TL Flashcards
1
Q
Which of the following statements about the certainty of intention is true?
* (A) The settlor’s intention must be shown in
writing.
* (B) The settlor must have the intention whilst they own the intended trust property.
* (C) The settlor must use language like “hope” or
“wish” to express their intention.
O (D) The settlor must intend that the trust take effect at some point in the future.
A
B
The settlor must have the intention to create the trust whilst they own the intended trust property. The settlor’s intention may be shown in writing or by their words or conduct. The settlor should not use language like “hope” or “trust” to show their intention, because precatory wording does not show an intention to impose a binding obligation on a trustee. The settlor must intend that the trust take effect immediately–not at some point in the future.
2
Q
Which of the following descriptions of property shows a certainty of subject matter?
* (A) “‘The bulk of my property!”
* (B) “The painting which I expect to inherit from
my mother.”
* (C) “One of my houses in London.”
O (D) “25% of my shares in XYZ Ltd.”
A
D
A description of a fractional share of an intangible asset like company shares shows a certainty of subject matter. Descriptions like “the bulk of my property” and “one of my houses in London” are not sufficiently certain. There is no certainty of subject matter in an interest that the settlor does not yet have, such as the expectation of inheriting under a will.
3
Q
Introduction to Trust
A
Certainty of Intention: The settlor must clearly intend to create a trust, demonstrated through written or spoken words or conduct. The use of precatory language, such as “hope” or “wish,” is not sufficient to establish a trust. The intention must be to create a trust at the time the settlor owns the property.
Certainty of Subject Matter: The trust property must be clearly defined. For intangible assets like shares, fractional shares can be the subject of a trust, but for tangible assets, the specific portion must be physically segregated. Future assets or expectations, like an inheritance, cannot be the subject of a trust. The beneficial interests of the beneficiaries must also be clear.
Certainty of Objects: The beneficiaries of the trust must be sufficiently defined. For fixed trusts, where the trustee has no discretion over the distribution, a “Complete List Test” is applied, requiring a complete list of beneficiaries to be identifiable. For discretionary trusts, where trustees have discretion over the distribution, the “Given Postulant Test” is applied, requiring that it must be possible to determine whether any given individual is a member of the class of beneficiaries.
If any of these certainties are missing, the trust will not be valid. In such cases, the law may imply a resulting trust in favor of the settlor or the settlor’s estate, meaning the property reverts to the settlor or their successors.
4
Q
- What is a trust and what does it entail?
A
Answer: A trust is a legal relationship where a trustee holds specific property for the benefit of others, known as beneficiaries. It involves a fiduciary duty where the trustee must act in good faith and manage the assets for the beneficiaries’ benefit.
5
Q
- What are the two main categories of trusts?
A
Answer: The two main categories of trusts are express trusts and implied trusts.
6
Q
- Could you provide an example of an express private trust?
A
Answer: An example of an express private trust is when a settlor clearly states their intention to establish a trust during their lifetime or through their will.
7
Q
- What are the three certainties required for a valid express private trust?
A
Answer: The three certainties are:
Certainty of intention
Certainty of subject matter
Certainty of objects
8
Q
- What is precatory wording and why is it problematic in trust creation?
A
Answer: Precatory wording refers to words indicating a hope, wish, or suggestion by the settlor regarding the trust property. It is problematic because it lacks the clarity required for certainty of intention in trust creation.
8
Q
- What does certainty of intention entail?
A
Answer: Certainty of intention means the settlor must clearly indicate their intention to create the trust, typically before transferring the intended trust property to the trustee.
9
Q
- Explain certainty of subject matter and provide an example of its significance.
A
Answer: Certainty of subject matter requires a clear description of the property subject to the trust. For instance, in a trust relating to land, the land should be clearly identified to avoid the trust’s failure.
10
Q
- What is the Complete List Test and when is it applied?
A
Answer: The Complete List Test is applied in fixed trusts to determine certainty of objects. It requires the ability to produce a complete list of each and every beneficiary. If this cannot be done, the trust will fail.
11
Q
- How does certainty of objects differ between fixed and discretionary trusts?
A
Answer: For fixed trusts, both conceptual and evidential certainty of objects is required, whereas for discretionary trusts, conceptual certainty is necessary, but evidential uncertainty will not cause the trust to fail.
12
Q
- What is the beneficiary principle, and why is it significant in trust law?
A
Answer: The beneficiary principle states that a trust must have ascertainable human beneficiaries who can enforce the trust. This principle is significant because trusts for purposes rather than specific people will fail.
13
Q
Let’s make sure you heard these rules correctly. What is the minimum and maximum number of trustees a trust may have?
