Equity - chapters 1-4

Question 1

What are the different ways of referring to ‘property’ for the sake of a trust?

Answer 1

Trust property/ trust fund/ trust capital

Question 2

What are the three essential characteristics of a trust?

Answer 2

a) a duty is imposed on a trustee
b) to deal with property over which the trustee has control
c) for the benefit of beneciaries who can enforce the duty

Question 3

What does a trust do to interests in property?

Answer 3

Splits the legal interest from the beneficial (or equitable interest)

Question 4

Name four beneficiary rights

Answer 4

1. Proprietary right in the trust fund
2. Personal right to enforce trustees’ duties
3. Trust property is preserved for the beneficiaries if a trustee goes bankrupt
4. Right to recover trust property wrongfully given to a third party

Question 5

What are three duties of trustees?

Answer 5

1. Distrubute trust fund in accordance with declaration of trust
2. Make good any loss in value of the trust fund
3. Invest the trust fund (may mean that the property held on trust changes over time)

Question 6

What’s an inter vivos trust?
How is it created?

Answer 6

1) Valid declaration of trust
2) Property must be transferred to trustee (won’t apply if settlor makes themselves the trustee)

Question 7

How is a valid wills trust created?

Answer 7

1) Valid declaration of trust in a valid will
2) Direction in the will that places trust property in the hands of the trustee

Question 8

Is ‘in equal shares’ fixed interest or discretionary?

Answer 8

Fixed interest

Question 9

Three certainties

What are the three certainties?

Answer 9

1. Intention
2. Subject
3. Object

Question 10

Three certainties

What is required for certainty of intention?

Answer 10

Must impose a duty on a trustee to do something with the property on behalf of someone else.

Question 11

Three certainties

Facts in Paul v Constance (cohabitees)

Answer 11

Cohabitee was awarded half the money in her partner’s bank account when he died, because he had made clear that he had intended to hold it on her behalf.

Question 12

Three certainties

For certainty of subject matter, is it necessary to know who gets what?

Answer 12

Yes: what’s the actual stuff, and what of the actual stuff goes to who.

Question 13

Three certainties

Will:
a) ‘bulk of my estate’ or
b) my residual estate
be sufficiently certain?

Answer 13

a) - no
b) - yes, can be precisely calculated

Question 14

Consequences of lack of certainty of subject matter?
a) if settlor was trustee
b) if third party trustee was to have gift of some and be trustee of the rest

Answer 14

Settlor was trustee: they remain the outright owner
Third party trustee was to have a gift of some and be trustee of the rest: third party takes entire property absolutely.

Question 15

Three certainties

Certainty of subject: 50 bottles of wine from my cellar - certain?

Answer 15

No

Question 16

Certainty of objects

What are the two elements of certainty of objects in a fixed interest trust?

Answer 16

Must have conceptual certainty, and evidential certainty.

Question 17

Certainty of objects - fixed interest

When might a fixed interest trust fail for lack of evidential certainty (certainty of objects)?

Answer 17

e.g. where there’s no evidence to show who meets a requirement: ‘all ex-employees of co. ltd’ , but there’s no record of them

Question 18

Three certainties - certainty of object

What’s the test for certainty of object in a fixed interest trust?

Answer 18

Complete list test: must be able to draw up a list of all the beneficiaries.

Question 19

Three certainties - certainty of object

If locating a particular beneficiary is difficult, will a fixed interest trust fail for lack of certainty of object?

Answer 19

Not if there is conceptual/ evidential certainty

Question 20

Three certainties - certainty of object

What’s the test for certainty of object in a discretionary trust?

Answer 20

Given postulant: can we say with certainty whether a particular person does or does not fall within the given class?

Question 21

Three certainties - certainty of object

What are the two limits on certainty of object in discretionary trusts?

Answer 21

Administrative unworkability ‘all the past and former residents of West Yorkshire. Smaller the trust fund, more likely there is to be administrative unworkability.
Capriciousness - if no rational reason for the trust

Question 22

Three certainties - certainity of objects

Do a) fixed interest, and b) discretionary trusts require evidential certainty?

