Equity and Trusts Flashcards
(90 cards)
1
Q
What is a chattel?
A
Tangible item other than land such as cars, computers, books, jewellery.
2
Q
What is a chose in action?
A
Intangible right such as a debt, company share.
3
Q
What happens if a trustee is at fault?
A
They are personally liable to restore the trust property using their own funds. If they cannot replace the property they will need to pay compensation instead.
4
Q
Which of the following best describes the respective rights of the beneficiary of a trust and the legatee of a deceased person’s estate?
A
A beneficiary has a proprietary interest under the trust and personal rights against the trustee relating to the administration of the trust. A legatee has a personal right against the executor relating to the administration of the estate but no proprietary rights.
5
Q
A testator wishes to leave £10,000 in their will to the first of their descendants to obtain a first class degree from the University of Cambridge.
A
It is possible to create this as a trust in the testator’s will but it will fail if none of the testator’s descendants satisfies the condition within 125 years of their death.
6
Q
What is certainty of subject matter?
A
Is it possible to identify the trust property?
7
Q
What is certainty of objects?
A
Is it possible to identify the intended beneficiaries or purpose of the trust?
8
Q
What is certainty of intention?
A
Is a trust intended at all?
9
Q
Which of the following best describes the test for certainty of intention?
A
An objective test: The settlor must manifest an intention which is consistent with a trust arrangement but need not know what a trust is.
10
Q
By his valid will, a testator made the following dispositions:
‘1. I give £50,000 to my solicitor to be applied for the benefit of my mother.
2.I give £10,000 to my wife absolutely, confident that she will do right by our children.’
The executors of the testator’s will have paid £5,000 to the solicitor and £10,000 to the testator’s widow.
A
The solicitor holds the £5,000 on trust for the testator’s mother. The widow is the full legal owner of the £10,000.
11
Q
Match the type of property with the rule relating to certainty of subject matter when a trust is declared from a wider mass: Identical, tangible property (such as gold bars or wine bottles)
A
It is not possible to declare a trust over a specified number of assets from within the wider mass without identifying the specific assets which are subject to the trust.The specific assets must be identified in some way (such as by segregation or labelling).
12
Q
Match the type of property with the rule relating to certainty of subject matter when a trust is declared from a wider mass: Identical, intangible property (such as shares)
A
It is possible to declare a trust over a specified number of assets from within the wider mass without identifying the specific assets which are subject to the trust.
13
Q
By his valid will, the testator (deceased) made the following disposition:
‘I give to my trustees my favourite car on trust for my daughter, and the sum credited to my current bank account on trust to give most of it to my daughter and the balance to my son.’
There is no available evidence of which car was the testator’s favourite.
Which one of the following statements best describes the effect of the disposition?
A
The testator has not created a valid trust.
14
Q
By his valid will, the testator made the following disposition: ‘I give £10,000 to my trustees. £5,000 is to be distributed to my children, and £5,000 is to be distributed to British men, in such shares as my trustees shall determine.’ The executors of the testator’s will have paid £10,000 to the trustees.
Which one of the following describes the trustees’ position in relation to the £10,000?
A
The trustees hold £5,000 on discretionary trust for the testator’s children and £5,000 on resulting trust for the testator’s estate.
15
Q
What is the effect of failure to comply with section 53(1)(b) LPA 1925?
A
The trust is unenforceable
16
Q
Match the type of trust with the formalities requirements: Transfer of land on trust
A
Must be evidenced in signed writing and constituted by transferring legal title to trustee
17
Q
Match the type of trust with the formalities requirements: Self-declaration of trust of personal property
A
No formalities
18
Q
Match the type of trust with the formalities requirements: Self-declaration of trust of land
A
Declaration must be evidenced in signed writing
19
Q
Match the type of trust with the formalities requirements: Transfer of personal property on trust
A
No formalities for declaration but trust must be constituted by transferring legal title to trustee
20
Q
Which of the following trusts would be unenforceable?
A
A person orally declares that they are holding their house on trust for their sibling and then leaves their sibling a voicemail to confirm the terms of the trust
21
Q
Which of the following do the constitution rules relate to?
A
Legal Title
22
Q
True or false: If a settlor intends to make a transfer on trust but fails to transfer legal title to the trustee, equity will automatically treat them as having made a self declaration of trust.
A
False. If a settlor intends to make a transfer on trust but fails to transfer legal title to the trustee, equity does not automatically treat this as a self-declaration of trust. For a self-declaration of trust to be valid, the settlor must explicitly declare themselves as the trustee of the property. Simply failing to transfer legal title does not suffice
23
Q
How to determine if a trust been validly constituted?
A
To determine if a trust has been validly constituted, several key requirements must be met:
Intention: The settlor must have a clear intention to create a trust.
Subject Matter: The trust property must be clearly identified.
Objects: The beneficiaries of the trust must be clearly identified or ascertainable.
Formalities: Any legal formalities required for the transfer of the trust property must be completed.
A trust is considered completely constituted when the settlor has done everything necessary to transfer the legal title of the trust property to the trustee1. If any of these elements are missing or incomplete, the trust is not validly constituted.
24
Q
What is a self declaration trust
A
A self-declaration of trust occurs when the settlor, who owns the property, declares that they hold the property on trust for the benefit of another person. In this situation, the settlor does not transfer the legal title to a third party trustee but instead retains it while assuming the role of trustee.
This type of trust is often used when the settlor wants to maintain control over the property while ensuring that the benefits go to the intended beneficiaries.
25
A woman wanted to give her house to her adult son. She completed a transfer deed and gave this to her solicitor who said he would finalise the gift on his return from holiday in two weeks’ time. The woman died the next day and in her validly executed will the house was left to her boyfriend.
Will the son be able to claim a beneficial interest in the house?
No, the house will pass to her boyfriend. The Re Rose exception to Milroy v Lord will not apply because the woman has not put the matter beyond her own control.
26
What is the rule in Strong v Bird
The rule in Strong v Bird is a legal principle that allows an imperfect gift to be perfected if certain conditions are met. This rule originated from the case Strong v Bird (1874). Here are the key points:
Intention to Gift: The donor must have intended to make an inter vivos (during their lifetime) gift.
Continuing Intention: This intention must have persisted until the donor’s death.
Appointment as Executor: The intended donee must be appointed as the executor of the donor’s will.
