Tracing And Equitable Remedies Flashcards
What is tracing in the context of trust property?
Tracing is the process of identifying a new asset as the substitute for the old.
What are the traceable proceeds of trust property?
When a trustee misapplies trust property, beneficiaries may sue the trustee, sue a third party, make a claim against the misapplied property, or sue a third party who received the traceable proceeds.
What are the advantages of establishing an equitable proprietary claim?
- It is not affected by the defendant’s bankruptcy or insolvency. 2. It enables beneficiaries to capture increases in the value of traceable proceeds. 3. It does not depend on fault.
What is the process of following in tracing?
Following is the process of tracking the same asset as it moves from hand to hand.
What is the difference between following and tracing?
Following involves tracking an asset, while tracing involves identifying a substitute asset.
What are the two conditions for a claimant to use equitable following, tracing, and claiming rules?
- The claimant had a right of property recognized by equity in the asset. 2. The asset was held by a person in a fiduciary relationship with the claimant.
What are the types of mixed funds in tracing?
- A wrongful mixture (trustee’s own money mixed with misapplied trust money). 2. An innocent mixture (money from innocent third parties mixed with misapplied trust money).
What is a bona fide purchaser for value without notice?
A purchaser who buys a legal interest without knowledge of the trust, taking clean title to the property even if it has been misapplied.
What are the four potential options for a beneficiary’s claim on an asset?
- Claim beneficial ownership of the asset. 2. Claim a share of the asset. 3. Claim an equitable lien over the asset. 4. Subrogation.
What is the Hallett model in tracing?
In the Hallett model, the trustee’s withdrawals are attributed to their own funds first, preserving the trust funds.
What is the Oatway model in tracing?
In the Oatway model, if a trustee dissipates their own funds, they are treated as having protected the trust funds.
What is the Shalson model in tracing?
In the Shalson model, if a trustee uses misapplied funds to purchase shares that increase in value, the beneficiary can trace the funds into the shares.
What is the basic rule regarding trustee withdrawals from a wrongful mixture?
Where a trustee makes withdrawals from a wrongful mixture, some of which are dissipated, the beneficiary can treat the dissipation as the trustee’s money and attribute the identifiable funds to the trust.
What is ‘cherry picking’ in the context of trust law?
In cases where withdrawals from a wrongful mixture result in multiple assets, the beneficiary can attribute the most profitable applications of the mixed fund to the trust money when the only contest is between the beneficiary and the trustee.
What happens when a beneficiary competes with unsecured creditors of a bankrupt trustee?
The beneficiary can attribute dissipated funds to the trustee but cannot cherry pick assets and prejudice the competing third party.
What is the general rule for withdrawals from innocent mixtures?
Withdrawals from an innocent mixture are attributed rateably to the contributors to the mixture.
What is the rule in Clayton’s Case?
The rule states that the sum first paid in is the first drawn out, commonly described as the ‘first in, first out’ rule.
What methods can be used if the rule in Clayton’s Case is disapplied?
The two methods are the pari passu ex post facto method and the rolling charge method.
What is the pari passu ex post facto method?
This method involves attributing all withdrawals from the account fractionally to all contributors, regardless of the order of payments.
What is the rolling charge method?
Each withdrawal is attributed fractionally to the contributors to the account immediately before the withdrawal, recalculating their contributions each time.
What can beneficiaries assert when trustees misapply trust property?
Beneficiaries can assert a proprietary interest in the trust property or its traceable proceeds.
What options do beneficiaries have when an asset is purchased exclusively with trust money?
Beneficiaries can assert beneficial ownership of the asset or make a personal claim against the trustee for breach of trust.
What can beneficiaries claim when an asset is purchased with misapplied trust money and the trustee’s money?
Beneficiaries can claim a proportionate share of the asset or enforce a lien upon it to secure their personal claim against the trustee.
What is the rule when an asset is purchased with misapplied trust money and money from innocent third parties?
Beneficiaries can only claim a proportionate share of the asset.
