Introduction to Express Trusts - Lecture 2 - Property II

What are the 6 following reasons why people create Express Trusts (i.e. fixed trusts and discretionary trusts)?

• Segregation of assets and protection in insolvency

• Tax mitigation and avoidance

• Co-ownership of property

• Charity

• Pension funds

• Security for creditors

One of the reasons for setting up an Express Trust is ‘segregration of assets and protection in insolvency’, what is meant more specifically by this?

Setting up a trust protects the trust from a risk of insolvency and a trust isn't subject to debts as per legislation, so creditors cannot have access to the trusts at hand and it seperates the assets from the settlor and the trustee, acts as a source of protection.

BUT if the beneficiary is in debt though is holding on trust for the settlor's daughter, the daughter's creditors may be able to obtain access to this.

One of the reasons for setting up an Express Trust is ‘security for creditors’, what is meant more specifically by this? And why is the case of Barclays Bank v Quistclose important when discussing this?

Barclays Bank v Quistclose is a case which outlines trusts can be used for security for creditors - such as a business that is not successful and the bank seeks out a loan otherwise the business would fail, so the company INSTEAD holds the money on trust for the bank and if the business fails to utilise the money fully or the business fails, then the bank can have security for creditors - banks won't help businesses with loans unless a loan is provided to benefit them

What is meant by the ‘trust property’, what does the trustee hold on trust for the beneficiary and what are the 3 rights that can be held on trust?

• Legal property rights

• Personal rights

• Pre-existing equitable rights

What is meant by ‘personal rights’ when addressing what it held on trust (the trust property), and how does this relate to Don King Productions Inc v Warren?

This means that rights under a contract can be held on trust, hence it doesnt need to be exclusively legal property rights.

Within Don King v Warren, they created a trust on a series of their contract.

What is meant by ‘pre-existing equitable rights’ when addressing what it held on trust, and what is an example of this?

This means that a beneficiary's right under a trust can be held under a trust.

An example of this is if you are a trustee who holds the trust for your benefit, you can declare that you hold benefit for someone else which is otherwise known as a 'sub-trust of intermediated securities’.

Who are the personnel involved in the process of creating an express trust in summary?

• The settlor

• The trustee

• The beneficiary

The settlor is one of the personnel involves in the creation of an express trust, who are they and in what TWO ways do they exercise a power to create a trust?

The settlor is original owner or right-holder.

They exercises a power to create a trust over those rights through two ways -

• declaring herself trustee (self-declaration of trust - declaring to hold trust on the benefit of someone else); or

• by transferring rights to someone else to hold subject to the terms of a trust (trust by transfer).

The trustee is one of the personnel involves in the creation of an express trust, who are they and what are the TWO things that the trustee must be able to DO once they commence their role?

The trust property is owned and managed by a trustee or trustees (as joint tenants) for the proper purposes of the trust.

For this arrangement to work:

• T needs powers to deal with the trust property; and

• T must be subject to enforceable duties as to how she/he exercise those powers.

What are the TWO different types of powers that trustees can have in summary?

1. Administrative powers

2. Dispositive powers

Administrative powers are one of the powers that trustees have deal with the trust property, what do administrative powers entail (4 components of their powers)? And what are administrative powers?

This is relating to the management of the trust property.

Administrative powers being the following of -

1. land - powers of absolute owner as per S6 TOLATA

2. personal property - power of sale (such as raising money)

3. power to invest (investing the money given to you by the settlor to increase the amount)

4. powers to raise capital, insure trust property (You may use some of the money towards insurance in terms of any incidents that may occur)

Dispositive powers are one of the powers that trustees have deal with the trust property, what do dispositive powers entail (2 components of their powers)? And what are dispositive powers?

This is relating to the distribution of trust property to beneficiaries. Dispositive powers is the ability to disperse or distribute money to beneficiaries.

Dispositive powers consist of two components -

1. appointment

2. maintenance

What are the 3 kinds of trustees that the trustee is subject to, and what do these 3 duties entail?

1. To hold the trust property in authorised form for the beneficiaries and to account to them (or the Charity Commission) for her dealings with it in accordance with the terms of the trust and the general law (stewardship/custodial duty);

   • EXPANSION → stewardship duty (unless the trustee is acting contrary to the wishes of the party, then this would be going against their stewardship responsibilities)

2. To act exclusively in the interest of the beneficiaries (fiduciary duty); and

   • EXPANSION → fiduciary duty (you mustnt act in your own interests such as spending the money under the trust for their own purposes, taking the money for themselves and unauthorised usage of the trust for their own self motivated interests, hence it is a breach of the fiduciary duty)

3. To take reasonable care in exercising her powers under the trust, e.g., when investing or managing the trust property (duty of care).

