1 – Trust Relationship
Trusts
Are the creation of equity
2 key components: property and obligation.
o Trustee holds property for beneficiary.
o Trustee must exercise rights on behalf of beneficiary.
No requirement for an agreement (in the contractual sense) between any of the
parties [e.g., express trust arises due to intention manifested by settlor alone].
Trustee must just agree to act.
Requirements:
o 3 certainties
o Perpetuity rules
o Formalities (declaration + constitution)
Trustee
A trustee can also be one of the beneficiaries of the trust.
Has legal proprietary interest.
Beneficiary
Has equitable proprietary interest in the trust property
o Good b/c enforceable against third parties (in rem)
Traceable proceeds
o Good b/c if trustee goes insolvent, its bank can’t take the trust property
o Bad b/c cannot be enforced against a purchaser of a legal interest with no
notice
How is a trust created?
Self-declaration of trust for a third party
Dad wants to give his daughter his house, but he still wants to control it.
- Settlor à trustee
o Retains legal title
o Creates a new equitable title
- Beneficiary
o Beneficial ownership is transferred to beneficiary
Transfer on trust for a third party
Dad wants to give his daughter his house, and he gives it to a company [3 rd] to own it.
- Settlor transfers legal title to a third party
- Settlor is now out of the equation (ceases to have any interest)
- New equitable title created
- Beneficial ownership is transferred to third party
,Transfer on trust for a settlor
Dad wants to keep his house but gives it to a trust company to manage.
- Settlor transfers legal title to a trustee
- Settlor then becomes the beneficiary
1. Certainty of intention à how?
Flexibility
Words/conduct.
Does not have to be in writing
Can be from an implied contractual term
Words
o ‘This money is as much yours as mine’ = intention, but borderline.
o ‘I am holding the contents of my bank account for you’ = intention
o ‘I give my shares to my brother to hold for my children’ = intention
Conduct
o B collects rent for A. A dies. B continues to collect rent, pay it into separate
account, and says he’ll give it to A’s heir = intention.
Limitations
A ‘desire’ is not an intention
Vagueness as to the trust property and the beneficiaries’ interests suggests a lack of
intention. Testator gave all his property to his wife ‘feeling confident that she will act
justly to our children in dividing the same when no longer required by her’ = no
intention
‘I give my house to my husband and trust that he will look after my children’ = no
intention.
If it is in writing, consider:
The natural and ordinary meaning of words
Any relevant contextual features of the document
Facts known to author at time
Common sense
Other considerations:
Has the word ‘trust’ been used?
o Good indicator of intention, but not determinative. Substance paramount
Have funds been segregated in a separate bank account which has been earmarked
for a particular person or purpose?
o Often good evidence of an intention but is not necessary and is not
conclusive.
2. Certainty of subject matter à what?
Trust Property
Scope
What can be held on trust?
, o Mostly anything
o Chattels
o Land
o A right/obligation under a contract
o A chose in action (e.g., a share; a debt like £100 credited to a bank)
Larger mass
o 50 shares = valid
Trust property can change – e.g., selling property does not destroy the trust, just
changes the trust assets
Limitations
Vague descriptions
o ‘Bulk’ = uncertain (Palmer v Simmonds).
o ‘net assets’ = uncertain (Wilkinson v North)
Larger mass
o Wine not appropriated from general stock = invalid (London Wine Company).
o 50 shares = valid
If A agrees to create a trust of a separate fund for B, but the fund itself is never
actually established (money kept in regular bank account, no separate fund) = no
trust property (but B likely to have a personal claim against A for breach of contract)
What if trust property is destroyed?
o Not trustee’s fault = trust ceases to exist
o Trustee’s fault = trustee personally liable to restore the trust property using
own funds. If irreplaceable, compensation
If the trustee can freely use the money for its own purpose / mix trust assets with
own assets = no trust*
o *exception: a broker who sells trust securities on its own account and for its
own profit
Quistclose trusts
- Property is lent + specific purpose + not at free disposal of borrower = express trust
- Creditor lends money to a debtor for a specific purpose, a trust can exist where the
parties mutually intend that the money could only be applied for the purpose and
was not at the free disposal of the borrower. A Quistclose trust does not arise where
money is paid for a purpose but is at the recipient’s free disposal. Principle extends
to any type of property.
