Trusts Flashcards
(98 cards)
1
Q
When must a trust take effect?
A
The intention must be that it takes effect immediately, not at a future time. But a future interest can be trust property
2
Q
Precatory words - what do the courts look at to determine the settlor’s intent?
A
The courts will consider the wording of the trust document as a whole
3
Q
What happens to the property if the trust created is uncertain? e.g. to John in sincere hope he will use it for Jenny’s benefit
A
It passes as a gift to the person who would have been a trustee
4
Q
Will a trust to pay a “reasonable income” be valid?
A
Yes, as it is something which can be objectively defined by the Court
5
Q
What happens when a trust fails for lack of certainty - e.g. failure or certainty of object?
A
The property reverts to the settlor
6
Q
What should a trustee do if they are holding funds for a beneficiary who cannot be located?
A
The trustees should apply to the Court for directions
7
Q
When will a discretionary trust fail?
A
When the class of potential beneficiaries is so large as to be unworkable - e.g. “all or some of the inhabitants of West Yorkshire”
8
Q
Will a trust fail for want of a trustee?
A
No - the court can appoint a replacement trustee unless clear that the settlor intended it to be that specific one
9
Q
Are trustees required to act unanimously?
A
Yes
10
Q
How many trustees should a trust of land have?
A
2-4. (Can have a sole trustee, but two required to dispose of the land)
11
Q
What are the perpetuity rules for private trusts?
A
Must vest within 125 years
Inalienability rule for non-charitable purpose trusts - a human life in being + 21 years, up to 21 years
If no period is stated or ‘for as long as the law allows’, it is assumed to be for up to 21 years.
12
Q
What is the maxim for an improperly constituted trust?
A
Equity will not assist a volunteer
13
Q
What is Donatio Mortis Causa?
A
In this scenario a gift will be enforced if:
(1) the donee delivers the donor a gift while in contemplation of imminent death
(2) the intention is that the gift is conditional on death
(3) the donor dies
Constructive delivery = delivery of car keys or keys to a house
14
Q
When will the rule in Strong v Bird not apply?
A
If the donor’s intention changes between the initial intention to give and the donee’s appointment as personal representative (e.g. if a will is executed which changes the intended beneficiary)
15
Q
What are the rules surrounding secret and half secret trusts?
A
Secret trusts: communication need not be made before the will (can be after), but must be made before the donor’s death. Silence = implied acceptance. if the trust failed, the intended trustee keeps the property as though it had been a gift
Half-secret trust: identity must be communicated to the trustee at or before the making of the will. The language of the will must be consistent with this, i.e. cannot be a future intention or ‘which I may communicate to him’. If it fails, the trustee holds on resulting trust for the estate
16
Q
What is a vested and contingent interest?
A
Vested = no conditions attached Contingent = conditions attached
A minor has a vested interest but the property will be held on trust for them until they are 18. If they die before 18, the property passes to their estate.
If a contingent interest, the property does not pass to them when they turn 18 (it will pass when they fulfil the condition). If they die before they fulfil the condition, it passes back to the settlor’s estate
17
Q
What is a limited and absolute interest?
A
A limited interest = a life interest (interest in the income)
An absolute interest = an interest in the income and capital
18
Q
Can a beneficiary under a fixed trust enforce the trustee’s obligations?
A
Yes
19
Q
Can a discretionary trust be enforced?
A
Yes, each member has a right to enforce that the trust be acted upon, but they cannot insist that the discretion be exercised in their favour
20
Q
What are the three requirements for the rule in Saunders v Vautier?
A
- Absolutely entitled to the trust
- All of full capacity
- Unanimous decision
21
Q
When will the rebuttable presumption of a resulting trust apply?
A
- When someone transfers property to another for no consideration and there is no evidence for why it has been made. The recipient holds it on resulting trust for them.
- When someone provides purchase money but the legal title is transferred into only one name, the legal title is held on trust for that person. When both provide purchase money, but legal title only in one name, there is a resulting trust in proportion to their respective contributions.
