TRUST Flashcards
1
Q
Quistclose trust
A
Combines debt & trust.
Indicator: separate bank account.
Recipient is paid to monies to its bank account for a specific purpose AND free disposal of these monies is prohibited.
Therefore R’ is the trustee, and can ONLY apply the money for that specific purpose.
It will be a breach of trust, if used for any other purpose.
2
Q
Is a bank trustee of money deposited by customers?
A
NO
Bank is the debtor.
Customer is the creditor.
Liability:
- NOT liable regarding money’s application.
- LIABLE for the sum deposited.
3
Q
Quistclose trust conditions
A
1- money advanced for a particular purpose, purpose is sufficiently certain.
2- mutual intention that money could only be applied for a purpose.
3- money is not at the free disposal of the borrower.
if used within the purpose= relationship debtor-creditor
if used outside= trustee-beneficiary
if cannot be used within the purpose= must return the monies
4
Q
Validity requirements ‘certainty’ for express trust:
A
1- certainty of intention = trust arrangement is intended
> requires ‘requisite’ intention to create T and duty.
> Must be more than a desire; intention to impose a duty for the benefit of Bs.
2- certainty of objects = beneficiaries (except purpose trusts)
3- certainty of subject matter = trust property AND beneficiaries’ entitlement
> IDENTIFIABLE TRUST PROPERTY
- specific item or sufficiently described
> IDENTIFIABLE BENEFICIAL ENTITLEMENT
- specific quantity
- fractional interest
> clear mechanism as to distribution
5
Q
Do beneficiaries of a discretionary trust have proprietary rights?
A
NO
Bs cannot assert their rights against Trust property (TP).
BUT can sue for breach of trust.
6
Q
FIDUCIARY POWER OF APPOINTMENT
A
Held by TRUSTEES
Must periodically consider whether to exercise the power, does not have to exercise.
7
Q
PERSONAL POWER OF APPOINTMENT
A
Held by a third party.
Not required even to consider.
- Does not have to exercise.
- Gift-over indicator.
8
Q
SUCCESSIVE INTEREST TRUST
A
LT - interest vested in possession (current enjoyment)
Remainderman - vested in interest (future enjoyment)
9
Q
If sole beneficiary of T is a minor, the income must be [_]
A
accumulated - attached to the capital interest.
(if adult sole B, intermediate income must be paid when received even if the T is contingent)
10
Q
Resulting Trusts
A
by operation of law [implied T]
1- automatic trust
- initial or subsequent failure of trust
- legal title/ownership will be held as trustee
- beneficial ownership reverts back to the settlor[’s estate]
2- presumed trust
- presumption can be rebutted by evidence.
- two types:
(1) gratuitous transfer
> no consideration
> no evidence as to intention to make a gift
> exceptions: parent to child, othusband to wife, or laco-parentis to a minor
(2) contribution to the purchase price
> does not apply to family home
> legal owner will hold shares on trust for equitable beneficiary
> applies to shares, land, building
> if for land equitable ownership will be tenancy in common reflecting proportionate contributions to purchase price.
11
Q
CONSTRUCTIVE TRUST
A
1- INSTITUTIONAL
> in response to a triggering event
> for profits made in breach of trust - fiduciary duty
> to prevent fraud
> perfecting imperfect gift
> compel parties to perform/enforceable contract
2- AS REMEDY
> misapplication of T property
> traceable proceeds of breach of T
3- COMMON INTENTION
> unmarried cohabitees, dispute
12
Q
STATUTORY TRUST
A
- Co-owners of the land TLATA 1996
- intestacy
13
Q
How can the beneficiary severe its interest in trust other collapsing it?
A
If beneficiaries with vested interest are entitled to distinct interests; it can be SEVERED without impacting others.
Any benef’ can exercise independently without collapsing the trust. For other Bs trust continues.
14
Q
What are the conditions for exercising S v V rights in a successive interest trust?
A
ALL ADULT BENEFICIARIES WITH SOUND MIND MUST AGREE.
- all beneficiaries are adults & of sound mind
- all Bs have a vested interest
- all beneficiaries agree
15
Q
What are the conditions for exercising S v V rights in a CONTINGENT trust?
A
When contingent, beneficiaries haven’t been vested interest.
If ALL beneficial interest beneficiaries and contingent beneficiaries act together [INCLUDING OBJECTS OF GIFT-OVER].
16
Q
Can Bs interfere with the administration of T while it subsists?
A
NO
But can sue for improper exercise and breach of T. They can also collapse using SvV rights.
17
Q
Rights of beneficiaries of DISCRETIONARY trust
A
- They have NO proprietary rights.
- Can seek the return of misappropriated trust property.
- can agree to terminate the trust if ALL beneficiaries agree.
- they have personal rights they can enforce:
> right to be informed
> right to sue Ts for breach of trust
> right to compel the exercise of discretion!
18
Q
Rights of beneficiaries of FIXED trust
A
- equitable properietary rights
- proprietary rights can be exercised even zhen contingent
- can asser proprietary rights on TP against 3rd Pts
- can dispose of interest
- right to compel administration
- right to be informed
- right to sue Ts for breach
19
Q
Can a trust be established solely by CONDUCT?
A
YES
1- use words indicating a trust structure ‘yours as much as mine’
2- the way the account used (joint use and withdrawals)
3- ordinary ppl can be unfamiliar with terminology - does not need to use the word trust
20
Q
Certainty of beneficial interest:
- 20% of 5-carat 6 diamonds
- 1 of 6 of the 5-carat diamonts
A
- fractional: certain
- 1/6: uncertain VOID
21
Q
Is it possible to declare trust on specified number of tangible assets?
eg. 20 out of 30 rings
A
NO
22
Q
Is it possible to declare trust on the specified number of golden bars?
A
NO
even though they are tangible and identical, they are NOT interchangeable.
23
Q
‘20 out of 100 ordinary shares’ - valid trust?
