Equity and Trusts UPDATED ACTUAL QUESTIONS AND
CORRECT Answers
What is a trust? A trust describes a relationship where a binding obligation is placed on a
person - a 'trustee' - to look after property for the benefit of another - a
'beneficiary' - or for a purpose permitted by law.
A trust allows for the separation of the control of property from its enjoyment
and use. The trustee has management and control of the property subject to
the trust (the 'trust property'), but the beneficiary is the 'real' owner in the sense
that they enjoy the benefit of the proper
What is the effect of a trust in land If the trust contains land, as legal owner, the trustee will be registered as
proprietor at the Land Registry and will collect the rents earned from it. As the
legal owner, it would be the trustee who would be able sell the land. The
beneficiary cannot give away the land (the legal title) because they do not hold
the legal title
However, trustees are obliged to hold the property for the benefit of those
possessing the equitable title.
What rights does the equitable interest give Beneficiaries have a personal right to enforce the trustees' duties and to seek
beneficiaries an account o for compensation for any breaches. It is called a 'personal' right
because it is enforceable against the trustees personally.
Beneficiaries also have a proprietary right - an ownership interest in the trust
property itself. The significance of this proprietary right is two fold:
(a) First, it can be enforced not only against the trustee, but also against
successors in title (i.e people who subsequently get the legal title to the trust
property).
(b) the proprietary nature of a beneficiary's interest means that it is itself an item
of property ( just like shares in a company or money in a bank) which, in certain
circumstances, can be sold or given away
,What is equity's darling Where a purchaser acts in good faith, gives full valuable consideration and has
no knowledge of the trust's existence (either actual knowledge or knowledge
which a reasonable purchaser would have acquired if enquiries were made -
'constructive notice' - or knowledge which could be 'imputed' from the
knowledge held by the purchaser's agent), the purchaser takes the purchased
property free from the beneficiaries' interests.
The beneficiaries cannot assert their rights against the property in the bona
fide purchaser's hands (but they can sue the trustees for any loss in a claim for
breach of trust)
How can a settlor create an express trust in the settlor's (a) Settlor declares themselves as the trustee. The simplest way to create a trust
lifetime is for the owner of an asset to declare that they hold the asset for the benefit of
someone else
b) Settle transfers property to trustees on trust. Here, the settlor does not
retain legal title to the asset but transfers it to trustees to hold on trust for a
designated beneficary.
How are express trusts made in wills? Property can be given to trustees to hold on the beneficiary's behalf. However,
such trusts do not take effect until the testator dies. Thus, until the testator dies,
a named beneficiary has merely the hope of receiving their gift or interest
under a trust
There are two ways in which a trust may appear in a will:
(a) A specific gift to be held on trust - here a monetary amount or an asset are
distinguished in the will from all other assets, and trustees are instructed to
hold the specific fund or property for the beneficiaries.
(b) Residuary gift on trust - the gift of residue is a gift of what remains in the
estate after the payment of the deceased's debts, the settlement of any tax due
on the estate, and the distribution of any specific gifts .
What is a resulting trust? Resulting trusts are implied in certain defined situations. An example is where a
person has monetarily contributed to the purchase of an asset which is
registered in the name of some other party. The legal owner is presumed to be
holding the purchased asset on a resulting trust for the person who provided
the money.
What is a constructive trust? Constructive trusts. Constructive trusts arise in certain circumstances when it
would be unconscionable for the legal owner of property to deny the claimant
an equitable interest, such as where another party contributes towards the
purchase price of a property.
What is an interest in possession trust? Creates successive interests - 'On trust for X life remainder to Y'.
X (who is called life tenant) has a 'life interest'. Y (remainderman) has an 'interest
in remainder'. This means trustees pay trust income to X during their lifetime e.g.
recurring receipts such as interest from banks, dividends in company shares
and rent from land.
