Policy limitations on trusts revision notes for Trusts and Equity. These notes got me a high 2:1 in Trusts and Equity. Includes freedom of disposition, trusts which seek to defeat the claims of creditors and resulting trusts linked to an illegal purpose. Complete with colours and pictures to aid me...
Policy limitations on trusts
The validity of some trusts or associated conditions, even if validly created, can
be disputed on the grounds of public policy. Apply to both express and implied
(constructive and resulting) trusts.
Freedom of disposition
Paradox of liberal property system – individual owners of property should
have freedom of disposition, so should be able to dispose of property how they
wish, even if that means imposing conditions on the new owner. However, if this
is done, the new owner does not have freedom of disposition. Can never have
full freedom of disposition so law tries to balance rights – Alexander makes this
point.
Condition precedent – condition that must be fulfilled before receiving
beneficial interest
Condition subsequent – condition that terminates the beneficial interest ‘shall
terminate when the beneficiary seeks to…’
Determinable interest – similar to condition subsequent but expressed in
terms of time, e.g. ‘valid until…’
Conditions that attempt to limit the freedom of disposition of a new owner are
void. New owner will take property without that condition attached.
Trusts which seek to defeat the claims of creditors
S423 & 424 Insolvency Act 1986 give the court the power to set aside any transaction consisting of a
gratuitous disposition of property or a disposition of property at undervalue if the transaction has
been entered into with the specific purpose of defeating the claims of another person.
Insolvency Act 1986:
423 (2) – court can make order restoring parties to original position or an
order that protects the interests of the victim if:
(1) Transaction entered into at undervalue, which means a) no
consideration b) consideration is marriage c) the consideration is, in
money or money’s worth, significantly less than the consideration
provided by the transferor.
(2) Must be done for the purpose of putting assets beyond the reach of
someone who is trying to, or may try to, claim them, or otherwise
prejudicing a person who is making, or may make, a claim.
424 (1) application for this order cannot be made unless debtor has been
declared bankrupt or the victim of a transaction makes a claim.
Undervalue
Agricultural Mortgage Corp – farmer transferred farm to wife for fair market price just before
mortgage payments due. On the face of it, not at undervalue. But transaction also gave her security
of family home, farming business free from its existing creditors and the surrender value of the
tenancy (mortgagee would have to pay wife to get possession of property). Considering wider
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