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STUDY NOTES 1. Express trusts are for specific beneficiaries who are chosen includes what property to whom or in what share I. my house to my children in equal shares 2. Discretionary trusts give the trustee the power to determine what to do with the trust property, there are two types of discretion...

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STUDY NOTES 1. Express trusts are for specific beneficiaries who are chosen – includes what property to whom or in what share I.e. my house to my children in equal shares 2. Discretionary trusts give the trustee the power to determine what to do with the trust property, there are two types of discretionary trusts (1) exhaustive where the trust must give away a certain amount of income every year but the trustee can determine to what beneficiary and in what shares and (2) non-exhaustive which is where the trustee is entitled to not make distributions unless they want to and if they do, they decide to who and in what shares. There are also implied trusts which include; resulting (i.e. when the property for some reason returns to the settlor i.e. if all the beneficiaries died or if the beneficiaries were not names in time), constructive trusts, and statutory trusts e.g. the pension etc. Sui Juris – comes from Saunders v Vautier where if the beneficiaries are of mental capacity and legal age and are entitled to all the property in the trust then they can collectively terminate the trust and take the assets. Trust Requires all the below of the trust fails: A. The three certainties (Thexton v Thexton): 1. Certainty of intention (if there is uncertainty of intention then the trust will fail Re Adams) There must be an intention to create a trust – proven by: (a) Intention to create a trust NOW (Pascoe) (b) The standard of proof is on the balance of probabilities (Re Snowden) 2. Certainty of subject matter (trust property must be described with sufficient detail so that trustee and court can identify it – Lehman Brothers International v CRC Credit Fund Ltd) - Property subject to trust - Beneficial entitlements for each beneficiary (fixed trust) - A discretionary trust has the power to accumulate, for example the trustee can either pay the trust assets out or they can let it build. There are some cases that deal with this: Palmer v Simmonds – the ‘bulk of my residual estate’ was taken to not be specific enough Sprange v Barnard – ‘the remaining part of what is left’ - not specific enough White v White – ‘Mary to have a small part of what is left – not specific enough - “residue” is accepted as certain enough and is accepted in trusts these days - Main cases for this are: - Re London Wine Co: The wine that was meant for the beneficiaries was not kept separate from the wine that was belonging to the company and therefore the creditors. Because there was not clear wat was trust property then the trust failed. If you are going to do this ten you need to be absolutely clear by separating the property or demonstrating it is different in some way e.g. label it for the beneficiaries or put into a separate storage space. Identify each and every bottle that is subject to the trust.

Re Goldcorp: only a contractual right created and not an equitable interest as the company had not actually used all the investors’ money on the gold as they had said. Therefore, there was no property to have an equitable interest in. - Boyce v Boyce: trust failed as Mary was to get first choice of cottage and her sister was to get the remaining, but Mary died before she made a choice. 3. Certainty of objects (beneficiaries) - For a fixed trust you need the complete test from IRC v Broadway Cottages requiring conceptual and evidential certainty - For a discretionary trust you only need the in or out test from McPhail v Doulton which is conceptual certainty - McPhail v Doulton: case where man made a trust for the benefit of his employees and ex-employees and their relatives and dependents, the court upheld the trust has it was discretionary so only conceptional certainty (in and out test) is required and then it’s up to the trustees as to who to give what to. - Re Badens Deed Trusts: ‘relatives’ were taken to be certain as it is possible to prove if you are or are not related to someone by using a marriage and birth certificate etc. It is however possible to create a trust that is precise but far too wide so that it cannot be fulfilled. - if there is uncertainty of objects then the trust will hold the property on a resulting trust for the settlor. B. Formalities To prevent fraud and so that trustees know to whom they owe their duties Vandervell v IRC S11 Wills Act 2011: 1.1(1) a will must be in writing 1.1(2) a will must be signed and witnessed 1.1(4) at least 2 witnesses must be present in the will makers presence -

