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Summary - Equity and Trusts (ULaw)
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Summarises equity and trusts module by outlining foundational points within the subject and detailing different principles alongside relevant case law and legislation.
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Equity and Trusts RevisionUnit 1: Introduction to trusts and the nature of beneficial
interests
Describe the fundamental structure of a trust, its operation and the
people involved.
What is a trust and who is involved
What a trust is Trusts arise when a person (trustee) is compelled in equity to hold
onto a property for the benefit of another person (beneficiaries).
There is a binding obligation on a person to look after property for
the benefit of another or for a purpose permitted in law.
Trusts allow for a separation of control of a property from its
enjoyment and use.
Who is involved Trustees: Manages and controls the property subjected to the
trust – legal owner
Beneficiary: Enjoy the benefit of the proper – equitable owner
Settlor: Sets up the trust in their lifetime and passes it to the
trustee who holds it on trust for the beneficiary.
Features of a trust
Legal interest Trustees hold the legal title to the property and so they are able to
held by trustee manage the property. They are not necessarily an outright owner
as they must manage the property for the benefit of whoever
possesses equitable title.
Beneficiaries benefit from the trust property indirectly by enforcing
the trust obligations on the trustee.
The law imposes rigorous duties on trustees to ensure there is no
misuse of trust property and that beneficiaries get the intended
benefits.
Equitable interest There are two rights under equitable beneficiary interest:
held by the - Personal rights to enforce trustee duties and seek
beneficiary compensation for any breaches. They are enforceable
against the trustee personally.
- Proprietary rights enforced against the trustees and
successors in ownership of trust property.
Distinguish on different types of trust.
Fixed trusts “On trust for life remainder to Y”
Creates a successive trust as beneficial interests will have effect
one after the other.
Trustees pay trust income to the beneficiary during their lifetime
through receipts from invested trust property.
When X dies, the trustees transfer the remainder of the trust
property to Y, ending the trust.
“On trust for A if attains 21 but if A dies before then, for B”
Conditional interest of A reaching the age of 21. If they do not
make it to 21, the interest will fail and the trust is transferred to B.
“On trust for Z” but Z is an infant that cannot manage affairs, or
cannot manage their affairs for another person.
, This is an outright gift that is too large to appropriately be given to
the recipient and so the trust is established to give the recipient a
beneficial interest to ensure the property is managed properly in a
way that Z can benefit from.
“On trust for C” where C is an adult at full mental capacity.
Bare trust as the trustee will hold the property for a sole adult
beneficiary with no limitations or conditions.
These are unusual as the trustee will handle the trust under the
dictation of the beneficiary.
Beneficiary can end the trust at any time by demanding the
trustee transfers legal title to them, making them the outright
owner (Saunders v Vautier).
Bare trusts are expressly created. They occur most commonly in
investment law (company share ownership etc) or when a
beneficiary becomes a sole beneficiary through a successive trust
when they gain the remainder (if they are an adult with full mental
capacity).
Discretionary Give the trustees discretion as to the amount that beneficiaries
trusts may receive (if anything at all). These arise when a settlor does
not want to specify what a beneficiary would receive because the
distribution of property will occur many years later where
circumstances may be different.
Discretionary trusts allow for trustees to respond to changes in
circumstance at the time of property distribution.
Beneficiaries do not have equitable interest until trustees use their
discretion. Before this point, beneficiaries are labelled ‘objects’.
Explain different beneficial interests.
Importance of Reasons for a lawyer to understand the nature of the
understanding beneficiary’s interest
the nature of - Liability to fail if conditions are not satisfied
beneficial interest - When the beneficiary will receive the interest
- What the beneficiary is entitled to receive
Vested/ Vested interests
contingent Vested interests are unconditional.
interests If no conditions are imposed in the terms of the trust that outline
entitlement to the trust property, the beneficiary has vested
interest.
Contingent interests
Contingent interests are conditional.
If the interest has a condition for a future event to occur which
may not occur, or the beneficiary does not yet exist, the
beneficiary has contingent interest,
When the conditions are satisfied, the interest becomes vested. If
the conditions are never satisfied, the beneficiary will never be
entitled to the property due to their failed interest.