When X dies, the trustees transfers trust property (ie money, land, shares) to Y,
whereupon trust ends. This is the trust capital
What is a contingent trust 'On trust for A if A attains 21, but if A dies before then, for B'
Where one beneficiaries interest in contingent on a factor. IF A does not attain
the age of 21, A's interest fails and B becomes entitled
, What are 'bare trusts' 'On trust for C' where C is an adult with full mental capacity
The trustees hold on trust for a sole adult beneficiary possessing full mental
capacity absolutely (with no limitations). Trustees must handle the trust
property as the beneficiary dictates. Indeed, the beneficiary can end the trust
at any time, by demanding that the trustees transfer legal title to them so that
they become the outright owner
Bare trusts may be created expressly and are quite common in the investment
world
Bare trusts also arise when a beneficiary under one of the other types of trust
considered earlier becomes solely and absolutely entitled to the trust property
- trustee will transfer legal title and trust ends
What are discretionary trusts? A discretionary trust gives the trustees a discretion as to the amounts any
beneficiary may receive and/or whether particular beneficiaries receive
anything at all. An example would be if the settlor gives property to the
trustees 'to hold on trust for such of my children and in such shares as my
trustees think fit'
What is a vested interest? A beneficiary has a 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.
What is a contingent interest? A beneficiary has a contingent interest if their right to that interest is conditional
upon the happening of some future event that may not happen, or if the
beneficiary is not yet in existence. it should be noted that a settlor or testator's
ability to impose a contingency age that is too far in the future is not looked on
favourably by the courts
When the condition is satisfied, the beneficiary's interest then becomes vested.
If the condition is not satisfied, the beneficiary never becomes entitled to the
trust property and their interest fails. The settlor usually provides for what
should happen in this event by making a substitutional gift
What is an interest in possession and interest in A beneficiary has an interest in possession if they can enjoy that interest
remainder? immediately.
A beneficiary has an interest in remainder if they cannot enjoy it immediately
but instead have to wait until some other beneficiary's right of use and
enjoyment expires. The interest is said to be 'postponed'
What are absolute and limited interests A beneficiary may have an interest which is limited to only the income
generated by investing the capital held in the trust, or an absolute interest in
the capital of the trust, or in both income and capital.
CORRECT Answers
What is a trust? A trust describes a relationship where a binding obligation is placed on a
person - a 'trustee' - to look after property for the benefit of another - a
'beneficiary' - or for a purpose permitted by law.
A trust allows for the separation of the control of property from its enjoyment
and use. The trustee has management and control of the property subject to
the trust (the 'trust property'), but the beneficiary is the 'real' owner in the sense
that they enjoy the benefit of the proper
What is the effect of a trust in land If the trust contains land, as legal owner, the trustee will be registered as
proprietor at the Land Registry and will collect the rents earned from it. As the
legal owner, it would be the trustee who would be able sell the land. The
beneficiary cannot give away the land (the legal title) because they do not hold
the legal title
However, trustees are obliged to hold the property for the benefit of those
possessing the equitable title.
What rights does the equitable interest give Beneficiaries have a personal right to enforce the trustees' duties and to seek
beneficiaries an account o for compensation for any breaches. It is called a 'personal' right
because it is enforceable against the trustees personally.
Beneficiaries also have a proprietary right - an ownership interest in the trust
property itself. The significance of this proprietary right is two fold:
(a) First, it can be enforced not only against the trustee, but also against
successors in title (i.e people who subsequently get the legal title to the trust
property).
(b) the proprietary nature of a beneficiary's interest means that it is itself an item
of property ( just like shares in a company or money in a bank) which, in certain
circumstances, can be sold or given away
,What is equity's darling Where a purchaser acts in good faith, gives full valuable consideration and has
no knowledge of the trust's existence (either actual knowledge or knowledge
which a reasonable purchaser would have acquired if enquiries were made -
'constructive notice' - or knowledge which could be 'imputed' from the
knowledge held by the purchaser's agent), the purchaser takes the purchased
property free from the beneficiaries' interests.