A
YES
24
Q
‘20 out of 100 vine bottles of the same brand’ - valid trust?
A
NO
VOID
25
Test for discretionary trust certainty of objects?
IS/IS NOT test
--> must still be conceptually certain, permitting Ts to survey class of beneficiaries
certainty of objects = beneficiaries
26
Discretionary trust for all people in the UK - is it valid?
NO.
IS/IS NOT test applicable. BUT bcs it is virtually uncertain for administration purposes, it is not valid.
27
Power of appointment for all people in the UK - is it valid?
YES.
Does not need to exercise. Therefore valid.
28
Test for certainy of objects
- fixed trust
- discretionary trust
- powers of appointment
For fixed: COMPLETE LIST TEST
for discretionary and power: IS/IS NOT
[discretionary - must still be able to survey the class of people]
29
What happens if T cannot identify all beneficiaries of a fixed trust?
T fails:
- partly: if not dependent upon uncertain objects
- complete failure: if dependent
30
Discretionary trust for 'relatives' - is it valid?
YES
'descendants from a common ancestor'
31
Fixed trust for 'relatives' - is it valid?
NO
Bcs cannot satisfy 'complete list' test.
32
Discretionary trust for 'friends' - is it valid?
NO
CONCEPTUALLY UNCERTAIN.
33
BoP to establish whether falls within objects of the Trust?
On the claimant alleging that they fall within class of the objects.
34
CSQ of the uncertainty of a lifetime transfer on trust?
1- if no transfer of legal title = no change in beneficial ownership unless all certainties are satisfied.
2- if legal title transferred =
> uncertainty as to intention: presumption of resulting trust
> clear intention for transferee to be a trustee: automatic resulting trust
35
CSQ of the uncertainty of the testamentary trust?
1- If no certainty of intention to establish trust = gift
2- uncertain object/subject matter= trust fails, revert/falls into the residue.
36
constitution of trust
- for intervivos: legal title moves
- for testamentary: either gift or transfer on trust -- depending on type of property.
37
validity of testamentary trust by a will
1- compliance with s9 WAE 1837
> in writing
> signed by the testator
> intend to give effect to will by signature
> acknowledged/attested by 2 or more witnesses
> attested/acknowledged in the presence of the testator
2- testamentary capacity at the time of execution of the will
3- certain
38
Trust of land requirements
(or trust of interest in land)
1- manifested and proved
> signature and writing need not be contemporaneous
2- by some writing
> evidences intention to create the trust
> and evidences the terms of trust
3- signed by the declarant/testator
> Settlor if not seek directions from the court
4- by will (if testamentary)
> validly executed will in compliance with s9 WA 1837
[if transfer on trust inter vivos - legal title must still be transferred to the trustee]
Non-compliance with formalities renders the trust UNENFORCEABLE [not void], bcs the trust will exist.
39
CSQ of non-compliance with formalities of trust of land
UNENFORCEABLE
Trust exists but unenforceable.
40
EXCEPTION to trust of land requirements
- constructive trust
- statutory trust
41
Transfer of title:
- registered land:
- shares:
- chattels:
- cheques:
- registered land: title passes on registration at the Land Registry
- shares: beneficial title by execution of stock transfer form, legal title when registered as a member.
- chattels: (inc. cash) either by deed, by delivery with evidence of intention.
- cheques: transferred by transferor endorsing the cheque (signing their name on the back)
Once trust is constituted, disposition is irrevocable,
42
constitution of self-declaration of trust
automatically constituted
for land: trust exists without formalities BUT to be enforceable, must be evidenced by writing manifesting the intention to form a trust.
43
CSQ of non-compliance with formalities to affect a gift intervivos
donee will hold as trustee (resulting T)
44
To perfect an imperfect gift, the donor must put beyond power of transferor:
- docs must be in the hand of the person with control to pass/register/complete the transfer
45
A donee of DMC did not part with dominion but other conditions are satisfied:
can ask the PR to complete dominion, or can establish constructive trust
46
To perfect an imperfect gift of shares, everything necessary must be done by the transferor. If established, the gift will be held on constructive trust for intended beneficiary.
Re Rose CONDITIONS
1- Everything necessary in his power to effect the gift.
2- The correct method of transfer must be used.
3- The docs necessary for transfer must have ended up in the hands of the person capable of effecting the legal transfer.
(ie. put beyond control)
[MUST NOT BE TRANSFEROR'S OWN AGENT]
47
How can an imperfect gift by will can be perfected for a PR (executor or administrator)/
CONDITIONS
FORTIOUS VESTING
- obtains legal title via will
- intention to make an IMMEDIATE gift
- intention CONTINUES until the donor's DEATH
- intended donee becomes PR of the estate
48
Imperfect gift can be perfected if 'UNCONSCIONABLE PRINCIPLE' applies.
When & how??
Can perfect the gift to remedy unconscionability. It would be unconscionable to revoke/change their mind.
- intended to make & made a gift
- told the transferee and the transferee signed/consented
- transferee has been told no further action is required
- was necessary to transfer/make the gift to exercise the consented act
- donee relied upon and believed that the gift would be made
- transferee believed that gift is effected
- already executed deed (whether defective or not - indicative factor)
- transferor acted for its own benefit (indicative)
49
Rule against remoteness of vesting - perpetuity
(objects: either ppl or charity)
Interest must vest within the recognised perpetuity period = 125 years.
Wait & see rule applies --> trust can subsist until it becomes apparent that interest cannot vest within 125 years. Anything done up to 125 years remains valid.
Class-closing rule --> excludes objects who may collapse the trust BCS it would vest outside of the perpetuity period.
Limits the class of Bs at the end of the perpetuity period.
Remoteness rule applies only to trusts with beneficiaries or charitable purposes as objects.
50
Rule against remoteness of vesting - perpetuity
FOR NON-CHARITABLE PURPOSE TRUST
Max duration of a period: Life plus 21 years
(or just 21 years if no specified life)
The duration of non-charitable trust must be EXPRESS on the will. If not, the non-charitable trust is void. Must draft a perpetuity clause.