The money must go towards the purchase price and must be supplied at or before the time that the transfer is made (NOT AFTER - no reimbursement)
22
Q
What is the burden of proof for proving a resulting trust?
A
The burden is on the Claimant to prove by clear and convincing evidence that they supplied the consideration
23
Q
When can the presumption of resulting trust be rebutted?
A
If the recipient can show that the money was given as a gift. loan or for payment of a debt
24
Q
When does the presumption of advancement apply and how can it be rebutted?
A
The presumption of resulting trust does not apply if the money was given by a husband/ fiancé, father or someone in loco parentis to the recipient - here a gift will be implied and it will be for the donee to evidence that they did not intend a gift but to maintain an equitable interest in the property
25
What evidence is permissible to rebut presumption of resulting trust/ advancement?
Acts and declarations made by the giver of the gift before or at the time of transfer (not after)
26
What are the requirements for a claim of proprietary estoppel?
- A representation was made / an assurance with given
- The claimant relied upon the representation or assurance
- The claimant incurred some detriment as a consequence of the reliance
It is not limited to financial detriment, can be time/efforts etc. If their claim is successful, they will not necessarily receive what was promised in the assurance, the court will determine
27
What is required for a common intention constructive trust
- The parties had an express or inferred common intention that C should have an equitable interest
- The Claimant relied to their detriment on the common intention
Express common intention: must have been actual discussions between the parties which relate to ownership of the land
Inferred common intention: this can be inferred from a direct contribution to the purchase price, mortgage payments, payment of household expenses so the legal owner could pay the mortgage, substantial renovations
The share will be determined based on the whole course of dealings. An agreement between the parties can be varied to reflect this.
28
What is the definition of a charitable trust?
Purpose must be charitable
Must be for the public benefit
Must be exclusively charitable
Public benefit test will not be satisfied e.g. with a trust for children of the employees of a company, unless for the relief of poverty (as long as individuals are not named)
It is ok if there is some incidental benefit to a private person
29
When will a trust for a political purpose be acceptable?
If the political activity is ancillary to the main charitable purpose - i.e. campaigning for low cost housing as part of a homelessness charity
30
Who enforces charitable trusts?
The public at large via the Attorney General
31
What are the perpetuity rules for charitable trusts?
The inalienability (21 years) rule does not apply, but the remoteness of vesting rule applies so that the initial gift must vest within the 125 years. However, a gift from one charity to another can take effect at any time.
32
What indicators are used to consider general charitable intention?
- If there is a specific named charity or detailed plans for the creation of a charitable trust, it is harder to find general charitable intention
- If there is more than one gift to charity, then general charitable intention more likely
33
What are Denley trusts?
Trusts which are purpose trusts but which are valid because they can be enforced by specific beneficiaries e.g. for the upkeep of a recreation or sports ground for my employees
34
What do honorary trusts apply to?
Trusts for specific animals, the saying of private masses, maintenance of specific graves or tombs
If the trustee refuses to carry it out, one will not be assigned, and a resulting trust will be implied in favour of the settlor's estate
35
Can a trustee disclaim or refuse an appointment?
Yes, for any reason
36
How many trustees are required for a trust?
No minimum or maximum for personalty
For land: 2-4 (two in order to give a valid receipt for the sale of land)
37
Can additional trustees be added after constitution?
Yes, by the other trustees (not by the settlor), but only to a maximum of 4
38
In what circumstances will a trustee be replaced?
When a trustee:
- Dies
- Refuses to act
- Remains outside the UK for more than 12 months
- Is unfit to act (e.g. is bankrupt)
- Is incapable of acting (e.g. mental incapacity)
- Wishes to be discharged
39
Who may appoint a replacement trustee?
The surviving trustees or if there are none, the PR of the last surviving trustee, if none, the court
40
When /how can the beneficiaries order a replacement of a trustee?
if they are all of full age and capacity and absolutely entitled to the trust property and act unanimously, and they must do so in writing
41
When will the court be able to appoint a new trustee?