   • EXPANSION → duty of care (the duty they owe when fulfilling/exercising their powers under a trust, expected to take reasonable care such as investing the trust fund and the trustee should take proper advice, not invest in high-risk investments NO reasonable trustee would invest in that and hence breaching their duty of care and the beneficiary would be able to sue for that beach of duty)

What is meant by there is a VOLUNTARY nature involved in choosing to be a trustee? And which case law outlines this, and what does the case law say in relation to voluntary and what cannot be done?

It follows that an intended trustee ‘may choose whether he will accept the trust, or not’ as per Robinson v Pett

As per Robinson v Pett, you cannot compel or force someone by their own actions impose a duty of being a trustee onto someone without the choice, or force them to be subject to a stewardship duty, fiduciary duty and duty of care - ONCE you consent, you are consenting to the following 3 duties at hand

What does it mean that ‘trustee is an office’, and what does Harris v Sharp state in relation to the nature of the role of the trustee? What happens to the trust when the trustee dies or resigns from their role? Does it come to an end or not?

Trust’s existence does not depend on identity of T.

A trust cannot be brought to an end by the trustee alone - for instance if the trustee dies, the trust doesn't end, but the mere fact that you dont want to be a trustee, it doesnt mean the trust comes to an end through means of the trustee's death or resignation - A trust continues BEYOND the tenure of the trustee and continues to exist

Thus, ‘although a trustee may decline to act, she cannot, by disclaimer, bring an end to the beneficial limitations which are contained in the trust’ as per Harris v Sharp

What is meant by the beneficiary, what are they required to do in relation to the trustee, and what does Hardoon v Belilios state about the nature/role of the beneficiary?

The beneficiary is the person who enjoys the benefit of trust property in equity and to whom T owes equitable duties.

Note the beneficiary principle: beneficiaries are required to enforce Ts’ duties.

As per Hardoon v Belilios, ‘No one can be made the beneficial owner of [property] against his will. Any attempt to make him so can be defeated by disclaimer.’

• This means that no one can be forced to accept a beneficial interest under a trust, though the court/law ultimately assumes that the beneficiary will usually agree provided that there are minimal penalties for taking it up as it brings advantages UNLESS being a beneficiary provides unfair or disadvantageous consequences such as in regards to tax as an example

Does the beneficiary have any rights against the trustee and third parties, and if they do, what are these rights and what do they entail? And what is the exception to these beneficiary rights?

Beneficiaries have:

1. equitable personal rights against the trustees, which correspond to the trustees’ duties;

   • The trustee has to comply to the duties, but if they fail to comply, the beneficiary can sue them and can bring enforcement proceedings to enforce the terms of the trust to be completed by the trustee

2. equitable proprietary interests in the trust fund entitling them to trace trust assets and recover them from anyone to whom they have been transferred EXCEPT for a bona fide purchaser for value without notice of the beneficiaries’ rights.

   • Where the trustee transfers rights to a third party, the beneficiary can sue the third party directly due to the trust they are being under transferred to them, THOUGH this is also subject to a defense for the third party if they are a bone fide purchaser who is unaware of the beneficiaries rights in the trust

What are the two types of Express Private Trusts?

1. Fixed Trusts

2. Discretionary Trusts

What are Fixed Trusts (a type of express private trust), what does it entail in terms of trustees’ discretion and what is an example of this?

The trust instrument sets out the share or interest that each beneficiary is to take and the trustees must distribute accordingly.

It sets out who the beneficiary are and to what share they should be entitled - in this case, the trustee has NO discretion

Example of Fixed Trusts -

• ‘To T1 and T2 on trust for A, B and C so that A shall receive 50% and each of B and C shall receive 25%’.

• ‘For A to life, remainder to B.’

What are Discretionary Trusts (a type of express private trust), what does it entail in terms of trustees’ discretion? And whom are the beneficaries in discretionary trusts?

Ts are under an obligation to distribute the property among the class of beneficiaries but they exercise a discretion as to who benefits and in what proportions.

People who benefit under a discretionary trusts are known as ‘objects’, i.e., the object of T’s discretion.

