Trusts Flashcards

Question

What happens where the settlor appoints themselves and someone else to immediately act as trustee

Answer 1

the settlor must take steps to transfer legal title from their sole name into the joint names of the settlor and the other trustees they must still comply with the transfer rules for each type of property when doing this (e.g. land, shares, money and chattels)

Answer 2

- it would be unconscionable to back out of the trust - you cannot deny the existence of the trust - you are duty bound to take the necessary steps to comply with the transfer rules

Answer 3

interest in capital and the income = absolute interest interest in income = limited interest

Answer 4

- any contingencies on receiving the entitlement - capital and/or income

Answer 5

- if that beneficiary exists and does not have to satisfy any conditions imposed by the terms of the trust before becoming entitled to trust property - unconditional interest - if the beneficiary dies before the trust property is paid over to them, the trust property will belong to the beneficiary’s estate and will pass in accordance with their will (or intestacy) - until a beneficiary turns 18, the trustee will hold the property on trust for them NOTE - Once a beneficiary turns 18 years, that does not automatically bring a trust to an end. The trustees will continue to hold the property on trust for the beneficiary until the beneficiary requests that the trust property be transferred to them. Until that happens, the trustees will hold the property on a ‘bare trust’

Answer 6

it is assumed the beneficiary is entitled to both

Answer 7

- if it is conditional upon the happening of some future event that may not happen, or if the beneficiary is not yet in existence - once the beneficiary satisfies the condition, the beneficial interest vests in them and they have a vested interest - If a beneficiary dies before the happening of the stipulated event, their interest will go back to the settlor unless the settlor has provided that the beneficial interest should pass to someone else.

Answer 8

EXAMPLE: 'I give my shares in Aviva plc to my Trustees to hold on trust for my wife, Yara, for life, remainder to my son Adam.’ - Yara is the life tenant and her interest is the life interest - Adam is the remainderman and his interest is said to be in remainder - until Yara dies, Adam is said to have a vested interest - if Adam died before Yara, his interest does not fail - when Yara does eventually die, the trust property will go to Adam's estate (NOTE: it is not contingent because contingent interests are where the event might not happen, however the life interests death will always happen at some point but if you wanted to you could create a contingent interest with the remainder e.g. the shares are with Yara for life, the remainder to my son when he reaches 25 NOTE: if Adam died before Yara in these circumstances, the remainder interest would fail and would go back to the settlor on a resulting trust)

Answer 9

- may receive rental income from the property - they may have the 'use and enjoyment of the property'

Answer 10

Until the trustees exercise their discretion to distribute property to particular members of the class, no individual member of that class has a beneficial entitlement to the trust fund. in the period in which the distribution of the trust is pending, the people in the class are known as 'objects' of the trust

Answer 11

yes e.g. ‘I give my shares in Kingfisher plc to my Trustees to hold on trust for my wife, Francesca, for life, [fixed interest trust - lifetime interest] remainder to such of my children [remaindermen] as survive my wife and in such shares as my Trustees in their discretion see fit’ [as they see fit = discretionary]

Answer 12

beneficiaries of a trust, if they are of full age (18), of sound mind, and together entitled to the entire beneficial interest in the trust property, can direct the trustees to terminate the trust and transfer the property to them

Answer 13

ALICE - LIFE TENANT: - vested - possessory - limited (to income from the trust property or ability to live in it rent free during her life time) GRANDCHILDREN - REMAINDERMEN: - vested (because Alice's death is not a future event that may not happen - it will) - postponed - absolute

Answer 14

yes - brian has satisfied the condition of reaching 25 years > his share is vested - if charles and david died tomorrow, their interests in the trust fund would go to brian

Answer 15

they are a kind of express trust and therefore require: a declaration of trust + assets to have been moved into the trust

Answer 16

(a) the beneficiary principle, which requires that trusts ordinarily directly benefit individuals; and (b) the rule against perpetuities (in this case, the rule against inalienability of capital), which requires that property should not be locked away in the trust for too long.

Answer 17

1. the three certainties (intention, subject matter and object) 2. the beneficiary principle (trusts must usually benefit individuals) 3. perpetuities 4. formalities e.g. if it is a trust of land the declaration of trust must comply with s 53 (1) (b) LPA 1925

Answer 18

the beneficiary principle = duty to look after the trust property for the benefit of individuals and they can go to court to enforce these duties purpose trusts offend the ben. principle because there is no individual who can go to court to enforce the trust as a general rule, purpose trusts are usually void R v Shaw

Answer 19

- usually the law allows a settlor to lock away their trust property for up to 125 years - non- charitable purpose trusts are void for offending the rule against inalienability of capital (i.e. locking he capital away for too long) unless either: (a) the trust states that it is to last for no more than 21 years (in trust deeds, solicitors will often state that the trust will last ‘for as long as the law allows’ – this means the same thing); or (b) the trustees may spend all the trust capital on the purpose and thereby end the trust at any time.

Answer 20

a) is invalid because it offends the rule against alienability of capital. if the trust said maintain the changing rooms for as long as the law allows / for no more than 21 years = valid b) valid because although it doesn't state no more than 21 years, the trustees may spend all the trust capital on the purpose and therefore end the trust at any time (this is the second exception)

Answer 21

the attorney general

Answer 22

the Charity Commission

Answer 23

(a) the trust must be for a charitable purpose; (b) the trust must have sufficient public benefit; and (c) the trust must be exclusively charitable.

