Equity and Trusts

What is a trust?

An equitable obligation requires a trustee to hold/manage property for the benefit of one or more beneficiaries.

True or False?

A trustee would own the property as a separate fund, distinct from his own private property.

True

True or false? Explain your answer

Beneficiaries can enforce the trust.

True - the beneficiary has the right to make sure that the trustee does what the trust requires them to do. This is because they have an equitable interest.

Why would someone consider setting up a trust?

A trust separates the management of property from the person who benefits from it. E.g. for a young child, vulnerable person, investment arrangements, charitable purpose, pension, and employment benefits…

What are the two different ways a trustee can be created?

1. During the settlors lifetime

2. Through a will

When a trust is created, there must be a ‘trust property’. What might this include?

Money, shares, land, jewellery, pension assets etc…

To create a trust, what are the two key steps?

1. Make a declaration of trust (settlor must show intention to create trust)

2. Settlor must transfer the trust property to trustee who will hold it for the benefit of the beneficiary

What is a settlor?

A person who creates the trust during their lifetime and provides the trust property.

If a settlor creates a trust through a will, what are they called?

Male - testator

Female - testatrix

(Takes effect on death)

What is a trustee?

They hold the legal title to the trust property and manage it according to the terms of the trust. Must comply with duties imposed on them. Do not have the beneficial enjoyment of the property.

True or false?

A settlor can not also be a trustee.

False. They can be both.

What is a beneficiary?

The person who benefits from a trust and has equitable (beneficial) interest in the trust property.

What is a key feature of a trustee?

A trust separates who has the legal title from who has beneficial / equitable interest. Trustee holds legal title whilst beneficiary holds equitable/beneficial interest.

Why is the separation of ownership useful?

It helps distinguish a trust from an outright gift.

What is an express trust?

The settlor intentionally creates a trust.

What are the two different types of expression trusts and what is the difference between them?

1. Fixed trust - beneficiary’s entitlement is determined by the terms of the trust so trustee does not get to choose who receives the property/how much they receive.

2. Discretionary trust - trustees have discretion over which beneficiaries receive trust property / how much they receive according to the terms of the trust.

Fixed or Discretionary?

“£10,000 is to be held for Sarah”

Fixed.

Fixed or Discretionary?

“My trustee may distribute the money between my three children in whatever proportions they consider appropriate”

Discretionary.

What are the three types of fixed interest trusts?

1. Contingent trust

2. Successive trust

3. Bare trust

What is a contingent trust? Give an example.

Beneficiary has fixed entitlement, but that entitlement depends on a condition being met.

E.g. Shares are to be given to John when he reaches 21.”

What is a successive trust? Give an example.

Where beneficiaries have interests one after another.

E.g. “The property is held for A for life, then for B.”

What is a bare trust? Give an example.

Arises where an adult beneficiary with mental capacity has an interest that is vested; absolute, and in possession. The beneficiary is therefore absolutely entitled to the trust property. They can demand that the trustee transfers it to them.

E.g. a trustee is holding £10,000 for an adult beneficiary who is absolutely entitled to it. The beneficiary can say, “I want the £10,000 transferred to me.”

What is a beneficiary’s equitable interest?

the beneficiary’s rights in relation to the trust property that are recognised by equity.  

 

What are the three ways to classify a beneficiaries interests?

1. Vested or contingent

2. Limited or absolute

3. In possession or in remainder

What is a vested interest? Give an example.

The beneficiary is entitled to the interest without having to satisfy a condition first.

EXAMPLE - “On trust for Malik.” - Malik has a vested interest, even if he is only eight years old. Being a minor does not itself make an interest contingent. However, a minor may not be able to give a valid receipt for the trust property.

What is a contingent interest? Give an example.

Depends on the beneficiary satisfying a condition before becoming entitled.

EXAMPLE - “On trust for Aruba when she qualifies as a solicitor.” - Aruba’s interest is contingent because she must first qualify as a solicitor.

Does being a minor make an interest contingent?

No.

What is limited interest? Give an example.

Beneficiary’s entitlement is limited in some way, often because another beneficiary has a later interest.

EXAMPLE - “For Anna for life, remainder to Betty.” - Anna has a limited interest because her interest lasts only for her lifetime. Betty then becomes entitled to the property after Anna dies

What is an absolute interest? Give an example.

Beneficiary is entitled to the trusts property without another beneficiary having a superior claim to it.

EXAMPLE - “For Farhad if he attains 21.” - Once the condition is satisfied, Farhad has an absolute interest in the property.

What is interest in possession? Give an example.

A beneficiary with an interest in possession is presently entitled to enjoy the benefit of the trust property.

EXAMPLE - “For Ramiro for life, then for Carmela.” - While Ramiro is alive, he has an interest in possession. Carmela has an interest in remainder.

What is interest in remainder? Give an example.

A beneficiary with an interest in remainder has an existing interest but must wait for the prior interest to end before becoming entitled to possession/enjoyment.

EXAMPLE - In the previous example, Carmela must wait until Ramiro dies become coming into possession.