* (A) 2-4
O (B) 2-6
* (C)1-5
* (D) 1-4
* (E) any number
A
(E) is correct: any number. It is only a trust of land which must have between two and four trustees.
14
Q
A trust of land must have
O (A) 2-4; must be in writing
O (B) 2-6; may be oral or in writing
O (C) 1-5; must be in writing
* (D) 1-4; may be oral or in writing
A
(A) is correct. A trust of land must have 2-4 trustees and must be in writing.
15
Q
True or false?
The fortuitous vesting rule (also known as the rule in Strong v Bird) applies when a trustee dies before the trust is properly constituted and the settlor becomes the trustee’s personal representative.
* (A) True
* (B) False
A
It’s false. The fortuitous vesting rule applies when a settlor (not a trustee) dies before the trust is properly constituted and the intended trustee becomes the settlor’s personal representative. The intended trust property then passes to the trustee, and the trust is considered validly constituted.
16
Q
Is the following trust valid? Why or why not?
Rose transfers her shares to Leah, and Rose tells Leah that she hopes Leah will hold them on trust for Rose’s relatives.
A
The trust may not be valid because Rose’s statement of hope does not constitute a definitive trust obligation, lacking the necessary certainty of intention to create a trust.
17
Q
SECRET TRUSTS
A
SECRET TRUSTS
Beneficiary must prove terms of trust by clear and convincing evidence
* Timing of communication to trustee irrelevant
* Trust fails if trustee fails to accept it or did not know about it until after settlor’s death
18
Q
FIXED TRUSTS
A
FIXED TRUSTS
Specific interest of each beneficiary clearly defined
19
Q
Choose whether each statement describes a secret trust
(A) or a half secret trust (B) by writing the correct letter next to each statement.
1. The trust is not revealed in the will. fill in blank
2. The beneficiary’s identity is communicated to the trustee at the time of or before the making of the will. fill in blank
3. The trust is declared in the will, but the beneficiary is not identified. fill in blank
4. The timing of the communication to the trustee is irrelevant to the validity of the trust. fill in blank
A
A
B
B
A
20
Q
VESTED INTEREST
A
VESTED INTEREST
No conditions attached to interest
21
Q
CONTINGENT INTEREST
A
CONTINGENT INTEREST
Condition attached to interest
22
Q
LIMITED INTEREST and ABSOLUTE INTEREST
A
LIMITED INTEREST
No right to trust capital
ABSOLUTE INTEREST
Right to capital and income
23
Q
Match each type of interest with its description by typing the corresponding letter next to each statement.
A - Absolute interest
B - Contingent interest
C - Limited interest
D - Vested interest
- The interest has no conditions attached.
- The interest has conditions attached.
- The interest does not include the right to the capital of the trust.
- The interest includes the right to the capital of the trust.
A
1.D
2.B
3.C
4.A
24
MIXED TRUST
MIXED TRUST
Includes fixed and discretionary aspects
25
RULE IN SAUNDERS V
VAUTIER
RULE IN SAUNDERS V
VAUTIER
Beneficiaries can terminate trust if they
* Together have absolute interest
* Are adults and of sound mind
26
Question 1: What are implied trusts, and how do they differ from express trusts?
Answer: Implied trusts arise without an expressed intention from the settlor to create a trust, but equity law implies a trust to achieve a fair outcome. This is different from express trusts, where the settlor explicitly states an intention to create a trust.
27
Match each situation with the types of interest it contains, by typing the corresponding letter of the situation next to the interest type. Note that both situations could contain the same type of interest, in which case you should type both letters together with no spaces.
(A) Tony's will leaves £50,000 on trust for each of his three children upon them reaching the age of 21.
(B) Tony's will leaves £500,000 on trust for his wife, Natasha, for life, and thereafter to his three children in equal shares.
1. Contingent interest
2. Vested interest
3. Limited interest
4. Absolute interest
5. Interest under a fixed trust
A
B
B
AB
AB
28
Question 2: What is a resulting trust, and under what circumstances can it arise?
Answer: A resulting trust is implied by law based on the presumed intention of the settlor in situations where no explicit intention to create a trust has been stated. It can arise in two main situations: (1) following a voluntary transfer of property or when property is purchased in the name of another person, and (2) upon the failure to exhaust the beneficial interest under an express trust.
29
Question 3: Can you provide an example of a resulting trust arising from a voluntary transfer?
Answer: Yes. If a person transfers their house to a friend without any explicit compensation or explanation for the transfer, equity will presume the transferor did not intend to make a gift. The friend is presumed to hold the house on a resulting trust for the transferor, who can request the property back.
