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Summary SQE1 | EQUITY AND TRUSTS
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Summary notes to prepare for your SQE assessment. Prepare for your SQE exam for less. I achieved a 77% on my first sitting of the SQE1 relying solely on these notes.
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INTRODUCTION TO TRUSTS- a trust separates legal and beneficial ownership in property between one or more trustees and
beneficiaries
- The settlor ( person who initially owned the property) transfers it to the trustees to hold on
behalf of the beneficiaries with specific instructions
Persons for looking after the gifted assets that from trust property.
The trustees are the legal owners but the beneficial owners are the
beneficiaries.
TRUSTEES Legal ownership of the property contained within a trust lies with the trust
itself and vests in the trustees.
Beneficial ownership of the property contained within the trust lies with the
beneficiaries who have rights under thet rusts but have no ability to enforce
the legal rights.
Trustees can be natural persons or legal entities.
The apointment of a minor as a trustee is void.
They are appointed in the trust documents or by court.
They will either receive income from the trust property or the property itself.
Fixed beneficiary Has a fixed entitlement to income and capital and
BENEFICIARIES owns an equitable interest in the property held under
the trust
Discretionary Named in a trust and to whom contributions may be
beneficiary made. They can request money but are not
guaranteed.
vested interest of an interest that already has or will eventually transfer to
a beneficiary the beneficiary. the future event must be certain to
happen.
Contingent a person who is entitled to receive a property under
beneficiary the terms of a will, trust or insurance policy if a certain
event occurs (not certain).
TYPES OF TRUST
EXPRESS intentionally created by the settlor; specifically identified property, clearly identified
beneficiaries and terms set out by the settlor.
RESULTING implied by the court in circumstances where the settlor has transferred title to a
trustee but failed to identify the beneficiaries.
CONSTRUCTIVE Arise where a defendant has acted in a way that is unconscionable and has received
or kept property as a result such that from the time the act is performed and the
person is aware that there is a mistake, the D is considered to hold the property on
trust.
IMPLIED Not common, but arise from inferred intention of a settlor by their conduct,language
or relationships that they wished to create a trust even if they did not explicitly state
such.
,STATUTORY a trust imposed by law without being created intentionally by the settlor
- parent to minor dies intestate
DISCRETIONARY Flexible trust under which no one beneficiary has automatic right to capital or
income. The trustees have discretion to decide from a class of beneficiaries who
receives capital and/or income.
FIXED The entitlement of the beneficiaries is fixed by the settlor. The trustee has little to no
discretion
- trust for minor
- life interest
- Remainder
LIFE INTEREST Most commonly used between spouses. It will allow for the family home to be sold
and the sale proceeds used by the surviving party.
DYNASTY Assets are passed down the grantor’s grandchildren not children.
HYBRID Contains both fixed and discretionary trusts. The trustees must pay a certain amount
of the trust to each beneficiary but they have discretion as to how the residual trust
property is paid out.
INCENTIVE Uses distributions from income as an incentive to encourage/discourage certain
behaviours on the party of the beneficiary
INTER VIVOS a settlor who is living at the time the trust is established creates an inter vivos trust
IRREVOCABLE Terms of trust cannot be amended or revised
OFFSHORE a trust that is resident in any jurisdiction
PRIVATE one or more named individuals as its beneficiaries
PUBLIC Has some charitable end as its beneficiary; has a public/charitable purpose as its
object
PROTECTIVE life interest which terminates on the happening of a certain event
NON Not generally permitted outside of certain anomalous exceptions
CHARITABLE
PURPOSE
REVOCABLE May be amended altered revoked at any time
BARE the trustee is simply required to convey that property to the beneficiary in
accordance with the terms of the trust at a particular future point in time. No other
duties beyond this.
SPENDTHRIFT Empowers trustees to decide how trust funds may be spent for the benefit of the
beneficiary
TESTAMENTARY a trust created in a will
UNIT a trust where the beneficiaries possess a certain share and can direct the trustees to
pay money to them out of the trust property according to their shares (units)
TRUSTS FOR manages and protects assets for a child. There are number of trusts for minors:
MINORS - bare trusts
- Trusts for bereaved minors -> only from parents.
- 18-25 trust -> from parents only.
, VALIDITY OF TRUSTS
CERTAINTY OF INTENTION
- one must look at the nature of language used
- Use of appropriate technical language in the trust instrument will operate as prima facie
evidence of an intention to create a trust
- Actions can also constitute a trust (action of a company in moving its funds into a separate bank
account to protect the funds in the event of insolvency)
-The trust will fail for lack of certainty
of intention if there was no
intention to create a trust
CERTAINTY OF SUBJECT MATTER
- the subject matter of the trust must be certain i.e it must be clearly identified and separated
from the property
-If there is no clear separation the
trust will fail
CERTAINTY OF OBJECTS
- the beneficiaries must be certain as trustees need to know who to distribute property to
- If beneficiaries are not certain then the trust will be void
- Necessary that a complete list of individuals is provided for fixed trusts
- The “it is or it is not” test
- Test for discretionary trusts: conceptual certainty
- Friends -> held by the court to be uncertain
WHEN TRUST IS VOID FOR UNCERTAINTY
- conceptual uncertainty -> when the meaning of words is unclear
- Evidential uncertainty -> renders a claim under a trust void when a claimant cannot prove that
he falls within a class of beneficiaries; this only renders his claim void
- ascertainability -> where the trust is certain but it’s impossible to find the beneficairies
- Administratie unworkability -> when the trustees are not able to carry out the settlor’s
intentions. This is when the class of beneficiaries is very wide.
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