Whenever it is inexpedient, difficult, or impracticable to do so without the assistance of the court
42
In what circumstances can a trustee retire?
- When they have the consent by deed of their co-trustees
- they leave in office at least two trustees
- if only one trustee would be left, they procure a replacement
43
When may a trustee be removed from office?
In all the same circumstances as replacement - by the beneficiaries (Saunders v Vautier), banktuptcy, incapacity, etc, by the Court where there has been a breach of trust
44
What happens when a trustee makes a profit from the trusteeship?
They hold the money on constructive trust for the trust fund (same applies to remuneration by being appointed a Director).
However, this does not apply if they would have been appointed as director even without the shares that came to them through the trust
45
In what situations may a trustee be remunerated for their trusteeship?
- Where there is a charging clause
- A professional trustee may charge as long as they are NOT the sole trustee and their co-trustees provide written consent
- A trust corporation may charge reasonable remuneration for its services
- If all beneficiaries are of full age and capacity, they can consent to the trustee receiving payment
- The court may authorise payment to a trustee when the trust is exceptionally onerous
46
Can a trustee ever purchase trust property and what happens if they try?
No, they cannot (unless in exceptional circumstances it is allowed by the court), and any such transaction will be voidable by the beneficiaries
47
What is the fair dealing rule?
It means that the trustee may purchase the beneficial interest of a beneficiary but only if they (i) paid a fair price (ii) made full disclosure of all material facts and (iii) in no way abused their position
48
What is the trustees duty of care?
Statutory duty (e.g. when making investments): trustees must exercise "such care and skill as is reasonable in the circumstances" taking into account any knowledge the trustee has or holds himself out as having. Professional trustees will be held to a higher standard.
General common law standard of care (e.g. for maintenance and advancement): Trustees must act with the "prudence of an ordinary man of business" acting in relation to their own affairs.
49
What is the duty to act jointly?
If there is more than one trustee, they must act jointly and decisions must be unanimous
50
What are the exceptions to the duty to act personally? (i.e. not to delegate)
- Purely administrative functions can be delegated to an agent (but must exercise due care in relation to choosing them)
- Can delegate investment decisions to an agent provided they supply a written policy statement for the asset manager to follow and exercise due care in choosing them
For these two, the trustee will not be liable as long as they acted according to their statutory duty
- An individual trustee can delegate their functions to another by power of attorney for a period of 12 months. The trustee remains liable for the acts and omissions of this person.
51
What is the duty to take possession of trust property?
Trustees must ensure that all trust property is in their joint possession and control. If there is more than one trustee but property is only in the control of one of then, the other trustees may be liable for that person's misappropriation.
52
What is the duty to keep accounts and disclose information?
The trustees must keep records and disclose them to the beneficiaries when requested
53
Do the trustees have a duty to act impartially between beneficiaries?
Yes
54
What are the key features of the duty to invest?
- Can make any investment that they would if they were absolutely entitled to the trust assets
- Can purchase freehold or leashold land in the UK for any reason (but NOT outside the UK)
- Must have regard to the standard investment criteria
- Must obtain and consider proper advice about how the power should be exercised
- Must keep investments under review
55
What is the standard investment criteria?
It means that the trustees must have regard for:
- The suitability to the trust of the type of investment proposed
- The need to diversify investments of the trust as far as appropriate to the circumstances of that trust
56
What are the rules regarding the taking of advice about investments?
- Trustees must take advice from someone they reasonably believe to be qualified to give it by reason of their ability and practical experience
- The test for this belief is subjective and objective: the belief needs to be genuine AND reasonably held
- The adviser does not need to have a professional qualification but need only be someone experienced in such matters
57
In what scenario will trustees not need to take investment advice?
Where the trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate
58
What is the standard of care when making investment decisions?
To act with such skill and care as is reasonable in all the circumstances
59
What are trustees duties when delegating investment decisions and will they remain liable?