Beneficiary principle / beneficial entitlement
It must be possible to ascertain the nature and extent of the beneficiary’s interest in
the trust property.
Reason: need a beneficiary so that there’s someone who can enforce a trust.
Must be for legal persons (incl. companies etc.) and not for a purpose*
, Examples:
o X did not make selection = not valid
o ‘a reasonable income’ = valid
*Exceptions: charitable/non-charitable purpose trusts
Effect of no BP?
To the extent that it is not possible to ascertain, the trust will fail.
Difference between BP and objects
- Certainty of objects = who is to benefit
- Beneficial entitlement = how much they are to receive
3. Certainty of objects à who?
Why do we need certainty of objects?
- So that the trust can be regulated/enforced by the court
Trusts for people - test
1: What type of trust/power?
Fixed trust
Discretionary trust
Power of appointment
2: Apply test for that type of trust/power:
Fixed trust
- High degree of certainty needed
- Complete list test
o Needed for ‘equal shares’
- Multiple beneficiaries + uncertainty as to one or more of beneficiaries = trust will not
necessarily fail: if the identifiable beneficiaries’ have a beneficial entitlement which is
not dependent upon the entitlement of the uncertain beneficiaries, they can still
take their interest.
Discretionary Trust
- Is/is not test (any given postulant test)
o Do not need to identify every single member of the class
- Conceptual certainty is necessary
o ‘employees’ < ‘current employees’
o ‘relatives’ is conceptually certain
o ‘people who have a moral claim on me’ is not conceptually certain
- There may be some evidential uncertainty and the trust can still be valid
o Judges unable to reach agreement
Lord Stamp: even if one-person uncertain whole trust fails
McCaul: substantial number
Trusts
Are the creation of equity
2 key components: property and obligation.
o Trustee holds property for beneficiary.
o Trustee must exercise rights on behalf of beneficiary.
No requirement for an agreement (in the contractual sense) between any of the
parties [e.g., express trust arises due to intention manifested by settlor alone].
Trustee must just agree to act.
Requirements:
o 3 certainties
o Perpetuity rules
o Formalities (declaration + constitution)
Trustee
A trustee can also be one of the beneficiaries of the trust.
Has legal proprietary interest.
Beneficiary
Has equitable proprietary interest in the trust property
o Good b/c enforceable against third parties (in rem)
Traceable proceeds
o Good b/c if trustee goes insolvent, its bank can’t take the trust property
o Bad b/c cannot be enforced against a purchaser of a legal interest with no
notice
How is a trust created?
Self-declaration of trust for a third party
Dad wants to give his daughter his house, but he still wants to control it.
- Settlor à trustee
o Retains legal title
o Creates a new equitable title
- Beneficiary
o Beneficial ownership is transferred to beneficiary
Transfer on trust for a third party
Dad wants to give his daughter his house, and he gives it to a company [3 rd] to own it.
- Settlor transfers legal title to a third party
- Settlor is now out of the equation (ceases to have any interest)
- New equitable title created
- Beneficial ownership is transferred to third party
,Transfer on trust for a settlor
Dad wants to keep his house but gives it to a trust company to manage.
- Settlor transfers legal title to a trustee
- Settlor then becomes the beneficiary
1. Certainty of intention à how?
Flexibility
Words/conduct.
Does not have to be in writing
Can be from an implied contractual term
Words
o ‘This money is as much yours as mine’ = intention, but borderline.
o ‘I am holding the contents of my bank account for you’ = intention
o ‘I give my shares to my brother to hold for my children’ = intention
Conduct
o B collects rent for A. A dies. B continues to collect rent, pay it into separate
account, and says he’ll give it to A’s heir = intention.