Life => must be human life in being, and 21 years would begin when that person dies. This person must be specified or 'Royal Lives' can apply.
Life must refer to a human's life, not an animal's.
51
When can a charitable trust for alternative or holistic methods of medical treatment be valid?
Under advancement of health charitable purpose provided that there is SUFFICIENT EVIDENCE for the benefits of the method used.
52
When can a charitable trust for art be valid?
The art must be of MERIT.
May require expert evidence, and investigation by the charity commission.
53
Which purpose trust can be legally enforceable?
ONLY charitable trust.
54
Conditions of a charitable purpose trust
1- for a charitable purpose
(heads of charity)
> must not benefit the rich (only poor -- not both or not rich)
> poor covers temporary hardship too
> can be inferred
2- satisfy public benefit test
(1) identifiable benefit
(2) public or section of public (ie. not negligible in number) in the UK
(3) must not depend on relationship to a particular individual
(4) must not exclude poor
(5) must not be for political objectives (ie. politically neutral) [political step can be a way of achieving charitable purpose only]
3- wholly and exclusively charitable
ie. all its purpose must be charitable, if not void.
--> non-charitable purpose does not invalidate the charitable trust if it is incidental. If it is both for c# and non-c# purposes, the court will sever if possible and only charitable remains valid but only if the language in the will allows severance.
55
CY-PRES APPLICATION
If charitable purpose fails
1- INITIAL failure: only if genuine charitable intention which has general mode of charity. (eg. for advancement of education, relief of property)
2- SUBSEQUENT failure: surplus fund applied to another charitable purpose by way of a scheme established by Charity commission or court
56
Non-charitable purpose trust
Endacott principles
Can only be for:
1- particular animal/pet [welfare and care]
2- monuments and graves for a private individual [maintenance and erection]
3- private masses
Can only be written/created in a will.
Perpetuity period must be inserted [max life plus 21 years].
They are valid but unenforceable.
If the trustee is unwilling: can give an undertaking to comply with trust or residuary legatees can sue the trustee appointed.
57
Best/strongest evidence to establish equitable joint tenancy via constructive common intention trust?
Express discussions as to beneficial ownership.
There must also be detrimental reliance of the spouse/civil partner.
58
How to determine respective beneficial interests for dissolution of civil partnership?
STATUTORY DISCRETION OF COURT
under CPA 2004
59
Comparing trusts with debts - Interests
- B of a trust has an equitable proprietary interest in the trust property.
- Creditor has a mere personal right to payment.
60
When is it possible to impute common intention in the absence of express common intention?
FAMILY HOME
ONLY AT THE QUANTIFICATION STAGE
(Cannot impute common intention at the acquisition of property)
61
Is redecoration or repainting of house enough to infer a common intention?
NO
Bcs it does not add any significant value to the property.
62
The man describes the property as 'our home', is it enough to establish common intention?
NO
there must also be detrimental reliance.
63
proprietary estoppel elements:
- qualified assurance
- reasonable reliance (relied upon due to assurance - depends on the apprehension of the claimant)
- detrimental reliance (detrimental conduct suffice if assurance is etsablished)
-unconscionable to resile from promise
64
Limit to proprietary estoppel remedies?
cannot exceed the promise.
65
Farepak ran a Christmas savings scheme. It agreed with its customers that, in return for eleven monthly payments, it would obtain retail vouchers for customers and distribute them in November. Farepak went into administration in October.
Customers argued that the money was held in trust.
Is there a valid Quistclose trust?
NO.
Bcs there is no suggestion that the money ought to have been put on one side by Farepak pending the transmutation from credited money to goods or vouchers. If there were a Quistclose trust then that obligation
would have been inherent in it, but the
business model would have made no
sense.
66
What can create a quistclose trust?
- loans
- transactions
- property transaction to a person whose use of the property is restricted to a specified purpose: to any case where the property is not at the free disposal of the transferee.
67
Quistclose trust:
When the lender advances the money to the borrower, the borrower holds the money on trust for the lender, with a power to use it for a specified purpose.
1- To the extent that the borrower uses the money for the purpose [____]
2- To the extent that the borrower applies the money for any other purpose, [____]
3- If it becomes impossible to apply the money for the purpose, [____]
1- lender's equitable interest is extinguished. Relationship changes to creditor-debtor,
2- breach of trust: lender can assert their equitable proprietary interest in the misapplied money or its traceable proceeds.
3- borrower must return the money to the lender.
68
Bailment
Bailment is the transfer of possession of chattels from one person to another. The transferor is the ‘bailor’ and the transferee is the ‘bailee’.
- only tangible property (chattels) can be subject to bailment
- requires transfer of possession but does not impact the bailor's legal title to the property
So a person who leaves their clothes with a dry cleaner is a bailor and the dry cleaner is a bailee.
69
Agency =/= Trust
The agent has authority to create legal relations between the principal and third parties.
The relationship between agent and principal is ordinarily a debtor-creditor relationship.
Both agent and trustees are subject to fiduciary duties.
BUT an agent can commit the beneficiary to a contract with a third party whereas trustee acts as a principal in their transactions with third parties.
70
trust =/= estate administration
Unlike the beneficiary of a trust, a person interested in a deceased person’s estate does not have an equitable proprietary interest in any of the estate assets.
Instead, they have a personal right against the executor relating to the proper administration of the estate
71
A theatre company sold advance tickets for performances.
The terms and conditions stated that the company would hold the purchase money ‘upon trust’ for the purchaser until the performance took place and would return the money if it was cancelled.
There were no restrictions on how the company could use that money and it was not required to account to the customers.
Is this a trust?
NO
The Co is not a trustee because its ability to freely use the money for its own purposes is incompatible with a trust.
