Trusts Flashcards
1
Q
How is a trust declared over land?
Trusts 1
A
- must comply with s 53(1)(b) Law Property Act
- must be **evidenced in writing **and signed by the settlor
- the trust must be executed in a deed
- the document must state it is a deed
- person making the deed must sign it in the presence of a witness
- executed deed must be given to the Land Registry
*note Hudson v Hathaway (2022) - deed can be executed by email
1
Q
What are the three certainties?
Trusts 2
A
In order for a trust to be valid the three certainties must be satisfied: s
- certainty of intention
- certainty of subject matter
- certainty of objects
2
Q
What is certainty of intention?
A
- relates to the wording of the declaration of trust
- words must impose a duty on the trustee to hold property for someone else
* obligatory / mandatory wording should be used and not wishful or hopeful
3
Q
What is certainty of subject matter?
A
- relates to trust property
- trust property must be described with certainty
- beneficiaries interests must be described with certainty
- trust property must be identifiable
4
Q
What is certainty of objects?
A
- depends on the type of trust
- fixed interest trusts must satisfy the complete list test (the complete list test must satisfy conceptual certainty / individual certainty)
- discretionary trusts must satisfy the given postulant test
- if there is no certainty of objects there will be a resulting trust in favour of the settlor
5
Q
What is a fixed interest trust?
A
- trustees have no discretion as to how trust property is distributed and in what amounts it is distributed
6
Q
What is the complete list test?
A
- must be possible to draw up a list of each and every beneficiary
- if beneficiaries are described as a class of people the description must satisfy:
- conceptual certainty: class must be capable of objective definition
- evidential certainty: is there evidence to identify all the beneficiaries that will benefit?
7
Q
What is the given postulant test?
A
- given postulant = an individual
- can it be said with any sufficient certainty whether an individual is or is not a member of a class?
- conceptual certainty needed / evidential certainty not needed
8
Q
What is administrative unworkability?
A
- discretionary trust must overcome administrative unworkability
- discretionary trust will be invalid if class is so wide that it does not form anything like a class
9
Q
What is a bare trust?
A
- trust for a **sole, mentally capable adult **that gives the beneficiary a vested interest
- a beneficiary of a bare trust will be absolutely entitled to the trust property
- bare trust will also arise where a beneficiary under a contingent / successive interest trust becomes solely entitled
10
Q
Can an email be used to declare a trust over land?
A
- relevant case is Hudson v Hathaway [2022]
- an email is a written document
- typing of name at the end of the email will constitute a signature
- entering the email address of the settlor will not constitute a signature
11
Q
When is an express trust enforceable
an express trust is a trust that the settlor intends to create
A
- when the settlor makes a valid declaration of trust
- when the trust is constituted
- a trust is constituted when title to the property held in the trust is put into the hands of the trustee
12
Q
What is capriciousness?
A
- discretionary trusts cannot be capricious
- a discretionary trust will be capricious if:
- there is no rational reason for the trust
- no rational basis on which trustees can exercise their discretion to distribute the trust property
13
Q
How is a trust constituted that involves money?
A
- money passes with delivery so legal title of monies will pass to the trustee when it is handed over
- if money is transferred electronically:
- legal title passes once monies have arrived into trustee’s bank account - if money is transferred by cheque:
- legal title passes once cheque has been cleared
14
Q
How is a trust constituted that involves shares?
A
To transfer legal title to a 3rd party the settlor must:
* execute a **stock transfer form **
* give executed stock transfer form and share certificate to the trustee
* or send directly to the new company
15
Q
How is a trust constituted that involves chattels?
chattles are anything that is tangible in nature (ie jewellry)
A
- title passes with physical delivery of the asset
16
Q
Equity will not assist a volunteer
A
- a volunteer is someone that does not provide consideration for the transfer of the property to them
- if settlor has not properly followed the rules to transfer the property then no trust is constituted
- there are two exceptions to the rule that equity will not assist a volunteer:
- the every effort test
- the rule in Strong v Bird
17
Q
What is the every effort test?
A
- if settlor does everything they can to transfer title then transfer can be regarded as complete but:
- settlor must have put the property being transferred beyond recall
- must have passed the point of no return
- all that remains is the act of a 3rd party
18
Q
What is the rule in Strong v Bird?
Se
A
Applies where settlor wants to create a trust with someone else as trustee but does not transfer title during lifetime. All four factors must be present:
- settlor inteded to create immediate trust with 3rd party acting as trustee;
- trust not immediately created due to failure to comply with relevant transfer rule;
- settlor’s intention continued until death;
- intended trustee acquired legal title by becoming settlor’s executor / administrator
19
Q
How is a trust constituted where settlor and 3rd party both act as trustees?