Legal Title: The legal title to the property must vest in the donee as a result of their appointment as executor.
In essence, if these conditions are satisfied, the donee can claim the gift even if the transfer was not completed during the donor’s lifetime.
27
A man wishes to give a five-acre paddock to his adult granddaughter to open a riding stable. The man’s solicitor completes the transfer documentation, but the man then dies unexpectedly before the granddaughter is registered as the owner. In the man’s validly executed will, his grandson is due to inherit the land. The granddaughter and her sister are appointed executors.
Can the granddaughter claim beneficial ownership of the land?
Yes, under the rule in Strong v Bird.
28
A trustee holds property on trust for A for life, remainder to the first of B and C to get married and, if neither marries, to charity.
Which one of the following statements correctly identifies the nature of their respective interests?
A’s interest is vested in possession. B and C’s interests are contingent
29
What is the rule in The rule in Saunders v Vautier
The rule in Saunders v Vautier (1841) allows beneficiaries of a trust to terminate the trust and demand the transfer of legal title to themselves, provided certain conditions are met:
All Beneficiaries: All beneficiaries must be of adult age (sui juris) and of sound mind.
Full Beneficial Interest: The beneficiaries must collectively hold the entire beneficial interest in the trust property.
If these conditions are satisfied, the beneficiaries can require the trustee to transfer the legal estate to them, effectively ending the trust. Under the rule in Saunders v Vautier, all beneficiaries who are of adult age (sui juris) and of sound mind can agree to collapse the trust. They must collectively hold the entire beneficial interest in the trust property. If these conditions are met, they can require the trustee to transfer the legal estate to them, effectively ending the trust
30
do the objects of a discretionary trust have proprietary rights in the trust property.
No, the objects of a discretionary trust do not have proprietary rights in the trust property. Instead, they have a right to be considered by the trustees when the trustees exercise their discretion to distribute the trust property. The beneficiaries only acquire a proprietary interest in the trust property once the trustees have made a specific distribution to them.
31
What is a charitable purpose?
A charitable purpose is an aim or objective that is recognized by law as being beneficial to the public. According to the Charities Act 2011, a purpose is considered charitable if it falls within one of the following categories and is for the public benefit1:
Relief of poverty.
Advancement of education.
Advancement of religion.
Advancement of health or the saving of lives.
Advancement of citizenship or community development.
Advancement of the arts, culture, heritage, or science.
Advancement of amateur sport.
Advancement of human rights, conflict resolution, or reconciliation.
Advancement of environmental protection or improvement.
Relief of those in need by reason of youth, age, ill-health, disability, financial hardship, or other disadvantage.
Advancement of animal welfare.
Promotion of the efficiency of the armed forces, police, fire, and rescue services.
Any other purposes currently recognized as charitable or any new charitable purposes that are similar to another charitable purpose.
32
An employer wishes to establish a sports club for its employees.
Is it possible to create a charitable trust for this purpose?
No. The employees of the company are a private class of individuals meaning the public benefit test would not be satisfied.
33
What is the Cypres Doctrine?
The cy-près doctrine is a legal principle used to modify the terms of a charitable trust or gift when the original purpose becomes impossible, impracticable, or illegal to fulfill. The term “cy-près” comes from the French phrase meaning “as near as possible.” Here are the key points:
Purpose: It allows courts to amend the terms of a charitable trust to achieve a purpose as close as possible to the original intent of the donor.
Application: This doctrine is applied when the original charitable purpose cannot be carried out, ensuring that the charitable intent is not entirely frustrated12.
Examples: If a trust was established to fund a specific type of medical research that is no longer relevant or possible, the court might redirect the funds to a related area of medical research3.
34
How to correctly identify the perpetuity rules applicable to charitable purpose trusts?
Charitable purpose trusts are unique in that they are generally exempt from the perpetuity rules that apply to private trusts. Here are the key points to correctly identify the perpetuity rules applicable to charitable purpose trusts: Exemption from Perpetuity Period: Charitable trusts can exist in perpetuity and are not subject to the usual perpetuity period limits, such as the 125-year limit that applies to private trusts12.
Public Benefit Requirement: The trust must be established for a charitable purpose that provides a public benefit. This ensures that the trust’s activities are aligned with the recognized charitable purposes2.
Accumulation Period: While charitable trusts can exist indefinitely, there are rules regarding the accumulation of income. The Perpetuities and Accumulations Act 2009 allows for two accumulation periods: either 21 years or the life of the settlor.
35
What is the perpetuity rule?
The rule against perpetuities is a legal principle designed to prevent the indefinite control of property through future interests. Here are the key points:
Time Limit: The rule restricts the time period within which future interests in property must vest. Under common law, this period is typically measured as “a life or lives in being” at the time the interest is created, plus 21 years.
Purpose: The rule aims to ensure that property is not tied up for too long and remains transferable and usable by future generations2.
Modern Adjustments: In some jurisdictions, the rule has been modified or abolished. For example, the Perpetuities and Accumulations Act 2009 in the UK sets a statutory perpetuity period of 125 years.
36
Explain no charitable purpose trusts?
Non-charitable purpose trusts are generally not valid under English law because they lack identifiable human beneficiaries who can enforce the trust. However, there are some exceptions where non-charitable purpose trusts can be considered valid if they indirectly benefit ascertained individuals or fall within certain recognized categories. Examples of valid non-charitable purpose trusts include:
Trusts for the maintenance of specific animals: These are often upheld because they indirectly benefit the animals’ caretakers.
Trusts for the maintenance of graves and monuments: These are recognized as valid because they serve a specific, identifiable purpose.
Trusts for private masses: These can be valid if they meet certain conditions.
37
To be valid a non-charitable purpose trust must fall within a recognised exception to the beneficiary principle.
What other two requirements must a testator check are satisfied?
In addition to ensuring that the purpose of a non-charitable testamentary trust is valid, a testator must also check the following two requirements:
Certainty of Intention: The testator must clearly demonstrate an intention to create a trust. This means the language used in the will must unequivocally indicate that the property is to be held on trust for the specified purpose.
Certainty of Subject Matter: The property to be held on trust must be clearly identified. This means the assets or funds that are to be used for the trust’s purpose must be specified with sufficient clarity.
