What is Meant by Equity?
Equity includes not only trusts, but also covers equitable remedies such as injunctions, dealings
with land and mortgages, the administration of estate of deceased persons, partnerships, the
setting aside of written instruments and many other apparently unrelated topics.
Introduction to Trusts
What is a Trust?
L
More Simply,
1) There is a binding obligation placed on a person - a ‘trustee’
permitted by law GD
2) To look after property for the benefit of another - a ‘beneficiary’ - or for a purpose
Obligation placed on the trustee which can be enforced by the beneficiary
The trustee has management and control of the property subject to the trust
The beneficiary is the ‘real’ owner in the sense that he enjoys the benefit of the property
Express Trust
➢ A trust which is set up intentionally by the settlor
ce
➢ Created in a written document which is called a ‘trust instrument’
Trusts can only exist over property
Trusts involves separate ownership of the legal land equitable interests, a sole trustee cannot
hold on trust for himself alone
A
Features of a Trust
Trustees have the management or control of the trust property and the beneficiaries have the
benefit
Equity
➢ When a trust is created, the trustees hold the legal title or interest in the trust property
and the beneficiary has an equitable interest in the trust property
➢ Equitable interests are also known as ‘beneficial interests’
,Legal Interest held by the Trustee
➢ Trustee holds the legal title enables them to manage the trust property
➢ Trustees are obliged to hold the property for the benefit of those possessing the
equitable title, this obligation is the trust
➢ Beneficiaries get the benefits from the trust property, however they do not get the
benefits direct from the bank, building society or company, they get the benefits indirectly
by enforcing the trust obligation against the trustee
L
➢ To guard against the trustees misusing the trust property, the law imposes very rigorous
duties on them
○ Duties derive from statute and case law
GD
○ Duties require trustees to dispose of the trust property in accordance with the
terms of the trust
● Ensures that the beneficiaries get the benefit the settlor intended
Equitable interest held by the beneficiary
Equitable interest gives beneficiaries two rights
1) Personal
➢ Beneficiaries have a personal right to enforce the trustee’s duties and seek
compensation for any breaches
■ Personal because it is enforceable against the trustees personally
ce
2) Proprietary
➢ Beneficiaries have an ownership interest in the trust property itself
➢ Significance of the proprietary right is twofold
■ Can be enforced not only against the trustee but also against successors
in title
■ Proprietary nature of the beneficiary’s interest means that it is itself an
A
item of property which can be sold or given away
Some Different Types of Trust
Fixed Trust
➢ The trust define the share of the trust property which the beneficiary will receive
○ ‘On trust for X for life remainder to Y’
● Creates ‘successive interests’
■ Creates beneficial interests which have effect one after the other
■ X has a ‘life interest’, Y has an ‘interest in remainder’
■ The trustees will pay only the trust income to X during his or her
lifetime
, ⎕ Trust income will consist of recurring receipts from the
invested trust property, such as interest from banks and
building societies, dividends on company shares and rent
from land
■ When X dies, the trustees will transfer the trust property itself to Y,
the trust will come to an end
⎕ Trust property is called ‘trust capital’
○ ‘On trust for A if he attains 21 but if he dies before then, for B’
● A’s interest is conditional on A attaining 21, in the meantime, the trustees
will look after the trust property for the benefit of A
● If A dies before attaining the age of 21, his interest fails and B becomes
entitled
○ ‘On trust for Z’ where Z is an infant or cannot manage his affairs for some reason
L
○ ‘On trust for C’ where C is an adult with full mental capacity
● Called bare trust because the trustees hold on trust for a sole adult
beneficiary
Discretionary Trusts
GD
● Trustees must handle the trust property as the beneficiary dictates
● Beneficiary can end the trust at any time by demanding the trustees
transfer legal title to him (Saunders v Vautier (1841) 4 Beav 115)
● Created expressly and quite common in the investment world
➢ Gives the trustees a discretion as to the amounts any beneficiary may receive and/or
whether particular beneficiaries receive anything at all
➢ Allows the trustees to respond to changes in circumstances when the time comes for
distribution of the trust property
➢ No individual has an equitable interest under a discretionary until the trustees exercise
ce
their discretion in his favor
Understanding Beneficial Interests
A
Vested and contingent interest
, ‘Is my interest unconditional?’