A
- settlor must take steps to transfer legal title from sole name into the names of the other trustees
- trust will constitute if it becomes unconscionable to back out
20
Q
What is a vested interest?
A
- beneficiary exists and has an unconditional interest
- if beneficiary is a minor, trustees will hold interest on trust until beneficiary turns 18
21
Q
What is a contingent interest?
A
- the beneficiary’s interest is contingent upon the happening of some future event that might happen
- if beneficiary dies before contingency is met then interest goes back to settlor (unless settlor provides interest passes to someone else)
22
Q
What is a successive interest trust?
A
- example: “I give my shares in Legal and General plc to my trustees to hold on trust for my wife, Amy, for life, remainder to my son Joshua
- separates trust capital from income
- Amy has limited interest to trust income during lifetime
- Adam has vested interest in capital
Adam has a vested interest in trust capital (not contingent). Amy’s death is a certainty and is bound to happen.
23
Q
What is the rule in Saunders v Vautier?
A
- applies to trusts with more than one beneficiary
- beneficiaries can end the trust by calling for transfer of trust property to them
- beneficiaries must be:
- in existence / ascertained
- aged 18+
- all agree
24
**What is a purpose trust?**
* Settlor wants to set up a trust **carry out a purpose / advance a cause**
* general rule is that purpose trusts are void for offending the beneficiary principle
25
**What is the beneficiary principle?**
*
* trusts are generally only valid if they have beneficiaries who can go to court to enforce them
26
**What is a charitable trust?**
* trust must be for a **charitable purpose**
* must have **sufficient public benefit**
* must be **exclusively charitable**
27
**When is a charitable trust exclusively charitable?**
* trust with **charitable / non-charitable purposes will not be charitable**
* trust **must not have political purposes**:
- must not support a poitical party
- campaigning for a change in the law
- change in government policy
28
**When will a charitable trust have sufficient public benefit?**
* trust must have an **identifiable benefit / benefits **
* benefit must **accrue to the public or a sufficiently large section of the public**
* benefit of the trust **must be clear**
29
**What is the personal nexus test?**
* applies only to trusts for the **advancement of education**
* beneficiaries cannot be linked by a personal nexus
* a personal nexus is **anyone who is linked by a relationship to a particular individual or a company** (ie family / common employment)
* this is **not a sufficient section of the public**
30
What is the rule against perpetuities?
* rule against perpetuities: **trust property cannot be locked away for too long**
* Also known as inalienability of trust capital
* non-charitable purpose trusts are void for offending the rule against perpetuities unless:
- trust states that **it is to last for no more than 21 years**
- solicitors will often state 'for as long as the law allows' in trust deeds
- trustees **spend all the trust capital on its purpose which ends the trust at the time**
31
**When is a non-charitable purpose trust valid?**
If a purpose trust is not charitable it will only overcome the beneficiary principle if:
* it is a ***Re Denley*** trust
* **a trust of imperfect obligation**
32
**What is required for a Re Denley trust?**
* the purpose of the trust must **be sufficiently clear**
* the purpose of the trust **must give rise to a sufficiently tangible benefit**
* person(s) who stand(s) to benefit **must be conceptually certain**:
- they must satisfy the given postulant test
- description of persons must be conceptually certain
* trust **must not offend the rule against inalienability of trust capital**
33
**What is a trust of imperfect obligation?**
Predominantly includes:
* trusts to care for specific animals
* trusts to maintain graves and tombs
34
**Can a trust of imperfect obligation be enforced?**
* a trust of imperfect obligation is valid but unenforceable
* no human beneficiary can enforce the trust and they therefore offend the beneficiary principle
* if anything settlor or residuary beneficiary can go to court to claim trust property
35
**Can you create a resulting trust when voluntarily transferring land?**
* there is **no presumption of resulting trust arising out of a voluntary transfer of land**
* resulting trust for a voluntary transfer of land can still arise but **court will need some evidence or additional factor**
* **no presumption of resulting trust in the absence of evidence**
36
**How does a purchase money resulting trust arise?**
* A purchases property from B and puts the property in the name of C
* C will have legal title and A will have equitable title
* May be **presumption that A intended C to hold property on resulting trust for A**
* If resulting trust created A **will own the entire equitable interest**
37
**What is the presumption of advancement?**
* applies in some voluntary transfer / purchase money cases
* equity regards transferor as being under a moral obligation to provide for transferee:
- father to child
- person in loco parentis to child (acting as a parent)
- husband to wife
- fiance to fiancee
* there is no presumption of resulting trust - if property passes between these individuals it is presumed that the transferor intends to gift to the transferee
38
**Can the presumption of advancement be rebutted?**
Presumption of advancement can be rebutted but:
* there must be evidence of the transferor's intention **before or at the time of transfer**
* transferor **cannot rely on evidence of acts / declaration occuring after the transfer**
* is there evidence at the time of transfer that something else was intended? If so, presumption of advancement can be rebutted
39
**When does the presumption of advancement not apply?**
* does not apply if roles are reversed ie wife gifts property to husband
* resulting trust would apply
* NB where a voluntary transfer of land occurs there is no presumption of a resulting trust
40
**Does a presumption of resulting trust apply when transferring personalty?**
* if A transfers personalty they own to B for free, a presumption of resulting trust will generally arise4
* B will hold the legal title / A will hold the equitable title
* presumption of resulting trust can be **rebutted by evidence of A's intention**
* **underlying presumption of resulting trust only applies where there is no evidence (words / conduct) of giving party's intention**
41
**Can there be a resulting trust of the family home?**
* resulting trust **only focuses on contributions to the purchase price made at the same time as the purchase itself**
* **Payment of ancillary items** (deposit, stamp duty, legal fees) **do not count**
* resulting trust of the family home **only recognises monetary contributions** ie. domestic contributions are ignored.
