Trusts EXAM Notes PDF

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Summary

TYPES OF TRUSTS; Express; Inter vivos; Creating a Trust ‘in your life-time’.Will trust; A trust, written in a will, which comes into effect following death...Private Trust; A trust that YOU set up for beneficiaries that YOU want to benefit.Must have human, named beneficiaries. Morice & the B...

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TYPES OF TRUSTS; 1.

Express;

Inter vivos; Creating a Trust ‘in your life-time’.

Re Kayford; Customer money was placed in a separate account, and although it was not appropriately labeled as advised by accountants, there was clear intention therefore trust was found

Will trust; A trust, written in a will, which comes into effect following death...

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Private Trust; A trust that YOU set up for beneficiaries that YOU want to benefit.

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Must have human, named beneficiaries. Morice & the Bishop 1804. - Fixed private trust; You tell the Trustee exactly what each beneficiary will

Burden to prove intention to create a trust on individual claiming there is a trust – Thexton at [47] Standard of proof is balance of probabilities – Re Snowden

Uncertainty of intention in Will; Court will find no trust and instead recipient named in will holds property absolutely; Re Adams v Kensington Vestry

receive. The Trustee CANNOT change this. - Discretionary private trust; the Trustee can decide who receives what – they are given discretion to exercise the power of appointment. More flexible. Charitable Trust; Must be for charitable purposes. Relief of poverty, relief of illness, promotion of education, and community benefits. Beneficiaries do not need to be named; however the charitable purpose must be stated.

2. Certainty of Subject Matter; certainty of assets within Trust.  Lehman Brothers International (Europe) v CRC Credit Fund Ltd [2011]; ‘Where there is no property which is sufficiently identified to form the subject matter of a trust, no trust is created.’  Palmer v Simmonds; ‘Bulk of my residual estate’  Sprange v Barnard; ‘the remaining part of what is left’  White v White; ‘to have a small part of what is left’ ALL TOO VAGUE – COURT CANNOT IDENTIFY THEREFORE NO TRUST

Resulting Trust; Occurs when property, for some reason, returns to Settlor. If beneficiaries are not named with certainty, equitable title must be held by someone therefore a resulting trust places equitable title back with settlor.  

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Any property that can be owned can be put into Trust Equitable interest in a fixed trust is property owned in Equity and can therefore be sold, charged, given away, left by will or put into a sub-trust by Beneficiary. Equitable interest in discretionary trust cannot be enforced – can only hope they're appointed to. No damages in equity – equitable compensation

Rules in Saunders v Vautier 1841;  If ALL beneficiaries are sui juris (of full age and mental capacity) and are collectively entitled to the whole of the beneficial interest, they can put an end to the trust and compel the trustee to hand over trust property as they direct – Re Philips New Zealand Ltd 1997  Can apply to discretionary trusts if all potential beneficiaries are sui juris, absolutely entitled in equity and agree – Re Smith, Public Trust v Aspinall 1928 The Three Certainties – Knight v Knight 1840; NEEDED TO CREATE TRUST. Applied in NZ through Thexton v Thexton 2000 1. Certainty of Intention; What you intend to do. Intend to create a trust.  Equity looks at intent rather than form  ‘what is needed is the manifestation of an intention to declare a trust’ - per Salmon J, Thexton  Usual term to denote Trust is ‘upon trust’ or ‘on trust’ however the Court can find a trust without those words or find no trust with those words – Kinloch v Secretary of State for India. Word ‘trust’ does not prove existence  Look for imperative or mandatory words rather than precatory words (expressing a wish)  Pascoe v Boensch; must intend to create a trust NOW  Lambe v Eames; The use of imperative words indicates a trust arrangement is intended. This case used precatory words & no trust was found. Reinforced in Re Adams v Kensington Vestry Comiskey v Bowring Hanbury; Whole document ought to be considered when assessing intention rather than a phrase in isolation – Appeared as a moral obligation however further clauses provided directions – not just a moral obligation. Court can also look to conduct and intention... Paul v Constance; ‘This money is as much mine as yours’ was sufficient to show intention and create a Trust (did not have to be in writing as it concerned money rather than land)