If vested - yes, if contingent - no
➢ A beneficiary has vested interest if that beneficiary exists and does not have to satisfy
any conditions imposed by the terms of the trust before becoming entitled as of right to
trust property
➢ A beneficiary has a contingent interest if it is conditional upon the happening of some
future event that may not happen, or if the beneficiary is not yet in existence
Interests in possession and interests in remainder
‘When will I benefit?’
If in possession - now
If in remainder - later
➢ A beneficiary has an interest in possession if he can enjoy that interest immediately
L
➢ A beneficiary has an interest in remainder if he cannot enjoy it immediately but instead
has to wait until some other beneficiary’s right to enjoyment expires. The interest is said
to be ‘postponed’
Absolute and limited interests
‘What do I get?’ GD
If an absolute interest - capital
If a limited interest - income only
➢ A beneficiary may have an interest in only the income generated by invested held in the
trust, or an interest in the capital of the trust, or in both income and capital
➢ An interest in income only will normally be limited in duration
The changing nature of beneficial interests
If a beneficiary’s interest is vested and in possession and not limited in enjoyment, the
ce
beneficiary is described as ‘absolutely entitled
○ A sole adult beneficiary can bring the trust to an end by asking the trustees to hand the
whole trust fund over to him or to other trustees (Saunders v Vautier (1841) 4 Beav 115)
The beneficiaries can end the trust by calling for a transfer of trust property to themselves or to
other trustees if all the beneficiaries under the trust who could possibly become entitled:
A
1) Are in existence and ascertained
2) Are 18 or older and of sound mind
3) Are in agreement
Creation of Trusts
Express Trusts
1) Creation of trusts in settlor’s lifetime
➢ A settlor may create an express trust in his lifetime in one of two ways:
a) Settlor declares self as the trustee
b) Settlor transfers property to trustees on trust
Equity includes not only trusts, but also covers equitable remedies such as injunctions, dealings
with land and mortgages, the administration of estate of deceased persons, partnerships, the
setting aside of written instruments and many other apparently unrelated topics.
Introduction to Trusts
What is a Trust?
L
More Simply,
1) There is a binding obligation placed on a person - a ‘trustee’
permitted by law GD
2) To look after property for the benefit of another - a ‘beneficiary’ - or for a purpose
Obligation placed on the trustee which can be enforced by the beneficiary
The trustee has management and control of the property subject to the trust
The beneficiary is the ‘real’ owner in the sense that he enjoys the benefit of the property
Express Trust
➢ A trust which is set up intentionally by the settlor
ce
➢ Created in a written document which is called a ‘trust instrument’
Trusts can only exist over property
Trusts involves separate ownership of the legal land equitable interests, a sole trustee cannot
hold on trust for himself alone
A
Features of a Trust
Trustees have the management or control of the trust property and the beneficiaries have the
benefit
Equity
➢ When a trust is created, the trustees hold the legal title or interest in the trust property
and the beneficiary has an equitable interest in the trust property
➢ Equitable interests are also known as ‘beneficial interests’
,Legal Interest held by the Trustee
➢ Trustee holds the legal title enables them to manage the trust property
➢ Trustees are obliged to hold the property for the benefit of those possessing the
equitable title, this obligation is the trust
➢ Beneficiaries get the benefits from the trust property, however they do not get the
benefits direct from the bank, building society or company, they get the benefits indirectly
by enforcing the trust obligation against the trustee
L
➢ To guard against the trustees misusing the trust property, the law imposes very rigorous
duties on them
○ Duties derive from statute and case law
GD
○ Duties require trustees to dispose of the trust property in accordance with the
terms of the trust
● Ensures that the beneficiaries get the benefit the settlor intended
Equitable interest held by the beneficiary
Equitable interest gives beneficiaries two rights
1) Personal
➢ Beneficiaries have a personal right to enforce the trustee’s duties and seek
compensation for any breaches