42
**How is an express trust of the family home created?**
* if there is an express trust then beneficial interests will be set out in the declaration of trust
* declaration of trust must be:
- evidenced in signed writing
- comply with s 53(1)(b) LPA 1925
43
**How is a common intention constructive trust created *where the house is jointly owned?***
* if one partner claims shares are unequal onus is on them to prove that court should depart from general rule that shares are joint / equal
* they can do this by:
- proving an express agreement between the partners as to how beneficial interests would be shared
- allowing the court to infer common agrement / common intention over time - ie partner finances extension
44
**How will the court infer a common intention constructive trust *where the house is jointly owned?**
where there is no express agreement or the court cannot infer the parties' intentions the court will:
* **survey the whole course of dealing between the parties**
* **ascertain what is fair having regard to the course of dealing**
45
**How does the court quantify the share in a CIT *where the house is jointly owned*?**
* court will award shares that it considers **fair having regard to the whole course of dealing between the parties**
* court will take into account:
- advice / discussions at time of purchase
- nature of relationship
- how the parties arranged their finances
- how they arranged their outgoings
46
**How is a common intention constructive trust created *where the house is solely owned*?**
| Method 1 - express common intention + detrimental reliance
* involves an **express oral agreement / understanding** between the couple that the house is to be shared beneficially and both parties would have an interest
* claiming party needs to show that **they have acted to their detriment**
* there **must be express common intention + detrimental reliance**
## Footnote
Note Hudson v Hathaway
47
**How is *Hudson v Hathaway* relevant to Method 1 (express common intention + detrimental reliance)?**
* detrimental reliance can be **non-monetary and domestic**
* it must be **substantial**
48
**What are the requirements for proprietary estoppel?**
* prevents someone from going back on their word in relation to property when it would be unfair for them to do so
* **assurance**: can be active or passive / legal owner must have made a representation or created / encouraged an expectation
* **detriment**: claiming party must show they acted to their detriment
* **reliance**: assurance must cause claiming party to act to their detriment
49
**How can a trustee retire?**
* retirement of trustees covered by s 36(1) TOLATA
* s36(1) **cannot be used by beneficiaries**
Who appoints the new trustee?
* person nominated in trust
* if no person appointed in trust then **continuing trustees can appoint**
* includes retiring trustee if willing to join in the appointment
* appointment **must be in writing**
* **advantageous to use a deed** as automatically vests trust property in continuing / new trustees
50
**Can a trustee retire under s 36 without being replaced?**
there must be:
* two trustees or a trust corporation left
* trustees retire by deed
* other trustees consent by deed
51
**When can additional trustees be appointed?**
* governed by s 36
* **cannot be used by beneficiaries**
who makes the appointment?