Discretionary trusts is where the trustee has discretion and have a duty to distribute it amongst a SPECIFIC group of people

• the class of beneficiaries are otherwise called 'objects' to the trust - trustees have a duty to exercise their discretion under a discretionary trusts, they CANNOT refuse to act on that duty

• B has a right to be considered as a potential recipient of benefit under the trust as per Gartside v IRC

What does Gartside v IRC outline in relation to discretionary trusts, and beneficiaries?

B has a right to be considered as a potential recipient of benefit under the trust as per Gartside v IRC

What are some examples of Discretionary Trusts (a type of express private trust)? And what are the reasoning for why these examples amount to discretionary trusts?

Example of Discretionary Trusts -

• ‘£100,000 to my trustees so that they shall divide the said sum between any of my children who do not go to university.’

• ‘£100,000 to be divided between such of the employees and former employees of X Ltd as my trustees shall decide.’

Explanation behind these examples →

If the following catergories are not met yet the trustee INCORRECTLY distributes it to them, then it would a breach of their duty within the trust (such as the child going to university and the trustee irrespective doesnt follow the settlor's wishes and defy it)

The trustee must choose from ALL the possible individuals from that specified group and then decide in what SHARE this should be distributed when the group of people are decided

What do the beneficiaries equitable rights consist of? There are 4 components in summary

1. Personal rights against the Trustee

2. An equitable property right

3. Powers of appointment

4. Personnel

‘Beneficiaries’ personal rights against the trustee’ are one of the beneficiaries equitable rights, what 5 examples of personal rights against the trustee in summary that beneficiaries have?

• Right to ensure due administration of the trust

• Discretionary trusts

• Right to be informed that he/she is a beneficiary or an object

• Right to trust documents

• Right that Trustees should comply with minimum standard of behaviour (as per Armitage v Nurse)

‘right to ensure due administration of the trust’ are one of 5 personal rights the beneficiary has against the trustee, what does this entail and what Akers v Samba Financial Group outline?

Akers v Samba Financial Group outlined that ‘As the beneficiary of a trust, [the claimant] had two main legal rights. First, it had a right to have the trust administered according to its terms. This was a personal right against the trustee. The only relevant condition for its enforceability is that [the trustee] should be before the court.’

When a trustee breaches a trust by using it an unauthorised way, the beneficiary can sue the trustee to then administer it in the terms of the trust accordingly, hence sueing them for the loss caused.

‘Discretionary trusts’ are one of 5 personal rights the beneficiary has against the trustee, what does this entail and what does Gartside v IRC outline? What are the rights of the objects of the discretionary trust? What happens if the trustee under the discretionary trust spends the trust fund in an unauthorised way and the object tries to intervene?

Gartside v IRC concludes that ‘No doubt in a certain sense a beneficiary under a discretionary trust has an ‘interest’: the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity.’

What are the rights of the objects of the discretionary trust? - They DONT become a beneficiary till the trustee exercises their trust and choose them as a beneficiary

What happens if the trustee under the discretionary trust spends the trust fund in an unauthorised way and the object tries to intervene? → as per Gartisde v IRC, the object CAN sue the trustee for exercising the trust and can be perceived as having a right to protect their interest and you have some rights, not the same under a beneficiary under a fixed trust, but there are certain protections if you are an object and the trustee uses the trust in an unauthorised way

‘Right to be informed that she/he is a beneficiary or an object’ are one of 5 personal rights the beneficiary has against the trustee, what does this entail and what does Gartside v IRC outline?

Gartside v IRC concludes that ‘No doubt in a certain sense a beneficiary under a discretionary trust has an ‘interest’: the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity.’

‘Right to trust documents’ are one of 5 personal rights the beneficiary has against the trustee, what does this entail and what does Schmidt v Rosewood outline?

Access to the trust documents ensures that beneficiaries can observe whether the trustee is acting accordingly

‘Right that Ts should comply with a minimum standard of behaviour (Armitage v Nurse)’ are one of 5 personal rights the beneficiary has against the trustee, what does this entail as per Armitage v Nurse?

Trustee is expected to conduct their duties to a minimum, specific standard of care and behaviour and if this is not fulfilled, the beneficiary can get involved, if this threshold is not fulfilled

What is the orthodox position outlined in Akers v Samba regarding the beneficiaries equitable property right? And what does this mean beneficiaries try to enforce their rights against third parties and not trustees, and what about instances of bona fide purchasers? What is the exception to the orthodox rule? Are beneficiary rights property rights or equitable proprietary rights?