Answer 24

- 13 charitable purposes are listed in s 3(1) CA - to be charitable, a trust must seek to promote or attain at least one (can be more than one) of these purposes - some of the charitable purposes: a) the prevention or relief from poverty - poverty doesn't necessarily mean destitution - could include the unemployed, build hostels for asylum seekers or to help people who become impoverished due to famine or natural disaster b) advancement of education - scholarships, museums, libraries, payment of teachers and admin staff - can include research so long as the research is useful and the results are published c) the advancement of religion - to maintain places of worship or to publish and distribute religious publications

Answer 25

(a) the trust purpose must have an identifiable benefit or benefits; and (b) the benefit must accrue to the public or a sufficiently large section of the public: i) the prevention or relief from poverty - A trust to relieve poverty amongst named individuals is not charitable. - However, a trust to relieve poverty amongst ‘my family’ or ‘my relatives’ is charitable. - This is generally justified on the ground that the prevention of poverty is such an important objective that anything that seeks to achieve it should be upheld even if the benefit only extends practically to a small number of individuals. This generous rule only applies to trusts for the prevention or relief of poverty. ii) The advancement of religion. Public benefit will be present if either: (a) the place of worship is open to all, even if only a small number attend; or (b) whilst the place of worship is not open to all, members of the relevant congregation ‘live in this world and mix with their fellow citizens’ HOWEVER Contemplative religious orders that are cloistered and have no contact with the outside world are not charitable iii) The advancement of education and other charitable purposes iv) Charitable trusts must not exclude the poor. - A charitable institution can charge fees for the services it provides, so long as any profits are ploughed back into the charitable purpose. - However, if an institution charges fees that are so high, they can only be met by richer members of society, this is likely to affect its charitable status. - Independent Schools Council v Charity Commission

Answer 26

- numerical number of people who benefit must not be negligible - also various tests to overcome: 1. 'personal nexus test' People linked by a personal nexus are not a sufficient section of the public (usually family and employment) e.g. ‘I give £250,000 to my Trustees for the education of the children of employees of Red Anchor Limited’. 2. The ‘class within a class’ test. - The 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. - geographical location usually legitimate and rational - ‘I give £350,000 on trust for the building of sheltered accommodation for the elderly residents of Lewisham’ - arbitrary restrictions = not permitted - In IRC v Baddeley (2 separate restrictions, one was legitimate the other was arbitrary)

Answer 27

- A trust with both charitable and noncharitable purposes will not be charitable two different limbs: (a) to be charitable, a trust must not have political purposes; and - e.g. supporting a political party or campaigning to change the law - McGovern v Attorney General NOTE Charities can engage in political activities that are ancillary or incidental to their main charitable purpose so long as they do not become the dominant means by which the charity carries out its purpose. (b) if a charitable organisation charges fees, the profits from those fees must be ploughed back into the trust rather than be paid over to private individuals (such as the owners of the organisation).

Answer 28

This is a charitable trust: * The purpose is to relieve poverty, and therefore falls within s 3(1) of the Charities Act 2011. * It exists for the public benefit. Relieving poverty is a clearly identifiable benefit; identifying a class of people who might benefit – even a class as small as ‘my relatives’ – is sufficient (listing my relatives as named individuals would not be). * It is exclusively charitable . The fact that my trustees can only use the income (with the result that the trust is capable of lasting in perpetuity) does not render the charitable trust invalid as such trusts are immune from the rule against inalienability of capital.

Answer 29

This is not a charitable trust as the main purpose is political – the trust is seeking to change the law.

Answer 30

(a) it is a Re Denley trust; or (b) it is a trust of imperfect obligation.

Answer 31

If the declaration of trust identifies the people who will benefit from a particular purpose then problems with the beneficiary principle can be overcome – the people identified in the declaration of trust will be given standing to enforce the trustees’ duty to apply trust property to achieve the stated purpose and the court can therefore control the trust.

Answer 32

- Sufficiently tangible benefit - to an identifiable group of people (satisfy the any given postulant test and the description of people must be conceptually certain) - the trust MUST NOT OFFEND the rule against ALIENABILITY OF CAPITAL, ie it must be limited to 21 years in duration or the trustees must be able to spend all the trust capital on the purpose and bring the trust to an end.

Answer 33

These trusts include: (a) trusts to care for specific animals, such as a favourite pet; and (b) trusts to maintain graves and tombs. In both cases, there is no human beneficiary who can enforce the trust and they therefore offend the beneficiary principle. These trusts must comply with the rule against inalienability of capital.

Answer 34

valid but unenforceable For instance, if I leave £225,000 to my trustees to spend it on looking after my dog Bouncer: * the trust is valid, so if my trustees spend the money on looking after my dog Bouncer, noone can complain; but * the trust is unenforceable, so if my trustees do not spend any money on my dog Bouncer, no- one can go to court to compel them to do so. The accepted view in these situations is that the settlor (or, more likely, the residuary beneficiary of the deceased settlor’s estate) can go to court to claim the trust property for themselves.

Answer 35

(a) situations that might give rise to a presumption of resulting trust; (b) situations that might give rise to the countervailing presumption of advancement (or gift); and

Answer 36

- presumption in favour of a resulting trust - e.g. A transfers shares to B > presumption = B is holding the shares on resulting shares for A - the presumption in favour of a resulting trust can be rebutted where there is evidence (words or conduct) of A's actual intention

Answer 37

- presumption in favour of a resulting trust is less likely to apply in these scenarios - it is still possible for a resulting trust to arise out of a voluntary transfer of land, but the court would need some evidence or additional factor (eg that the transferor and transferee are strangers) to arrive at that conclusion - can be rebutted by evidence of A's actual intention

Answer 38

- presumption in favour of a resulting trust - this means even if A purchases property and puts it in the name of B, it is still presumed that B is holding the property on trust for A - can be rebutted by evidence of A's actual intention

Answer 39

- presumption in favour of a resulting trust - means if A contributes and the land or other kind of property and it is put in the name of B, it is presumed the property is held on resulting trust for both A and B - the proportion of A and B's beneficial interest under the resulting trust will be proportionate to the size of their contributions However, for a contribution to give rise to a presumption of resulting trust, that contribution must be: (a) contemporaneous with the purchase – it does not count if someone tries to make a ‘contribution’ after the event; and (b) directed towards the actual purchase price itself – if X pays the price tag and Y pays the lawyers’ fees in relation to their advice on the purchase, only X’s contribution counts.