30
Question 4: How do purchase money resulting trusts work?
Answer: Purchase money resulting trusts arise when property is bought in one person's name but the purchase price is entirely or partially paid by another. Equity implies a resulting trust where the person who contributed to the purchase price is considered to have an equitable interest proportional to their contribution.
31
Question 5: What are the criteria for a purchase money resulting trust to arise?
Answer: For a purchase money resulting trust to arise, the contributed sum must
be used to purchase the property, the contribution must occur at or before the title transfer, and the claimant must provide clear evidence of their contribution towards the purchase price.
32
Question 6: What is the presumption of
advancement, and when does it apply?
Answer: The presumption of advancement occurs when equity presumes a gift was intended in certain relationships, such as between husbands and wives, fathers and children, or persons in loco parentis and their wards. This presumption can override the presumption of a resulting trust unless clear evidence to the contrary is provided.
33
Example Question: Suppose Alex transfers a piece of property to their friend Jamie without any stated reason or compensation. How might equity law interpret this transfer?
Answer: Equity law might presume a resulting trust, assuming Alex did not intend to make a gift to Jamie. Therefore, Jamie would be considered to hold the property on trust for Alex, who retains an equitable interest and can request the property back, unless Jamie can provide evidence to rebut this presumption, such as showing that a gift was indeed intended.
34
Alice purchases a house for her friend Brian. She provides all the purchase money, but the legal title is in Brian's name only. What is generally presumed?
O (A) Alice holds the legal title of the house on
resulting trust for Brian.
* (B) Brian holds the legal title of the house on resulting trust for Alice.
* (C) Alice's purchase of the house was a gift to
Brian.
* (D) Brian owes repayment of the purchase
money to Alice.
(B) is correct. When a person provides the purchase money for property, but the legal title is transferred to another person, the general presumption is that the other person holds the legal title on resulting trust for the purchaser.
35
RELATIONSHIPS THAT
TRIGGER PRESUMPTION OF ADVANCEMENT
RELATIONSHIPS THAT
TRIGGER PRESUMPTION OF ADVANCEMENT
* Husband/fiancé to wife/fiancée
* Father to child
. Person in loco parentis to
recipient
36
True or false?
When the presumption of advancement applies, it is presumed that the person who provided the purchase money or made the voluntary transfer intended for the other person to hold the property on resulting trust.
* (A) True
O (B) False
False. When the presumption of advancement applies, it is presumed that the person who provided the purchase money or made the voluntary transfer intended to make a gift to the other person.
37
EVIDENCE TO REBUT
PRESUMPTIONS
EVIDENCE TO REBUT
PRESUMPTIONS
* Surrounding circumstances
* Acts or declarations made before or at time of transfer
37
Jas gives a rental property to his friend lan.
2. Jas gives his daughter, Simran, £50,000 towards the purchase of a house. The house is purchased in Simran's name only.
3. Jas tells lan to hold shares on trust for Nisha, provided Nisha reaches the age of 25. Nisha dies at age 23.
1. Will a resulting trust arise in the following situation?
Jas gives a rental property to his friend Ian.
2. Will a resulting trust arise in the following situation?
Jas gives his daughter, Simran, £50,000 towards the purchase of a house. The house is purchased in Simran's name only.
3. Jas tells Ian to hold shares on trust for Nisha, provided Nisha reaches the age of 25. Nisha dies at age 23.
1. Yes, a resulting trust is likely to arise in the situation where Jas gives a rental property to his friend Ian. Since there's no explicit compensation or explanation for the transfer, equity law would presume Jas did not intend to make a gift to Ian. Ian is presumed to hold the property on a resulting trust for Jas, who retains an equitable interest in the property and can request its return, unless Ian can provide evidence to rebut this presumption, such as proving that a gift was indeed intended.
2. In the situation where Jas gives his daughter, Simran, £50,000 towards the purchase of a house, and the house is purchased in Simran's name only, the presumption of advancement is likely to apply rather than a resulting trust. The presumption of advancement applies when a parent, particularly a father, makes a transfer to his child. It presumes that the transfer was intended as a gift. Therefore, it is presumed that Jas intended the £50,000 as a gift to Simran for the house purchase, and a resulting trust is not presumed to arise in this case. Jas would need to provide clear evidence to the contrary to overcome the presumption of advancement and argue for a resulting trust.
3. In the situation where Jas instructs Ian to hold shares on trust for Nisha, contingent upon Nisha reaching the age of 25, and Nisha dies at age 23, a resulting trust is likely to arise due to the failure of the contingent interest. Since Nisha did not meet the condition of reaching the age of 25, the express trust for her benefit fails. As a result, the shares would be held on a resulting trust for Jas, the settlor, and Ian, as the trustee, would be obliged to return the shares to Jas or his estate if Jas has passed away. This is because the specific condition attached to the trust was not fulfilled, and equity law dictates that the property reverts to the settlor or the settlor's estate in such cases.
