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Trusts Law Crib Sheet
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Concise set of revision notes covering all key details and case authorities from the BPP PGDL Trusts Law module.
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TRUSTS CRYPT SHEETW1: The Trust Relationship
Trust = an equitable duty relating to property
Example: X gives Y £5 and tells them they must use it to go buy them a Mars bar.
Trustee: the person subject to the duty (i.e. Y who is using the £5)
Beneficiary: the person to whom the duty is owed (i.e. X who is owed the Mars bar)
Settlor: person who sets up the trust (i.e. X who gave the £5 to Y)
© A trustee must hold/apply the trust for the BENEFIT of the beneficiary
© SPLIT between ownership of the legal title (trustee) and the equitable proprietary interest
in the property (beneficiary)
© N.B. Can (in limited circumstances) create a trust for a purpose rather than a person
© Purchaser for value does not have notice of a trust only a personal claim is available.
© Trust can confer different types of rights on different beneficiaries at different times
o V. versatile
Express trusts Resulting and constructive trusts
® Intentionally created ® Arise by operation of law
® Can be private or public ® Known as “implied trusts”
Key case: Westdeutsche v Islington
1. Equity operates on a person’s conscience
2. A person cannot be a trustee unless they have knowledge of circumstances which
affect their conscience
3. A trust requires identifiable property
4. A beneficiary of a trust has an equitable proprietary interest in the trust property
Characteristics
Trust Property is an essential requirement for a trust. Almost every asset or
property right can be held on trust (Lord Strathcona Steamship Co Ltd v
Dominion Coal Company Ltd)
A trust will CEASE to exist if the trust property is destroyed/consumed
without any fault on part of trustee
© If trustee is at fault, they will be personally liable to restore the
trust property using their own funds, or must pay compensation
N.B. In many trusts, the trust property fluctuates: selling the property
does not destroy a trust, it simply changes the trust assets
, A trustee Trustee owns the trust property - must exercise their rights & powers of
legal ownership consistently w/ basic trust duty
Function & duties of trustees are NOT unitary = determined by the nature
of the trust they are administering
® Role of a trustee is a voluntary office, but professional trustees are
entitled to renumeration
A duty Basic duty: to hold/apply property for the benefit of the beneficiary
(South Australian Insurance Co v Randell)
A trustee CAN be one of the beneficiaries of a trust. However, they will
still owe duties to the other beneficiaries.
© Customs and Excise Commissioners v Richmond Theatre
Management Ltd: ability to freely use the money for its own
purposes = incompatible w/ a trust
© re Bond Worth: using the fibres in manufacturing process =
inconsistent with holding the fibres on trust for the unpaid seller
Limited exception: In re Lehman Brothers International (Europe) (in
administration - ability of broker to sell trust securities on its own
account & for its own profits was NOT inconsistent w/ a trust because
broker had duty to replace any securities it sold with identical securities
Objects Must have a beneficiary or be for a permitted purpose = ‘trust objects’
A purpose trust = a trust for the promotion or realisation of a purpose (a
trust without a beneficiary). Can ONLY be for a permitted purpose.
Equitable Beneficiary has rights in the property KEY advantages:
proprietary
interest 1)Beneficiary’s rights are enforceable against ANY third party except a
purchaser for value w/ no notice (Akers v Samba Financial Group)
® If a trustee misapplies trust property, beneficiary can demand it be
restored to the trust (incl. any ‘traceable proceeds’)
2) Beneficiary’s rights are protected against trustee entering into
insolvency: beneficiary enjoys ‘priority’ over unsecured creditors.
Key comparisons and distinctions
Beneficiaries have personal + proprietary rights
© Contracting parties/creditors ONLY have personal rights
A trust does NOT have a right of redemption, which is a defining characteristic of a charge
A trust is regulated by equity; bailment is regulated by common law
© Bailor’s interest survives misapplication of property, beneficiary’s will not without notice
© Only tangible personal property (chattel) = subject of bailment. ANY asset/right = on trust
© Can be a bailee, an agent & a Creation
trustee allofatexpress trusts
the same time
Trust
The has no legal
SETTLOR personality
creates (unlike
the trust. company)
An express trust +can
trustees transacts
be created as ways:
in two principals not as agents
A gift involves absolute transfer of ownership. A trust creates a new equitable interest.