As per Akers v Samba, the orthodoxy principle is outlined as ‘[The beneficiary has] a true proprietary right […] namely that it is good against third parties into whose hands the property or its traceable proceeds may come, subject to the rules of equity for the protection of bona fide purchasers for value without notice’

Enforcing rights against third parties, or trustees → If the trustee has personal rights, they can only enforce it against the trustee. However, the beneficiary enforcing it against NOT only against the trustee but also the third parties demonstrate that their rights are proprietary in nature (such as the beneficiary being entitled to enforce their rights when the trustee transfers the trust to a third party

Bona-fide purchasers and beneficiary rights → hen the trust is sold to a bona fide purchase, the beneficiaries' interest/right is overriden and hence the beneficiary CANNOT recover the following right to the third party bona fide

Are beneficiary rights property rights or equitable proprietary rights? → Beneficiary rights ARENT property rights, they're equitable proprietary rights making it distinctive

The exception to the rule in Akers v Samba → the bona fida purchaser exception is a limitation on the beneficiary rights

In what ways are the beneficiaries equitable proprietary rights constrained? (there are 3 ways) And how is Shell UK Ltd v Total UK challenging this scope?

B's powers are limited and constrained, hence B cannot have -

1. B's right doesnt care for third parties transferees (that become trustees), since it remains the same, with an EXCEPTION for the bona fide purchaser for value without notice

2. They have no immediate right to physical possession

3. B cannot claim for theft/damage to trust property against strangers (THOUGH shell uk ltd v total uk shows rebellion against the narrative as this new case has expanded the scope and having a sufficient interest to allow B to sue in tort towards strangers, even if this goes against the initial belief that they CANNOT)

What are powers of appointment as per Freme v Clement, and what role does settlor play in determining the powers of appointment?

Freme v Clement outlines - ‘A power of appointment is a power of disposition given to a person over property not his own by some one who directs the mode in which that power shall be exercised by a particular instrument.’

The settlor has the involvement in shaping B's entitlements under an express trust and through the conferring the powers (especially powers of appointment).

Who are the personnel involved the conferring of powers of appointment, who the powers of appointment are vested in and whom the power is exercised in favour of?

The person who confers the power (usually the settlor) is known as the ‘donor’ of the power.

The person in whom the power is vested (usually, but not always the trustee, can be someone who is NOT the trustee) is known as the ‘donee’ of the power.

The persons in whose favour the power may be exercised are known as the ‘objects’ of the power.

1. donor - person who confers the power (s)

2. donee - person in whom the power is vested

3. objects - persons in whose favour the power may be exercised

What are 3 types of powers (relating to power of appointment in summary), and who can these powers be given to?

Powers of appointments can be give to a trustee or someone who isnt a trustee.

The 3 types of powers granted via power of appointment is -

1. non-fidiuciary powers / bare powers

2. fidiuciary powers / mere powers

3. trust powers / discretionary powers

In what ways are the three powers (granted by powers of appointment from the donor to donee) different?

When a power of appointment is given to a non-trustee, we call it a non-fiduciary powers (bare powers).

When a power of appointment is given to a trustee, we call it a fiduciary power (mere power).

The trustee is given powers which they MAY CHOOSE to exercise. THOUGH if the trustee is given powers which they MUST EXERCISE, it is called a discretionary powers (trust powers).

What is an example of a non-fidiuciary power/bare power (one of three powers granted by the doner to the donee by power of appointment), and why is that particular example a bare power?

Example of Bare Powers →

• S dies, and her will provides as follows: ‘I leave my house to my trustees on trust for my partner, George, for life, should he survive me, remainder to such one or more of our children as my friend Cecilia may by deed appoint. In default of such appointment, the remainder is to be held absolutely for my brother, Austin.’

Explanation of Bare Powers utilising the Examples →

• if Cecilia doesnt exercise their powers of appointment and doesnt give any of the children the property and NOT exercise the power of appointment and then Austin will receive it. We know this is a power in the example, because of the permissive language at hand of 'may' rather than mandatory but she isn't compelled, hence it shows she has a power to make an appointment BUT NOT have a duty to do so, hence she has a non-fiduciary power, another reason this is because the will shows what is provided for if Cecila doesn't make the appointment which is the property must be given to Austin and it is consistent with the intent of power of appointment and made an alternative provision if Cecila fails to act.

• AND THE POWER is non-fidcuary as Cecilia appears not br a trustee, hence Cecila has no duty to follow or act to these duties (this is contrasted to those of a fiduciary power who has MORE duties to fulfill and comply with)

What is an example of a fidiuciary power/mere power (one of three powers granted by the doner to the donee by power of appointment), and why is that particular example a mere power?