72
Constructive trusts as remedy, will be awarded for:
1- successful proprietary estoppel claim
2- fiduciary makes personal profit in breach of no-profit rule
3- at the end of the tracing process, due to breach of trust or fiduciary duty
73
Who can appoint trustees?
- settlor
- Current trustees or sole continuing trustee
- Beneficiaries with Saunders v Vautier rights
- Court (as last resort when no other mechanism is available to appoint trustees)
- For charitable trusts; Charity commission or corut
74
Circumstances for replacement of trustees by the trustees:
- Death,
- incapacity,
- retirement,
- refusal, or
- unfitness of a trustee, or
- trustee abroad for over a year.
Cannot increase the number of trustees beyond 4 unless explicitly permitted.
Vesting of trust property must be completed.
75
Can settlor replace the trustee after constitution of trust?
Yes if the power is reserved in the instrument.
76
Can beneficiaries with S v V rights appoint new trustees?
Procedure?
YES
- must be in witing
- directing Ts to appoint a new trustee or collapsing entirely the trust.
- requires unanimous consent
77
Settlors involvement post-creation of trust
Settlor’s involvement ceases post-creation unless reserved power exists
78
What will the court order if there is no suitable/willing trustee for an existing trust?
May appoint the Public Trustee if no suitable or willing trustee is found.
Public Trustee charges for its services.
79
Is trustee entitled to remuneration?
NO unless a professional trustee.
80
Removal and retirement of trustees by the beneficiaries
Beneficiaries with Saunders v Vautier rights can compel retirement if conditions are met.
- made in writing
- unanimous agreement from all beneficiaries
- at least 2 trustees or a trust corporation must remain
81
Voluntary retirement of trustees
- must sign deed of intention to retire
- at least 2 trustees or a trust corporation must remain
- must obtain written consent of co-trustees
- legal title of trust property must vest in remaining trustees
82
When will the court remove/retire a trustee with an order?
Court or Charity Commission may remove trustees if they are bankrupt, lack capacity, or in cases of dishonesty or misappropriation.
83
Elements of DISHONEST ASSISTANCE
(strangers' liability for breach of trust)
1. Existence of a trust.
2. Breach of trust or fiduciary duty by the trustee.
3. Defendant assisted in planning, committing, or concealing the breach.
- assistance is more than minimal/trivial
- suffice if became easier to commit or conceal the breach
- irrelevant if breach would occur without their assistance
4. Defendant's assistance was dishonest or lacks probity. (2-limbs test)
- subjective: D's actual knowledge or belief of facts
- objective: objective: standard of ordinary decent people
(an honest person in possession of the same facts would have considered their actions to be dishonest)
(an honest person would pursue further enquiries if reasonable person would ask further enquiries)
84
Elements of KNOWING RECEIPT
(strangers' liability for breach of trust)
1. Misapplication of trust property or fiduciary assets.
2. Beneficial receipt by the defendant of the misapplied property or its traceable proceeds.
3. Persistence of the claimant’s equitable proprietary interest.
4. Defendant had knowledge rendering retention unconscionable. (apply Baden scale)
85
DISHONEST ASSISTANCE - LIABILITY
PERSONAL LIABILITY OF ASSISTANT.
Liable for LOSS: if C can show:
- breach caused the loss
- D assistance contributed to the loss
Liable for PROFITS: if C can show
D's participation was the real and effective cause of the profits. (but for test is insufficient)
The court has discretion to award or withhold remedies. Profits may be withheld if awarding them would be disproportionate to the assistant's wrongdoing. The remedy must align with the form and extent of the wrongdoing.
86
BADEN SCALE FOR KNOWING RECEIPT
Unconscionable if:
1- Actual knowledge.
2- Willfully shutting one's eyes to the obvious.
3- Willfully and recklessly failing to make inquiries an honest and reasonable person would make.
(for 1-3, sufficient to render unconscionable, not need to show further)
4- Knowledge of circumstances which would indicate facts to an honest and reasonable person.
5- Knowledge of circumstances which would put an honest and reasonable person on inquiry.
(C must also prove for 4-5: one of the following:
- Failure to follow up on inquiries or red flags
- Wilfully and recklessly failed to make further inquiries
- Take deliberate risks, ignoring suspicious circumstances (calculated risks)
- Benefit from trust property under inherently suspicious circumstances.
87
Statutory powers of trustees to purchase land
Trustees may purchase land in the UK, whether as an investment or for any other purpose, including occupation by a beneficiary.
Ts may ONLY acquire land in the UK.
88
Liability of trustees for breach of trust
joint and severally liable
[may later apportion liability]
89
Can trustees delegate decisions to beneficiaries?
NO
90
SELF-DEALING
Involves a trustee purchasing assets from the trust or selling assets to the trust.
It is VOIDABLE.
The money paid or seeking independent advice is irrelevant.
May avoid the csq if T seeks consent of all beneficiaries before proceeding with the purchase.
91
If a T is appointed as a director as a result of her position as trustee and is paid an annual salary.
What is the legal position?
If T has only been appointed as a director due to her position of trustee, it is a breach of the NO-PROFIT rule.
Keeping the remuneration is a breach of trust.
The remedy = beneficiary can elect one
1- account of profits
2- constructive trust
proprietary remedy of a constructive trust. Can provide protection against insolvency of the fiduciary and also allows the principal to trace into any assets acquired with the benefit.
(monies are beneficially owned by beneficiaries of the trust)
92
FAIR-DEALING
T directly deals with the B to but their beneficial interest.
Transaction is VOIDABLE,
UNLESS T can demonstrate that:
- Full disclosure to B
- acted honestly & fairly
- did not take advantage of the B (no undue influence)
- FULL value
- B is fully informed
T must ensure:
- T must ensure that B gets independent advice
- interest to be purchased must be independently valued.
93
Where an asset is purchased with money misapplied from two or more trusts (ie. innocent mixture), [____]
Beneficiaries of the respective trusts can claim a proportionate share of the asset.
94
The burden to rebut the presumption of legal joint owners to adduce evidence is on
party trying to rebut the presumption.