38
Can The presumption of resulting trust can be rebutted
Yes, the presumption of resulting trust can be rebutted. This presumption arises when property is transferred without consideration, suggesting that the transferee holds the property on trust for the transferor. However, it can be rebutted by providing evidence that the transferor intended to make a gift or loan, rather than creating a trust12.
For example, if there is clear evidence showing that the transferor intended the transfer to be a gift, such as documentation or witness testimony, the presumption of resulting trust can be overturned.
39
What is a presumed resulting trust?
A presumed resulting trust arises when property is transferred to someone without consideration, and there is no clear intention to make a gift. In such cases, the law presumes that the transferee holds the property on trust for the transferor. This presumption can be rebutted by evidence showing that the transferor intended to make a gift or loan12.
For example, if a person transfers money to another without any explanation, the law might presume that the recipient holds the money on trust for the sender unless there is evidence to suggest otherwise.
40
What is an automatic resulting trust?
An automatic resulting trust arises when an express trust fails or when there is a surplus of funds or assets after the termination of a trust. This type of trust is created automatically by operation of law, without the need for any evidence of intention or agreement to create a trust12.
Key scenarios where an automatic resulting trust might arise include:
Failure of an Express Trust: If the terms of an express trust cannot be fulfilled, the property reverts to the settlor or their estate under an automatic resulting trust1.
Surplus Funds: When there are leftover funds or assets after the trust’s purposes have been satisfied, these may be held on an automatic resulting trust for the settlor or their estate3.
This ensures that the beneficial interest in the property is not left in a “beneficial vacuum” and is instead returned to the original owner or their estate.
41
Which of the following will give rise to an automatic resulting trust?
An automatic resulting trust arises in specific situations where an express trust fails or there is a surplus of funds. Among the options provided, the scenario that will give rise to an automatic resulting trust is:
An intended transfer on trust fails due to uncertainty of objects.
In this case, the trust fails because the beneficiaries (objects) are not clearly defined, and the property reverts to the settlor or their estate under an automatic resulting trust.
42
A man purchases a piece of land which he intends to use for a new business venture. His boyfriend contributes 50% of the purchase price for the land but the man is registered as the sole legal owner of the land. The couple break up and the boyfriend claims that he is entitled to a share of the land. There is no express trust declared over the property and no evidence that the boyfriend intended a gift or a loan when contributing towards the land.
What is the most likely conclusion that a court will reach as to the legal and equitable ownership of the land?
In this scenario, the most likely conclusion a court will reach is that the boyfriend has an equitable interest in the land. Here’s why:
Resulting Trust: Given that the boyfriend contributed 50% of the purchase price and there is no evidence of an intention to make a gift or loan, the court is likely to presume a resulting trust. This means the boyfriend is presumed to have an equitable interest in the property proportional to his contribution12.
Equitable Ownership: The boyfriend’s contribution to the purchase price suggests that he intended to have a beneficial interest in the property. Therefore, even though the man is the sole legal owner, the boyfriend would be entitled to a 50% equitable interest in the land12.
Legal Ownership: The man remains the sole legal owner of the land, but he holds it on trust for himself and his boyfriend in proportion to their respective contributions.
This means that while the man has the legal title, the equitable ownership is shared, with the boyfriend having a 50% beneficial interest.
43
Cany any person be a legal trustee?
Legal Capacity: The person must have the legal capacity to hold and manage property. This typically means they must be of legal age (usually 18 or older) and of sound mind.
Willingness and Ability: The person must be willing and able to carry out the duties and responsibilities of a trustee. This includes managing the trust property, acting in the best interests of the beneficiaries, and adhering to the terms of the trust.
Disqualification: Certain individuals may be disqualified from acting as trustees. For example, individuals who are bankrupt or have been convicted of offenses involving dishonesty may be prohibited from serving as trustees.
Special Requirements: In some cases, the trust deed or relevant legislation may impose specific requirements or restrictions on who can be appointed as a trustee. For example, a charitable trust may require trustees to have particular qualifications or experience.
44
The sole trustee of a trust for a minor beneficiary has just died. The trust instrument contains no powers to appoint trustees.
Who has the power to appoint a replacement trustee?
In the absence of any specific powers in the trust instrument, the power to appoint a replacement trustee typically falls to the personal representatives of the deceased trustee. According to the Trustee Act 1925, the personal representatives of the last surviving trustee have the authority to appoint new trustees12.
This ensures that the trust can continue to operate and fulfill its purposes, even after the death of the sole trustee.
Yes, the court can also appoint a replacement trustee if necessary. While the personal representatives of the deceased trustee typically have the authority to appoint new trustees, the court has the power to intervene and appoint trustees under certain circumstances. This can happen if:
There is no one with the power to appoint a new trustee.
The existing trustees are unable or unwilling to act.
It is necessary to ensure the proper administration of the trust.
The court’s power to appoint trustees is provided under the Trustee Act 1925.
45
A trust has two trustees, neither of which is a trust corporation. One of the trustees wishes to retire immediately.
Can they do so?
Yes, a trustee can retire, but certain conditions must be met to ensure the trust remains properly managed. According to the Trustee Act 1925, a trustee can retire if:
There are at least two trustees remaining: After the retirement, there must be at least two trustees left, or a trust corporation must be appointed as the sole trustee.
Proper Notice: The retiring trustee must give proper notice of their intention to retire.
Deed of Retirement: A formal deed of retirement should be executed, and the remaining trustees must consent to the retirement.
46
A couple are civil partners and have lived together for 10 years. They decide to dissolve their partnership and sell their family home which they own as legal joint tenants. There is no express trust over the home. They disagree over how the proceeds of sale should be divided between them and they take the case to court.
How will the court determine beneficial ownership of the family home?
In this scenario, the court will determine the beneficial ownership of the family home based on several factors:
Joint Tenancy: Since the couple owns the property as legal joint tenants, the presumption is that they have equal shares in the property. This means that, in the absence of any contrary evidence, the proceeds of the sale would typically be divided equally.
Common Intention: The court will consider whether there was a common intention between the parties regarding the ownership shares. This can be inferred from their conduct, financial contributions, and any agreements or discussions they had.
Contributions: The court will look at the financial contributions each party made towards the purchase and maintenance of the property. If one party contributed significantly more, this might influence the court’s decision on how to divide the proceeds.
Implied Trusts: If there is evidence that the parties had a different understanding or agreement about their shares, the court might recognize an implied trust, such as a constructive trust, to reflect their true intentions.