Answer 40

When the presumption of advancement applies, there is no resulting trust and the transferor is presumed to be gifting property to the transferee.

Answer 41

It applies in cases of voluntary transfers and provision of purchase money: (a) from father to child (the child here can be either a minor or an adult); (b) from person in loco parentis to child. A person in loco parentis is effectively a guardian who has taken on the responsibility to provide financially for a child. This responsibility generally finishes when the child reaches the age of 18 years; (c) by husband to wife; and (d) by fiancé (male) to fiancée (female), so long as the couple subsequently marry. NOTE the presumption does not apply when any of the above roles are reversed

Answer 42

the evidence to rebut an underlying presumption must be of the transferor’s intention BEFORE OR AT THE TIME of transfer

Answer 43

- the beneficial interest goes back to the settlor (the resulting trust is implied in favour of the settlor) - sometimes called automatic resulting trusts - if the settlor has died the beneficial interest goes to the beneficiary of the settlor's residuary estate e.g. - a contingent interest fails - no certainty of subject matter - non-charitable purpose trust that offends the rule against perpetuities - offends the beneficiary principle - lack of certainty to beneficiaries interest

Answer 44

TR1 form (remember legal title can only be held as JT's but you could choose to put in the TR1 form how the equitable interests were held)

Answer 45

- the declaration of trust - to be enforceable, the declaration of trust must be evidenced in signed writing in order to comply with s 53(1)(b) of the LPA 1925

Answer 46

- proportion of purchase price = proportion of your interests in the property what about non-financial contributions? or financial contributions made after the purchase e.g. through mortgage payments? or ancillary financial contributions e.g. lawyers fees

Answer 47

equity follows the law so however the legal title is held = same this is an implied trust

Answer 48

written or oral agreement "this house is as much mine as it is yours" or draft conveyancing documents doesn't matter how imperfect or imprecise the details are Financial contributions towards the house (eg paying off some of the mortgage or paying for improvements/ alterations to the home) and/ or substantial payments of housekeeping expenses certainly suffice. Non- monetary, ‘domestic’ contributions (such as giving up a job to look after children) may well suffice, but the position here is less clear- cut. non-financial contributions need not be sufficient, so long as they are SUBSTANTIAL

Answer 49

(a) advice or discussions at the time of purchase; (b) the reasons why the home was transferred into their joint names; (c) the nature of the partners’ relationship; (d) whether they had children for whom they had a responsibility to provide a home; (e) how the purchase was financed, both initially and subsequently; (f) how the partners arranged their finances; and (g) how they discharged the outgoings on the home and other household expenses.

Answer 50

the party claiming they should have a bigger beneficial interest

Answer 51

significantly altering your position

Answer 52

if previous draft agreement = implemented if no evidence of what shares were intended for each party = the court will award such shares as it considers fair having regard to the whole course of dealing between the partners in relation to the property

Answer 53

proprietary estoppel - prevents someone from going back on their word in relation to property, when it would be unfair or unconscionable to do so It is commonly relied on when a relative or friend has been assured by the legal owner of the family home that the home ‘will be yours when I die’, only to find that the legal owner has subsequently left the home to someone else in their will.

Answer 54

ADR (a) Assurance - created or encouraged an expectation that the claiming party would become entitled to an interest in land. - either words or conduct (b) Detriment - The detriment need not consist of the expenditure of money, so long as it is something substantial. - e.g. spending money on improving property, working without adequate renumeration, giving up a job and moving to a new area, looking after someone who is gravely ill (especially if that involved giving up more remunerative employment) - the detriment that the claiming party has received must be weighed against any benefits they have obtained (c) Reliance - The assurance and detriment must be connected to each other - the assurances don't have to be the sole reason

Answer 55

common intention constructive trust, if established, guarantees the claiming partner a beneficial share in the homE Vs proprietary estoppel gives the court a discretion over the remedy that the claiming partner will be awarded (which might be much more than a beneficial share – such as a transfer of the entire freehold – or much less).

Answer 56

1. If the claiming party’s conduct is inequitable or unconscionable (must come to equity with clean hands) 2. An unreasonable delay in bringing a claim in proprietary estoppel may defeat the claim. Equity does not assist a party who has failed to assert their rights within a reasonable time – ‘delay defeats equity’.

Answer 57

(a) transfer of the legal ownership in land; (b) grant of a lease; (c) some right of occupancy (eg the right to live in a house rent-free for life); (d) financial compensation; or (e) a beneficial share in the home.

Answer 58

Yes, because there was an express understanding that she was to have an interest on which she relied.

Answer 59

- two trustees or a trustee corporation - must have at least one note, express trusts usually have a mix of land and personalty so it is always best to have two trustees also practically speaking it is best to have two trustees regardless of the rules because then they can keep an eye on one another max number of trustees = 4

Answer 60

Trustee Act 1925

Answer 61

can retire without replacement if: (a) there will be two trustees or a trust corporation left (b) the trustee retires by DEED (c) the other trustees consent by deed - if above not applicable and need to appoint replacement - deed - usually appointed by the continuing trustee

Answer 62

A retiring trustee remains liable for their own breaches but will not be liable for future breaches unless they retired to facilitate the breaches.

