bankruptcy and Insolvency Act. Transactions prior to bankruptcy may be void against trustee in bankruptcy and may be void under provincial fraudulent conveyance or fraudulent preference legislation
Underlying Values
Re: The 3 Certainties
Things considered by court…
Maximizing Property Values, Delieberation and Evidence:
Intent: Trying to allow persons to control use of property even beyond death, facilitating best use of property
Evidence: of owner intent
Deliberation by the owner: is this what they really wanted to do
Reasonable expectations or reliance: could be day to day A to B in trust for C…. certainties might apply. Might be looking at whether A to B is an absolute gift.
Unjust enrichment: someone benefitted at the expense of another? If A (as a trustee) takes and starts treating it as their own, A is unjustly enriched.
Enforceability and Admin Cost: judge might be worried about how to enforce it if we say there is a legal obligation here… what degree of certainty is necessary… what happens if we find an obligation. Dont want them to have to come back to court. Want to make sure it is certain so time/money not wasted administering the stupid trust.
Distributional Equity: formal legal rules might now allow for this to be fully considered.
Other concerns:
Balancing of the Underlying Values or Concerns: not directly a part of the law, the interpretation of the presence of the three certainties will depend on balancing some of these underlying values
Shifting Values: May vary over time/ cultures