The trustees may delegate investment decisions to an investment manager but they must prepare a written policy statement for the manager to follow, which must include full details of the trust and the investment objectives.
Provided that the trustees have complied with all of these requirements, they will not be liable for any losses where trust investments go down in value
60
When does the power of maintenance apply?
The power of maintenance only applies when a beneficiary has an interest in the income of the trust. It DOESN'T matter if they have contingent interest as long as it is in the income.
61
What does the power of maintenance require?
That the trustees MAY pay or apply the income of the trust for the child's maintenance, education or benefit as they see fit, and MUST accumulate any surplus income
Can also be paid directly to the parent or guardian for use in the beneficiary's interest
62
When is the beneficiary entitled to the income?
If they have a vested interest in the income (life interest) = they are entitled to claim the income arising once they turn 18 AND any income accumulated during their minority.
If they have a vested interest in income and capital = all trust property including any accumulated income must be paid to them once they turn 18
Contingent interest in capital = can claim the income arising after the age of 18 but the accumulated income will accrue to capital
63
What are the rules for maintenance for trusts created before October 2014
Before October 2014, the power to pay or apply income was only as much as was reasonable in all the circumstances
64
What is the power to advance capital?
The trustees can advance capital up to the beneficiary's presumptive entitlement as long as they have an interest in the capital (whether in possession or in remainder, vested or contingent) for the beneficiary's advancement or benefit in the trustee's absolute discretion
65
What three conditions apply for the power to advance capital?
- The amount must not exceed the presumptive entitlement of the beneficiary
- The amount already paid must be taken into account when distributing the trust property later
- The consent of a person with a prior interest must be obtained (i.e. someone with a life interest)
66
Does the power of advancement only apply to minor beneficiaries?
No, it can apply whether or not the beneficiary is a minor. However, if they are under the age of 18, they cannot give a valid receipt, and so it must be applied directly for the required purpose.
67
What were the rules about advancement of capital prior to October 2014?
Prior to October 2014, the advancement was limited to one-half of the beneficiaries interest. This no longer applies
68
Discretionary trusts: What is the one ground under which the beneficiaries can challenge the exercise of the trustees discretion?
Where the trustees have given the beneficiaries a legitimate expectation that their discretion will be exercised in a particular way. Then the beneficiary should be warned in advance if anything is going to change.
69
What documents are beneficiaries entitled to inspect?
Beneficiaries have a right to inspect trust documents, including minutes of trustees meetings, except where those documents contain details of the trustees discussions in relation to the exercise of their discretion
70
What may the beneficiaries due using the rule in Saunders v Vautier
- Appoint new trustees
| - Bring the trust to an end and require the trustees to transfer the trust funds to them
71
What is the standard applied when seeking to establish a breach of trust?
'Was the act one that the trustee was authorised to perform by the trust instrument or by law?' If not, there has been a breach of trust
72
May trustees offset losses from a breach of trust against gains from the trust?
Generally no - the beneficiaries would be entitled to keep the gains and to sue for the loss, unless there is a linked scheme of investments
73
Is a trustee vicariously liable for the acts of their co-trustee?
No, only the trustee responsible for the loss will be liable UNLESS the other trustee is therefore in breach of their own duty to supervise the activities of the trustee in breach
74
Where two trustees are in breach, is liability joint and several?
Yes
75
When will a trustee not be liable for a breach?
If the beneficiary had knowledge of all material facts and consented to the action that gave rise to the breach, they cannot later sue the trustees in relation to that breach
76
When does liability for breach of trust begin to run for a remainderman?
Not until their interest falls into possession
77
What is the normal limitation period and when will it not apply?
6 years
if remainder man, time starts to run from when their interest falls into possession
There is no limitation period if there has been a fraud
There is no limitation period for a tracing action to recover property
78
Do exclusion clauses apply to breach of trust?
Yes - they strictly construed but will be enforceable if there is no bad faith. If there is fraud or an intentional breach then they will NOT apply
79
When will courts order relief from liability?