Answer 63

* Grounds for replacing a trustee: (a) the trustee is dead (b) remains outside the UK for more than 12 months (c) desires to be discharged (retire) (d) refuses to act (disclaims) (e) is unfit to act (f) is incapable of acting (eg mental or physical incapacity) (g) is a minor. TRUSTEES CAN ONLY REMOVE FELLOW TRUSTEES IF THEY APPOINT REPLACEMENT - new appointment > deed

Answer 64

- court will get involved where application made by trustees or beneficiaries the court will remove + replace the said trustee where: i) expedient to do so AND ii) it is otherwise inexpedient, difficult or impractical to appoint without the court’s assistance. - only remove a trustee if it is not in the best interests of the trust for them to continue - mere dislike of a trustee is generally insufficient

Answer 65

- serve a written direction on a trustee or trustees to retire - then appoint someone new * s 19 applies only if the beneficiaries are of full age and capacity and taken together are absolutely entitled to the trust property (test in Saunders v Vautier) * Following a valid written direction, the trustee MUST RETIRE BY DEED if: (a) reasonable arrangements have been made to protect their rights; (b) after their retirement there will be two trustees or a trust corporation left; and (c) another person is appointed to replace them or the continuing trustees consent by deed to their retirement.

Answer 66

Section 36(6) of the TA 1925 * Who makes the appointment? - The person nominated in the trust instrument or, if none, the continuing trustee(s). - remember there can be no more than 4 trustees via deed

Answer 67

Section 41 of the TA 1925 * Grounds? - The court will appoint a new trustee if it is expedient to do so and it is otherwise inexpedient, difficult or impractical to appoint without the court’s assistance. - The court makes the appointment following an application by the trustees or the beneficiaries.

Answer 68

- written direction on current trustees requiring the appointment of an additional trustee * rule in Saunders v Vautier must apply e.g. if none of the beneficiaries have vested interests = wont be able to appoint - additional appointment = deed

Answer 69

- The delegation should be MADE BY DEED in the form prescribed under s 25 of the TA 1925 - The delegation can run for a period of 12 months - Written notice about the delegation must be given to all other trustees and any other person with the power to appoint new trustees within 7 days of delegation - The trustee will automatically become vicariously liable for the acts or defaults of the attorney as if they were the acts or defaults of the trustee

Answer 70

- If two or more trustees are appointed, they will hold legal title to trust property as joint tenants, with the result that if one dies, the legal title will devolve to the surviving trustees - If there is only one surviving trustee left, that trustee should be advised to appoint a replacement trustee under s 36(1) of the TA 1925 to ensure the continuity of trust administration.

Answer 71

- s 31 of the TA 1925 = trustees have the power to use income to PAY FOR THE MAINTENANCE, EDUCATION + BENEFIT of a beneficiary under the age of 18 years so long as the following conditions are satisfied: (a) there is NO CONTRARY PROVISION in the declaration of trust; and (b) the trustees can only exercise this power in favour of minor beneficiaries who have some kind of INTEREST, whether vested or contingent, but not where there are any ‘prior interests’ to income i.e you cannot use s 31 where someone else is a life tenant because the trustees must pay income to the life tenant - any income shouldn't be paid directly to the minor beneficiary, instead it should be paid to their parents or the provider of the maintenance, education or benefit - this is for practical and legal reasons (being that a minor cannot give good receipt) - note s31 gives trustees the power to apply trust income in this way but they are not obliged to do so - they cannot be compelled - this power is at their discretion

Answer 72

- Adult contingent beneficiaries are entitled to trust income as it arises and trustees MUST pay that income to them, pending the vesting of their beneficial interests - If an adult contingent beneficiary dies before the condition is satisfied, their estate will receive nothing (no capital and no accumulated income)

Answer 73

1. there is NO CONTRARY provision in the declaration of trust 2. The beneficiary has an INTEREST in capital vest or contingent) 3. The payment must be for the beneficiary’s ADVANCEMENT OR BENEFIT 4. trusts created after 1 October 2014 = advance payment must not exceed the beneficiary’s entitlement. - trusts created on or before 1 October 2014 = ADVANCE UP TO HALF 5. The payment is TAKEN INTO ACCOUNT when the beneficiary becomes entitled to trust capital. 6. If there is a beneficiary with a prior interest, an advancement to another beneficiary can only take place if the prior interest- holder is an adult and has given WRITTEN CONSENT to the advancement. - if the beneficiary is under the age of 18 = should be paid to third party who will improve the material situation of the beneficiary - again this is a power, not an obligation and the trustees cannot be compelled > discretionary power

Answer 74

- beneficiaries cannot compel trustees to use their powers e.g. power to pay capital to the beneficiary - beneficiaries can compel trustees to comply with their duties

Answer 75

- a trustee must take ‘all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own’ - objective standard - the standard is higher for paid professionals e.g. if the trustee was a solicitor

Answer 76

(a) ensure that they have been properly APPOINTED (b) ascertain what the TRUST PROPERTY consists of and take all reasonable and proper measures to obtain control of the trust property (c) review the TRUST DOC and associated paperwork - note, the other trustees must produce papers relating to the administration of the trust (d) enquire into the PAST BUSINESS of the trust to ensure that there have been no past breaches of trust, and to take appropriate action to remedy any breaches; and (e) where there are CHATTELS held on trust, ensure that a proper inventory is drawn up.

Answer 77

- a trustee may be faced with a choice between two beneficiaries, whose interests appear to conflict with each other - acting impartially does not necessarily mean that beneficiaries must be given equal treatment, nor does it mean that trustees must consult either or both beneficiaries, nor give either side a ‘fair hearing’ - however, a trustee MUST NOT BENEFIT ONE BENEFICIARY AT THE EXPENSE OF ANOTHER and may find themselves in breach of trust if they continually prefer the interests of one beneficiary over the other

Answer 78

ACTING UNANIMOUSLY - it is best practice to have between 2 and 4 trustees - co-trustees must generally make decisions unanimously (this acts as an important safeguard) ACTING PERSONALLY - Trustees must be personally active in the running of a trust - Outside of statutory powers to delegate decision- making to others (such as the appointment of an attorney trustees cannot sit back and allow others to take decisions on their behalf - If a trustee: (a) leaves matters in the hands of a co- trustee without enquiry; (b) allows trust funds to remain in the sole control of a co- trustee; (c) fails to watch over and, if necessary, correct the conduct of their co- trustees; or (d) fails to take action knowing that a co- trustee was committing, or about to commit, a breach of trust; this passive trustee may be liable to make good any loss that the beneficiaries suffer. - whilst trustees can take advice from experts, they cannot allow the experts to take decisions for them