Answer 22

a) yes
b) no

Question 23

Creation of a valid trust

What’s the name of the rule limiting perpetuity. What’s the rule?

Answer 23

Rule against remoteness of vesting: beneficial interest must vest within 125 years.

Question 24

What is required for a will trust to be valid?

Answer 24

Must be contained in a valid will, which includes a direction that legal title is to be transferred to the trustees.

Question 25

# Creation of a trust a) What's key difference between establishing a valid trust created orally vs valid trust created in writing? b) Do settlor's exact words need to be established?

Answer 25

a) If an oral declaration, court can take into account evidence of B's subjective intentions and subsequent conduct. b) S's exact words don't need to be established

Question 26

# Creation of a trust How will court consider whether there was a valid oral declaration of trust if S's exact words can't be established?

Answer 26

Gist of S's words will be examined: on balance of probabilities, did S's words demonstrate an intention to declare a trust?

Question 27

# Declaration of trusts - formatlities What are the requirements for a valid trust over land? What's the authority?

Answer 27

s 53(1)(b) LPA 1925 Must be **evidenced** in writing, and signed by the settlor.

Question 28

# Declaration of trust - formalities For the purposes of a trust over land, can an email be 'in writing?'

Answer 28

Yes - email is a written document.

Question 29

# Establishing valid declaration of trust How can an email comply with s 53 (1)(b) LPA? (4)

Answer 29

* Email is viewed as a written document. * Typing of name constitutes a signature, whether full name, first name only, initials, or nickname * Signature block will count as a signature, particularly where there's a common salutation above it * Email address of settlor is not a signature by itself

Question 30

# Establishing valid declaration of trust What does A have to prove to establish valid declaration of trust? (Written) Inadmissible evidence?

Answer 30

* S signed a document (question of fact) * Properly interpreted, document constitutes a declaration of trust * Evidence of S's subjective intentions/ subsequent conduct are irrelevant

Question 31

# Establishing valid declaration of trust What does A have to prove to establish valid declaration of trust? (Oral) Inadmissible evidence?

Answer 31

* A has to prove what S said (question of fact) - if not exact words, gist of the words used may be sufficient * A has to show that this demonstrated an intention to declare a trust (question of fact) * Evidencce of S's subjective intentions and subsequent conduct are admissible

Question 32

# Trusts - formation When will a trust be completed?

Answer 32

1. Valid declaration 2. Constitution

Question 33

# Trusts - formation What happens if a trust is: a) declared but not constituted? b) constituted, but without a valid declaration

Answer 33

a) no trust exists - settlor remains absolute owner b) resulting trust: trustees hold on trust for settlor

Question 34

# Trusts - formation What is constitution?

Answer 34

Settlor either a) transfers assets, or b) declares themself to be a trustee

Question 35

# Trusts - formation When will a trust over land be constituted? (3)

Answer 35

Once: a) declaration evidenced in writing b) transfer executed by deed, satisfying requirements of the LP(MP)A c) deed sent to LR, who will then register trustee as the legal owner

Question 36

# Trusts - formation What are the two methods of transferring shares? | What types of shares are they each for?

Answer 36

1. CREST system (for certain shares in public quoted companies) 2. Outside the CREST system (all other shares)

Question 37

# Trusts - formation What's the CREST system?

Answer 37

* Computerised system for transferring shares * Usually managed by a stockbroker

Question 38

# Trusts - formation How are shares transferred outside of the CREST system? What three things need to be done, and by whom?

Answer 38

* evidenced by a share certificate, and owner of shares being included in co.'s register of members * S must execute a stock tranfer form * S must give stock transfer form and share certificate to co. (directly or via trustee) * co. secretary will register trustee as new shareholder

Question 39

# Trusts - formation When is a trust of money constituted if: a) cash? b) by bank transfer? c) by cheque?

Answer 39

a) title passes on delivery b) title passes once money arrives in trustee's bank account c) title passes once cheque clears. Cannot be cashed after S's death

Question 40

# Trusts - formation How is a trust over chattels constituted?

Answer 40

Legal title passes by physical delivery, or by a deed (which must be witnessed and signed by a third party).