47
A married man purchases a flat to live in with his girlfriend. The man pays the deposit and purchases the flat in his sole name. The man is solely liable for the mortgage. He tells his girlfriend that he can’t put the flat in her name until he tells his wife about their affair, but he assures her that he is holding it on trust for them both and that she has a 50% share. In reliance on these statements, the woman pays all household expenses and contributes equally towards the mortgage repayments.
What claim would you advise the woman to make?
In this situation, the woman could potentially make a claim for a beneficial interest in the property based on a constructive trust. Here’s why:
Common Intention: The man assured the woman that he was holding the flat on trust for both of them and that she had a 50% share. This indicates a common intention to share the beneficial interest in the property1.
Detrimental Reliance: The woman relied on this assurance by paying all household expenses and contributing equally towards the mortgage repayments. This reliance is considered detrimental because she acted to her detriment based on the man’s promise2.
Constructive Trust: Given the common intention and the woman’s detrimental reliance, a court may find that a constructive trust exists, giving the woman a beneficial interest in the property3.
Therefore, the woman should claim that she has a beneficial interest in the property based on the principles of a constructive trust.
Therefore, the woman should claim that she has a beneficial interest in the property based on the principles of a constructive trust.
48
What is a constructive trust?
A constructive trust is an equitable remedy imposed by a court to address situations where someone has wrongfully obtained or holds property that they should not possess. This type of trust is not created by an explicit agreement but is instead implied by the conduct of the parties involved. Here are the key points.
Unjust Enrichment: A constructive trust can be imposed when someone has been unjustly enriched at the expense of another. For example, if someone acquires property through fraud or other wrongful means, the court may impose a constructive trust to prevent them from benefiting from their misconduct1.
Breach of Fiduciary Duty: If a person in a fiduciary position (such as a trustee or agent) breaches their duty and gains a benefit, the court may impose a constructive trust to ensure that the benefit is held for the rightful owner.
Equitable Remedy: The primary purpose of a constructive trust is to achieve fairness and justice by ensuring that the property is held for the benefit of the person who has been wrongfully deprived of it.
The woman should seek to establish an interest under a common intention constructive trust.
49
A cohabiting couple own a house as legal joint tenants. There is no declaration as to beneficial shares in the property. The woman pays the deposit money to purchase the house and a mortgage is taken out in their joint names which the woman pays. The man pays for all other expenses on the property. She wants to leave her partner and she seeks advice as she wants to claim a larger share given her contributions to the deposit and mortgage.
What is the best advice to the woman?
It is presumed that the property is owned as equitable joint tenants. The burden is on the woman to rebut this. It is a heavy burden and it is unlikely that unequal contributions will be enough to rebut the presumption.
In this situation, the woman may have a strong case for claiming a larger share of the beneficial interest in the property. Here’s the best advice for her:
Document Contributions: She should gather evidence of her financial contributions, including the deposit and mortgage payments. This documentation will be crucial in supporting her claim1.
Seek Legal Advice: Consulting with a solicitor who specializes in property and family law will help her understand her rights and the best approach to take. The solicitor can assist in presenting her case effectively2.
Common Intention Constructive Trust: She can argue that there was a common intention that she would have a larger share of the property, based on her significant financial contributions. This can be inferred from the fact that she paid the deposit and the mortgage.
Equitable Accounting: The court may consider equitable accounting, which takes into account the financial contributions of both parties. Given her substantial contributions, the court might award her a larger share of the beneficial interest.
50
Stack v Dowden and Jones v Kernott set out a two stage process for establishing an interest under a common intention constructive trust. What is the process by which the court can ascertain intention at each stage.
Stage 1: Establishing Common Intention
Express Agreement: The court first looks for any express agreement between the parties regarding their respective shares in the property. This can be in the form of written agreements, verbal agreements, or any clear communication that indicates a shared understanding.
Inferred Intention: If there is no express agreement, the court will infer common intention from the conduct of the parties. This includes financial contributions towards the purchase price, mortgage payments, or significant improvements to the property.
Stage 2: Quantifying the Shares
Initial Presumption: In cases where the property is jointly owned, the initial presumption is that the parties intended to hold the property in equal shares.
Rebutting the Presumption: This presumption can be rebutted by evidence showing a different intention. The court will consider the entire course of dealing between the parties, including their financial arrangements and any other relevant factors that might indicate a different division of shares.
Stack v Dowden and Jones v Kernott set out a two stage process for establishing an interest under a common intention constructive trust. Identify the process by which the court can ascertain intention at each stage.
Quantification of interest
Inference and imputation
Acquisition of interest
Inference only
51
An unmarried couple buy a weekend retreat in the countryside. The cottage is registered in the woman’s sole name, but the man contributes to the deposit and to the monthly mortgage payments. They split up and the woman changes the locks and says that the man has no rights to the property.
What is the best advice to the man?
The man should claim an interest under a common intention constructive trust. He has the burden of proof but common intention is likely to be inferred based on his financial contributions.
52
Does, Proprietary estoppel operate as a defence only?
No, proprietary estoppel does not operate solely as a defence; it can also be used as a cause of action. Here’s a brief overview:
Proprietary Estoppel as a Defence
Shield: It can be used to defend against a claim, for example, if someone is trying to evict a person who has been promised a right to use the property and has relied on that promise to their detriment.
Proprietary Estoppel as a Cause of Action
Sword: It can be used to assert a claim to a property right. For instance, if someone has been promised an interest in a property and has acted to their detriment based on that promise, they can bring a claim to enforce that right.
53
A and B are romantically involved. A moves into B’s house. B says to A: ‘You will always have a secure home here with me.’ A spends £5,000 of their savings making improvements to the house. The relationship breaks down two years later and A moves out of the house. A successfully brings a proprietary estoppel claim against B.
Which one of the following remedies is the LEAST likely to be awarded to satisfy A’s equity?
In a proprietary estoppel claim, the remedy must be proportionate to the detriment suffered and the assurance given. Given the circumstances, the least likely remedy to be awarded is:
An order directing B to transfer the house to A.
This remedy would be considered disproportionate to the detriment suffered by A, which is the £5,000 spent on improvements. The court aims to avoid an unconscionable result, but it also seeks to ensure that the remedy is fair and proportionate.