Answer 79

- beneficiaries cannot compel trustees to exercise discretionary powers in a particular way - beneficiaries can intervene if the trustees exercise those powers improperly - having decided to exercise a power, trustees must exercise that power: (a) in good faith; (b) rationally; (c) for the purpose for which it was created; (d) with regard to relevant material matters and without regard to irrelevant ones; (e) with regard to all relevant facts; and (f) with regard to any legitimate expectation that a beneficiary might have that the power be exercised in a particular way

Answer 80

- Trustees do not generally need to give reasons for their decisions (but if they do decide to give reasons, the beneficiaries and the court can enquire into their soundness) - However, where a particular beneficiary has a legitimate expectation that a discretion will be exercised in their favour, the trustees may be obliged to give reasons and advance warning if they are thinking of exercising their discretion differently.

Answer 81

(a) the trust document or will that created the trust; (b) the trust accounts; and (c) a schedule of trust investments or other documents that show how trust property is invested.

Answer 82

- not allowed to demand documents that record trustees’ deliberations on a discretion or power - beneficiaries cannot demand sight of letters of wishes from settlors - beneficiaries can apply to the court for disclosure of documents - the court will usually start with the presumption that such documents should not be disclosed, unless such disclosure is in the interest of the sound administration of the trust (eg where there is good evidence that trustees might have committed a breach of trust) - the court may refuse disclosure where it would : i) cause family members to fall out, or ii) if it were to reveal confidential information about the finances or state of health of individual beneficiaries

Answer 83

trustees are not permitted to make unsecured loans unless the trust document contains a very clear, express provision to that effect

Answer 84

- s 3 TA = general power - a trustee can make any kind of investment that they could make if they were absolutely entitled to the assets of the trust, save for investments in land - investments in land covered by s 8 TA - a trustee may acquire freehold or leasehold land in the UK either: (a) as an investment; (b) for occupation by a beneficiary; or (c) for any other reason.

Answer 85

STATUTORY DUTIES: - When purchasing or reviewing investments, trustees must have regard to the STANDARD INVESTENT CRITERIA: (a) The investments must be SUITABLE for the trust. (b) There is a need forDIVERSIFICATION (insofar as is appropriate to the circumstances of the trust). - trustees should obtain and consider proper INVESTMENT ADVICE from someone the trustees reasonably believe to be qualified to give such advice, unless the trustees reasonably conclude that in all the circumstances it is UNNECESSARY or inappropriate to do so (such as where one of the trustees is a qualified financial adviser) - note > whilst they can receive advice, the decision of investing/not investing is theirs alone NON-STATUTORY DUTIES: (a) Trustees must act IMPARTIALLY between beneficiaries. (b) Trustees must SECURE THE BEST RETURN for the beneficiaries. - this doesnt mean they must secure the highest return - financial considerations must take precedence over ethical/moral considerations, unless: i) an ethical and an unethical investment will both receive the same return > can invest in ethical (ii) if the trust is charitable, the trustees can properly refuse to invest in things that might be at odds with the charitable purposes of the trust and that might alienate the charity’s supporters iii) the declaration of trust says otherwise

Answer 86

- yes or to one trustee (if for example they are a financial adviser) - the third party is entitled to reasonable renumeration - trustees must comply with various processes when delegating investments to someone else: (a) written AGREEMENT (b) written STATEMENT (known as the ‘policy statement’) that gives guidance as to how the agent should exercise their asset management functions in the best interests of the trust. (c) must include a term to the effect that the agent will secure COMPLIANCE with the policy statement. (d) The agent must comply with the same statutory and non- statutory INVESTMENT DUTIES that would otherwise apply to the trustees. (e) trustees must REGULARY REVIEW the arrangements (f) the trustees must select a SUITABLY QUALIFIED PERSON to whom their asset management functions will be delegated

Answer 87

a trustee is not liable for any act or default of the agent, unless the trustee has breached any of the personal duties listed above and those breaches cause loss to the trust

Answer 88

the trustee must not: (a) put themselves in a position where their own interests conflict with the interests of their principal (the ‘no conflict’ rule); and (b) make an unauthorised personal profit from their position or use their principal’s property to make such a profit (the ‘no profit’ rule) - the trustee's intentions are irrelevant > the liability is strict

Answer 89

the trustee will be obliged to account for it e.g. pay the profit over to the trust

Answer 90

Trustees can keep personal profits if: (a) this is authorised by the declaration of trust; (b) all the beneficiaries are aged 18 years or over, know the full facts and consent; or (c) this is authorised by a court order or by statutory provision.

Answer 91

- when trustee purchases from the trust - breaches fiduciary duty > no conflict - transaction = voidable - beneficiaries can set the transaction aside for any reason within a reasonable period of time - whether or not the trustee has paid fair value for the property and whether they were acting honestly = irrelevant - a trustee cannot get around the self- dealing rule by retiring from the trust before purchasing trust property

Answer 92

- if the trust includes a business = trustee must not set up their own business in competition - if they do so, they will be liable to account for any profits made by their competing business - if the beneficiaries become aware that the trustee is planning to set up a competing business, they can obtain an injunction to prevent this from happening

Answer 93

1. express provision in the trust deed 2. the beneficiaries consent - if all are over 18 3. court order - where it would be in the interests of beneficiaries because for example, they need the expertise of the trustee 4. TA 2000 allows the following to receive reasonable renumeration: - a trust corporation - a trustee who acts in a professional capacity and who is not a sole trustee, and where the other trustees have agreed in writing - can also be reimbursed for expenses incurred when acting on behalf of the trust