The beneficiaries cannot assert their rights against the property in the bona
fide purchaser's hands (but they can sue the trustees for any loss in a claim for
breach of trust)
How can a settlor create an express trust in the settlor's (a) Settlor declares themselves as the trustee. The simplest way to create a trust
lifetime is for the owner of an asset to declare that they hold the asset for the benefit of
someone else
b) Settle transfers property to trustees on trust. Here, the settlor does not
retain legal title to the asset but transfers it to trustees to hold on trust for a
designated beneficary.
How are express trusts made in wills? Property can be given to trustees to hold on the beneficiary's behalf. However,
such trusts do not take effect until the testator dies. Thus, until the testator dies,
a named beneficiary has merely the hope of receiving their gift or interest
under a trust
There are two ways in which a trust may appear in a will:
(a) A specific gift to be held on trust - here a monetary amount or an asset are
distinguished in the will from all other assets, and trustees are instructed to
hold the specific fund or property for the beneficiaries.
(b) Residuary gift on trust - the gift of residue is a gift of what remains in the
estate after the payment of the deceased's debts, the settlement of any tax due
on the estate, and the distribution of any specific gifts .
What is a resulting trust? Resulting trusts are implied in certain defined situations. An example is where a
person has monetarily contributed to the purchase of an asset which is
registered in the name of some other party. The legal owner is presumed to be
holding the purchased asset on a resulting trust for the person who provided
the money.
What is a constructive trust? Constructive trusts. Constructive trusts arise in certain circumstances when it
would be unconscionable for the legal owner of property to deny the claimant
an equitable interest, such as where another party contributes towards the
purchase price of a property.
What is an interest in possession trust? Creates successive interests - 'On trust for X life remainder to Y'.
X (who is called life tenant) has a 'life interest'. Y (remainderman) has an 'interest
in remainder'. This means trustees pay trust income to X during their lifetime e.g.
recurring receipts such as interest from banks, dividends in company shares
and rent from land.
When X dies, the trustees transfers trust property (ie money, land, shares) to Y,
whereupon trust ends. This is the trust capital
What is a contingent trust 'On trust for A if A attains 21, but if A dies before then, for B'
Where one beneficiaries interest in contingent on a factor. IF A does not attain
the age of 21, A's interest fails and B becomes entitled
, What are 'bare trusts' 'On trust for C' where C is an adult with full mental capacity
The trustees hold on trust for a sole adult beneficiary possessing full mental
capacity absolutely (with no limitations). Trustees must handle the trust
property as the beneficiary dictates. Indeed, the beneficiary can end the trust
at any time, by demanding that the trustees transfer legal title to them so that
they become the outright owner
Bare trusts may be created expressly and are quite common in the investment
world
Bare trusts also arise when a beneficiary under one of the other types of trust
considered earlier becomes solely and absolutely entitled to the trust property
- trustee will transfer legal title and trust ends
What are discretionary trusts? A discretionary trust gives the trustees a discretion as to the amounts any
beneficiary may receive and/or whether particular beneficiaries receive
anything at all. An example would be if the settlor gives property to the
trustees 'to hold on trust for such of my children and in such shares as my
trustees think fit'
What is a vested interest? A beneficiary has a 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.
What is a contingent interest? A beneficiary has a contingent interest if their right to that interest is conditional
upon the happening of some future event that may not happen, or if the
beneficiary is not yet in existence. it should be noted that a settlor or testator's
ability to impose a contingency age that is too far in the future is not looked on
favourably by the courts
When the condition is satisfied, the beneficiary's interest then becomes vested.
If the condition is not satisfied, the beneficiary never becomes entitled to the
trust property and their interest fails. The settlor usually provides for what
should happen in this event by making a substitutional gift
What is an interest in possession and interest in A beneficiary has an interest in possession if they can enjoy that interest
remainder? immediately.
A beneficiary has an interest in remainder if they cannot enjoy it immediately
but instead have to wait until some other beneficiary's right of use and
enjoyment expires. The interest is said to be 'postponed'
What are absolute and limited interests A beneficiary may have an interest which is limited to only the income
generated by investing the capital held in the trust, or an absolute interest in
the capital of the trust, or in both income and capital.