95
Arenequal contributions alone for the purchase of the family home sufficient
The burden is a heavy one, unequal contributions alone are NOT enough to rebut the presumption of joint tenancy.
There must be unusual facts/circumstances.
(eg. stock v dowden - separate finances and separate economies totally and one contributed way higher OR subsequent conduct when one partner left)
96
How can trustees delegate investment powers?
- agreement evidenced in writing
- written policy statement
- must review investments -ongoing monitoring
- must select an appropriate agent
97
Discretionary trust trustees must exercise their discretion [____]
within a reasonable time.
98
Power of advancement
Statutory power to use capital for advancement or benefit of a beneficiary, before the beneficiary becomes absolutely entitled to the property.
- Ts must be satisfied that it is for B's benefit
- may be used by both adult and minor beneficiaries.
- applies to both vested and contingent interest.
- can be modified or excluded by the trust instrument.
- any payment must be BROUGHT INTO ACCOUNT zen the beneficiaries become absolutely entitled
- paid directly to B or directly to third party
- Ts must ensure that capital is used for the correct purpose [= duty following the exercise that money is used for the purposes that it was provided]
99
Power of advancement - How much capital can be paid?
- if trust created before 1 Oct 2014: max 50% of
- if trust created on or after 2014: up to 100% of
beneficiary's prospective share of capital can be advanced.
If they get 100% of their entitlement at the time of advancement, even if the fund grows, the B will not be entitled to any additional distribution (except when it is not treated as proportionate share)
100
If money advanced under power of capital advancement is used for other purposes than what it was provided for:
the trustees should not pay any further money to them.
Duty not to ensure use for correct purpose is a breach of duty.
101
Power of advancement - multiple beneficiaries
power may ONLY be exercised with the WRITTEN CONSENT of beneficiaries with a PRIOR INTEREST.
Consent can only be provided by Bs who are of full age and sound mind.
Consent of B with a subsequent interest, such as the recipient of a gift-over is not required.
102
Trustees hold a trust fund worth £20k for A (19) and B (17) in equal shares to be distributed to each beneficiary when they reach the age of 25. The will does not contain any other express provisions relating to the payment of capital.
B has asked the trustees for £5,000 to buy a car.
Can trustees exercise their power of advancement without consent of B?
The trustees can use their power of advancement for B but are under no obligation to do so.
They must be satisfied that the car is for B’s benefit.
They do not require A’s consent as A does not have a prior interest to B.
(but the trustees would need to take A’s interests into account if reducing the overall size of the trust fund would have an impact on their investment strategy).
103
A testator leaves an estate worth £25k on trust for A (17) if they reach the age of 21 and, if not, for B (25).
The will does not contain any other express provisions relating to the payment of capital.
A has asked the trustees for £2k to buy a new computer to help with her schoolwork.
Can trustees exercise their power of advancement without consent of B?
NO.
Even though A’s interest is contingent, there is no need to obtain B’s consent because B does not have a prior interest to A.
104
Trustees are holding a trust fund worth £50,000 on trust for A (50) for life, remainder to B (14).
B is a talented computer programmer and has asked the trustees for £5,000 to purchase a new computer.
Can trustees exercise their power of advancement?
Yes. ONLY if they obtain written consent of A bcs he has prior interest.
104
Power of maintenance
Statutory FIDUCIARY power allows trustees to pay trust income for minor beneficiaries for the 'maintenance, education or benefit of minor beneficiaries'.
1- minor B can have vested or continent interest in the capital
2- only for B under the age of 18
3- can be used for both current and accumulated income
4- cannot be used if there is another B with prior interest in the income
5- should be paid either to the child’s parent or legal guardian or directly to the provider of the goods or services that are being acquired on behalf of the beneficiary
6- can be amended/excluded by the trust instrument
105
Trustees are holding a trust fund worth £50k on trust for A (50) for life, remainder to B (14).
Can trustees exercise power of maintenance for B?
NO
Ts cannot pay income to B during A's lifetime but may advance capital with written consent of A.
106
Common uses of power of maintenance
- school fees or other training
- medical bills
- food, clothing and rent
- leisure and holidays
107
administrative powers of trustees
1- general power of investment
> standard investment criteria
> duty to review investments
> duty to obtain and consider ‘proper advice’ before exercising their powers of investment AND when reviewing their investments
> considering suitability and diversification
2- power to acquire land in the UK
> in the UK
> for investment or for B's occupation
3- power of delegation
> agent bound by any restrictions for exercising investment powers same was as a trustee
> for investments: need agreement evidenced in writing, policy statement must be complied with
> cannot delegate to beneficiaries even if they are Ts
> cannot delegate distributive obligations
> must ensure selecting appropriate agent and the agreement complies with statutory requirements- arrangement must be reviewed regularly
4- duty of care [both statutory and at common law]
108
Duty to consider suitability for investments entails:
1- must consider and act in the best financial interests of beneficiaries
2- must balance the interests of all beneficiaries (current and future)
3- exercise their powers fairly and honestly, and not for any ulterior purpose
4- consider moral and ethical concerns
109
How can trustees justify not following advice on investments?
They can only do so if they consider that a reasonably prudent trustee would act in the same way.
T need not seek advice if they reasonably conclude that in all the circumstances it is unnecessary to do so.
110
Duty to consider diversification for investments entails:
MODERN PORTFOLIO THEORY
Requires taking an overall approach to the risk profile of the trust fund.
Extent to diversification depend on siwe and nature of TF:
- larger funds, spread investments across wider range of assets
- smaller funds, less
111
Trustee's statutory duty of care
requires trustees to ‘exercise such care and skill as is reasonable in the circumstances’.
Assessment takes into account:
- any special knowledge or experience of T
- [for professional T only] any special knowledge or experience of T that it is reasonable to expect of a person acting in that capacity
Applies only to acts:
- general power of investment or any other power of investment
- exercise of a power of investment or to the review of investments [acquiring land etc]
112
Trustee's common law duty of care
requires trustees to exercise the standard of diligence and care expected of an ordinary prudent business person.