Answer 94

- incidental profits in the form of commission = in breach - if the trust contains a substantial shareholding > consider securing an appointment on the board of directors - in the absence of authorisation from the trust deed, the beneficiaries or the court, the trustee must surrender their salary to the trust if they acquired the directorship only by virtue of being a trustee - if someone was a director of a company before they became a trustee of a trust that has shares in the company, the director can keep their salary

Answer 95

- they must account for the profit - this is regardless of whether the trust could have taken advantage of the same opportunity or information

Answer 96

(a) a personal claim that the trustee pays over their unauthorised profit (b) a proprietary claim - a proprietary claim will seek to recover property owned by the trustee that represents the personal profit they received - e.g. the trustee makes an unauthorised profit and uses that money to purchase shares

Answer 97

1. core duties - no conflict and no profit rules 2. self dealing 3. renumeration 4. incidental profits 5. exploitation of trust opportunity/information the trustee may have a defence where personal profit is authorised by: - trust deed - beneficiaries - court - statute

Answer 98

Yes, because the son has a vested interest and the daughters are at least 18 years old. the son has a vested interest so even if the two daughters die before reaching the age of 25, he will inherit the whole residuary estate as the other beneficiaries are all over the age of 18 years, the rule in Saunders v Vautier will apply.

Answer 99

- beneficiary goes into pool of unsecured creditors

Answer 100

personal claims = 6 years from date of breach (unless for fraudulent breach > no limit) proprietary claims = no limit (note limitation only starts to run once interest is vested)

Answer 101

joint and several

Answer 102

causation - but for test

Answer 103

investment decisions > a claim against the trustees may not succeed unless the beneficiaries can establish that the decision was one that no reasonable trustee could have made

Answer 104

compensation equal to the loss to the trust + interest from date of breach

Answer 105

(a) an exemption clause in the trust deed; - can relieve trustees from liability for negligent or innocent breaches, but is void insofar as it tries to exclude liability for fraudulent breaches - usual rules on exemption clauses apply (b) knowledge and consent of the beneficiaries; - consent can be given before or after breach - fully informed and freely given consent - must be adults of full capacity - if one beneficiary consents, but the others do not, the consenting trustee cannot bring a claim (the non-consenting beneficiaries can) (c) s 61 of the TA 1925; or - court discretion to relieve trustees from liability, wholly or in part, if they acted honestly and reasonably, and ought fairly to be excused - courts are reluctant to relieve passive trustees of liability (d) limitation and laches - limitation period for personal claim made by a minor only begins when they turn 18 - if they are a remainder beneficiary, limitation only starts to run when the life tenant dies - six years isn't applicable to fraudulent breaches - however the court will still have regard to the doctrine of laches

Answer 106

- ie for fraudulent breaches of trust = no statutory limitation period - court still have regard to the doctrine of laches: Laches will prevent a claimant from asserting a personal claim where: (a) the claimant KNOWS the facts that gave rise to the breach of trust; (b) the claimant DELAYS in taking action; AND (c) this delay either is deemed to constitute ACQUIENSENCE in or waiver of the breach by the claimant, or causes detriment or PREJUDICE to the trustee - delay by itself is not usually a sufficient form of detriment; the court will want to see some evidence that prejudice has been caused - e.g. defence of laches succeeded where the claimant took approximately 15 years to start proceedings, even though they knew of the matters complained of, and the defendant was able to argue that it would be difficult to prove their defence given the death of witnesses and destruction of documents in the intervening period

Answer 107

There are two possibilities: (a) the defending trustee may be able to claim the full amount of compensation from a co- trustee under an EQUITABLE INDEMNITY ; or - way for the court to ensure that someone who gains an unfair benefit due to a transaction involving a third party is held responsible to protect that third party from potential loss, even if there's no formal contract or legal obligation. (b) the defending trustee may be able to claim a CONTRIBUTION towards the compensation from a co- trustee under the Civil Liability (Contribution) Act 1978 - contribution that is just and 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

Answer 108

A co-trustee who: (a) acted fraudulently when the others acted in good faith; or (b) is a solicitor who exercised such a controlling influence that the other trustees blindly followed the solicitor’s advice; or (c) has benefited personally from the breach; or (d) is also a beneficiary and benefited from the breach (in which case, the indemnity is limited to the value of their equitable interest, which will be impounded to meet the claim).

Answer 109

1. where the trustee is insolvent - trust property does not form part of the bankruptcy estate > it cannot be used to satisfy any claims that the trustee’s creditors might have 2. where the trustee has used trust property to buy something the beneficiary considers attractive - e.g. the trustee may have stolen £100,000 from the trust fund and used this money to purchase shares that have since doubled in value 3. a trustee's wrongdoing happened some time ago - personal claims can be statute barred (6yrs) - proprietary claims are not (still regard the doctrine of laches)

Answer 110

(a) to take the substitute property - beneficiaries should take this option where the substitute property has increased in value; or (b) to sue the trustee for compensation for the loss to the trust + interest (personal claim) and take a charge (or ‘equitable lien’) over the property for the amount that the trust has lost - beneficiaries should take this option where the substitute property has decreased in value - the lien provides the beneficiary with security that they will recover the amount lost if the trustee doesnt have sufficient funds to satisfy for the personal claim

Answer 111

- mixed asset > trustee has bought the asset with a mixture of their own money and the trust's money (a) claiming a PROPORTIONATE INTEREST in the mixed asset - The beneficiary should take this option where the mixed asset has INCREASED IN VALUE; or (b) suing the trustee for compensation for the loss to the trust (pesonal claim) and TAKE A CHARGE (or ‘equitable lien’) over the mixed asset for the amount that the trust has lost. - The beneficiary should take this option where the mixed asset has DECREASED IN VALUE.

Answer 112

RELEVANT TRACING RULES: 1. Re Hallet > the trustee is deemed to spend their own money first - This option should be used where the trustee has made more than one payment from their bank account but the first payment dissipates the funds - such as paying of a debt. 2. Re Oatway - The beneficiary is entitled to a lien over any property purchased from a mixed account in the proportion of the purchase price used from the trust fund (including any increase in value)..

