Distinction level Equity and Trust Law notes (average of 85 in this module)
Crafted by a recent graduate who received a distinction in the very same course, these notes are tailored to your PGDL program, ensuring they cover the crucial Equity and Trust Law concepts you need to master.
Aligne...
Defining Equity:
Equity is a body of law in its own right
● Includes not only trusts but also equitable remedies such as injunctions, dealings with
land and mortgages, the administration of deceased persons, partnerships and the
setting aside of written instruments
Defining Trusts:
‘A trust is the relationship which arises wherever a person called the trustee is compelled in
equity to hold property for the benefit of some persons (beneficiaries) or for some object
permitted by law, in such a way that the real benefit of the property accrues, not to the trustee,
but to the beneficiaries or other objects of the trust (Keeting and Sheridan, The Law of Trust)
a) There is a binding obligation placed on a person - a trustee
b) To look after property for the benefit of another - a beneficiary (or for a purpose
permitted by law)
Express Trusts:
● A settlor can expressly and intentionally create a trust
● They define the benefit the beneficiaries are to receive from the property
Legal and Equitable Interests
A trust allows the separation of control of property from its enjoyment and use
● The trustee has management and control of the property subject to the trust
, ● BUT the beneficiary is the ‘real’ owner → they enjoy the benefit of the property
● Equity recognises that when a trust is created:
a) The trustees hold the legal title or interest in the trust property; and
b) The beneficiary has an equitable interest in the trust property (a beneficial
interest)
Legal Interests held by the trustee:
The trustee holds the legal title, allowing them to manage the trust property
● BUT in contrast to an outright owner, trustees are obliged to hold the property for the benefit of
those possessing the equitable title
● The beneficiaries get the benefits indirectly by enforcing the trust obligation against the trustee
Equitable Interests held by the beneficiary
The equitable interests give beneficiaries two rights:
a) Personal → have a personal right to enforce the trustee’s duties and seek compensation for
breaches (enforceable against the trustee, personally)
b) Proprietary → have an ownership interest in the trust property itself
● Can be enforced against the trustee and successors in title
- Only a bona fide purchaser for value who has no notice of the beneficiaries’ rights
is not bound (would instead sue the trustees for any loss)
● The proprietary nature means that it is itself an item of property which can be sold or
given away
Types of Trusts
, Fixed Trusts
The terms of the trust define the share of the trust property which the beneficiary will receive:
● The trustees have no discretion as to how the trust property is to be allocated between the
beneficiaries
‘On trust for X for life, remainder to Y’
● X = the life tenant, who has a life interest → (limited trust as only receives the income from the
trust, not the capital)
● Y = the remainderman, who has an ‘interest in remainder’
● Creates a successive interest
- When X dies, the trustees will transfer the trust property itself to Y & the trust will come
to an end (absolutely entitled → receives the income and the capital)
On trust for A if A attains 21 but if A dies before then, for B:
● A’s interest is conditional on A attaining 21 (trustee will look after trust property for A till then)
● If A dies before turning 21, A’s interest fails and B becomes entitled
On trust for Z where Z is an infant or cannot manage their affairs for some other reason
● Trust is used to ensure that the property is managed by trustees for the benefit of Z
On trust for C where C is an adult with full mental capacity
● Bare trust → trustees hold on trust for a sole adult beneficiary possessing full mental capacity
absolutely
● Unusual type of trust as the trustee must handle the trust property as the beneficiary dictates
● The beneficiary can end the trust at any time and become the legal owner (Saunders v Vautier)
● The above trusts can convert into a bare trust once the person becomes an adult with full mental
capacity
● Examples: transferring a portfolio of company shares to a discretionary portfolio manager
Discretionary Trusts
,Gives the trustees a discretion as to:
a) The amounts any beneficiary may receive and / or
b) Whether particular beneficiaries receive anything at all (Mettoy Pension Trustees Ltd v Evans
[1990])
● E.g. where a settlor gives property to the trustees ‘to hold on trust for such of my children and in
such shares as my trustees think fit’
● No individual has an equitable interest under a discretionary trust until the trustees exercise their
discretion in that individual’s favour
- Until then, they are called ‘objects’ rather than beneficiaries
Beneficial Interests
A beneficial interest may described as any, or all of:
a) Vested or Contingent
b) In Possession or In Remainder
c) Absolute or Limited
Where a beneficiary’s interest is vested, in possession and not limited in enjoyment = absolutely
entitled (a sole adult beneficiary can bring the trust to an end)
Vested and Contingent Interests
Is my interest unconditional?
● If vested = yes
● If contingent = no
Vested interest = a beneficiary has a vested interest if that beneficiary exists and doesn’t have to satisfy
any conditions imposed by the terms of the trust before becoming entitled as of right to trust property
,Contingent Interest = a beneficiary has a contingent interest if it is conditional upon the happening of
some future event that may not happen, or if the beneficiary is not yet in existence
● If the condition is satisfied, the beneficiary’s interest then becomes vested
● If the condition is not satisfied the settlor can provide for what should happen by a substitutional
gift
- If they don’t → resulting trust → property returns to the settlor
- The trustee will hold the trust property on a resulting trust for the settlor
Interests in possession and interests in remainder
When will I benefit?