Re London Wine Co. [1986]; Held that there was no valid trust because the claimants could not identify which wine was held for them in the Trust – it would have been necessary for the claimant's wine to be segregated from the general wine stock. Re Goldcorp Exchange Ltd [1995]; Customers would only be able to enforce a trust against the exchange and consequently be able to take their bullions away as secured creditors IF they could prove their order of bullions was held separately from general bullions INTANGIBLE PROPERTY  Hunter v Moss 1994 established a rule that was reinforced in Re Harvard Securities which states that segregation is not always necessary when the trust concerns intangible, identical property (such as shares) 3. Certainty of Objects. Beneficiaries must be defined. Conceptual Certainty; precision or accuracy in language to define a class such as ‘my children’ or ‘cousins’ Evidential Certainty; extent to which evidence is available to prove individual is a member of the class Test for Fixed Trust =  Requires BOTH conceptual and evidential certainty  ‘Complete list test’ - IRC v Broadway Cottages, meaning a complete list of all beneficiaries must be given Test for Discretionary Trust =  Requires only conceptual certainty  ‘In or out’ test – McPhail v Doulton – Must be able to be declared with certainty that an individual is or is not a member of the class Effect of uncertainty of objects – Trustees hold trust property on resulting trust for settlor (if inter vivos trust) or testators' estate (if wills trust) FORMALITIES --------> REQUIRE SOME FORM OF WRITING  Dispositions to take place on death (wills)  S 11 Wills Act 2007 sets out that a Will must be written and signed by the will-maker and at least 2 witnesses in each-others presence.  Creation of inter vivos trusts where trust property or subject matter includes land  S 25(2) Property Law Act 2007 applies for trusts (other than short term leases) created AFTER 1 January 2008 and declares that a trust must be created in writing and signed by the settlor if it relates to land and is to take place in the settlor’s lifetime.  Inter vivos dispositions of equitable interests relating to land – in order to prevent fraud and ensure trustees know to whom they owe duties – Vandervell v IRC  From 1 January 2008, dispositions of equitable interest in land or mixed funds of land and other property have to be in writing signed by person making disposition – S 25(1) PLA 2007

Declaration of trusts where trust property does not relate to land can be oral

Three Methods of Benefitting Others; 1. Outright Gift (need intention and transfer of title) 2. Transfer on Trust. Declare trust with third party as trustee (need declaration of trust and transfer of title) 3. Self-declaration on Trust. Declare trust with self as trustee (need declaration of trust only) Benefitting others – Need to know 1, Nature of asset (land, chattel ect) 2, nature of the owners title (legal or equitable title) and 3, method of benefitting (as above) Milroy v Lord;  Equity will not assist a volunteer (someone who has not provided consideration)  Equity will not perfect an unperfected gift  Equity will not treat a failed gift or transfer on trust as a selfdeclaration  Turner LJ ruled the Settlor must have done everything that was necessary to be done in order for the transfer of property. REQUIREMENTS FOR TRANSFER; Land – Scoones v Galvin [1934]; Uncle never gave the solicitor the certificate of title so the land could be transferred to his nephew – court ruled he had not done enough therefore the gift failed. Chose in Possession 1. Deed of gift, or 2. Intention to give plus delivery Must intend to give immediately, not in future – Re Freedland

death; (ii) it must be shown to be conditional upon the death of the donor and capable of revocation by the donor until that time; and (iii) there must delivery of the gifted property to the donee, or delivery of part of the means of getting access to the property, or delivery of what has been termed ‘the essential indicia of title’. Duties of Trustees; Equitable Duties; 

Focus on care, skill, and competence

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Relates to the terms of the trust

Fiduciary Duties; 

Broadly worded duty of utmost good faith, over-arching every act or omission of trustee. Focus on loyalty and fidelity (good faith and honesty)

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Can never add an exemption clause to make the trustee exempt from

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Can break with or without your knowledge

fiduciary duties Main Equitable Duties -------> 1.

To bring/keep under their control the trust property - separate from

2.

To safeguard the value of the trust fund by investing in investments

their own property authorized under trust instrument or under Trustee Act 1956.