38
1. True or false?
If legal title is registered in the name of both parties but there is no express declaration of trust, it is presumed that the parties' equitable interests are joint and equal.
* (A) True
O (B) False
True. If legal title is registered in the name of both parties but there is no express declaration of trust, it is presumed that the equitable interests in the property, like the legal interests, are joint and equal.
39
2. True or false?
If legal title is registered in the name of both parties and there is an express declaration of trust, it is presumed that the parties' equitable interests are joint and equal regardless of the declaration.
O (A) True
* (B) False
False.
It's false. If legal title is registered in the name of both parties and there is an express declaration of trust, the declaration is conclusive as to the parties' equitable interests.
40
Which of the following statements about an express common intention constructive trust is false?
* (A) The claimant must show a common
intention and a reliance to the claimant's detriment on the intention.
* (B) There must have been actual discussions
between the parties that led the claimant to believe in the intention.
* (C) The parties' intention must be in writing.
O (D) The intention must relate to the parties'
ownership of the land.
The parties' express common intention does not have to be in writing. The claimant must show that there were actual discussions between the parties which led the claimant to believe in the intention. The intention must be related to ownership of the land, not merely sharing a home or a life together.
41
Question 1: How does trusts law apply to unmarried couples in disputes over the ownership of a family home?
Answer: For unmarried couples, principles of trusts law are central to deciding how ownership of the home is shared when relationships break down. This differs from married couples or those in civil partnerships, where family law determines the outcome.
42
Question 2: What is the significance of legal title being held in joint names for unmarried couples?
Answer: When legal title is held in joint names, the owners are presumed to hold the legal title as joint tenants, meaning they own the property equally with the right of survivorship. However, their equitable interest can be held as either joint tenants or tenants in common, which affects their shares in the property.
42
Question 3: How is the equitable interest determined when the property is held in joint names?
Answer: The equitable interest is determined by an express declaration of trust, typically contained in the property transfer form. This declaration states whether the equitable interest is held as tenants in common or as joint tenants and specifies the share each owner has in the property.
43
Question 4: What happens if there is joint legal ownership but no express declaration of trust?
Answer: In the absence of an express declaration of trust, it's presumed that the equitable interest is held as a joint tenancy, reflecting the legal ownership. This presumption can be rebutted by proving a shared intention that the equitable interest should be held differently, such as a tenancy in common.
44
Question 5: How can a shared intention that equitable interests are held in unequal shares be proved?
Answer: A shared intention can be proved by examining the arrangements and conduct between the parties, including the purpose of the property purchase, the nature of their relationship, their financial management, and how property-related expenses are handled.
45
Question 7: What are the requirements for a claim based on proprietary estoppel?
Answer: Proprietary estoppel requires three elements: an assurance that led the claimant to believe they have rights to the property, reliance on this assurance by the claimant, and detriment incurred by the claimant due to this reliance.
45
Question 6: What is the approach when legal title is held in one person's name only?
Answer: The starting point is to check for an express declaration of trust. If there's no express declaration, the party seeking to claim an equitable interest might rely on proprietary estoppel or establish the presence of a common intention constructive trust.
46
Example Question: Suppose Rob and Sue, an unmarried couple, break up and dispute ownership of their jointly owned home. If they contributed unevenly to the purchase price but have an express declaration stating they hold as tenants in common with equal shares, how will their shares be determined?
Answer: Despite their uneven contributions to the purchase price, the express declaration that they hold as tenants in common with equal shares is conclusive. Therefore, if the property is sold, the proceeds will be split equally between Rob and Sue, according to the terms of the express declaration.
47
Consider the following scenario. Is the statement true or false?
Trisha and Barrett are in a relationship and buy a house together in joint names, with Trisha paying 40% and Barrett paying 60% of the purchase price. The transfer states that they are joint tenants. Trisha has a 40% share in the property.
O (A) True
* (B) False
False
48
REQUIREMENTS FOR CHARITABLE TRUST
REQUIREMENTS FOR CHARITABLE TRUST
Charitable purpose
* Public benefit
* Exclusively charitable
49
Consider the following scenario. Is the statement true or false?
James and David are in a relationship and bought a house in David's name only, with David paying the full purcahse price.
James repaints the lounge. This is likely to give James an interest under a constructive trust.
O (A) True
* (B) False
False
50
Question 1: What distinguishes charitable trusts from non-charitable purpose trusts?