Answer 113

If the trustee has spent trust property in such a way that there is no longer any physical asset to trace into, such as the payment of credit card bills or using the money to go on holiday, there is no value in bringing a proprietary claim.

Answer 114

Carrie has dissipated most of the money in her account, so there is nothing to trace into other than the balance sitting on the account. (£2,000) The gift from her father is not regarded as replacing the money she has stolen (unless it was specifically intended to replenish trust funds) – that gift is deemed to have come from sources other than the trust. The trust’s interests cannot be traced beyond what is known as the ‘lowest intermediate balance’ – the lowest balance to which the account sank before extra money was paid in. The trust’s proprietary claim is therefore limited to the £2,000 balance on Carrie’s account before her father made his gift, this being the lowest intermediate balance. This is from the case Roscoe v Winder and illustrates the limits on the tracing rules.

Answer 115

if a wrongdoing trustee takes trust money and mixes it with their own, equity allows the beneficiary to cherry- pick the best outcome when identifying trust property using tracing rules

Answer 116

- the beneficiaries of each trust will share pari passu in the mixed asset purchased (ie rateably in the same proportion as their funds contributed to the purchase price) - e.g. Stephan is a trustee for the Allan trust and the Barnes trust. He takes £10,000 from the Allan trust and £20,000 from the Barnes trust to buy £30,000 worth of shares in Sigma plc. - If the shares are now worth £36,000 (ie they have increased in value), then the Allan trust’s proprietary claim is now valued at £12,000, whereas the Barnes trust’s proprietary claim is valued at £24,000. - If the shares are now worth £24,000 (ie they have decreased in value), then the Allan trust’s proprietary claim is now valued at £8,000, whereas the Barnes trust’s proprietary claim is valued at £16,000.

Answer 117

1. Clayton's Case - FIFO (first in, first out) - as between two or more innocents, the first money paid in is the first money paid out 2. Barlow Clowes v Vaughan FIFO rule in Clayton’s can be departed from where: * it is impossible to apply FIFO (eg where the records are so poor that ordering payments chronologically cannot be accurately undertaken); * FIFO would result in injustice; or * the application of FIFO would be contrary to the parties’ intention - usual outcome of departing from FIFO = each investor (or trust) takes a rateable share in any remaining assets

Answer 118

(a) you should first apply the rules from Re Hallett and Re Oatway with the aim of pushing as much of the trustee’s own money into dissipation as possible (b) you should then apply the rules from Clayton’s Case and Barlow Clowes v Vaughan to allocate any remaining assets between the two (or more) innocent trusts

Answer 119

- the tracing rules can be used in other fiduciary relationships - e.g. a director steals money from their company and uses the money to buy property, the company can assert proprietary claims against that property using the tracing rules

Answer 120

- claim against third party a) Recipient liability. - personal and/ or proprietary claim - in receipt of trust property given to them in breach of trust or fiduciary duty. b) Accessory liability. - personal claim - if they assisted breach

Answer 121

- A third party who is not expressly appointed as a trustee, but takes it upon themselves to act as if they were, will be held personally liable for any losses caused by their actions as if they were an expressly appointed trustee

Answer 122

- if a third party receives trust property, it may be possible to bring a PERSONAL CLAIM against them up to the value of the trust property they received (plus interest from the date of receipt) The elements of this claim are as follows: (a) the third party has RECEIVED property in breach of trust or fiduciary duty; (b) the third party has received that property for their OWN BENEFIT; and (c) while in receipt of the property, the third party has such KNOWLEDGE that makes it UNCONSCIONABLE for them to retain or deal with the property as if it were their own: I. knows the property belongs to trust II. willfully shuts their eyes to the obvious III. deliberately decides not to ask any questions notwithstanding they have their suspicions about the origins of the property - only have such knowledge after they have disposed of property > no liability

Answer 123

- Where a trustee has transferred trust property to a third party, and that third party still holds that property (in its original or replacement form) - which category does the third party fall into? 1) bona fide purchaser for value without notice - no claim 2. wrongdoing recipient - intermeddler or knowing recipient - harsher tracing rules = applicable 3. innocent volunteer - no knowledge or notice of the breach of trust - no consideration - kinder tracing rules

Answer 124

- where the innocent third party receives trust money and uses that money to improve buildings they already own - the beneficiary will not be able to trace any interest into that improvement - This is because either: (a) that improvement has not increased the value of the third party’s land (b) that improvement has increased the value of the third party’s land, but it would be inequitable to force the innocent third party to sell their property - trying to enforce the beneficiary’s proprietary interest will lead to an inequitable result, which defeats any proprietary claim - often referred to as the Re Diplock defence - The Re Diplock defence does not apply: (a) as against wrongdoing recipients (b) in relation to mixed assets, even those purchased by innocent third parties. - If an innocent third party takes trust money and combines it with their own to put down a deposit on a house, the beneficiaries can assert an interest in that house proportionate to their contribution.

Answer 125

- The elements of this claim are as follows: (a) there must have been a BREACH of trust or fiduciary duty (b) the THIRD PARTY MUST HAVE ASSISTED in that breach; and (c) the THIRD PARTY must have ACTED DISHONESTLY - must be some kind of positive act - merely being passive in the commission of a breach of trust is unlikely to be sufficient - dishonest OBJECTIVE - doesnt account for Ds thoughts

Answer 126

1. mixed bank account to buy asset (2 options = substitute or equitable lien + compensation 2. withdrawals from mixed bank account: i) trust money + trustees own = Re Hellet (spent trustees money first) and Re Oatway (first choice) + limitation of Roscoe v Winder ii) two trusts' money + trustees own = Claytons Case (FIFO) + Barlow Cowes v Vaughan (non FIFO)

Answer 127

1. intermeddling 2. equitable personal recipient liability (knowing receipt) 3. equitable proprietary claim i) bona fide purchaser without notice ii) wrongdoing iii) innocent volunteer - tracing rules - defence of innocent volunteer using money on their property - Re Diplock 4. dishonest assistance

Answer 128

- just the teacher - The teacher has undertaken a unilateral action that constitutes a breach of trust. They have breached their investment duty to the trust by directing that the trust should be invested in a way that no other trustee exercising reasonable care and skill would choose – the investment is neither suitable nor diverse. The teacher’s actions constitute a breach of s 4 Trustee Act 2000 as well as a breach of the duty of care enshrined in s. 1 of the same Act.