S25(2) Property Law Act 2007: ‘A trust must be created in writing and signed by the settlor of – (a) If relates to land; and (b) It is to take effect in the lifetime of the settlor’ You must intend to have the trust made at the time of creation i.e. you cannot say you are going to make a trust and then do it on paper the following day. Exceptions: Resulting, implied or constructive trusts do not need to be in writing. Crampton Smith v Crampton Smith: ‘equity will not allow a statute to be used as an instrument of fraud’ (Rochefoucauld v Boustead – where a friend purchased a property on behalf of another with their money and then tried to argue there was no written trust) C. Constitution Three methods of benefiting others 1. Outright gift – need intention and transfer of title 2. Transfer of trust – declare trust with third party as trustees (need declaration of trust and transfer of title)

3. Self-declaration of trust – declare trust with self (original owner) as trustee (need declaration of trust only) Need to know: 1. Nature of asset – land, chattel, chose in action etc 2. Nature of the owner’s title - legal or equitable 3. Method of benefiting – methods 1, 2 or 3 The main principles come from Milroy v Lord which says that equity will not assist a volunteer by perfecting and imperfect gift. Equity will not assist a volunteer by treating a failed gift or transfer on trust. Milroy v Lord: no legal title had actually been transferred as the lawyer forgot to do so therefore despite dividends being paid during the person’s life, when he died they found the transfer failed and so the title belonged to his will and not beneficiaries. Requirements to transfer: (1) Deed of gift or (2) Intention to give plus delivery - The intention to give must be immediate not in the future (Re Freedland: intention to give but was only in future as was lending her chattel to another friend in the interim – Re Cole: a man bought a house in London with furniture and said to wife – ‘its all yours’ – the guys business fails and bank comes to take everything. The wife argues she owns furniture however despite intention to give there was no handing of title i.e. if the husband handed her a chair or demonstrated a transfer of dominion then it could have succeeded). - Delivery can be actual or constructive (Lock v Heath one chair was handed over as symbolic that the whole set was transferring + Rawlinson v Mort: the guy put his hand on the organ and said ‘this is yours’ which was enough to show a change of dominion. - Delivery can come before or after words Re Cole and Thomas v The Times Book Co Ltd: he gave a method for the gift to be obtained so it was accepted as a valid gift. The intention to give must continue until the donor’s death – Strong v Bird: this case found that if a gift is being made and the intention remains upon the death of the person then if you are the executor the gift will be treated as being completed. = If legal title is acquired by another means (intended donee becomes executor of donor) other than usual mode of transfer then, gift treated as perfected or trust as constituted. NB: it does not matter if the person is not the sole executor Re Stewart Re Rose: A PERSON MUST BE IN A POSITION WHERE THEY CANNOT CHANGE THEIR MINDS: where the transferrer has done everything, they can do within their power to transfer legal title to the transferee = here the lawyer had all the documents required but they were slow to transfer them. Mascall v Mascall: man gave son all documents needed for transfer of title (clear intention), but they had a falling out and he said – you are not having the land anymore give me the docs back – despite not registering the docs, the son now had legal title as the father had given equitable title to the son by him having all that was necessary to perfect the gift.

Re Fry: IF YOU GIVE THE DOCS TO YOUR LAWYER THEN YOU STILL HAVE THE RIGHT TO ASK FOR THEM BACK THEREFORE THIS FAILS: in this case documents were sent to get consent to do transaction however the consent did not go through in time – courts found that consent was simply part of the process and the settlors would still retain the right to change their minds even if consent had gone through. Pennington v Waine: Transfer complete in Equity when unconscionable for donor to recall gift: -

This case was an aunty who had intention to give shares to nephew gave lawyer documents and asked if there was anything else she needed to do, to which the lawyer said no. the lawyer did not transfer the shares and Harold started working as the Director (only allowed to do if he had shares). The aunty believed he had her shares and so did he. But when she died her executors tried to come after these shares. Re Rose didnt work here as she had given the documents to her lawyer which Re Fry says don’t count as transfer as you can ask for them back BUT the rule was created that transfer is compelte in equity when it is unconscionable for donor to recall the gift.