Answer: Charitable trusts differ from non-charitable purpose trusts in three main ways: they do not require ascertainable human beneficiaries, the cy-pres doctrine can apply allowing trust property to be used for a related charitable purpose if the original purpose fails, and they are not subject to the rules against perpetuities, meaning they can continue indefinitely.
Example: A trust established to support the advancement of education for underprivileged children is a charitable trust that benefits society and enjoys tax benefits, whereas a trust established to maintain a private garden for an indefinite period is a non-charitable purpose trust and generally not valid due to the beneficiary principle.
51
Question 2: What are the requirements for a trust to be recognized as a charitable trust?
Answer: A charitable trust must fulfill three requirements: the trust's purpose must fall within one of the defined charitable purposes listed in the Charities Act 2011, it must meet the public benefit requirement, and it must be exclusively charitable.
Example: A trust set up to provide scholarships for students studying environmental science falls within the charitable purpose of the advancement of education and meets the public benefit requirement, thus can be recognized as a charitable trust.
52
Question 3: How does the cy-pres doctrine apply to charitable trusts?
Answer: The cy-pres doctrine applies to charitable trusts when the original charitable purpose becomes impossible or impractical to fulfill. It allows the trust property to be redirected to a similar charitable purpose, ensuring the settlor's charitable intentions are still honored.
Example: If a charitable trust was originally set up to benefit a specific animal shelter that later closes down, the cy-pres doctrine could allow the funds to be redirected to another animal welfare charity.
53
Question 4: What is a Denley trust, and when is it considered valid?
Answer: A Denley trust is a form of non-charitable purpose trust that is considered valid because it benefits a sufficiently identifiable group of people who can enforce the trust, even though it's set up for a purpose.
Example: A trust established to maintain a recreational park for the employees of a company is a Denley trust because the employees can enforce the trust, making it valid despite being for a non-charitable purpose.
53
Question 5: What are honorary trusts, and what are their limitations?
Answer: Honorary trusts are non-charitable purpose trusts established for purposes like the maintenance of specific animals or graves. They rely on the honor of the trustee to fulfill the trust's purpose but have enforceability issues and are subject to strict perpetuity rules.
Example: A trust set up to care for a pet dog for 21 years is an honorary trust. It's valid due to the limited time frame, but if the trustee chooses not to fulfill the trust's purpose, enforcement can be challenging since the trust lacks human beneficiaries.
54
To use the cy-pres doctrine, the court must find that the settlor had a
charitable intention when there is
of the charitable gift.
* (A) Specific; an initial failure
* (B) General; an initial failure
O (C) Specific; a subsequent failure O (D) General; a subsequent failure
B
To use the cy-près doctrine, the court must find that the settlor had a general charitable intention when there is an initial failure of the charitable gift. If there is a subsequent failure of the gift, the court may apply the funds cy-près without any requirement to show the settlor's general charitable intention.
55
TYPES OF HONORARY
TRUSTS
TYPES OF HONORARY
TRUSTS
Maintenance of animals
* Saying of private masses
* Maintenance of graves
56
PERPETUITY PeRIOD
PERPETUITY PeRIOD
* 21 years
* Human life in being plus 21 years
57
Existing trustees may appoint additional trustees, but they cannot increase the number of trustees to more than
* (A) Three
* (B) Four
O (C) Five
O (D) Six
C
58
Question 1: How are trustees initially appointed, and under what conditions can they refuse their appointment?
Answer: Trustees are usually appointed by the settlor in the trust document that establishes the trust, but the court can also appoint trustees if needed. A trustee must be aware of their appointment and accept it; there is no obligation to accept trusteeship, and an intended trustee can refuse the appointment for any reason. They cannot partially accept their appointment.
Example: If a trust document names Anna, Ben, and Charlie as trustees, and Charlie does not wish to serve, he can refuse the role, leaving only Anna and Ben as the initial trustees.
58
Question 3: What are the conditions under which beneficiaries can influence the appointment of trustees?
Answer: Beneficiaries can influence trustee appointments if the trust document does not nominate someone else for this role, all beneficiaries are over 18 and of sound mind, they have absolute interests in the trust property, and they agree unanimously.
Example: If a trust has two adult beneficiaries with absolute interests who agree unanimously, they can instruct the trustees to appoint a new trustee of their choosing, replacing an existing one.
59
Question 4: Under what circumstances can a trustee retire, and what conditions must be met for a trustee's retirement?
Answer: A trustee can retire with the consent of their fellow trustees and any person entitled to appoint new trustees as per the trust document. The retirement must be formalized by a deed, and at least two trustees or a trust corporation must remain in office after the retirement.