54
C and D are romantically involved. They do not live together. C repeatedly says to D: ‘You stick with me and you’ll be alright.’ D, a builder, converts the loft of C’s house. C pays for all the materials. D is not paid for the work. C and D’s relationship breaks down two years later. D brings a proprietary estoppel claim against C.
Which one of the following is the most likely reason why D’s claim would fail?
The most likely reason why D’s proprietary estoppel claim would fail is:
C’s statement lacks sufficient clarity and specificity to constitute an assurance.
In proprietary estoppel claims, the assurance or promise must be clear and specific enough to create a reasonable expectation of a property right. C’s statement, “You stick with me and you’ll be alright,” is vague and does not clearly indicate that D would have any specific interest in the property. Therefore, it is unlikely to be considered a sufficient assurance to support a proprietary estoppel claim.
55
A trustee of a life interest trust decides that they will invest £500,000 of trust money in a property for the life tenant to live in. The trustee decides to buy a property in the north of France, where the life tenant is currently living. The trust instrument does not contain any express provisions relating to the acquisition of land.
Has the trustee acted in breach of trust?
No
Yes, Based on the information provided, the trustee’s actions may not necessarily constitute a breach of trust if they have acted prudently and in the best interests of the life tenant. However, it is advisable for the trustee to seek legal advice to ensure compliance with their duties and the terms of the trust.
Whether the trustee has acted in breach of trust depends on several factors, including the terms of the trust and the trustee’s duties under the law. Here are some key considerations:
Trustee’s Duties
Duty to Act in the Best Interests of Beneficiaries: The trustee must act in the best interests of the beneficiaries, which includes making prudent investment decisions.
Duty to Adhere to the Trust Instrument: The trustee must follow the terms of the trust instrument. If the trust instrument is silent on the acquisition of land, the trustee must ensure that their actions are consistent with the general duties and powers conferred by law.
Investment Powers
Statutory Powers: Under the Trustee Act 2000 (in England and Wales), trustees have a general power of investment, allowing them to invest in any kind of property, unless restricted by the trust instrument.
Suitability and Diversification: Trustees must consider the suitability of investments and the need to diversify the trust’s assets.
Specific Considerations
Location of Property: Investing in a property in the north of France may be considered reasonable if it aligns with the life tenant’s needs and circumstances.
Purpose of Investment: If the property is intended to provide a home for the life tenant, this could be seen as fulfilling the trustee’s duty to act in the best interests of the beneficiary.
Potential Breach of Trust
Lack of Express Authority: If the trust instrument explicitly prohibits such investments or if the trustee fails to consider the suitability and diversification of the investment, this could constitute a breach of trust1.
Prudence and Reasonableness: If the trustee’s decision to invest in the property is deemed imprudent or unreasonable, it could be challenged as a breach of trust.
56
A trust fund is worth £500,000. It has two trustees, who are both property lawyers. The trustees decide to invest £50,000 of trust money in company shares. They discuss the matter together and decide to make the investment. The trust instrument does not contain any express provisions relating to investment.
Which ONE of the following best describes the position?
Given the scenario, the best description of the position is:
The trustees have breached their statutory duties because they have not obtained proper advice with regards to the investment.
Explanation:
Statutory Powers: Under the Trustee Act 2000 (in England and Wales), trustees have a general power of investment, allowing them to invest in any kind of property, including company shares, unless the trust instrument explicitly restricts such investments.
Duty of Care: The trustees, being property lawyers, are expected to exercise a higher standard of care and skill in making investment decisions. Their professional background suggests they are likely to be aware of their duties and the need to act prudently.
Consultation and Decision: The trustees discussed the matter together and made a joint decision, which aligns with their duty to act jointly and in the best interests of the beneficiaries.
Therefore, unless there are specific restrictions in the trust instrument or evidence of imprudence or negligence, the trustees’ decision to invest in company shares is likely to be considered appropriate and within their powers.
57
Which of the following powers are trustees permitted to delegate using their statutory powers of delegation?
Powers of investment only
Powers to distribute property to trust beneficiaries only
Powers to acquire land and powers to distribute trust property to beneficiaries
Powers of investment and powers to distribute trust property to beneficiaries
Powers of investment and powers to acquire land
Trustees are permitted to delegate certain powers using their statutory powers of delegation under the Trustee Act 2000. The correct answer is:
Powers of investment and powers to acquire land.
Explanation:
Powers of Investment: Trustees can delegate their powers of investment, allowing them to appoint agents to manage the trust’s investments.
Powers to Acquire Land: Trustees can also delegate the power to acquire land, which includes buying property for the trust.
However, trustees cannot delegate their dispositive duties, such as the power to distribute trust property to beneficiaries, without express authority in the trust instrument.
58
True or false: The trustee power of maintenance can only be exercised where a beneficiary has a vested interest in the trust capital.
False.
The trustee power of maintenance, which allows trustees to apply income for the maintenance, education, or benefit of a beneficiary, can be exercised even if the beneficiary does not have a vested interest in the trust capital. This power is typically governed by the terms of the trust instrument and relevant statutory provisions, such as the Trustee Act 1925 in England and Wales.
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Trustees have been holding property on trust for a minor beneficiary (now 17 years old) for the last five years. The trustees have never previously used the power of maintenance and have been accumulating income. The beneficiary has asked the trustees to pay for her to attend a three year performing arts course.
Which of the following represents the best advice to the trustees?
The trustees may use the accumulated income and any future income to fund the performing arts course until the beneficiary reaches the age of 18. After this date, the trustees must pay the income directly to the beneficiary.
Consider using the accumulated income to pay for the beneficiary’s performing arts course, as it falls within the scope of the power of maintenance.
Explanation:
Power of Maintenance: Trustees have the power to apply income for the maintenance, education, or benefit of a beneficiary, even if the beneficiary does not have a vested interest in the trust capital.
Beneficiary’s Request: The request to pay for a performing arts course aligns with the purpose of maintenance, as it pertains to the beneficiary’s education and development.
Accumulated Income: Since the trustees have been accumulating income and have not previously used the power of maintenance, they should consider whether using the income for this purpose is in the best interests of the beneficiary.
Steps for Trustees:
Review the Trust Instrument: Ensure there are no specific provisions or restrictions that would prevent using the income for this purpose.
Assess the Beneficiary’s Needs: Consider the beneficiary’s current and future needs, and whether funding the course is a prudent use of the trust’s resources.