Must be a transfer of dominion – Re Cole

Duty to invest s13A-Q Trustees Act:

Delivery can be actual or constructive – Lock v Heath; one chair was handed

13A: trustees can invest in any property; however, the act provides a standard

over to symbolize the exchange of the whole dining room set.

you must match when purchasing – must invest prudently (good judgment doing

Re Taylor – a key to a safe was provided to symbolize the transfer of the safe.

due diligence). Trustee who is a professional investor then a higher standard

Delivery can come before or after words. Thomas v The Times Book Co Ltd –

would apply- for investors, bankers

the gift was valid. Thomas provided a means of possession by telling the

13B-duty to invest prudently. 13C-higher duty professional 13D-can exclude

individual where to find the manuscript.

liability Standard of a ‘Prudent person’ is taken from common law cases – Speight v

Exceptions;

Gaunt; Trustee was not liable to make good the loss occasioned by the

Rule in Strong v Bird – if legal title is acquired by another means (intended

embezzlement of the trusts money by the Trust’s broker as he was acting in the

donee becomes executor of donor) other than usual mode of transfer then, gift

ordinary course of business with the same prudency as ordinary men in business.

treated as perfected or trust as constituted.

Rules are based on CONDUCT not result.

Three requirements for the Strong v Bird rule to apply –

Jones v AMP Perpetual Trustee Co NZ Ltd; ‘While negligence may result in

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Intended immediate gift

liability, a mere error of judgement will not’. This case also ruled that ‘prudence’

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Intention must continue until donor’s death

is good judgement and trustees must consider prospects on income and capital

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Does not matter that done is not sole executor – Re Stewart

appreciation.

Re Rose - A transfer is complete in equity when the transferor has done

S13E – Trustee may have regard for diversification, tax, inflation

everything in their power to transfer legal title to the transferee. In this case

Prudence is ever changing – must apply relevant standards of the period; Re

there was nothing left for the donor to do.

Mulligan

Pennington v Waine – Equity can view a transfer as complete in equity when it

S13F; General duties which apply to exercise of power of investment, including a)

would be unconscionable for the settlor to change their mind – in this case

act in best interests of present/future beneficiaries, b) to act impartially, c) to

both aunt and nephew believed the gift had been perfected and acted

take advice

accordingly. Re Rose did not work as documents were given to a company

Ethical Investing;

employee under the aunt's authority and could thus be removed at her

Cowan v Scargill [1985]; held that trustees cannot ignore the financial interests

request.

of the beneficiaries – the duty of the trustee is to generate the best available

Equitable Estoppel: if imperfect gift is made and donee relies on it to his/her detriment in belief that gift is or will be made perfect, and donor acquiesces, donor estopped from denying Donationes Mortis Causa – gift made in contemplation of imminent death -

return on the trust fund regardless of other considerations. Harries v The Church Commissioners for England; provides an exception to Cowan, held that trustees are entitled to consider the social and moral interests

there are three essential requirements for a transaction concerning property to constitute a valid donatio mortis causa. Cain v. Moon (i) It must be made in contemplation, although not necessarily in the expectation, of the donor's

3.

To administer trust honestly and impartially. For discretionary trusts,

of the beneficiaries where they relate to the express or implied objects of the trust, so long as overall financial performance would not be harmed.

3.

can prefer one beneficiary over another provided preference is not based on irrelevant factors – Manukau City Council v Lawson 4.

To account strictly to beneficiaries, distribute income and capital to those entitled, keep accounts and make trust documents (unless

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they relate to Trustee exercising discretion) available to beneficiaries 5.

To act unanimously unless trust instrument says otherwise

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To consider exercise of their powers and exercising them honestly and according to the sensible expectations of the Settlor and not overlooking material factors.

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To exercise such skill and care to appropriate standard

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To adhere to terms of the trust

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To act personally and not delegate power except to the extent it is authorized under the Trustee Act 1956 s29/31, and case law. Niak v McDonald [2013]; one to whom power is delegated cannot further delegate that power.