Question 41

# Trusts - formation What does 'equity will not assist a volunteer' mean for constitution of a trust?

Answer 41

Beneficiaries are the volunteers - they've given no consideration for transfer of property. Equity won't usually step in if trust has not been properyl constituted.

Question 42

# Trusts - formation What are the two exceptions to 'equity will not assist a volunteer' for formation of trusts?

Answer 42

1. Every effort test 2. Rule in Strong v Bird

Question 43

# Trusts - formation What's the 'every effort' test? (3)

Answer 43

* S did everything they could to transfer property * Property must have passed 'beyond recall' - all that remains is the actions of a third party * Will most likely apply where trust property is shares or land

Question 44

# Trusts - formation What is the rule in Strong v Bird for?

Answer 44

Steps in to consitute a trust in certain circumstances - exception to 'Equity will not assist a volunteer'

Question 45

# Trusts - formation When will a trust be constituted by the rule in Strong v Bird?

Answer 45

If an intended trustee becomes a PR on the death of a settlor, trust will be considered constituted if: a) S intended to create an immediate trust with a third party acting as a trustee b) trust was not immediately created due to failure to comply with transfer rules c) S’s intention continued up to their death d) intended trustee acquires legal title to the trust property by becoming a PR

Question 46

# Trusts - formation What happens if a settlor declares themselves and a third party to be the trustees? What happens if S dies prior to constitution?

Answer 46

* S must take steps to transfer legal title to themselves and the other trustee(s) * Duty bound to do so once trust is declared - would be unconscionable for them not to * If S dies before complying with transfer rules, executor must transfer legal title to other trustees

Question 47

# Trusts - beneficial entitlement What's a shares dividend?

Answer 47

A sum of money paid regularly by a company to its shareholders, out of its profits

Question 48

# Trusts - beneficial entitlement What's the difference between capital return and income return?

Answer 48

Capital return = underlying value of the property Income return = money (or a monetary equivalent) received from property on a regular basis.

Question 49

# Trusts - beneficial entitlement What's a capital gain?

Answer 49

An increase in the underlying value of an asset

Question 50

# Trusts - beneficial entitlement What's the a) capital b) income in a house

Answer 50

a) market value of the house b) rent, if house is let

Question 51

# Trusts - benefical entitlement What's the a) capital b) income in shares?

Answer 51

a) market value of the shares b) dividends

Question 52

# Trusts - beneficial entitlement What's the a) capital b) income in a bond?

Answer 52

a) market value of the bond b) coupon

Question 53

# Trusts - beneficial entitlement a) What's a bond? b) What's a coupon?

Answer 53

a) an IOU instrument issued by a borrower b) a regular repayment on the loan, plus interest

Question 54

# Trusts - beneficial entitlement What's the a) capital b) income in a bank account?

Answer 54

a) balance on the account b) interest paid

Question 55

# Trusts - beneficial entitlement What's the a) capital b) income in an antique?

Answer 55

a) market value of the antique b) none

Question 56

# Trusts - beneficial entitlement 1. What's a 'limited' interest?' 2. What's an 'absolute' interest?

Answer 56

1. Interest in income only 2. Interest in income and capital

Question 57

# Trusts - beneficial entitlement What are the three different types of interest in a fixed-interest trusts?

Answer 57

1. Vested 2. Contingent 3. Successive

Question 58

# Trusts - beneficial entitlement What happens to a vested interest if the beneficiary dies?

Answer 58

It passes to their estate

Question 59

# Trusts - beneficial entitlement 1. How is a vested interest dealt with if beneficiary is a minor? 2. Terminology? 3. What happens when they reach the age of 18?