Document the Decision: Record the decision-making process and the reasons for agreeing to or declining the request, to demonstrate that they have acted in the best interests of the beneficiary.
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Trustees holds a trust fund for the settlor’s wife for life, remainder to the settlor’s minor daughter (age 17). The daughter wants to receive some of her capital now, to help her buy a car.
Which of the following is the best advice to the trustee?
The trustee should not release any capital to the daughter until she reaches the age of 18 or the age specified in the trust instrument.
Life Interest Trust: The trust is set up to provide for the settlor’s wife during her lifetime, with the remainder going to the daughter. The daughter’s interest in the capital is contingent upon the life tenant’s (the wife’s) death and her reaching the age of majority (18) or any other age specified in the trust instrument.
Minor Beneficiary: As the daughter is currently 17, she does not have a vested interest in the capital. Trustees have a duty to preserve the capital for the remainder beneficiary until they are entitled to it.
Trustee Duties: Trustees must act in accordance with the terms of the trust and in the best interests of all beneficiaries. Releasing capital prematurely could be a breach of trust.
Maintenance and Education: If the trust instrument allows, the trustees might consider using income (not capital) for the daughter’s maintenance and education, which could include reasonable expenses related to her well-being and development.
61
True or false: Trustees do not need to make payments to beneficiaries until the beneficiaries make a request.
False.
Trustees have a duty to act in the best interests of the beneficiaries and to administer the trust according to its terms. This includes making payments to beneficiaries as required by the trust instrument, regardless of whether the beneficiaries have made a request. Trustees must ensure that they are fulfilling their obligations and distributing income or capital as stipulated by the trust.
62
Which of the following would be an inappropriate approach for a trustee to take if they are aware of the identify of a beneficiary but are unable to locate them?
Taking out insurance against wrongful distribution.
Retaining a fund to pay the beneficiary’s interest if they are located in the future.
Seeking directions from the court as to how to distribute the trust fund.
Paying money into court in case the beneficiary is located in the future.
Putting a notice in a national newspaper of their intention to distribute the trust property.
Putting a notice in a national newspaper of their intention to distribute the trust property.
Explanation:
Insurance Against Wrongful Distribution: This approach does not address the fundamental issue of locating the beneficiary and ensuring their interest is protected. It also does not align with the trustee’s duty to act in the best interests of the beneficiaries and to administer the trust according to its terms.
Other Approaches: The other options listed (retaining a fund, seeking court directions, paying money into court, and putting a notice in a national newspaper) are all appropriate steps that a trustee might take to ensure the beneficiary’s interests are safeguarded and to comply with their fiduciary duties.
63
Ten years ago, a trustee used money from a trust fund to purchase a house for themselves. The beneficiary has only just discovered the breach.
True or false: The beneficiary cannot recover the trust property because the limitation period has expired
False.
In cases of breach of trust, the limitation period does not start until the beneficiary becomes aware of the breach. Since the beneficiary has only just discovered the breach, they can still bring a claim to recover the trust property. Additionally, there is no limitation period for actions against trustees who have committed fraud or who have retained trust property for their own benefit12.
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A trust has three trustees. One of the trustees is a solicitor, another a doctor and the third is an accountant.
The solicitor is a director of the company in which the trust has a significant shareholding. The solicitor has not attended board meetings for some time and, as a result, was unaware of a number of poor business decisions which were made by the board. The value of the company shares has decreased significantly as a result of these decisions.
The company accounts have been circulated to the three trustees on an annual basis. It has been very clear from the accounts that the company has been in financial difficulties for several years and that the share value has been decreasing year on year. The trustees have not taken any action to try and improve the position of the company or sell the shares.
Which of the trustees is likely to be found liable for breach of trust?
All three trustees
In this scenario, all three trustees could potentially be found liable for breach of trust due to their collective failure to act in the best interests of the trust. However, the solicitor is particularly likely to be found liable for the following reasons:
Duty of Care: Trustees have a duty to act with reasonable care and skill. Given that the solicitor is a director of the company, they had a higher duty to stay informed about the company’s affairs and attend board meetings.
Failure to Act: The solicitor’s failure to attend board meetings and stay informed about the company’s poor business decisions contributed to the significant decrease in the value of the shares.
Collective Responsibility: All trustees are jointly and severally liable for breaches of trust. The doctor and accountant also failed to take action despite being aware of the company’s financial difficulties through the circulated accounts.
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A trustee holds a fund on trust for A for life, remainder to B (18) and C(12). A wants the trustee to purchase land in Spain for A to live in. The trust instrument does not give the trustee the power to acquire land overseas.
Which of the following represents the best advice to the trustee?
The trustee should not purchase the land in Spain. It is not permitted by the terms of the trust and obtaining A’s consent is insufficient to prevent the trustee being liable for breach of trust.
Trust Terms: The trust instrument does not authorize the purchase of land overseas. Trustees must adhere to the terms of the trust.
Beneficiary Consent: While obtaining consent from beneficiaries can sometimes mitigate risks, it does not override the explicit terms of the trust instrument. Additionally, C is a minor and cannot provide legally binding consent.
Breach of Trust: Proceeding with the purchase without proper authority could result in a breach of trust, making the trustee personally liable for any resulting loss.
Seeking court directions or amending the trust instrument (if possible) would be more appropriate steps if the trustee believes the purchase is in the best interests of the beneficiaries.
66
In which of the following circumstances is it permissible for a trustee to make a profit out of their role as trustee?
Terms of the Trust: If the trust instrument explicitly allows the trustee to make a profit, then it is permissible.
Fully Informed Consent: If all beneficiaries provide fully informed consent, the trustee can make a profit. This consent must be given freely and with full knowledge of the circumstances.
No Conflict of Interest: Even with consent or permission from the trust instrument, there must be no conflict between the trustee’s personal interests and their duties to the beneficiaries. Trustees must always act in the best interests of the beneficiaries and avoid situations where their personal interests could compromise their fiduciary duties.
67
Two trustees, A and B, hold a trust fund on trust for C, who is 12 years old. The trust fund includes a house which is currently unoccupied and not producing any rental income for the trust. A and B have decided to sell the house. A would like to buy it. The trust deed does not contain any provisions authorising trustees to purchase trust property.
Which of the following is the most appropriate advice to A?
A cannot buy the house.