Example: Trustee Fiona wishes to retire, and with the consent of the remaining trustees and as per the trust document, she retires through a deed. Her retirement leaves at least two trustees in charge of the trust.
59
Question 2: What is the process for appointing additional or replacement trustees?
Answer: Additional trustees can be appointed if expressly allowed by the trust document or, in its absence, by existing trustees following statutory rules. Replacement trustees can be appointed when a trustee dies, refuses to act, is unfit, or is incapable. The hierarchy for appointing a replacement starts with the trust document, followed by the continuing trustees, then the personal representatives of the last surviving trustee, and finally, the court.
Example: If a trustee named Daniel dies, the remaining trustees can appoint Eva as a replacement, assuming the trust document does not designate someone else for this role.
60
Question 5: What are the key fiduciary duties of trustees regarding profit from their role?
Answer: Trustees must not profit from their trusteeship. This includes not profiting from directors' fees, information, opportunities gained through trusteeship, or by charging for their work unless expressly allowed by the trust document, agreed upon by co-trustees or beneficiaries, or authorized by the court.
Example: Trustee George, who is a professional accountant, cannot charge for his services unless there is a charging clause in the trust document, all co-trustees agree, or all beneficiaries consent.
61
WHEN BENEFICIARIES CAN
APPOINT TRUSTEES
WHEN BENEFICIARIES CAN
APPOINT TRUSTEES
*
*
No one nominated in trust document
Beneficiaries
- Are of full age
- Have capacity
- Are absolutely entitled
- Agree unanimously
62
Beneficiaries have the power to select trustees under certain circumstances. Which of the following statements about this power is true?
* (A) The beneficiaries must act unanimously.
* (B) The person nominated in the trust
instrument to appoint new trustees must consent.
* (C) The beneficiaries must obtain court
approval.
* (D) The power must be used only when a trustee has died or is unfit to act.
A
The beneficiaries have the power to select trustees when: (1) there is no person nominated in the trust instrument to appoint new trustees; (2) the beneficiaries are of full age and capacity and are absolutely entitled to the trust property; and (3) the beneficiaries act unanimously. The beneficiaries do not need court approval, and they can use the power at any time.
63
True or false?
It is possible for the four trustees of a trust to appoint a fifth trustee.
* (A) True
* (B) False
False
64
True or false?
When one trustee decides to step down, the remaining three trustees are under no obligation to appoint a replacement trustee.
* (A) True
* (B) False
True
65
True or false?
Ben and John, aged 17 and 19, are beneficiaries with trust interests that are contingent upon them reaching the age of 21.
They can appoint new trustees.
* (A) True
O (B) False
False
66
True or false?
A trustee can be removed only with their consent.
* (A) True
O (B) False
False
67
True or false?
in general, trustees must make decisions unanimously.
O (A) True
* (B) False
True
Trustees must make decisions unanimously unless the trust deed or the court authorises a majority decision.
68
Question 1: What is the self-dealing rule in the context of trustees, and what are the consequences of breaching it?
Answer: The self-dealing rule is a fiduciary duty that prohibits trustees from purchasing trust property, regardless of whether they pay full market value and act in good faith. If breached, the transaction is voidable at the beneficiaries' request.
Example: If trustee Alex buys a piece of art from the trust, even at its full market value and with good intentions, this action breaches the self-dealing rule. The beneficiaries can demand the transaction be set aside, returning the art to the trust and refunding Alex.
69
Question 2: How can trustees be appointed, and what are the conditions for their retirement?
Answer: Trustees are usually appointed by the settlor in the trust document or by the court if necessary. They must be aware of and accept the appointment. Trustees can retire with the consent of fellow trustees and any designated appointer in the trust document, ensuring at least two trustees remain.
Example: If trustees Clara and Daniel want to appoint Emma as an additional trustee, they can do so if the trust document allows it or following statutory rules. If Clara wants to retire, she needs Daniel and Emma's consent and must ensure at least two trustees remain.
70
Question 4: What are the key duties of trustees in managing the trust?
Answer: Trustees' duties include ensuring appropriate handling of trust property, observing the terms of the trust, exercising a duty of care, acting jointly and personally, taking possession of trust property, keeping accounts, acting impartially, maintaining confidentiality, and investing the trust funds properly.
Example: If trustees Jack and Kelly invest in a diverse portfolio following the terms of the trust and advice from a financial expert, they are fulfilling their duties of care and investment. If they fail to keep accounts or act impartially between beneficiaries, they breach their duties.
70
User
What are the two standard investment criteria?
(1) The suitability of the trust to the type of investment proposed and the particular investment under consideration.
