Introduction to trusts Flashcards
What is a trust?
A trust is an equitable duty relating to property - useful mechanism for dividing ownership and management of property
What are the 2 key components of a trust?
1) the property itself
2) the obligation that the trust creates
Why is property fundamental to a trust?
It is a fundamental proposition of trusts law that there must be ‘identifiable trust property’ - because a trust is an equitable duty over the property
Legal interest
A trustee holds the property on trust for the beneficiary - typically the trustee has a legal interest in the trust property
Trustee rights
As the trustee holds the legal interest, they are the legal owners. This gives the trustee all of the legal rights over the property
Equitable interest
The beneficiary holds the equitable interest - this is a right to the property. They are essentially the true owner
What can be held on trust?
The scope of trusts recognised in equity is unlimited - can be chattels or a chose in action
What is a chose in action?
An intangible right - such as a debt or company shares
What is a chattel?
A tangible item - cars, jewellery etc. Does NOT include land
When would a trust cease to exist?
A trust ceases to exist if, without any fault of the trustee, the property is destroyed or consumed
Is it common for the trust property to change over time?
Yes - the trust property may fluctuate over time
Selling the trust property
This does not ‘destroy’ the trust - it simply changes the trust assets
Changes to the trust property where the trustee IS at fault
When the trustee is at fault they are personally liable to restore the trust property using their own funds
Trustee duties
The trustee owes an equitable obligation to the beneficiary. Equity places duties on the trustee which restricts them
What are the trust objects
A trust must have a beneficiary or be for a permitted purpose - the beneficiaries or purposes of a trust are known as the ‘trust objects’
The role of a trustee
Is voluntary and typically unpaid - however professional trustees are entitled to renumeration
What is a purpose trust?
A trust for the promotion or realisation of a purpose - in other words, a trust without a beneficiary
What are the most typical permitted purpose trusts?
Charitable purposes are the principal category of permitted purpose trusts
Can a trustee also be a beneficiary?
A trustee can never make use of trust property for their own benefit - however a trustee can be one of the beneficiaries of a trust, but they still owe the other beneficiaries a duty
Key case: Customs and Exercise commissioners v Richmond Theatre Management Ltd 1995
Facts - Theatre sold tickets and said they would hold the money on trust
Held - The theatre company was not a trustee, its ability to freely use the money for its own purpose was incompatible with a trust
Key case: Re Bond Worth 1980
The ability for company to use fibres in its manufacturing process was inconsistent with the company holding fibres on trust for the unpaid sellers