Answer 129

Option B is correct. The trustees should not have advanced capital to the wife. She was a life tenant, and therefore had no entitlement to capital. The trustees’ actions therefore constituted a breach of trust. The normal limitation period for bringing claims for breach of trust is six years. However, as against remainder beneficiaries (like the children), this six-year period only starts to run upon the death of the life tenant.

Answer 130

Option B is correct. Beneficiaries can direct that trustees must retire if they satisfy the conditions set out in s 19 of the Trusts of Land and Appointment of Trustees Act 1996. Beneficiaries can use this statutory provision if they are all of full age and capacity, and between them are absolutely entitled to the trust fund. These conditions are satisfied here. The class of beneficiaries extends to such of the children who reach the age of 25 years. Given that one of the children has reached that age, there is no other person who could benefit from the trust fund beyond the three children.

Answer 131

no - they would need to look at whether they have the power to remove (e.g. notice +rule in Saunders v Vautier)

Answer 132

Option B is correct. The solicitor can (and given the facts probably should) be retained by the trust to provide legal advice. However, trustees must act personally. Whilst the four trustees should take advice from experts, including the solicitor, they cannot allow those experts to take decisions for them.

Answer 133

(a) the person nominated in the trust instrument to exercise the s 36 power, but if none: (b) the continuing trustee(s) including a retiring trustee if they are willing to join in the appointment; (c) if all trustees have died, the PRs of the last surviving trustee.

Answer 134

- most things will come under this - possible exceptions might be pleasure, leisure or hobbies - trustees must ensure the advancement will benefit the beneficiary solely and not someone else - however if the advancement is made for the benefit of the beneficiary, it does not matter that there is an incidental benefit to other people

Answer 135

option b is correct > following Re Kayford, it is likely that the directors will have been found to have intended to create a trust – the evidenced decision made at the meeting, the advice received about protecting customer deposits. As in Kayford, the intended account was not opened, but this was not fatal to establishing that a trust has been intended and created (see also EVTR). As beneficiaries under a trust, the customers will be able use tracing rules into the general account (a mixed fund) to identify that the deposits remain in the account and are recoverable.

Answer 136

This is looking at declaration of trusts. Yes, because money was loaned to the company for a specific purpose which can no longer be achieved, and the money was not intended to be at the free disposal of the company. The director could argue that they created a Quistclose trust as the money was lent for an exclusive purpose which can no longer be achieved because of the company’s liquidation. In Barclays Bank v Quistclose, money was lent for the sole purpose of paying dividends to shareholders. It was held that the money had been lent on trust for this purpose and, when the purpose could not be carried out, due to the borrower’s insolvency, the money should be held on a resulting trust and returned to the lender. In Twinsectra v Yardley it was further stated that intention to create such a trust was evidenced where the loan money is not at the free disposal of the borrower.

Answer 137

Option B is correct. The starting-point is a presumed resulting trust in favour of the grandfather, as he was the sole contributor of the purchase money for the shares. However, the message in the granddaughter’s birthday card demonstrates that he intended this purchase to be a gift, so whilst he holds the legal title in the shares jointly with his granddaughter, they are holding those shares on trust for her. Whilst the birthday card is not contemporaneous with the purchases of the shares, it can be admitted into evidence because it is being used against the grandfather and not in his favour.

Answer 138

not if they are retired because they would no longer be acting in a professional capacity

Answer 139

Option B is correct. The trustees hold the money on trust with an obligation to distribute the trust fund among a class of beneficiaries and they are presumed to share the fund equally.

Answer 140

present/ possessory = no one lese has prior interest to trust property postponed/remainder = someone else with prior interest so the beneficiary must wait their turn

Answer 141

equitable title

Answer 142

(a) the settlor INTENDED to create an IMMEDIATE trust with a third party acting as trustee; (b) that trust was not immediately created due to a FAILURE TO COMPLY WITH RELEVANT TRANSFER RULE (c) the settlor’s intention CONTINUED UP UNTIL THEIR DEATH; and (d) the INTENDED TRUSTEE acquired legal title to the trust property by becoming the settlor’s EXECUTOR/ADMINISTRATOR.

Answer 143

Option B is the best answer. The contribution of the deposit monies for the house raises a presumption of advancement. The father is presumed, subject to any evidence to the contrary, to have gifted those monies to the daughter, who therefore takes the house absolutely. In order to rebut the presumption there must be some kind of evidence that the father would retain a beneficial interest in the property. The email from the father is unlikely to rebut that presumption, because it sounds as if the father and daughter have entered into a contractual arrangement. In consideration for him paying the deposit, the daughter agrees to pay the father any future rental income produced by the house. This contractual arrangement does not suggest that the father would retain any beneficial (or proprietary) interest in the house. If the daughter did not pay over any rental income, then the father could sue her for breach of contract. The arrangement was personal rather than proprietary in nature.

Answer 144

presumption of advancement doesn't apply (wife to husband) Presumption of resulting trust is rebutted by birthday - husband is entitled

Answer 145

suffered a loss or the trustee has made an unauthorised profit

Answer 146

A trust for a sole adult beneficiary who has a vested interest in the trust property - they are absolutely entitled to the trust property. The beneficiary can bring the trust to an end at any time.

Trusts Flashcards

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