Answer 59

1. Trustees will hold property on trust until they reach the age of 18 2. Once they are 18, they can 'give good receipt', and discharge trustees from the trust 3. Trust does not come to an end automatically - trustees will hold the property until beneficiary requests transfer

Question 60

# Trusts - beneficial entitlement What's a contingent interest?

Answer 60

* one which is conditional on the occurence of a future event which *might not happen*, or * an interest held by a beneficiary who doesn't exist yet (i.e. for a grandchildren who don't exist yet)

Question 61

# Trusts - beneficial entitlement 1. When will a contingent interest become vested? 2. What happens if beneficiary with a contingent interest dies?

Answer 61

1. Once beneficiary fulfils the necessary condition 2. Trust will result back to settlor, unless trust provides for it to pass to someone else

Question 62

# Trusts - beneficial entitlement What's another name for a successive trust? What is it?

Answer 62

Life interest trust. e.g. 'I give my house to my trustees to hold on trust for my wife for life, remainder to my son'

Question 63

# Trusts - beneficial entitlement What does it mean to be 'in possession'?

Answer 63

To enjoy trust income/ have the 'use and enjoyment' of the property

Question 64

# Trusts - beneficial entitlement 'House to my trustees to hold on trust for my wife for life, remainder to my son, Adam'. Describe wife's interest (four elements)

Answer 64

1. Vested 2. Limited (i.e. income only) 3. Life interest (lifetime tenant) 4. In possession

Question 65

# Trusts - beneficial entitlement 'House to my trustees to hold on trust for my wife for life, remainder to my son'. Is son's interest vested or contingent? Why

Answer 65

Vested interest in trust capital, which is *postponed* until wife's death. Not contingent, because death is a certainty.

Question 66

# Trusts - beneficial entitlement 'House to my trustees to hold on trust for my wife for life, remainder to my son'. Describe son's interest (three elements). What happens if son dies before wife?

Answer 66

1. Vested interest in trust capital, which is 2. Postponed until wife's death 3. Interest is in 'remainder' If son dies before wife, beneficial interest forms part of his estate

Question 67

# Trusts - beneficial entitlement Example of a contingent interest in remainder? What if it fails?

Answer 67

a) 'To my wife for life, remainder to my son, should he reach the age of 25' b) If it fails, remainder results back to settlor

Question 68

# Trusts - beneficial entitlement a) What's a bare trust? b) What are trustees' responsibilities?

Answer 68

a) Trust for a sole, adult, mentally capable beneficiary with a vested interest. Said to be 'absolutely entitled'. b) To handle the trust property as dictated by the beneficiary.

Question 69

# Trusts - beneficial entitlement What power does the beneficiary of a bare trust have?

Answer 69

Can require trustee to convey the property to them, thus bringing the trust to an end.

Question 70

# Trusts - beneficial entitlement Two examples of when a bare trust might exist

Answer 70

1. If property is shares, stockbroker will hold portfolio on trust so as to take quick decisions without needing to go back to the client 2. When a beneficiary who had a contingent interest because solely entiltled

Question 71

# Trusts - beneficial entitlement What's the basic premise of the rule in Saunders v Vautier?

Answer 71

In certain circumstances, the beneficiaries of a trust can bring the trust to an end and call for the property to be transferred.

Question 72

# Trusts - beneficial entitlement If Saunders v Vautier, will trust property be divided according to the settlor's original intentions?

Answer 72

Not necessarily - benficiaries can agree to property being shared out however they direct.

Question 73

# Trusts - beneficial entitlement What are the requirements for the rule in Saunders v Vautier? | i.e. three requirements of the beneficiaries

Answer 73

Any individual who could possibly become entitled under the Trust must: a) exist b) be aged 18 years of over, and have capacity; and c) agree to what is being proposed to bring the trust to an end

Question 74

# Trusts - beneficial entitlement What is the basic pre requisite for a trust to be brought to an end under Saunders v Vautier? | i.e. nature of beneficiaries' interest

Answer 74

Between them, the beneficiaries must be absolutely entitled, i.e. there cannot be anyone else who might at some future point have an interest in the fund.

Question 75

# Trusts - beneficial entitlement Can Saunders v Vautier ever be applied where there are a) discretionary b) contingent interests?