In possession/in Interests in possession
remainder Interests in possession have benefits that are received
immediately.
If the trust instrument states the beneficiary can enjoy their
, entitled property immediately, the interest is in possession.
Interests in remainder
In remainder interests involve benefits that are received at a later
point.
If the beneficiary must wait until another beneficiary’s right of
enjoyment has expired before they can enjoy it themselves, the
interest is in remainder.
These interests are not necessarily contingent as the conditions
are not always uncertain. The conditions can be certain to be
fulfilled, but will be fulfilled at a later point.
Absolute/limited Absolute interests
interests The beneficiaries with absolute interest will receive capital.
If there is interest in both income generated by the capital and the
capital itself, the beneficiary has absolute interest.
Limited interests
The beneficiaries with limited interest only receive income
generated by the capital of the trust.
This is normally only for a duration such as the duration of the
beneficiary’s life.
Changing nature Circumstances can bring about a change in the nature of the
of interest interests a beneficiary has.
Vested interest in possession not limited in enjoyment
These beneficiaries are absolutely entitled. The sole adult
beneficiary with this interest can bring the trust to an end by
asking trustees to transfer the entire trust fund to them (Saunders
v Vautier)
Vested interest in possession that is not limited
These beneficiaries are of a bare trust. The rule extends to
include trusts with more than one beneficiary. All beneficiaries
under the trust who are entitled must be in existence and
ascertained, 18+ years old, of sound mind, and agree to end the
trust.
Creation of trusts
Express trusts Creation in settlor’s lifetime
Can be done by either the settlor declaring themselves a trustee,
or the settlor transferring the property to trustees on trust for
beneficiaries.
If a settlor declares themselves a trustee, they must make a
declaration of trust that the original owner is a trustee for the
beneficiary as long as they have the asset to hold on trust for
someone else.
Transferring the property to trustees transfers the legal title to the
trustees to hold on trust for a specified beneficiary. Trustees can
be professionals, relatives or friends.
Settlors can make themselves a beneficiary, but they cannot be
the sole trustee. When the trust is made, the settlor cannot
change their mind and recover the property unless they have
established a reserved power of revocation at the time of creating
the trust.
, Settlors cannot dictate how the trust is run once it is made, only
beneficiaries can do this.
Creation of trust by will
Settlors creating trusts in their wills become testators. The trust
will have no effect until after their death.
Implied trusts Resulting trusts
Trustees will hold onto trust property for the settlor in implied
specific situations.
Constructive trusts
These arise in circumstances where it is unconscionable for the
trustee to deny equitable interest.
A constructive trust can be imposed by the law in equity if the
legal owner is seen to be guilty of an unconscionable conduct
(Westdeutsche Landesbank Gironzentrale v Islington Borough
Council).
Wills, gifts and intestacy
Wills and gifts
Formalities Wills are usually made in writing and signed by a testator in the
presence of two witnesses who also sign the will in the testator’s
presence (s 9 Wills Act 1837).
Codicils Wills can be altered at a later date by a codicil. These must also
be signed and witnessed in accordance with s 9 Wills Act 1837.
Legal effect of Wills only take effect when the testator has died. Before then, the
wills and codicils beneficiaries only have a hope of receiving their gift as a testator
can change the will at any time in compliance with s 9 Wills Act
1837.
Types of gift Devise
This is a gift of freehold land (aka realty).
Legacy or bequest
Gift of personal property (aka personalty). This can cover
anything other than realty.
Legacy is used in a wider sense to mean any gift of property.
Specific gifts
Gifts of assets that are distinguished from all other assets of the
same kind (e.g., MY car, my BT shares, etc).
Pecuniary gifts
This is a gift of money.
Residuary gifts
These are gifts of what remains after debts are paid, tax is paid,
specific legacies are passed, devises are given, and pecuniary
legacies are given.
Gifts on trust
Gift of property that is passed to trustees on hold for a
beneficiary.
Failure of gifts Ademption
Specific gifts fail if the testator no longer possesses the item when
they die.
Lapse
If the beneficiary dies before the testator, the gift will fail due to
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