(2) The need for diversification of investments of the trust so far as appropriate to the particular circumstances of that trust.
70
Question 3: Under what circumstances can beneficiaries influence the appointment of trustees?
Answer: Beneficiaries can influence the appointment of trustees if the trust does not nominate someone else for this role, all beneficiaries are adults with mental capacity, have absolute interests in the trust, and agree unanimously.
Example: If a trust has adult beneficiaries George and Hannah with absolute interests who agree, they can instruct the trustees to appoint a new trustee, Ian, replacing an existing trustee, provided no one else is nominated in the trust document for appointments.
71
Question 5: What are the requirements and limitations for trustees investing trust funds?
Answer: Trustees must invest trust funds in authorized investments, considering the suitability of the investment and the need for diversification. They must seek proper advice unless deemed unnecessary and keep investments under review. Trustees are allowed to delegate investment decisions but must follow a written policy statement.
Example: If trustee Lucy invests the trust's funds solely in high-risk stocks without diversification or proper advice, she breaches her investment duty. However, if she diversifies the portfolio across stocks, bonds, and real estate after consulting a financial advisor, she adheres to her duties.
72
Match each situation with the duty that has been breached, by typing the corresponding letter of the duty next to the scenario.
A - Duty to act personally
B - Rule against self-dealing
C - Duty not to profit from trusteeship
D - Duty to invest
1. Paul, a trustee, buys shares held by the trust.
2. Clare, a trustee, leaves all investment decisions to the other trustees.
3. Janette, a trustee, sells shares and leaves the proceeds sitting in a low interest bank account for two years.
4. Ash pays himself £80,000 for acting as trustee for one year.
B
A
D
C
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Does the power of maintenance relate to the trust income or capital?
* (A) Income
* (B) Capital
(A) is correct. The power of maintenance relates only to the trust income.
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When the power of maintenance applies, the trustees can use the income for a beneficiary's maintenance, education, or fill in blank as the trustees see fit.
Fill in the blank from one of the following choices:
Home
Children
Health
Benefit
Benefit
When the power of maintenance applies, the trustees can use their income for a beneficiary's maintenance, education, or benefit as the trustees see fit.
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Question 1: What are the powers of maintenance and advancement, and when can they be used by trustees?
Answer: The powers of maintenance and advancement allow trustees to make early use of trust income and capital for the benefit of beneficiaries in certain situations. The power of maintenance applies only to minors and can be used for their maintenance, education, or benefit using the trust's income. The power of advancement enables trustees to advance or release trust capital to a beneficiary who has an interest in the capital, regardless of their age.
Example: If a trust is set up for a child named Max, who is 10 years old, with the provision that he receives the trust property when he turns 21, trustees can use the power of maintenance to support Max's education before he turns 18 and can advance a portion of the trust's capital for Max's university education when he is 19.
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Question 2: What are the conditions and limitations associated with the power of maintenance?
Answer: The power of maintenance is discretionary and applies only to minors who have an interest in the income of the trust. Any unused income should be accumulated within the trust. The power ends when the beneficiary turns 18, at which point they may have a right to the income, depending on their interest in the trust.
Example: If a trust generates yearly income from investments, and the beneficiary, Sarah, is 15 years old, trustees can use this income to pay for Sarah's school fees. When Sarah turns 18, she may become entitled to receive the trust income directly, depending on the terms of the trust.
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Question 3: Under what conditions does the power of advancement apply, and what are its provisos?
Answer: The power of advancement applies when a beneficiary has an interest in the trust capital. It's discretionary and can be used regardless of the beneficiary's age. Key provisos include not advancing more than the beneficiary's presumed entitlement, considering any prior interests, and the need for written consent from beneficiaries with a prior interest if the advance might prejudice them.
Example: In a trust where Liam is to receive half the trust capital at age 25, trustees can decide to advance some of this capital at age 20 to help Liam start a business. However, they must ensure the advance does not exceed half the trust's capital, and if there's a life tenant with a prior interest, their written consent might be needed.
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RULES FOR POWER OF ADVANCEMENT
RULES FOR POWER OF ADVANCEMENT
* Amount must not exceed entitlement
* Advances must be factored into final distribution
* Consent of person with prior interest required
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Question 4: How can beneficiaries control or influence trustees?
Answer: Beneficiaries can compel trustees to fulfill their duties through court action if duties are not carried out. They cannot usually control how trustees exercise their discretion unless the decision is irrational or gives rise to a legitimate expectation. Beneficiaries also have the right to inspect trust documents and can appoint new trustees or end the trust if all are of age, have capacity, are absolutely entitled, and agree unanimously.