* person nominated in the trust instrument
* if none continuing trustees
* trust **cannot appoint more than 4 additional trustees**
* appointment **must be in writing**
* **advantageous to use a deed**
52
**When can the court appoint additional trustees?**
s 41 Administration Justice Act
* court will appoint a new trustee **if it is expedient to do so**
* must be **inexpedient, difficult or impractical to appoint without the court's assistance**
53
**When can beneficiaries direct a trustee to retire?**
* s 19 TOLATA allows beneficiaries to serve a written direction on trustee / trustees to retire and appoint person specified in direction
* only applies if beneficiaries are:
- **full age**
- **capacity**
- **absolutely entitled**
| NB: trust instrument can exclude s 19
53
**What must the trustee do following receiving a written direction?**
Following written direction a trustee must retire by deed if:
* **reasonable arrangements** have been made to protect their rights
* after the retirement there will be **two trustees / trust corporation left**
* **another person is appointed to replace them**
* **trustees consent by deed** to retirement
54
**When can a trustee be removed?**
Trustee can be removed under s 36(1) if trustee is:
* dead
* remains outside the UK for more than 12 months
* refuses to act
* unfit to act
* incapable of acting
* a minor
## Footnote
NB: s 36 cannot be used by beneficiaries
55
**When can trustees pay income / capital to beneficiaries?**
* Settlor may expressly provide in trust that trustees can pay income / capital to beneficiaries
* if no provision Trustee Act 1925 gives trustees powers to pay income / capital early to beneficiaries
56
**Paying income to beneficiaries under s 31 Trustee Act 1925**
* trustees have power to use income to pay for the **maintenance, education and benefit of a beneficiary under 18**
* following conditions must be satisfied:
- **no contrary provision in declaration of trust**
- **no other prior interests in income**
57
**What are key considerations when applying income for minor beneficiaries?**
* cannot be used for a beneficiary where someone has a **prior interest in income**
* exercise of trustee power is **discretionary**
* any monies should be **paid direct to beneficiary's parent / guardian**
58
**When are trustees under a *duty* to pay income to beneficiaries?**
* **adult contingent beneficiaries** are entitled to trust income as it arises
* trustees **must pay income** pending vesting of beneficial interests
* **discretionary power ceases when beneficiary reaches 18**
* trustees have a duty to pay trust income to beneficiary as it arises and **until contingency is reached**
59
When is there a duty to pay capital to beneficiaries?
* if there is another beneficiary with a prior interest any advancement of capital can only take place if:
- **prior interest holder is an adult**; and
- has given **written consent** to advancement
- payment must be for beneficiary's advancement / benefit
60
**How much capital can trustees advance?**
* trusts created **after** 1 October 2014 - advance payment **must not exceed beneficiary's entitlement**
* trusts **on or before** before 1 October 2014 - trustees **can only advance half** of beneficiary's entitlement
61
**What are the trustees' duties when starting out?**
A newly appointed trustee must ensure:
* they have been **properly appointed**
* ascertain what the **trust property consists of**
* take all **reasonable / proper measures to take control of trust property**
* **review trust documents** and associated paperwork
* **enquire into past business** to ensure no breach
* where there are chattels held on trust to **draw up an inventory**
62
****Do trustees have a duty of care?
Trustees must:
* take **all precautions which an ordinary prudent man of business** would take
* when **managing similar affairs of his own**
* this is an **objective standard** but could be higher for professional trustees
62
**What are the main duties that a trustee has?**
* duty of care
* duty to act fairly between beneficiaries
* duty to act personally and unanimously
* duty to exercise discretions properly
63
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What is the duty to act fairly between beneficiaries?
* trustees **must act fairly** and **in the interests of each beneficiary**
* trustees **must not benefit one beneficiary at the expense of another**
64
**What is the duty to act personally and unanimously?**
* trustees must **take reasonable and proper measures to take control** of trust property
* trustees **must take decisions unanimously** unless trust document states otherwise
* trustees must **act personally**
* trustees **must be active in running the trust** and and cannot sit back
65
**How can trustees comply with their duty to exercise discretions properly?**
* **beneficiaries cannot compel** trustees to exercise discretionary powers in a particular way
* beneficiaries **can intervene if trustees exercise power improperly**
* trustees must exercise power:
- in good faith
- rationally
- for the purpose it was created
- with regard to all relevant matters
- with regard to all relevant facts
66
**When do trustees need to give reasons for their decisions?**
* trustees **do not need to give reasons** for their decisions
* if they do decide to give reasons, the b**eneficiaries and the court can enquire into the soundness** of the decisions
* trustees must give **advance warning if exercising power differently from legitimate expectation of beneficiary **
67
**When do trustees need to disclose information?**
Beneficiaries are entitled to see:
* trust documents
* will that created the trust
* schedule of trust investments
* other documents that show how trust property is created
* **beneficiaries cannot demand documents that record trustee deliberations** on the exercise of a discretion / power
67