Conflict of Interest: As a trustee, A has a fiduciary duty to act in the best interests of the beneficiaries. Purchasing the trust property could create a conflict of interest.
Beneficiary Consent: Since C is a minor, they cannot provide legally binding consent. Therefore, fully informed consent from all beneficiaries is not feasible in this case.
68
A trust has two trustees, A and B. The beneficiaries are minors. The trustees require legal advice on a tax issue which has arisen in relation to the trust. A is a partner at a law firm so B suggests that there is no need to obtain advice. A specialises in real estate and is not confident in providing tax advice so suggests instructing a tax partner at their firm.
What is the best advice to the trustees?
The trustees should obtain advice from a different firm because A has a personal interest in this firm so it would be a breach of fiduciary duty to instruct them.
69
In which of the following circumstances is it permissible for a trustee to make a profit out of their role as trustee?
If the profit is either permitted by the terms of the trust or fully informed consent is provided by all the beneficiaries.
70
What is recipient liability, often referred to as “knowing receipt,”
Personal liability for receiving the traceable proceeds of a breach of trust or fiduciary duty in circumstances rendering it unconscionable to retain them
Recipient liability, often referred to as “knowing receipt,” is a legal concept that deals with the responsibility of a person who receives property that has been misapplied, typically from a trust or fiduciary relationship. This liability arises when the recipient knows, or ought to know, that the property they received was misapplied.
Here are the key points:
Personal Claim: The beneficiary of the misapplied property can make a personal claim against the recipient.
Knowledge Requirement: The recipient must have the requisite degree of knowledge about the misapplication. This means they either knew or should have known that the property was misapplied.
Application Beyond Trusts: While commonly associated with trusts, knowing receipt can also apply to other situations where fiduciary duties are breached, such as the misapplication of a company’s assets by its directors.
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What is accessory liability?
Personal liability for dishonestly assisting a breach of trust or fiduciary duty.
Accessory liability in the context of trusts, often referred to as “dishonest assistance,” involves holding a third party accountable for assisting in a breach of trust. Here are the key points:
Dishonest Assistance: The third party must have assisted the trustee in committing the breach of trust. This assistance must be more than just passive involvement; it requires active participation1.
Knowledge of Dishonesty: The third party must have acted dishonestly. This means they knew or should have known that their actions were facilitating a breach of trust1.
Personal Claim: Beneficiaries of the trust can bring a personal claim against the third party who dishonestly assisted in the breach1.
This form of liability ensures that those who contribute to the misapplication of trust property can be held accountable, even if they are not the primary wrongdoers.
72
In breach of trust, a trustee misapplies £100,000 of the trust fund. A solicitor dishonestly helps the trustee to misapply the money and move it offshore. Later, an accountant dishonestly helps the trustee to falsify the trust accounts.
Which one of the following statements is correct?
Both the accountant and the solicitor are liable as dishonest assistants.
Given the scenario, here are the key points to consider:
Solicitor’s Role: The solicitor who dishonestly helps the trustee to misapply the money and move it offshore is liable for dishonest assistance in the breach of trust.
Accountant’s Role: The accountant who later dishonestly helps the trustee to falsify the trust accounts is also liable for dishonest assistance.
Both the solicitor and the accountant can be held liable for their respective roles in assisting the trustee’s breach of trust. The correct statement would be that both the solicitor and the accountant are liable for dishonest assistance in the breach of trust.
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What is the test of dishonesty for accessories to a breach of trust?
The test for dishonesty in the context of accessory liability for a breach of trust is primarily derived from the case of Royal Brunei Airlines Sdn Bhd v Tan. Here are the key elements:
Existence of a Trust: There must be a trust in place at the time of the alleged breach1.
Breach of Trust: The trustee must have committed a breach of that trust1.
Assistance: The defendant must have assisted the trustee in committing the breach1.
Dishonesty: The defendant’s assistance must have been dishonest. This is assessed using an objective standard, meaning the defendant’s actions are judged against what an honest person would consider dishonest1.
This objective test of dishonesty was clarified in the Royal Brunei Airlines case and further affirmed in subsequent cases, ensuring that the focus is on the defendant’s conduct rather than their subjective state of mind1.
74
Can the beneficiary of a trust can make a personal claim against an innocent recipient of misapplied trust property.
No, the beneficiary of a trust generally cannot make a personal claim against an innocent recipient of misapplied trust property. The key reason is that the recipient must have some level of knowledge or involvement in the misapplication to be held personally liable.
Here are the main points:
Knowledge Requirement: For a personal claim to succeed, the recipient must have known or ought to have known that the property was misapplied. This is often referred to as “knowing receipt”.
Innocent Recipient: If the recipient is truly innocent and had no knowledge of the misapplication, they typically cannot be held personally liable.
Tracing: While a personal claim may not be possible, the beneficiary might still be able to trace the misapplied property and claim it back, provided it can be identified and has not been mixed with other assets.
75
A trustee holds a painting on trust for a beneficiary. In breach of trust, the trustee gifts the painting to the owner of a private art gallery. The painting is delivered to the gallery by a courier hired by the trustee. The gallery owner and the courier are aware that the painting is misapplied trust property. The gallery owner sells the painting and dissipates the proceeds of sale.
Which one of the following statements describes the beneficiary’s rights?
The beneficiary can maintain a knowing receipt claim against the gallery owner but not against the courier.
Against the Gallery Owner: The gallery owner, knowing that the painting was misapplied trust property, can be held liable for knowing receipt. Since the gallery owner sold the painting and dissipated the proceeds, the beneficiary can make a personal claim against the gallery owner for the value of the painting.
Against the Courier: The courier, being aware that the painting was misapplied trust property, could also be held liable for knowing receipt. However, since the courier did not benefit from the misapplication (assuming they were just paid for their delivery service), the claim might be more complex and less likely to succeed.
Tracing: The beneficiary may attempt to trace the proceeds of the sale of the painting. However, since the proceeds have been dissipated, tracing might not be possible in this case.
The most accurate statement describing the beneficiary’s rights would be that the beneficiary can make a personal claim against the gallery owner for the value of the painting due to knowing receipt.
76
What is Claytons case rule?
True. The basic rule applied in such situations is the “first in, first out” (FIFO) rule, also known as the Clayton’s Case rule. This principle assumes that the first money deposited into the account is the first money to be withdrawn. Therefore, when a trustee withdraws funds from a mixed account, the withdrawals are presumed to come from the earliest deposits first.