113
Dispositive duties
= Distrtibutive duties
Whether they are distributing income or capital, the trustees must do so as soon as possible and must not wait for the Bs to demand the payment.
A delay in distributing is a breach of trust.
1- minor beneficiaries
While the B is under 18, the trustees must hold the capital on trust.
Must accumulate income that arises, added to and distributed with the capital.
2- adult beneficiaries
Distribute income as it arises.
114
Min number of trustees of land
2
115
Testamentary trusts: validity requirements
satisfy:
- 3 certainties
- beneficiary principle
- perpetuity rules
- formalities for a valid will s9 WA 1837
- will validy executed
116
NO-CONFLICT RULE
FIDUCIARY DUTIES OF TRUSTEES
(1) FAIR-DEALING: T directly transacts with the B to buy their beneficial interest under trust. VOIDABLE.
(2) SELF-DEALING: T purchases or sells asset to the trust. VOIDABLE.
(3) CONFLICTING DUTIES: can proceed only if transaction is authorised by the instrument or if not, T obtains fully informed consent of the beneficiaries.
Consequences:
- if causes a loss, sue personally for breach of fiduciary duty [compensation].
- voidable
- if breach results in a profit to the trust, they can max ebd the trust.
- if breach results in a profit to the trustee, they can recover the benefit.
117
If T buys/sells to a company in which he holds share but is not sole shareholder nor a controlling SH, will it be self-dealing?
It will NOT be self-dealing but still be a breach of no-conflict rule.
Therefore, voidable.
118
Fair-dealing is 'voidable', unless:
T can demonstrate that they:
- made full disclosure to the beneficiary
- acted honestly and fairly
- did not take advantage of the beneficiary
119
NO-PROFIT RULE
Fiduciary duty
When an unauthorised benefit arises as a result of their position as a fiduciary either for themselves or for a third party.
Breach, if:
1- Directly using the property of their principal to make a personal profit.
2- Indirectly profiting from their role as a fiduciary.
3- Exploiting an opportunity which has come to them as a result/in the course of their fiduciary position.
4- Receiving a bribe or secret commission to influence how they perform their role as fiduciary.
Remedies: stripped of their profits. B will elect between
1- account of profits
2- constructive trust
(more convenient if shares increase in value, BCS even though they decrease in value, B will be entitled to that amount via tracing)
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Political purposes rule - charitable trusts
- If it is a political purpose, such as seeking a change in the law, charitable trust will fail.
- Charities cannot pursue political objectives ie seek to change the law or government policy or promote the views of a political party. Must be politically neutral.
- can use political means to achieve a non-political objective as one of many means to achieve charitable goal. [range of activities]
121
A private express trust has run for the full 125-year statutory perpetuity period and some of the trust property has still not vested in a beneficiary. There is no gift-over.
CSQ?
Automatic resulting trust
122
A contributes 70% and B contributes 30% of the purchase price. They are registered as joint legal owners. They do not discuss how the property should be shared and no express trust is declared.
They are not partner/spouses and this is not a familyhome.
CSQ?
Presumed resulting trust.
A and B hold the land as legal joint tenants on trust for A and B as equitable tenants in common. A has a 70% equitable share and B has a 30% equitable share.
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Charity's objectives included securing the release of prisoners of conscience and the abolition of torture and inhuman or degrading treatment in and outside of the UK.
Is it a charitable purpose trust?
NO.
Procuring a change of law in a foreign county is NOT for public benefit in the UK.
Even though other objectives of the trust were charitable, the trust was NOT charitable as it was not wholly and exclusively charitable.
124
Formalities for declaration of trusts
NO FORMALITIES
(except for land)
125
Exceptions to trust of land formalities
- automatic resulting trust: title transferred but trust fails
> actual occupation of trustees
- presumed resulting trust: gratuitous transfer without evidence that it was intended to be a gift
[here, it will also be VOID for lack of constitution unless it would be unconscionable for the settlor to deny its existence]
- constructive trust: due to unconscionable
> proprietary estoppel or
> common intention CT
126
A transfers land to B, orally requesting that B holds the land on trust for C.
The land is duly registered in B's name at the land registry.
A dies several days later, without having provided written evidence of the declaration of trust.
B wishes to know whether she can keep the property for herself.
NO
B is clearly intended to be a trustee so cannot keep the property for herself. To do so would be to use s53(1)(b) LPA 1925 as an instrument of fraud.
C may seek to enforce the trust against B. A's estate may argue that this is not possible and claim that Brianna holds the land on a resulting trust.
B MUST SEEK DIRECTIONS FROM THE COURT FOR BENEFICIAL OWNERSHIP OF THE LAND.
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Transferring legal title of SHARES
Shares in a private company are transferred by the transferor signing a stock transfer form and sending it to the company. Must also give the share certificate.
Legal title passes when the transferee is registered in the company’s internal register of members.
128
Transferring legal title of Choses in action
(eg debts and money in a bank account)
are transferred by WRITTEN transfer and NOTICE in writing to the debtor or to the bank.
129
Constitution of trust - effect
disposition is IRREVOCABLE.
Transfer on trust is constituted when legal title of property is vested in trustees.
Gift is constituted when legal title of the property passes to donee. Perfected on delivery for chattels provided that there is intention. If not by deed.
130
Owner of an absolute equitable interest in a shareholding had tried to make a gift of shares.
He handed over the stock transfer form signed by the registered SH but not the share certificate.
Donee has not been registered as a member.
Will the gift be perfected?
NO
Bcs he did not put matters beyond control, ie. not done everything in his power to transfer his interest, when he handed over the form signed but not the share certificate.
131
A wants to transfer shares to B to hold on trust for C.
A completes the stock transfer form and gives this to B with the share certificate. B is not yet registered as a SH in the Co.