Answer 75

a) yes b) yes, but note that if all of the interests are contingent at the relevant time, then the trust still has the potential to result back to the settlor/ their estate. In that scenario, the beneficiaries are NOT absolutely entitled, so rule will not apply

Question 76

# Charitable and non-charitable purpose trusts What's the beneficiary principle?

Answer 76

Generally, trusts only valid if they have beneficiaries who can go to court to enforce them: purpose trusts violate rule.

Question 77

# Trusts Is ‘I give £400,000 on trust to my Trustees to promote good citizenship amongst my relatives’ a valid declaration of trust?

Answer 77

No - it's a purpose trust

Question 78

# Charitable and non-charitable purpose trusts What's the rule against perpetuities? Another term for it?

Answer 78

Principle that property should not be locked away in a trust for too long. Rule against inalienability of capital

Question 79

# Charitable and non-charitable purpose trusts When will a non-charitable purpose trust **not** offend rule against alienability of capital?

Answer 79

If either: a) trust states that it is to last for no more than 21 years (or 'for as long as the law allows'); or b) trustees may spend all the trust capital on the purpose and can therefore end the trust at any time

Question 80

# Charitable and non-charitable purpose trusts What must a non-charitable purpose trust do to be valid. What are the two examples?

Answer 80

Overcome the beneficiary principle, and the rule against inalienability of capital. a) re. Denley trust; b) trust of imperfect obligation

Question 81

# Charitable and non-charitable purpose trusts What's a Re Denley trust? Quote re. the principle it's overcoming?

Answer 81

Overcomes the beneficiary principle by identifying the specific people who will benefit from the particular purpose - i.e. people identified will have standing to enforce trustees' duties. Said to be 'outside the mischief of the beneficiary principle'

Question 82

# Charitable and non-charitable purpose trusts What are the requirements for a valid Re Denley trust?

Answer 82

1. Purpose of the trust must be sufficiently clear, and give rise to a sufficiently tangible benefit 2. Persons who stand to benefit must be ascertainable 3. Trust must not offend rule against inalienability of capital (i.e. less than 21 years in duration, or trustees can bring to an end by spending all the capital)

Question 83

# Charitable and non-charitable purpose trusts Re Denley - what does it mean that persons who stand to benefit must be ascertainable?

Answer 83

Given postulant test. Description must therefore be conceptually certain.

Question 84

# Charitable and non-charitable purpose trusts What are two examples of a trust of imperfect obligation? Whay would such a trust not usually be valid?

Answer 84

1. Trust to care for a specific animal 2. Trust to maintain a particular grave or tomb Violates beneficiary principle - no humans able to enforce

Question 85

# Charitable and non-charitable purpose trusts How is a trust of imperfect obligation treated? (3) Any requirements?

Answer 85

* Treated as valid, but unenforceable. * Trustees are entitled to spend the money as directed, but, they can't be compelled to do so * If trustees don't spend the money as directed, settlor (or residuary beneficiary of their estate) can go to court to claim trust property. Must comply with the rule against inalienaility of capital.

Question 86

# Charitable purpose trusts Who is the object in a charitable trust?

Answer 86

The purpose

Question 87

# Charitable purpose trusts From which two rules are charitable trusts exempt?

Answer 87

Beneficiary principles, inalienability of capital

Question 88

# Charitable purpose trusts Who a) enforces b) regulates charitable trusts?

Answer 88

a) Attorney General b) Charity Commission

Question 89

# Charitable purpose trusts What are the three conditions for a charitable trust? Source?

Answer 89

Charities Act 2011. Trust must: a) be for a charitable purpose b) have sufficient public benefit c) be exclusively charitable

Question 90

# Charitable purpose trusts Name three examples of a 'charitable purpose' in the CA 2011

Answer 90

1. Prevention of or relief from poverty 2. Advancement of religion 3. Advancement of education

Question 91

# Charitable purpose trusts What does 'prevention of or relief from poverty' mean?

Answer 91

Likely to be charitable to relieve the financial hardship of anyone who does not have the resources to provide themselves with the normal things in life that most people take for granted (e.g. asylum seekers, homeless people, victims of natural disasters, etc.)