If they believe the trustee has acted honestly and reasonably and ought fairly to be excused
80
Can the Court apportion liability between trustees?
Yes, they may apportion liability however it seems just and equitable in the circumstances
81
When can one trustee claim an indemnity against another?
The court can order one trustee to indemnify the other where (1) one trustee was alone guilty of fraud or was a solicitor who advised the breach or (2) one trustee was a professional trustee while the other was a lay trustee (unless the lay trustee also caused the breach)
82
Tracing - what may the beneficiaries do if the trustee has replaced trust property with another asset?
They may claim the new asset or a charge over it for the amount of the lost asset
83
Tracing - what can the beneficiary do if the trustee has combined trust funds with their own funds to purchase an asset?
The trustees may claim a share of the asset in proportion to the amount of trust money used, or claim a charge over the asset for the amount of trust property used
84
Tracing - what happens if a trustee has mixed trust money with their own money in a bank account?
The trustees may claim a charge over the bank account for the amount of trust funds in it
The trustee is treated as having withdrawn their own money first
85
Tracing - when will the rule that the trustee is treated their own money first be suspended?
This will happen when the trustee draws money out to purchase an asset before dissipating the rest of the trust money in the account. In this situation, the trustee is not treated as spending their own money first, and the beneficiaries can claim the asset or a charge over it
86
Tracing - if trust money has been dissipated and then replaced with the trustees own money, can it be recovered?
No. The beneficiaries can only claim the 'lowest intermediate balance' - i.e. the balance after the last payment out of the account but before the next payment in.
However, the beneficiaries would still have a personal claim against the trustee
87
Tracing - What happens if the trustee purchases an asset from mixed funds of two trusts?
The beneficiaries of the two trusts share the asset proportionately
88
Tracing - what happens if two trust funds are mixed in the trustees current account?
The first in, first out rule applies - the money drawn out first represents the trust money that was paid in first
89
Tracing - when will the first in, first out rule be displaced?
If this is (1) contrary to the express or implied intentions of the claimants (2) it is impractical to apply the rule or (3) applying the rule would cause injustice to the parties
In these circumstances, the courts will divide the money proportionately
90
Tracing - what rule is applied when two trust funds are mixed in a savings account?
The proportionate solution. i.e. the beneficiaries of each trust can claim a proportionate amount of the balance in the account or the asset purchased
91
In what scenario may a beneficiary not make a proprietary/personal claim against a third party?
If they are a bona fide purchaser for value without notice of the trust
92
What claim can be made against an innocent volunteer recipient?
A proprietary claim only:
if the property is in its original form then the beneficiaries may claim the asset
If a new asset has been purchased from trust funds and their own funds, then a proportionate share of the asset may be claimed (no option to claim a charge)
if trust funds are mixed with the volunteer's funds in their bank account - either the first in, first out rule or the proportionate solution is applied, depending on what is equitable
93
When will someone be a knowing recipient of trust funds?
If they had sufficient knowledge a to make it unconscionable for them to retain the property
94
When will unconscionability be found in relation to a knowing recipient?
- If they had actual knowledge
- If they willfully closed their eyes to the obvious
- Failed to make such enquiries as an honest and reasonable person would
- Had knowledge of circumstances which would indicate the facts to an honest and reasonable person
- Knowledge of circumstances which would put an honest and reasonable person on inquiry
95
What claims can be brought against a knowing recipient?
They will be treated in the same way as a trustee would, so a personal or proprietary claim can arise and the same tracing rules apply
96
What is a dishonest assistant/ accessory?
Dishonesty = not acting as an honest person would in the circumstances. They do not have to have known they were participating in a breach of trust, but merely that they were assisting in a dishonest scheme
97
What claim may be brought against a dishonest assistant?
A personal claim (a proprietary claim is not relevant as they did not receive trust property)
98
What is a defence to a personal claim in equity?
The the claimant did not come to equity with clean hands and must not have been guilty of any unreasonable delay in bringing their claim (laches)