77
A trustee takes £1,200 from a trust fund and pays it into their personal account, which already contains £600. The next day, the trustee withdraws £1,200 from the account and uses it to buy shares in a company. The trustee then withdraws £600 from the account and dissipates it.
Which of the following represents the best advice to the beneficiary?
The money withdrawn from the account can all be treated as trust money, meaning the trustee spent £1,200 on the shares and dissipated their own £600.
In this scenario, the best advice to the beneficiary would be to trace the misapplied trust money into the shares purchased by the trustee. Here’s why:
Tracing the Trust Money: The £1,200 taken from the trust fund can be traced into the shares because it was used directly to purchase them. This allows the beneficiary to claim the shares or their value.
Dissipated Funds: The £600 that was already in the trustee’s account and later dissipated cannot be traced back to the trust fund. Therefore, the beneficiary cannot claim this amount.
First In, First Out Rule: According to the FIFO rule, the first £600 in the account (the trustee’s own money) is considered to be withdrawn first. The next £1,200 withdrawn is considered to be the trust money, which was used to buy the shares.
So, the best course of action for the beneficiary is to focus on the shares purchased with the £1,200 of trust money.
78
A trustee takes £600 from Trust A and pays the money into their personal current account (which was previously empty). The next day, the trustee takes £1,200 from Trust B and pays it into the same account. The next day, the trustee withdraws £1,200 from the account and uses it to buy shares in a company. The trustee dissipates the remaining £600 in the account.
What is the most likely way in which the withdrawals from the account will be attributed to the beneficiaries of the two trusts?
79
True or false: Proprietary claims can be made against any person who receives misapplied trust property.
False
80
True or false: When a trustee withdraws money from a current account containing a mixture of misapplied trust money and the trustee’s money, the basic rule is the ‘first in, first out’ rule.
False
81
Whilst the “first in, first out” (FIFO) rule is the default method for attributing withdrawals from a mixed account, there are notable exceptions. What are the 4 exceptions?
Pari Passu Rule:
Rolling Charge Method:
Lowest Intermediate Balance Rule:
Equitable Discretion:
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What is the Pari Passu Rule?
This method treats all funds in the account as proportionally belonging to the contributors. When withdrawals are made, they are taken proportionally from each contributor’s share. This approach is often used when it is deemed fairer to treat all contributors equally.
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What is the Rolling Charge Method:
This method involves a more complex calculation where each withdrawal is attributed proportionally to the funds in the account at the time of the withdrawal. It ensures that each withdrawal reflects the proportionate interests of the contributors at that specific time.
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What is the Lowest Intermediate Balance Rule?
This rule is used in tracing misapplied trust funds. It states that the beneficiary can only claim the lowest balance that the account reached after the misapplication. This prevents the beneficiary from claiming more than what was actually in the account at any given time.
85
What is equitable discretion in relation to the FIFO rule?
Courts may exercise equitable discretion to depart from the FIFO rule if applying it would result in an unjust outcome. This can happen in cases where strict application of the rule would unfairly prejudice one party over another.
86
What is subrogation in trusts?
Subrogation in the context of trusts is a legal principle that allows a party (often a creditor) to step into the shoes of another party (typically the trustee) to claim rights or remedies. Here’s how it generally works:
Trustee’s Right of Indemnity: When a trustee incurs liabilities while acting within their powers for the benefit of the trust, they are entitled to be indemnified out of the trust assets. This means the trustee can use trust assets to cover these liabilities1.
Creditor’s Rights: If a creditor has provided services or goods to the trust and the trustee fails to pay, the creditor can be subrogated to the trustee’s right of indemnity. This allows the creditor to claim against the trust assets directly, as if they were the trustee1.
Equitable Lien: The trustee’s right of indemnity is often secured by an equitable lien over the trust assets. When subrogation occurs, the creditor can also benefit from this lien, giving them a proprietary interest in the trust assets.
87
In circumstances where a trustee uses the proceeds of a breach of trust to purchase an asset, the beneficiary has the choice between claiming equitable ownership of the asset or a lien over the asset.
Equitable Ownership: The beneficiary can claim equitable ownership of the asset. This means the asset is treated as if it was always part of the trust property. The beneficiary can then assert their rights over the asset directly.
Equitable Lien: Alternatively, the beneficiary can choose to have an equitable lien over the asset. This gives the beneficiary a security interest in the asset to the extent of the misapplied funds. If the asset is sold, the beneficiary can claim the proceeds up to the amount of the misapplied funds.
88
True or false: Proprietary claims can be made against any person who receives misapplied trust property.
False. Proprietary claims can only be made against recipients of misapplied trust property who still have the property or its traceable proceeds. If the recipient has dissipated the property or mixed it with other assets in such a way that it cannot be identified, a proprietary claim is not possible. In such cases, the beneficiary may need to pursue a personal claim, such as a claim for knowing receipt, if the recipient had the requisite knowledge of the misapplication.
89
In breach of trust, a trustee misappropriates £15,000 of the trust fund.
The trustee uses £5,000 to purchase shares, £5,000 to purchase a car, and £5,000 to purchase a painting.
The trustee sells the shares and dissipates the proceeds of sale: The purchaser does not have any knowledge of the trust.
The trustee gifts the car to his son: The son does not have any knowledge of the trust.
Which one of the following statements describes the beneficiary’s rights?
The beneficiary can make a proprietary claim to the car and the painting but not to the shares.
Given the scenario, here are the beneficiary’s rights concerning each asset:
Shares: Since the shares were sold and the proceeds dissipated, and the purchaser had no knowledge of the trust, the beneficiary cannot make a proprietary claim against the purchaser. The beneficiary may have a personal claim against the trustee for the value of the shares.
Car: The car was gifted to the trustee’s son, who had no knowledge of the trust. The beneficiary can make a proprietary claim against the car because it is still identifiable and traceable as trust property. The son, as an innocent recipient, holds the car subject to the trust.
Painting: The painting, which was purchased with trust funds, remains in the trustee’s possession. The beneficiary can make a proprietary claim against the painting, asserting their equitable ownership.
Summary:
The beneficiary can make a proprietary claim against the car and the painting.
The beneficiary cannot make a proprietary claim against the shares or their proceeds but may have a personal claim against the trustee for the value of the shares.
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