Example: If the trustees of a trust fail to invest trust funds appropriately, resulting in minimal income, the beneficiaries, if they are adults and absolutely entitled, can collectively decide to replace the trustees with others who might manage the trust more effectively.
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1. Does the power of advancement relate to the trust income or capital?
* (A) Income
* (B) Capital
Capital. The power of advancement relates only to trust capital.
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True or false? The trustees may advance any amount up to and including the whole of the beneficiary's vested or presumptive entitlement.
* (A) True
* (B) False
The answer is true. The trustees have the discretionary power to advance trust capital to the beneficiary up to and including the whole of the beneficiary's vested or presumptive entitlement.
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REQUIREMENTS TO APPOINT TRUSTEES OR END TRUST
REQUIREMENTS TO APPOINT TRUSTEES OR END TRUST
* Over 18
* Have capacity
* Absolutely entitled to entire equitable interest
Unanimous agreement
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Answer the question based on the below scenarios:
1. A trust to Leanne for life (currently aged 15) with remainder to Helen (currently aged 20).
2. A trust to Yvonne (aged 15) and Rahisha (aged 12) equally, provided they reach the age of 21.
Can the trustees use the power of maintenance and the power of advancement in relation to Leanne, Helen, Yvonne, and Rashida?
Leanne:
- **Power of Maintenance:** Cannot initially be used for Leanne's benefit since her life interest in the trust grants her the right to the trust income, not its capital, during her lifetime. The power of maintenance typically applies to minors for their maintenance and education from the trust's income, but in this case, Leanne herself has the life interest.
- **Power of Advancement:** Cannot be used for Leanne because her interest is in the income of the trust (life interest) and not in the capital of the trust.
Helen:
- **Power of Maintenance:** Does not apply to Helen since she is not a minor and the power of maintenance typically applies only to beneficiaries who are minors.
- **Power of Advancement:** Can potentially be used for Helen's benefit since she has an interest in the capital of the trust (remainder interest after Leanne's life interest ends). However, her consent might be needed for any advancement if it could potentially prejudice Leanne's life interest.
Yvonne and Rahisha:
- **Power of Maintenance:** Can be used for both Yvonne and Rahisha as they are both minors. Trustees can apply the trust income for their maintenance, education, or benefit before they reach the age of 21.
- **Power of Advancement:** Can be used for both Yvonne and Rahisha. Even though their interest in the capital is contingent on reaching the age of 21, trustees can still choose to advance a portion of the capital for their benefit at their discretion before they reach that age.
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PERSONAL CLAIM AGAInST
TRUSTEES
* Trustees must pay own money
* Beneficiaries must prove losses resulted from breach
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DEFENCES TO LIABILITY
* Consent of beneficiaries
* Limitation period (six years)
* Exclusion clause
* Court concludes trustee acted honestly and reasonably and ought fairly to be excused
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Which of the following statements about trustee liability is false?
* (A) If more than one trustee is in breach, their
liability is joint and several.
* (B) Generally, a trustee is not permitted to offset loss from one breach by gain from another breach.
* (C) The beneficiaries do not have to prove that a loss resulted from the breach.
* (D) A trustee has a defence to liability if the
beneficiaries consented to the breach.
C
Beneficiaries bringing a personal claim against a trustee must prove loss. If they cannot prove that a loss resulted from the breach, the trustees will escape liability.
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TRUST PROPERTY NOT
MIXED
TRUST PROPERTY NOT
MIXED
* Claim back property
* Claim charge over asset
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TRUST FUnDS MiXED WITH
TrUStEE's FUnds
* Claim charge over amount from trust
* Trustee treated as withdrawing own money first
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KNOWING RECIPIENT
KNOWING RECIPIENT
* Received trust property with knowledge of breach of trust
* Personal claim allowed
* Proprietary claim allowed
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DISHONEST ACCESSORY
DISHONEST ACCESSORY
* Facilitated breach of trust dishonestly
* Personally liable as if trustee
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Match each term with its definition by typing the corresponding letter after each statement.
A - Bona fide purchaser
B - Innocent volunteer
C - Knowing recipient
D - Dishonest accessory
1. Person who came into possession of trust property with no knowledge or suspicion of breach.
2. Person who acquired legal title to trust property for value and without notice of the trust.
3. Person who facilitated breach with dishonest assistance.
4. Person who received trust money with requisite degree of knowledge of breach.
B
A
D
C
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RULES FOR EQUITABLE
REMEDIES
RULES FOR EQUITABLE
REMEDIES
Legal or equitable right
* No suitable remedy at common law
Enforcement must be feasible
* Court balances hardship
Claimant cannot be guilty of equitable conduct
