Intro to trusts Flashcards
What is a trust?
An equitable duty relating to property to hold or apply the trust property for the benefit of the beneficiary
A trust is fundamentally about managing property for another’s benefit.
Who is a trustee?
A person subject to the duty, usually the legal owner of the trust property
The trustee has a fiduciary responsibility to manage the trust according to its terms.
What determines the function and duty of a trustee?
The nature of the trust
Who is a beneficiary?
A person to whom the duty is owed, having an equitable proprietary interest in the property
Beneficiaries are entitled to benefit from the trust property as defined in the trust document.
What is a chose in action?
A right which can be held on trust
What are important attributes of trusts?
- Separation of powers
- Different rights to different Bs
- Versatility
What is a listed security?
Type of trust
- Legal ownership requires registration in an electronic register - CREST
- Securities are registered in the names of CREST members (banks)
- Members are legal owners but they generally acquire on trust for clients
What types of property can be considered as trust property?
Property can be tangible items (chattels or land) or rights (choses in action).
What happens if trust property is destroyed or consumed without fault of the trustee?
A trust ceases to exist if, without any fault on the part of the trustee, the trust property is destroyed or consumed.
What is the liability of a trustee if they are at fault for the destruction of trust property?
If the trustee was at fault, they will be personally liable to restore the trust property.
What must a trustee do if they cannot restore the trust property?
They will need to pay compensation and this will become subject to the trust.
What is the basic duty of a trustee?
The basic duty of a trustee is to hold or apply trust property for the benefit of the beneficiary.
Can a person be a trustee of property they have the absolute right to use for their own benefit?
No, a person cannot be a trustee of property which they have the absolute right to use for their own benefit.
Can a trustee also be a beneficiary of the trust?
A trustee can still be one of the beneficiaries of the trust but cannot be the only beneficiary (Customs and Excise Commissioners v Richmond Theatre Management Ltd [1995]).
What is the limited exception regarding trustees and beneficiaries in Re Lehman Brothers International (Europe)?
In Re Lehman Brothers International (Europe) (in administration) [2009], a broker’s ability to sell trust securities for its own profit was not inconsistent with a trust as the broker had a duty to replace any sold securities with identical ones.
What must a trust have to be valid?
A trust must have a beneficiary or be for a specific purpose: trust objects.
What is a purpose trust?
A purpose trust is a trust for the promotion or realization of a purpose, only possible for a permitted purpose such as charitable trusts or a limited number of non-charitable purpose trusts.
What type of rights do beneficiaries have?
Beneficiaries have equitable proprietary rights that are enforceable against third parties and protected against the insolvency of the trustee.
How does bankruptcy affect trust property?
Property does not form part of the trustee’s estate for the purposes of bankruptcy and insolvency, and beneficiaries enjoy ‘priority’.
Can equitable rights be enforced against a purchaser who has no notice of the trust?
Equitable rights cannot be enforced against a purchaser (not a donee) of a legal interest who does not have notice of the trust (Westdeutsche, Akers).
How do trusts differ from contracts?
Trusts are creations of equity rather than common law, there is no requirement for agreement between the parties, there are only one-way obligations and trustees can be replaced if they are unwilling to act.
What distinguishes debts from trusts?
A debt does not relate to specific assets or funds; a creditor cannot compel the debtor to apply any specific asset or fund to their benefit; a creditor has a personal rather than equitable proprietary right to payment.
How do charges differ from trusts?
Both beneficiaries and charges have a proprietary interest in trust property/charged property but unlike a trustee, a chargor can use charged property for their own benefit.
What is the difference between agency and trusts?
Both agents and trustees are subject to fiduciary duties but trustees cannot commit a beneficiary to contract with a third party.