A does and leaves the shares to D as a gift under his will.
Who has beneficial entitlement to the shares?
At the moment B pending the transfer of legal title, then C.
BCS
By giving B the means to effect the transfer of the legal title. A's PRs will hold the shares on a constructive trust for B pending the transfer of legal title.
After registration, B will hold shares on trust for C.
132
The unconscionable principle to perfect an imperfect gift
Focuses on the conduct of the donor.
Reliance and belief of donee are relevant factors.
133
If a trust has a mixture of charitable and non-charitable purposes, the consequences
depend on the precise situation:
1- trust will be void unless the non-charitable purpose falls within a recognised category of non-charitable purpose trusts. If the trust fails, [___]
2- If the non-charitable purpose can be construed as ‘incidental or subsidiary’ to the
main, charitable purpose, [____]
3- If the charitable and non-charitable purposes can be separated, and a portion of the fund allocated to each, the court will [___]
1- resulting trust, property returns to settlor.
2- trust remain effective
3- 'sever' the trust and recognise charitable part only. Possible only if the trust language contemplates severance of the fun, amount allocated to each purpose to ve quantifiable.
134
How to establish breach of trust?
a) Did the trustee(s) act in accordance with
their powers?
b) If so, did they comply with their trustee
duties?
(falling below the standard of behaviour expected of them as trustee)
135
Liability for breach of trust before appointment as trustee
- A trustee will not be liable for a breach of trust which took place before the trustee was appointed.
- On appointment, if a trustee discovers that a breach of trust occurred, they should commence proceedings in order to recover from the former trustee.
- Failure to take such action may result in the new trustee becoming liable for their own breach of trust.
136
A trustee will only be liable for breaches of trust that occur after they retire in two cases:
1- Where the trustee retired to facilitate the breach; or
2- trustee parts with trust property in retiring without due regard, so loss is suffered when the property is transferred to the new trustees.
137
ASSESSMENT OF LOSS
Loss is assessed AT THE DATE OF THE TRIAL, and involves ‘taking an account’ to determine the expected value of the trust fund. Depends whether:
1> misapplication of trust (eg. unauthorised investment or wrongful distribution)
- will falsify the account: trustees to return the trust fund to the position it would have been
in if the misapplication had not occurred [restoration]
- If it is not possible to restore the same type of property, the trustees will need to pay
equitable compensation in lieu.
- can affirm if profited the fund
2> different type (eg. lacked duty of care)
- surcharging: the expected value of trust if the breach had not occurred.
- reparation claim
If the actual value of the trust fund is lower than the expected value, the trustees will be personally liable to compensate the trust fund for the difference
1> misapplication: restoration or equitable compensation in lieu.
2> surcharging ie. reparation claim
> possible to offset losses against profits where they arise from same transaction or course of dealing.
138
CAUSATION
bare commercial trust: but for test
traditional trust: falsification (restoring the property or same type of property to the fund OR compensation in lieu)
139
DEFENCES
* Exemption clauses.
(cannot exclude fraudulent breach - dishonesty)
* Beneficiary instigation / consent / acquiescence.
- consent is a full defence. If fully informed consent of part of Bs, partial defence.
- instigate or request the breach; partial if other beneficiaries did not.
- acquiescence: consent after breach, subsequent affirmation.
* Statutory limitation rules / defence of laches.
* Statutory relief under 61 TA 1925.
140
Impounding a beneficiary’s interest
Where a beneficiary instigates or requests a breach, the trustees will only have a defence against that particular beneficiary.
They may also be able to impound that B's interest (using that Bs share to indemnify the trustees against a claim by other beneficiaries).
Applies as
- statutory: if consent was provided in writing.
- common law discretion of court: only if B have benefitted from the breach.
There is no requirement to show that the
instigating beneficiary benefitted from the breach, except for common law discretion of the court.
141
Statutory limitation period for breach of trust claims
6 years from the breach - for Bs with interests vested in possession.
For future interests, the limitation period starts to run when their interest vests in possession.
Limitation period does not apply to fraudulent breaches or proprietary claims.
If T is also a B and receives unfairly large distribution only the EXCESS can be recovered after the normal 6 years period; unless T was dishonest or unreasonable in distribution.
142
Equitable defence of laches
Where statutory limitation period has not yet expired, Ts can argue a beneficiary has waited too long to bring a claim.
Application de facto.
T must demonstrate that B knew the breach but delayed their claim unacceptably, making it unconscionable for the B to assert their beneficial interest.
143
If none of the other defences apply - Section 61 TA 1925
Ts may seek to obtain relief. At court's discretion to excuse the T.
Court will excuse the T if 'acted honestly and reasonably and ought fairly to be excused for the breach of trust.
Requirements
1- ought fairly to be excused
2- reasonableness
3- honesty
Can be successful when it involves lay trustees and especially if this lay T sought advice before taking action.
Not guaranteed, at the court's discretion.
144
Full indemnity - Apportionment of liability
ONLY where
1- A particular trustee is morally culpable for the breach, such as cases where the trustee has misappropriated trust property for their own benefit.
2- A trustee is also a beneficiary.
3- A trustee acts as solicitor to the trust and the breach is committed in reliance on their
advice.
145
Indemnity case law: solicitor trustees
- if a trust had 2 Ts: One was a solicitor and the other was the testator’s widow [lay trustee].
> court awarded a full indemnity bcs it was reasonable for the lay trustee to have relied on the advice and that solicitor took sole responsibility to administer the estate.
if a trust had 2 Ts: One was a solicitor and the other was a lay trustee but the lay trustee took an active role in breach of trust.
> court did not award indemnity bcs solicitor T did not have a controlling influence over the co-trustee. Indemnity was inappropriate.
146
Can trustee seek contribution from professional advisor?
YES if the third party provided negligent advice which led to the breach
147
Trustees will not be liable for a breach of trust or fiduciary duty if they received the [___]
fully informed consent of all the beneficiaries.