Question 92

# Charitable purpose trusts What is included in 'advancement of education'?

Answer 92

* Scholarships * Museums and libraries * Payment of teachers and administrative staff * Research

Question 93

# Charitable and non-charitable purpose trusts What's the definition of religious belief for the purposes of a charitable trust?

Answer 93

A belief that there is more to be understood about mankind’s nature and relationship to the universe than can be gained from the senses or from science

Question 94

What's is meant by 'advancement of religion'?

Answer 94

* Taking positive steps to sustain and increase religious belief * Provision for future services/ maintenance of places of worship/ distribution of publications

Question 95

# Charitable and non-charitable purpose trusts What are the general elements for a trust having a 'public benefit'?

Answer 95

Trust must have an identifiable benefit or benefits, and the benefit must accrue to the public or a sufficiently large section of the public.

Question 96

# Charitable purpose trusts What is an 'identifiable benefit?' (3)

Answer 96

Benefit of the trust must be clear Benefit must relate to the purposes of the charity Clear primary benefit must outweigh any potential detriments.

Question 97

# Charitable trusts What's an example of a easily established benefit to the public?

Answer 97

A public museum

Question 98

# Charitable purpose trusts If benefits are only to a specific group, what constitutes a sufficient section of the public?

Answer 98

Will depend on the purpose - different rules for each

Question 99

# Charitable purpose trusts When will the benefit be for a sufficient section of the public if for it's for the alleviation of poverty? (2)

Answer 99

* Rule is generous * A trust relieving property amongst 'my relatives' will usually be upheld even if it benefits only a small number of individuals, because alleviation of poverty generally considered an important objective

Question 100

# Charitable purpose trusts When will the benefit be for a sufficient section of the public if for it's for the advancement of religion? (2) When will it probably not?

Answer 100

Either: a) place of worship is open to all; or b) members of the relevant congregation ‘live in this world and mix with their fellow citizens’ i.e. contemplative religions that don't interact with the outside world unlikely to have a public benefit

Question 101

# Charitable purpose trusts What are the three rules re. benefit to a sufficient section of the public if it's for 'the advancement of education and other charitable purposes'?

Answer 101

a) personal nexus (i.e. relationship to a specific person or company) b) class within a class c) must not exlude the poor

Question 102

# Charitable purpose trusts What's the 'class within a class' rule (re. charitable trust to advance education/ other charitable purposes)?

Answer 102

Class of people who can benefit from a charitable purpose can be limited, so long as those limits are legitimate, proportionate, rational or justifiable given the nature of the charitable trust. (e.g. a geographical limit if the trust is to create a building). Any restrictions cannot be arbitrary.

Question 103

# Charitable purpose trusts What's the exclusion of the poor rule (re. charitable trust to advance education/ other charitable purposes)? (3)

Answer 103

* Any fees charged for a service must be ploughed back into the charitable purpose * If an institution charges fees so high that they can only be met by richer members of the society, that might affect its charitable status * Can be offset by scholarships/ other accessbility programmes

Question 104

# Charitable purpose trusts What are the two limbs of 'exclusively charitable'?

Answer 104

1. Trust must not have political purposes 2. Any profits from fees must be ploughed back into the trust, not paid to private individuals

Question 105

# Charitable purpose trusts Key aspects of the rule against a trust having a political purpose (4)

Answer 105

* Includes supporting a political party, or campaigning for a change in the law/ government policy * Bodies that have a mixture of charitable and political purposes will not be given charitable status * Charities can engage in political activities that are ancillary or incidental to their main charitable purpose – i.e. are a means of achieving the main charitable purpose – so long as they do not become the dominant means by which the charity carries out its purpose

Question 106

How can an organisation that charges fees retain its charitable status?

Answer 106

By ensuring that profits are ploughed back into the charitable purpose, rather than being used to profit individuals.