, 1) Self-declaration of trust 2) Transfer on trusts
Settlor becomes trustee Third party becomes trustee
© Retains legal title © Settlor transfers legal title to third party
© Legal title now held in new capacity © Settlor ceases to have any interest
(as trustee rather than legal owner) o Settlor now has equitable + beneficial
© New equitable title created + interest instead of being legal owner
beneficial ownership transferred to © New equitable title created + beneficial
beneficiary ownership transferred to beneficiary
To create an express trust, you need: the three certainties + beneficiary principle + formalities
+ registration w/ Online Trusts Registration Service (‘TRS’) [for tax purposes]
The three certainties
Rights & obligations must be certain to be enforceable – consider what, how, who?
1. Certainty of intention – how?
Objective test
© Manifest an intention to assume/impose duty which is characteristic of a trust –
requisite intention (Re Oldfield – desire not enough)
© No need to subjectively intend to create a trust
© No need to even know what a trust is!
© Requisite intention: intention to impose/assume trust duty
Ascertaining intention – question of fact
© Intention is ascertained from words/conduct
o Segregation of funds in a separate bank account for a particular person/person
o Paul v Constance: repeated use of words “this money is as much yours as
mine” = indicative of a bank account being held on trust (consistent!)
o Words “confident that they will” = NOT imperative in creating a trust
o Can still be a trust despite other labels (Don King Productions Inc v Warren)
© Use of word ‘trust’ is neither necessary nor conclusive (Re Kayford Ltd)
© In commercial cases, stronger evidence is required – e.g. formal documents
© The more precisely defined the obligations more likely courts will find intention
2. Certainty of subject matter (Re Goldcorp Exchange Ltd) – what?
Almost every asset & right can be held on trust (Hunter v Moss – shares)
I) Trust property requirement: trust property must be easily identified – WHAT is it?
Issue (1): Identifying subject matter by description
® Cannot create a trust out of the ‘bulk’ because it is not possible to ascertain how
much of it constitutes bulk (Palmer v Simmonds)
® Cannot create a trust of ‘net assets’ because ‘net assets’ is not any specific property
of company = abstract monetary sum (Wilkinson v North)
, ® Can create trust over a fractional interest of a wider mass regardless of property type
Issue (2): Identifying subject matter out of a larger mass (specific no. = issue)
Tangible and intangible Fungible and non-fungible
Tangible assets = physical assets Fungible assets = those that are identical and readily
(cash, diamonds) exchangeable (ordinary share)
Intangible = NO physical form Non-fungible = distinguishable + non-interchangeable
(shares, IP rights, debts) (diamonds – different shape, cut etc. different value!)
© CAN declare a trust over a specified no. of intangible, fungible assets forming
part of a wider bulk w/o identifying the specific assets forming subject matter
of the trust.
© CANNOT declare a trust over a specified no. of tangible assets forming part of
a wider bulk, whether or not they are fungible, unless specific assets forming
subject matter of the trust ARE identified (in wills, the executor can do this!)
II) Beneficial entitlement requirement: must be able to ascertain the nature & extent of
beneficiary’s interest - HOW much are the beneficiaries owed?
Boyce v Boyce: trust failed because beneficiary DIED before making their choice
N.B. Objectively assessed: ‘reasonable income’ = valid trust (Re Golay’s Will Trusts)
3. Certainty of objects – who/what property is to be used for
Different test depending on the TYPE of trust in question
Fixed trust Power of appointment
© Trustee has no discretion © Power MAY be exercised
© Fixed mechanism for distribution © Donee may be trustee or third party
© Can be coupled with a power © Attached to a gift or trust
“My Trustees must hold the Trust © Power is valid is it satisfies the ‘is/is not
Fund for my children in equal shares” test’ (or ‘any given postulant’ test)
© Look for permissive language, e.g. “may”
Discretionary trust rather than “must” or “shall
© Also known as “trust power” © Look for presence of a gift-over
© Power/discretion must be exercised “in such shares as my wife may determine,
© Power is held by trustee and if no such direction is made, in equal
“My Trustees must hold the Trust shares” (third party donee= personal power)
Fund such of my children and in such “My Trustees may pay all or part of the Trust
shares as my Trustees shall in their Fund to, or for the benefit of, any of my sons”
absolute discretion determine” (held by trustee = fiduciary power)
*Trustees’ obligation = to carry out a survey of the class appropriate to the particular trust*
Fixed trust Discretionary trust
Greater degree of certainty – must show: Less stringent test of certainty – must only
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