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Summary EQUITY AND TRUSTS NOTES
EQUITY AND TRUSTS NOTES - Comprehensive notes for SQE 1 exams
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EQUITY & TRUSTS- Legal and equitable ownership in any property
- Trust is where a trustee holds property for the benefit of another
(beneficiaries)
o It involves:
A duty imposed on a trustee
To deal with property over which the trustee has control
For the benefit of beneficiaries who can enforce the duty
Who is involved?
(1) Settlor – is the person who creates the trust. Lays down the declaration of
trust know as trust deed or trust document when in writing. They must then
ensure the trustee gets legal title to the property
(2) Trustee- person who holds the property for the benefit of another
(3) Beneficiaries- people who benefit from the trust
Legal title goes to the trustee and equitable or beneficial title goes to the beneficiary
Trustees can consider investing and growing the trust fund for the benefit of the
beneficiaries
Trustee under a duty to maintain and potentially increase the value of the property
held on trust for the benefit of the beneficiaries
Express Trusts
- Settlor expressly intends to create a trust
Implied Trusts
- Implied trusts come into existence because the law says they should
- 2 types:
o Resulting Trusts and
Resulting trusts are used in situations where the settlor would
have intended such a trust if they had thought about it
o Constructive trusts
Used where it would be unfair to allow the legal owner to have
full enjoyment of the property they hold
When can Trusts be created?
- Can be created to take effect either:
o (a) during the settlors lifetime or
o (b) on their death in their will
,Lifetime Trusts
- settlor can create a trust to take effect during their lifetime.
- In order for a lifetime trust to be valid, the settlor must:
o (a) make a valid declaration of trust
o (b) ensure that property is put into the trust and the property is
transferred to the trustee
Will Trusts
- A person can create a trust to take effect on their death
- For this to be valid, the testator must:
o Make a valid declaration of trust in a will that complies with the
provisions of Wills Act 1837.
o Direct that title to the trust property will be put in the hands of the
trustee
- If something foes wrong and the settlor dies, the equitable interest results
back to the settlor’s residuary estate and will belong to the residuary
beneficiary
- If the settlor dies without a will and they didn’t make the lifetime trust, then the
equitable interest will go to the settlor’s statutory next-of-kin under the rules of
intestacy
CREATION OF TRUSTS
Express Trusts: Declaration of Trust
To be enforceable, a settlor must:
- (a) make a valid declaration of trust
- (b) put assets in the trust
- A declaration of trust is an instruction manual on how the trustees should run
the trust and who will benefit from the trust
- It must include:
o Identify the trustees
o Identify the property that is to be held
o Identify the beneficiaries
o Identify the powers and duties that the trustees have
Fixed Interest Trusts
- Trustees have no discretion as to how the trust property is to be distributed
between the beneficiaries
Discretionary Trusts
- Gives the trustees a discretion as to the amounts any person may receive
,THREE CERTAINTIES
Knight v Knight
(a) Certainty of intention – it must be clear that the person making the declaration
intended to create a trust
(b) Certainty of Subject-matter: it must be clear what property is being held on
trust and what the individual interests of beneficiaries are
(c) Certainty of Objects- it must be clear who the beneficiaries are
Precatory words such as wish, hope or expectation do not create a trust. Obligatory
or mandatory wording must be used if the settlor is looking to create a trust
Certainty of Subject-matter
- Re London Wine Co (Shippers) – insufficient certainty of subject-matter as the
crates of wine were not labelled with any customers names so it was
impossible to identify which particular crate of wine was held on trust for which
particular customer – all the wine therefore still belonged to the company
- Hunter-Moss- trust to hold 50 shares out of 950 shares in a company for
another. Although it was never made clear which 50 shares were being held
on trust, the court held that there was nevertheless sufficient certainty of
subject-matter – the 950 shares were all the same and therefore it did not
matter which 50 shares were held on trust as long as 50 shares were
available.
Certainty of objects:
- Fixed Interest Trusts
o Complete list test- must be possible to draw up a complete list of each
and every beneficiary
- Discretionary Trusts
o No need for a complete list but do need to determine the type of people
o Give Postulant Test –
Can it be said with certainty whether any given postulant
(individual) is or is not a member of the class of objects?
Need conceptual certainty
Has the settlor laid down sufficient criteria when
describing the class so that it is clear what sort of people
will qualify?
o McPhail v Doulton-
Discretionary trust will be invalid if the class is so hopelessly
wide as not to form anything like a class
o R v District Auditor ex p West Yorkshire Metro CC – size of the class
was too large when rendered the trust administratively unworkable
, o Cannot be Capricious
a discretionary trust may be caprious if there is absolutely no
rational reason for the trust or absolutely no rational basis on
which the trustees can exercise their discretion to distribute the
trust property
Perpetuity
- law will only tolerate trusts that last for an acceptable period
- to be a valid trust, the beneficial interests under the trust must vest i.e. must
become unconditional – within the relevant perpetuity period
Formalities for Declaration of Trust
- Declaration of trust over land must comply with s53(1)(b) of the Law of
Property Act (LPA) 1925
o This requires that the declaration of trust must be manifested and
proved by some writing signed by some person who is able to declare
such trust
CHART:
1. Declaration of trust + Constitution
a. Certainty of Intention
i. Certainty of subject-matter
1. Certainty of Objects
a. Fixed Interest Trust
1. Complete List test
b. Discretionary Trust
1. Given postulant test plus
administrative workability plus not
capricious
ii. Beneficiary Principle
iii. Perpetuity Period
iv. Formalities of trust over land
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