Look at facts to decide when it is unconscionable. Test for a valid gift: 1. Intention to make an immediate gift? (Re Freeland) 2. Transfer of Legal title? (Re Cole and Williams v Williams) 3. Acceptance – taken to have happened unless the done says they do not want it If the gift fails but the person to whom the gift is being made is the executor, then you might be able to apply Strong v Bird (intention must be still made and there until the death of the donor) Requirements for a valid trust: 1. Three certainties: intention, subject matter, object 2. Formalities: do you need writing? Yes – s25(2) PLA: creation of a trust must be in writing if it relates to land. 3. If land, then follow the procedure in the LTA – transfer of legal title 4. Constitution - Now apply Re Rose and Pennington v Waine for exceptions i.e. if all docs were with the lawyer and then the person dies, and you are executor OR if everything has been done in that person’s power to transfer title. Duties of a Trustee Equitable duties are focused on care, skill and competence i.e. mistakingly giving trust assets to those outside the class of beneficiaries or investing in property expressly excluded by the trust. When someone becomes a trustee, they are subject to equitable duties to: •

ensure appointment rightly made, ascertain trust property and trusts upon which held

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examine trust instrument/deed and relevant documents and if any breaches proceed against appropriate trustee

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ensure legal title to trust property transferred to the trustee and make sure trust funds properly invested

Nine main groups of continuing duties: 1. To bring and keep under their control the trust property, which must be kept separate from their private property and from any other property of which they are trustees (unless authorised to pool) – [they are also required to keep their personal assets separate from the trust assets e.g. if money was held on trust a separate bank account would be required. 2. To safeguard the value of the trust fund by investing in investments authorised under the trust instrument or otherwise under Part 2 Trustee Act 1956 3. To administer trust honestly and impartially for the benefit of all beneficiaries and keep an ‘even-hand or fair balance' between those beneficiaries currently entitled and those entitled in future (unless it’s a non-exhaustive discretionary trust). With discretionary trusts, trustee can prefer one beneficiary over another, provided preference is not based on irrelevant, irrational or improper factors. Re Mulligan: This is an NZ case. There was a farmer who was married and lived in chch, he and wife had no children but had 10 nieces and nephews that they were close to. The farmer made a will and he left the farm through a will-trust, to his wife as life tenant, with the remainder to his nieces and nephews. He died in 1949, after WWII. The property was sold, at the time, that sum would have bought 14 residences in Christchurch. From 1965 until 1990, the sum was invested in fixed-term investments and they carried an interest rate of 8%. The income from this was paid out to the wife every year for 25 years. When she died, the life tenancy came to an end and the capital remaining was $102,000 which at this time would only buy 1 house in chch. So, the beneficiary sued PGG for breach of trust as they did not invest to grow the capital, they invested only for income which was all being paid out to Mrs Mulligan therefore they did not protect for depreciation. PGG said they were doing what Mrs Mulligan wanted and that she determined what was going to happen with the money, so they just did what they were told. As trustees, you are required to actively be engaged in decision-making and for the trust to be bound, both trustees/all trustees must come to the same decision. PGG was found liable. 4. To account strictly to beneficiaries, distribute income and capital only to those entitled, keep accounts and make trust documents (but not those relating to how Trustees exercised their discretion) available to beneficiaries. 5. To act unanimously unless trust instrument says otherwise 6. To consider exercise of their powers and if they decide to exercise them to do so honestly and not capriciously or perversely to any sensible expectation of the Settlor nor mistakenly overlooking a material factor. 7. To exercise such skill and care to the appropriate standard. For investments statutory standard in s 13B and C Trustee Act 1956. Whatever you do in your conduct as a trustee, you must do it to a requisite standard. Usually, you’d expect the trustee to go to a financial advisor – unless they are an expert in this. 8. To adhere to terms of the trust Smith v Hugh; Land transferred into Hugh Watt Society, but did not get consent from all beneficiaries to do this. The original members challenged the transfer of the land to the HWS and argued instead the HWS held the land on constructive trust for original beneficiaries. This

argument succeeded. The reason the transfer of land failed = because they did not get consent of all beneficiaries. 9. To act personally (not delegate) except to the extent delegation to others is authorised under the Trustee Act 1956 (see s 29; allows the use of agents – but the decision must be made by trustee and 31; allows delegation if out of country/ill or incapable) or case law. NB – there is a duty to act gratuitously – so, if you are a professional trustee then you need a charging clause, so you can charge for your services. Duty to Invest Rules regarding investment dealt with in ss13A – 13Q, Part 2, Trustee Act 1956 •

Amendment Act 1988

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Part 2 creates generally permissive investment regime but subject to duty of prudence –

s 13A - can invest in any property (ensure you read s13A-13Q) – property is described very broadly – basically you can invest in anything so long as you invest prudently etc.