Limitations
A ‘desire’ is not an intention
Vagueness as to the trust property and the beneficiaries’ interests suggests a lack of
intention. Testator gave all his property to his wife ‘feeling confident that she will act
justly to our children in dividing the same when no longer required by her’ = no
intention
‘I give my house to my husband and trust that he will look after my children’ = no
intention.
If it is in writing, consider:
The natural and ordinary meaning of words
Any relevant contextual features of the document
Facts known to author at time
Common sense
Other considerations:
Has the word ‘trust’ been used?
o Good indicator of intention, but not determinative. Substance paramount
Have funds been segregated in a separate bank account which has been earmarked
for a particular person or purpose?
o Often good evidence of an intention but is not necessary and is not
conclusive.
2. Certainty of subject matter à what?
Trust Property
Scope
What can be held on trust?
, o Mostly anything
o Chattels
o Land
o A right/obligation under a contract
o A chose in action (e.g., a share; a debt like £100 credited to a bank)
Larger mass
o 50 shares = valid
Trust property can change – e.g., selling property does not destroy the trust, just
changes the trust assets
Limitations
Vague descriptions
o ‘Bulk’ = uncertain (Palmer v Simmonds).
o ‘net assets’ = uncertain (Wilkinson v North)
Larger mass
o Wine not appropriated from general stock = invalid (London Wine Company).
o 50 shares = valid
If A agrees to create a trust of a separate fund for B, but the fund itself is never
actually established (money kept in regular bank account, no separate fund) = no
trust property (but B likely to have a personal claim against A for breach of contract)
What if trust property is destroyed?
o Not trustee’s fault = trust ceases to exist
o Trustee’s fault = trustee personally liable to restore the trust property using
own funds. If irreplaceable, compensation
If the trustee can freely use the money for its own purpose / mix trust assets with
own assets = no trust*
o *exception: a broker who sells trust securities on its own account and for its
own profit
Quistclose trusts
- Property is lent + specific purpose + not at free disposal of borrower = express trust
- Creditor lends money to a debtor for a specific purpose, a trust can exist where the
parties mutually intend that the money could only be applied for the purpose and
was not at the free disposal of the borrower. A Quistclose trust does not arise where
money is paid for a purpose but is at the recipient’s free disposal. Principle extends
to any type of property.
Beneficiary principle / beneficial entitlement
It must be possible to ascertain the nature and extent of the beneficiary’s interest in
the trust property.
Reason: need a beneficiary so that there’s someone who can enforce a trust.
Must be for legal persons (incl. companies etc.) and not for a purpose*
, Examples:
o X did not make selection = not valid
o ‘a reasonable income’ = valid
*Exceptions: charitable/non-charitable purpose trusts
Effect of no BP?
To the extent that it is not possible to ascertain, the trust will fail.
Difference between BP and objects
- Certainty of objects = who is to benefit
- Beneficial entitlement = how much they are to receive
3. Certainty of objects à who?
Why do we need certainty of objects?
- So that the trust can be regulated/enforced by the court
Trusts for people - test
1: What type of trust/power?
Fixed trust
Discretionary trust
Power of appointment
2: Apply test for that type of trust/power:
Fixed trust
- High degree of certainty needed
- Complete list test
o Needed for ‘equal shares’
- Multiple beneficiaries + uncertainty as to one or more of beneficiaries = trust will not
necessarily fail: if the identifiable beneficiaries’ have a beneficial entitlement which is
not dependent upon the entitlement of the uncertain beneficiaries, they can still
take their interest.
Discretionary Trust
- Is/is not test (any given postulant test)
o Do not need to identify every single member of the class
- Conceptual certainty is necessary
o ‘employees’ < ‘current employees’
o ‘relatives’ is conceptually certain
o ‘people who have a moral claim on me’ is not conceptually certain
- There may be some evidential uncertainty and the trust can still be valid
o Judges unable to reach agreement
Lord Stamp: even if one-person uncertain whole trust fails
McCaul: substantial number