● If in possession = now
● If in remainder = later
Interest in possession = a beneficiary has an interest in possession if they can enjoy that interest
immediately
Interest in remainder = a beneficiary has an interest in remainder if they cannot enjoy it immediately,
but instead, has to wait until some other beneficiary’s right to enjoyment expires (postponed interest)
● Difference between in remainder and a conditional interest
- E.g. if someone’s interest was reliant on the death of another person, it is not conditional
→ the death will happen at some point (vested, but in remainder)
Absolute and Limited Interests
What do I get?
● If an absolute interest = income and capital
● If a limited interest = income only
- E.g. if shares, only able to get the dividends from the shares
- Never able to use the actual product (that remains controlled by the trustee’s), but can
receive the income benefit accrued (e.g. dividends, interest on money in savings, rent from
property)
, The Law of Succession:
When a person dies their estate (all property which that person had a vested interest in) is dealt
with by their personal representatives
● The PR’s automatically become legal and beneficial owners of the property forming the
estate of the deceased when they die
- They can then pass on legal and beneficial title to the beneficiaries
● When the PR is named in the will, referred to as executors
- Obtain a Grant of Probate (confirmation of their authority)
● Where there is no executor, statutory rules govern who will be PR (referred to as
administrators)
- Obtain a Grant of Letters of Administration (authorisation to deal with the
estate)
Wills
A person who makes a will is described as testator (testatrix if female)
Requirements for a valid will:
● Made in writing; and
● Signed by the testator (with 2 witnesses who also sign) (s 9 Wills Act 1837)
A will may be altered by a later document (a codicil) → signed and witnessed
Gifts
● A devise = gift of freehold land (realty)
● A legacy / bequest = gift of personal property or personalty (cover everything other than realty)
● Specific gifts / legacies / devises = gifts of an asset or group of assets which are distinguished in
the will from all other assets of the same kind (e.g. my car / my shares)
, ● Pecuniary legacies = gifts of money
● Residuary Gift = a gift of what remains (after debts / tax / specific legacies / devises / pecuniary
legacies)
● Gift on trust = property given to trustees to hold on the beneficiary’s behalf
Failure of Gifts
● Ademption = where the specific gift fails because the testator no longer possesses the
specified property when they die
● Lapse = where the beneficiary dies before the testator
- Lapsed specific or pecuniary gifts falls into the residuary estate
- A lapsed residuary gift passes under the intestacy rules
● If a will is witnessed by a beneficiary or their husband / wife, the will is valid but the gift to
the beneficiary fails (s 15 of the Wills Act 1837)
Revocation of Wills
A will may be wholly or partly revoked by the testator at any time before their death.
Can be revoked by:
a) The marriage or civil partnership of the testator
b) The destruction of the will with an intention to revoke
c) The making of a new will which deals with the same property as the first will
The Intestacy Rules
Intestacy rules apply to:
a) The whole estate if the deceased made no will at all, or
b) To the residuary estate if the will contains no residuary gift or it has failed or been revoked
Estate is shared between the deceased’s relatives, in accordance with a specified order of entitlement
(statutory next of kin)
, Unit 2: Creating Express Trusts
Method of Creating the Trust:
Voluntary settlement = a term to describe the methods of gratuitously benefiting someone
Can be done in 3 ways (Milroy v Lord (1862)):
a) Outright gift to the donee (making a ‘perfect’ gift)
b) Transfer to trustees to hold on trust for the person to be benefited
c) Declaration of self as trustee for the person to be benefited
Declaration of Trust:
Must make a valid declaration of trust → a valid trust can only exist if the settlor intends to
create a trust and defines the relevant property and beneficiaries clearly
The 3 certainties test - Knight v Knight
a) Certainty of intention to create a trust
b) Certainty of subject matter
c) Certainty of objects
Must also:
● Comply with the beneficiary principle
● Satisfy the rules against perpetuity
● Complete any formalities for express declarations of trust
The Three Certainties Test:
Certainty of Intention:
, Must be an intention on the part of the settlor or testator to create a trust
● Necessary to examine the words used by the owner
- Did they intend to impose trustee-like duties on the recipient of the property (or
themselves)
- Yes if they wanted to impose a legally binding obligation on the holder of the property to
deal with the property in a certain way
● ‘Equity looks to intent rather than form’ → more concerned with the substance of the transaction,
than the form it takes (conduct can infer intent)
○ Paul v Constance [1977]: Constance lived with (but not married to) Mrs Paul → after
receiving compensation for an injury, opened an account in Constance’s sole name
- Parties treated the account as their joint money → ‘the money is as much yours as
mine’
- Court accepted these words and the course of conduct → express declaration of
trust
● Insufficient to use ‘precatory’ words → e.g. ‘hoping that’ / ‘believing that’ / ‘expecting’ (Re Adams
and Kensington Vestry (1884))
Certainty of Subject Matter:
Must be a clear description of the trust property and the respective interests of beneficiaries:
a. The settlor must identify the trust property clearly (Palmer v Simmonds)
○ Re London Wine Company (Shippers) Ltd: buyers of wine stored in a warehouse, but not
segregated from the general stock of wine couldn’t establish a trust as the subject matter
was uncertain
- Settlor had to identify which chattels (out of the collection) they intended to form
the subject matter of the trust
○ Hunter v Moss [1994]: shares of the same class in the same company are indistinguishable
from each other → the settlor doesn’t have to stipulate exactly what shares they mean
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