Example of Mere Powers →

S dies, and her will provides as follows: ‘I leave my house to my trustees on trust for my partner, George, for life, should he survive, me, remainder to such one or more of our children as my trustees may by deed appoint. In default of such appointment, the remainder is to be held absolutely for my brother, Austin.’

Explanation of Mere Powers utilising the Example →

• The donee of a fidicuary power is that they can be CONSIDERED/CONVINCED to exercise their power and it is NOT possible for them to not listen and to NEVER consider their powers exercise, they have to CONSIDER the powers they have at hand

• The power is also given to a trustee, making it distinctive from a non-fidicuary power which focuses on non-trustees The usage of permssive language of 'may' remains

• the trustee has to have a PERIODIC duty to consider their trustee powers WHETHER the power ought to exercised - they have to turn their mind to it and consider it - they CANNOT flat out refuse or decline to utilise their power of appointment

What is an example of a trust power/discretionary power (one of three powers granted by the doner to the donee by power of appointment), and why is that particular example a trust power?

Example of Trust Powers →

In Re Baden No.1

‘The trustees shall apply the net income from the Fund in making in their absolute discretion grants to or for the benefit of any … employees or ex-employees of the Company or any relatives or dependants of any such person in such amounts at such times and on such conditions … as they think fit.’

Explanation of Trust Powers →

• The donee receives the power in a fiduciary capacity, and must exercise it.

  • absence of provision means that there is an intention that the trustee must act/fulfill the duty in a specific way and must act accordingly

  • The use of mandatory language such as 'shall' and absence of provision in default - this makes the distinction between discretionary trusts/trust powers (FOLLOWING REQUIREMENTS FOR DISCRETIONARY TRUSTS)

What does McPhail v Doulton, Re Baden No.1 outline in relation to trust powers/discretionary powers (one of three powers granted by donors to donees through the process of power of appointment)?

McPhail v Doulton, Re Baden No.1 outlined - “but the proposition does not contain an exhaustive comparison of the duties of persons who are trustees in the two cases […] is still a trustee and he would surely consider in either case that he has a fiduciary duty; he is most likely to have been selected as a suitable person to administer it from his knowledge and experience, and would consider he has a responsibility to do so according to its purpose.’

How are the duties owed by donees (ie trustees or non-trustees granted powers through power of appointment by donors) enforced? (4 ways of enforcement)

Court can intervene and enforce trust by (ENFORCEMENT)

1. directing the trustees to fulfill their duty and exercise their discretion (even after a significant lapse of time) or

2. appointing a replacement trustee, or

3. ordering that a scheme of distribution (get together and outline a good way for a trustee to exercise their role and make an appointment and the court can give a confimation for the trustee to go ahead) be prepared by potential objecys of the trusts and their representations or

4. in default, exercising the distributive duty itself (though this is fairly rare for the court to do)

In relation to ALL the powers (bare, mere and trust powers), how must the power be exercised by donees as per Re Wright and Re Somes?

If a power is exercised, the donee must appoint only within the class of objects, and for the purposes for which the power was given as Re Wright and Re Somes.

Irrespective of them being fiduciary, non-fiduciary or discretionary, they MUST exercise the terms according to the terms outlined

1. ALL donees must appoint only within class of objects and for proper purposes (re wright, re somes) - any going beyond the specified group of people in the terms would be going beyond the authorised powers of the trustee, making it UNAUTHORISED and your appointment could be set aside, this is valid for ALL powers

2. they have more extensive duties when carrying out their powers such as deciding who is the object at hand, size of the class of objects (such as sampling the population size through a survey) the size of the portion given to the object and how they are appointed and the appropriateness of appointing people individually

3. donees of trust powers (or discretionary trusts) have same duties as donees of fiduciary powers (but McPhail v Doulton which suggests the duties may be more onerus)

What does McPhail v Doulton, Re Baden state in relation to fidiuciary powers?

Donees of trust powers have same duties as donees of fiduciary, BUT the fidcuiary powers duties are MORE onerus

What does Turner v Turner state in relation to fidiuciary powers?

Donees of fiduciary powers means they have ADDITIONAL powers such as (1) court can enforce duties by setting aside inappropriate appointments where the trustee is not acting accordingly and not utilising their discretion adquetely or fulfilling their duties

What does Mettoy Pension Trustees v Evans state in relation to fidiuciary powers?

the court can get involved exceptionally exercising the power itself when the donee has a conflict interesr as to whether to exercise the power or not, so the court can exercise the discretion for them instead