FIDUCIARY DUTIES; Duty of good faith and honesty Fiduciary Duties Per Se; Trustee and Beneficiary. Director and Company. Solicitor and Client. Partner and Co-Partner. Agent and Principal. Mortgagor and Mortgagee. Categories not closed – Chirnside v Fay 2017 Bristol & West Building Society v Motthew [1998]; core duties 

Act in good faith

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Not make profit out of his trust

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Not place himself in a position where his duty and interest conflict

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Not act for his benefit of the benefit of a third party

Keech v Sanford; A trustee owes a strict duty of loyalty meaning there should never be a conflict of interest – trustee renewed a lease in his own name when the landlord did not want the child beneficiary to have the lease – Man was ordered to give child profits from lease. Boardman v Phipps [1967]; Fiduciaries using information gained from their positions must, in almost all circumstances, account for profits UNLESS they obtain fully informed consent 

There is always a duty to avoid a conflict of interest regardless of whether the conflict was profitable for the Trust or there was consent from some beneficiaries.

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Does not depend on fraud or the absence of bona fides

Fiduciary Duty Examples; 1.

Trustee cannot make incidental profits, so if Trustee becomes director of company through use of shares held in trust, trustee holds director remuneration for trust – Re Macadam

2.

Trustee cannot take commission or secret profits or bribes – Williams v Barton (commission through stockbrokers was held on trust)

5.

Self-dealing – buying trust property. Voidable unless fair; Campbell v Walker (purchase at public auction still breach of duty). However, can get consent of court or trust deed could authorize it. Conflict as trustee needs to get best possible purchase price however personal interest is to get lowest price – the beneficiary can have the sale set aside as a right. Wright v Morgan – Full value given, still set aside. Fair-dealing – Buying whole of beneficiary's interests. The transaction can be set aside UNLESS the trustee can show they have not taken advantage of their position – onus on the trustee to show that all information they had was laid before the beneficiary and that they paid full value. Coles v Trecothick [1804]; Must be no fraud, no concealment, no advantage taken. Can get court approval. Trustee cannot compete with trust. Re Thompson 1930; injunction to stop rival business being set up by trustee... Moore v M’Glynn; trustee was removed

Control over exercise of Discretion ------------> Courts role is limited – looks at how decisions are made rather than the accuracy of conclusion; Tempest v Lord Camoys. Turner v Turner; Trustees must ‘consider’ and discretion must be understood or their decisions will be void. Trustee must;  Consciously exercise own discretion in good faith, not passively or for an improper motive.  Exercise discretion within scope of terms and for purposes conferred  Take account of relevant matters, ignore irrelevance Reasons for Trustees decision; General rule is that there is no obligation on trustee to give reasons for exercising discretion. Re Londonderry’s Settlement; Answered why... 1) giving reasons would be inconsistent with principle that trustees discretion can’t be challenged unless there's bad faith 2) Giving reasons may embitter trustee and beneficiary 3) giving reasons would add to already onerous trustee duties Penson v Forbes; Trustees have the power to declare in writing that any person can be excluded as a beneficiary – Also entitled to unequally distribute, so long as they honestly, not in bad faith, and not for their own personal benefit. Access to Documents... Schmidt v Rosewood Trust Ltd; Held that the right to seek disclosure of trust documents as one aspect of the courts inherent jurisdiction to supervise, rather than dependent on the entitlement to fixed beneficial interests. Erceg v Erceg sets out matters that need to be evaluated in relation to an application for disclosure...  The documents sought, which may need to be evaluated separately;  The context for the request and the objective of the beneficiary in making the request;  The nature of the interests held by the beneficiary seeking access;

Whether there are issues of personal or commercial confidentiality; Whether the documents sought disclose the trustee’s reasons for decisions; and  The likely impact on the trustee and the other beneficiaries if disclosure is made.  Likely impact on the settlor and third parties the court should identify the course of action most consistent with proper administration of trust, bearing in mind interests of all beneficiaries.  

Trusts Bill; Clauses 45-50; 46; Purpose is to ensure ‘beneficiaries have sufficient information to enable... trust and the trustee's duties to be enforced’ 47; Creates a presumption that basic trust information will be made available to beneficiaries, including... 1. The fact that a person is a beneficiary 2. The name and contact details of trustee 3. The occurrence of, and details of, each appointment, removal and retirement of trustee as it occurs 4. The right of a beneficiary ...