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s 13B - duty to invest prudently

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s13C – higher duty if professional trustee or people who are involved in the business of investing.

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s13D – can exclude liability for trustees.

The standard of a prudent person comes from common law: Jones v AMP Perpetual Trustee Co NZ Ltd: While negligence may result in liability, a mere error of judgment will not.’ = just because a loss is caused doesn’t mean trustee has to pay, they only must do so if a loss is caused because they failed their duties. But if they have fulfilled their duty and a trust suffers a loss then they cannot be sought for damages UNLESS you can point to a breach of trust that has caused the loss. -

S13E provides guidance setting out matters to which trustee may have regard eg diversification, tax, inflation etc

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S 13F general duties apply to exercise of power of investment, including: a. to act in best interests of present and future beneficiaries b. to act impartially c. to take advice

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S 13G settlor can limit prudent person regime

Harries v Church Commissioners: The courts said – prima facie, the trustees should seek biggest returns, BUT a charity can have an ethical investment policy provided it does not cause a significant financial detriment. Fiduciary duties are duties of utmost good faith: •

Trustee – beneficiary

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Director-company

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Solicitor – client

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Partner – co-partner

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Agent – principal

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Mortgagor-mortgagee

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Confidential employee – employer (Spycatcher)

Bristol and West Building Society v Mothew: The judge said these are the core content of fiduciary duties: -

Act in good faith Not make a profit out of his trusts (unless permitted to do it by charging clause) Not place himself in a position where his duty and his interest conflict Not act for his own benefit or the benefit of a third person without the informed consent of his principal

Some but not all fiduciary duties can be modified: You can modify the fiduciary duty if the principle is fully informed and consents to you taking some sort of profit. This is what the charging clause is. You cannot completely get rid of the fiduciary duty i.e. ‘any breach will be forgiven’ would not work as then the law says there is no trust. Keech v Sandford: trustee tried to renew a lease in favour of themselves as the leaser would not do it for the trust and the trustee knew of the value of the lease. Despite the fact the owner would never lease the property to the trust, the court found the trustee had failed their fiduciary duties and therefore found the trustee held the lease on constructive trust for the beneficiary. This could have changed outcome if the dude got permission from the trust. Guinness v Saunders: found in breach of fiduciary duty for getting a profit approved when it was in the duty of his job. Fiduciary duties are imposed whether you act innocently, negligently or dishonestly. Boardman v Phipps this is always examined and is an important case A private company called Lest & Harris Ltd – was not performing very well or producing much income. The shareholding in the company was held by two pools of shareholders – one held 73% of the company and the other with 27%. Shareholders normally get a bundle of rights e.g. a right to vote and to get dividends (income from investment).

The remaining 27% was owned by one man, Charles, who put his shares into a will-trust for the benefit of his beneficiaries. His trustees were, his wife, accountant and daughter. The type of trust created is a fixed-trust. Mrs Fipps had dementia, she needed income to help with her care – the solicitor of the trust was concerned about the shares as there was not much income coming from them. The lawyer suggested he would approach the company to see what was happening and try to get more income from the shares – as a lawyer, he of course owed fiduciary duties – what the lawyer found out was that the company was rich in assets and owned a lot of land in the UK and Aus that were not generating any income. The solicitor went back to the family and told them that the company was asset rich but income poor – he told them there was not much they could do to change the way the company was run because they were minority shareholders – he said they needed to change the directors to change the business so to do so, the trust needed to buy the shares from the majority shareholders and take control of the company so they could restructure and make a profit. Mr Fox (accountant and trustee) said no to buying the shares as ...