■ Personal because it is enforceable against the trustees personally
ce
2) Proprietary
➢ Beneficiaries have an ownership interest in the trust property itself
➢ Significance of the proprietary right is twofold
■ Can be enforced not only against the trustee but also against successors
in title
■ Proprietary nature of the beneficiary’s interest means that it is itself an
A
item of property which can be sold or given away
Some Different Types of Trust
Fixed Trust
➢ The trust define the share of the trust property which the beneficiary will receive
○ ‘On trust for X for life remainder to Y’
● Creates ‘successive interests’
■ Creates beneficial interests which have effect one after the other
■ X has a ‘life interest’, Y has an ‘interest in remainder’
■ The trustees will pay only the trust income to X during his or her
lifetime
, ⎕ Trust income will consist of recurring receipts from the
invested trust property, such as interest from banks and
building societies, dividends on company shares and rent
from land
■ When X dies, the trustees will transfer the trust property itself to Y,
the trust will come to an end
⎕ Trust property is called ‘trust capital’
○ ‘On trust for A if he attains 21 but if he dies before then, for B’
● A’s interest is conditional on A attaining 21, in the meantime, the trustees
will look after the trust property for the benefit of A
● If A dies before attaining the age of 21, his interest fails and B becomes
entitled
○ ‘On trust for Z’ where Z is an infant or cannot manage his affairs for some reason
L
○ ‘On trust for C’ where C is an adult with full mental capacity
● Called bare trust because the trustees hold on trust for a sole adult
beneficiary
Discretionary Trusts
GD
● Trustees must handle the trust property as the beneficiary dictates
● Beneficiary can end the trust at any time by demanding the trustees
transfer legal title to him (Saunders v Vautier (1841) 4 Beav 115)
● Created expressly and quite common in the investment world
➢ Gives the trustees a discretion as to the amounts any beneficiary may receive and/or
whether particular beneficiaries receive anything at all
➢ Allows the trustees to respond to changes in circumstances when the time comes for
distribution of the trust property
➢ No individual has an equitable interest under a discretionary until the trustees exercise
ce
their discretion in his favor
Understanding Beneficial Interests
A
Vested and contingent interest
, ‘Is my interest unconditional?’
If vested - yes, if contingent - no
➢ A beneficiary has vested interest if that beneficiary exists and does not have to satisfy
any conditions imposed by the terms of the trust before becoming entitled as of right to
trust property
➢ A beneficiary has a contingent interest if it is conditional upon the happening of some
future event that may not happen, or if the beneficiary is not yet in existence
Interests in possession and interests in remainder
‘When will I benefit?’
If in possession - now
If in remainder - later
➢ A beneficiary has an interest in possession if he can enjoy that interest immediately
L
➢ A beneficiary has an interest in remainder if he cannot enjoy it immediately but instead
has to wait until some other beneficiary’s right to enjoyment expires. The interest is said
to be ‘postponed’
Absolute and limited interests
‘What do I get?’ GD
If an absolute interest - capital
If a limited interest - income only
➢ A beneficiary may have an interest in only the income generated by invested held in the
trust, or an interest in the capital of the trust, or in both income and capital
➢ An interest in income only will normally be limited in duration
The changing nature of beneficial interests
If a beneficiary’s interest is vested and in possession and not limited in enjoyment, the
ce
beneficiary is described as ‘absolutely entitled
○ A sole adult beneficiary can bring the trust to an end by asking the trustees to hand the
whole trust fund over to him or to other trustees (Saunders v Vautier (1841) 4 Beav 115)
The beneficiaries can end the trust by calling for a transfer of trust property to themselves or to
other trustees if all the beneficiaries under the trust who could possibly become entitled:
A
1) Are in existence and ascertained
2) Are 18 or older and of sound mind
3) Are in agreement
Creation of Trusts
Express Trusts
1) Creation of trusts in settlor’s lifetime
➢ A settlor may create an express trust in his lifetime in one of two ways:
a) Settlor declares self as the trustee
b) Settlor transfers property to trustees on trust