**What do trustees have to take into consideration when investing trust property?**
* investments must be suitable for the trust
* trustees **must diversify their investments to minimise** the chance of losing their investments in one asset
68
**What investments can trustees make?**
* can make any kind of investment **as if absolutely entitled**
* can **purchase land in the UK for any purpose**
* must have regard to standard investment criteria (**suitability and diversification**)
* when selecting / reviewing investments trustees **must obtain and consider proper advice**
* trustees **must review investments from time to time**
* trustees **must seek best financial return**
69
**When can trustees appoint an agent to make decisions?**
* trustees can select a suitably qualified agent to carry out asset management functions
* agent **must be appointed in writing with a written policy statement**
* **must review** agent's actions from time to time
* trustees **not liable for defaults of the agent **but **can be liable for breach of appointment process**
70
**What are trustees main considerations when making investments?**
Trustees must:
* **act impartially** between beneficiaries
* **strike a fair balance** between the needs of all beneficiaries
* **secure the best return** for beneficiaries
* **not be guided by their own moral / ethical views** but must have regard to the morals / ethics of the trust
71
**When can trustees keep personal profits?**
* if authorised by the declaration of trust
* all beneficiaries are aged 18+, know the full facts and consent
* if authorised by a court order / statutory provision
71
**What is self-dealing?**
* occurs where trustee is tempted to sell or purchase property from the trust
* **beneficiaries can set aside** transaction if trustee is involved
* must be **set aside within a reasonable timeframe**
71
**When can trustees be renumerated?**
Trustees **cannot demand payment** for their services from trust funds unless authorised by:
* **express provision in trust deed**
* **beneficiaries consent**
- beneficiaries must be at least 18 years
- agreement must be fair
- trustees must disclose all relevant facts
* **court order**
* **Trustee Act 2000**
* if the trustee is not a sole trustee they can only charge if the **other trustees consent**
72
Can trustees exploit an opportunity / use information that they could have only obtained through their roles as trustees?
* trustee is liable to account for any profits they receive where **they have received profit by exploiting an opportunity belonging to the trust **(ie becoming aware of an investment that they would not have become aware of had they not been a trustee)
* if trustee is looking to exploit opportunities that belong to the trust they **will need authorisation of beneficiaries aged 18+**
73
Are trustees liable for another trustee's breach of trust?
* trustees are **not automatically or vicariously liable** for defaults of co-trustees
* if more than one trustee has breached the trust then **liability is joint and several**
* beneficiaries can choose to **bring a claim against all or an individual trustee**
74
When is there a breach of trust?
* beneficiaries **must establish causation** and that the **breach of trust caused the loss suffered**
* must satisfy the **'but for'** test
* beneficiaries can recover compensation equal to the loss of the trust
* can also **claim interest from date of breach**
75
**What defences are there to a breach of trust**
* s 61 Trustee Act
* knowledge and consent of beneficiaries
* exemption clauses
76
**When can trustees bring a personal claim?**
* applies where a **trustee's wrongdoing causes the trust to suffer a loss**. Claim can be brought against the trustees personally
* trustees **must satisfy the claim from their own personal funds or property**
77
**When is a personal claim not advantageous or appropriate?**
* if the **trustee is insolvent**. If claim is brought beneficiary will be an unsecured creditor in any bankruptcy.
* where the **trustee has bought something that the beneficiary considers attractive** (ie shares which have doubled in value). Beneficiary **should bring a proprietary claim** to recover the shares
* if the trustee's **wrongdoing has happened some time ago**. **Personal claims are sometimes statute-barred** six years after the breach.
78
**Defences to a personal claim
s 61 Trustee Act 1925**
* court has discretion under s 61 to relieve trustees from liability wholly or in part
* trustee must have acted honestly and reasonable
* courts are reluctant to excuse trustees who sit around and do nothing to administer trust ('passive trusts')
79
**Defences to a personal claim
Exemption clauses**
* settlor can include an express clause in trust deed which exempts trustees from liability for breach of trust
* can relieve trustees from liability for negligent or innocent breaches but **cannot apply to fraudulent breaches**
80
**Defences to a personal claim
Knowledge / consent of the beneficiaries**
* beneficiaries can consent **before or after breach**
* consent **must be fully informed and freely given**
* a **minor cannot give valid consent**
* consenting beneficiaries **must be adults of full capacity**
81
**What is the relevance of s 1 Civil Liability Act?**
* court can order a co-trustee to make a contribution that is **just / equitable having regard to the extent of that co-trustee's responsibility for the loss**
* contribution can be **anything up to 100% of the compensation ordered**
82
**What is the limitation period for personal claims?**
* personal claims are subject to a **6 year limitation** (does not **apply to fraudulent breaches**)
* limitation **runs from date of breach**
* in regards to a minor, the **period runs when they reach the age of 18**
* for remainder beneficiaries, **limitation period runs when interest falls into possession**
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