If only some of the beneficiaries have consented, the trustees will not be able to fully escape liability but will have a partial defence against those beneficiaries.
148
Protection of trustees - From the outset
(= when trust is first established)
1- Ouster clause
2- exemption clause
3- Trustee Liability insurance
149
Protection of trustees - during administration
1- uncertainty as to powers or duties:
> legal advice on interpretation of trust terms:
2> seeking court directions (SAFEST option)
> s48 AJA 1985 (expensive) - two-steps (most useful)
(i) written legal opinion from a Counsel/barrister; and
(ii) apply to High Court authorisation to rely on that legal opinion (order granted without a hearing unless inappropriate)
> surrendering discretion to the court
> seeking beneficiary consent
2- unidentified or missing beneficiaries
> benjamin order
> publish notice under s27 TA 1925
> retaining fund
> paying money into court
> taking out insurance against wrongful distribution
> seeking an indemnity from the beneficiaries to whom they do distribute
150
Protection of trustees - after breach
- Claims against third parties
- Separate claim against adviser
- Contribution or indemnity from other liable parties
151
Surrender of discretion
Exceptional course of action for the protection of Ts and, can only be sought in relation to a specific problem which requires addressing.
Where the trustees have an obligation to exercise a discretion but do not agree as to how to exercise it.
152
Benjamin order
- For unidentified and missing beneficiaries. - --- Allows distribution on the assumption that the missing beneficiary have died.
- It is NOT possible for unknown beneficiaries.
- Protects trustees but not other beneficiaries.
Expensive option but trustees duties ceases.
153
Best practice for trustees protection in case of unknown beneficiaries?
NOTICE s27 TA 1925 - protects trustees but not other Bs.
- appropriate when trustees are unsure if they have identified all beneficiaries.
- only possible for unknown beneficiaries.
154
Trustees have searched extensively for the contact details of the missing beneficiaries but have been unable to find them.
Trustees now want to retire.
What is the best course of action for Ts to protect themselves?
Pay money into court.
Protects both Ts and Bs.
There will be no ongoing duties for Ts.
Last resort option.
155
Trustees have discovered the existence of two previously unknown beneficiaries but are struggling to find their contact details.
The other beneficiaries are in need of money now and the trustees would like to distribute them asap.
What is the best course of action for Ts to protect themselves?
RETAIN A FUND for the missing beneficiaries.
- Risky for unknown beneficiaries as it won't fully protect Ts or Bs if they don't retain sufficiently large fund.
- for missing Bs, it is a good action as it Ts and Bs but means ongoing Ts duties.
156
Fiduciary breach
- causation
- liability
- but for test
- fiduciary will be liable for own breach, individual liability.
157
Fiduciary breach
- causation
- liability
- but for test, loss assessed at the date of the trial
- joint office: jointly and severally liable, can be apportioned later.
Loss will be reconstituted in the trust, T will need to reconstitute the trust by restoring the fund.
Can escape liability if satisfies that a prudent and reasonable trustee would do the same.
Loss will be compensated by the Ts.
158
Claimant can use equitable following, tracing and claiming rules if two conditions are satisfied (re Diplock):
* Claimant had a ‘right of property recognised by equity’ (to follow + trace)
* Asset was held by a person who was in a fiduciary relationship with the claimant
Easily satisfied in cases of misapplication of trust property subject to express trust - as beneficiaries have an equitable proprietary interest in the trust property and standard relationship between a T and Bs is a fiduciary one.
159
Principal defence to an equitable proprietary claim
purchaser of a legal interest without notice of the trust (ie. bona fide purchaser for value without notice).
160
Legal advice on interpretation of trust terms
1. Seeking court directions.
2. Applying to the High Court under s48 Administration of Justice Act 1985 (‘AJA 1985’) to rely on Counsel’s opinion.
3. Surrendering their discretion to the court.
4. Obtaining beneficiary consent.
161
Legal Joint owners - Family homes
(stack v dowden)
1- Joint legal owner (starting point is that equitable title reflects legal title)
2- intention of the parties
> express
> inferred
Super hard to rebut presumption of intention.
> consider the whole course of conduct. 'holistic approach'
3- quantification (intention can be imputed)
> financial factors are taken into account
> common intention can be 'imputed': “what their intentions as reasonable and just people would have been had they thought about it at the time”
> detrimental reliance on the common intention
> Rigid separation of finances SvD
> interest can crystallise.
162
Sole legal ownership - family homes
How to establish common intention constructive trust?
1- common intention that they should have a beneficial interest; and
2- detrimental reliance upon that common intention
> actual or inferred intention.
163
Joint legal ownership - rebutting the presumption for joint equitable title
- intention can be ambulatory: interest can later crystalise.
- requires unusual facts and in exceptional cases.
- Contribution to purchase price unequally is not sufficient.
- requires strong evidence of common intention.
- primary purpose of the purchase can rebut the presumption.
164
Sole legal ownership
Family Homes
1- presumption of sole legal ownership
2- establishing an interest
(i) did the parties have a common intention for the non-legal owner to acquire a beneficial interest?
> actual or inferred from conduct
(ii) has that person relied on this to their detriment?
> detrimental reliance
3- Quantification: if the non-legal owner can establish an interest, what is the quantum of the interest as a proportion of the property?
165
Ownership v Occupation
Indicator words
Words indicating ownership:
- half yours
- 50:50
Insufficient for ownership
- family home
- benefit both of us
- you will be looked after
Excuses
- you're too young
- it's your divorce
166
Is a gift in a will to "all past and present employees of a company" valid if not all members can be traced?
BUT THERE IS A LIST OF ALL PRESENT AND FORMER EMPPLOYEES
Yes, the gift is valid because:
- The class of "past and present employees" is conceptually certain and identifiable.
- The presence of a complete record ensures practical certainty, even if not all individuals can be traced.
- Practical challenges in locating all beneficiaries do not affect the validity of the gift but may affect its execution.
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