Introduction

• settlor creates a trust & transfers property to trustee/s who are under duty to manage for beneficiary as prescribed by settlor
• trust only exists if the trustee holds property which is subject to the trust
• trustees act under an equitable obligation, which can be enforced by beneficiaries
• trusts may be created expressly or impliedly

Split roles

• property subject to a trust: trustees & beneficiaries have different roles & interests in relation to the same property

Control, management and benefit

• trusts allow separation of control & enjoyment of property
• control: trustee obliged to make sure that property is used in accordance with the trust & property not at free disposal of beneficiary
• management: the onerous aspects of owning property, defined under Trustee Act 2000 (good return for beneficiary. seeking professional advice, monitoring investments & altering as necessary) & can be varied by settlor
• trustee's duties: to invest trust fund, creating profit: capital (asset which can be sold at future date) & income receipts (such as interest on capital)
• capital profit: if shares or property sold for a higher price than bought
• trust income: shares dividends, investment/bank account interest, rent received on property purchased
• if trustees breach duties beneficiaries have a personal right to sue trustees personally
• no power for a settlor to enforce the trustees' duties
• trustees & settlors can be beneficiaries
• trust document: settlor specifies how & when beneficiaries should receive benefit under the trust

Legal and equitable interest

• split ownership of the trust property: trustees hold legal title & beneficiaries have equitable interest
• trust money used to buy property or other investments, similarly has split ownership
• in contrast, if no trust the legal owner is the beneficial owner
• trustees can be described as nominal owners & beneficiaries as real owners
• beneficiary has a proprietary interest in the trust property (beneficiary can sell/gift the interest)
• proprietary nature of interest: if trustee wrongly transfers legal title to X, beneficiary may be able to enforce trust against X (if not a bona fide purchaser without notice of the trust)
• bona fide: in good faith, purchaser : for valuable consideration, without notice of the trust: no actual knowledge or notice (constructive: enquiries a reasonable purchaser or imputed: knowledge of agent)
• proprietary nature of interest: if trustee dies trust continues as personal representatives are bound
• proprietary nature of interest: if trustee made bankrupt , creditors unable to claim trust property

Beneficial interests

• settlor's objectives vary giving rise to numerous types of trusts

Fixed trusts

• terms of the trust define share of trust property each beneficiary will receive
• trusts may be conditional
• successive trusts: on trust for A for life remainder to B
  A (life tenant) has life interest & B (remainderman) has interest in remainder
  A receive trust income in lifetime
  when A dies, trustees transfer trust property to B (& trust will end)
• bare trust: trustees hold for sole adult beneficiary who has full mental capacity, absolutely means no limitations or conditions attached, beneficiary dictate handling of trust property

Discretionary trusts

• amounts which beneficiary receives at trustees' discretion
• no equitable interests arise under a discretionary trust until trustees exercise their discretion in beneficiary's favour
• flexible trusts to allow for future changes that settlor cannot predict

Purpose trusts

• settlor may wish to trust property to benefit a purpose rather individuals
• subject to exceptions, most purpose are void as a feature of trusts is that trustees have duty act in interest of beneficiaries

  Re Astor's Settlement Trusts [1952] Ch 534

  • void purpose trust: for the maintenance of... good understanding, sympathy and co-operation between nations & preservation of the independence and integrity of newspapers

  Re Shaw [1957] 1 WLR 729

  • void purpose trust: in George Bernard Shaw's will a trust for research into a proposed 40-letter alphabet
• key exception: trusts to promote charitable purposes under the Charities Act 2011, where Attorney General enforces the trust

Vested and contingent interests

• vested interest if beneficiary exists & not have to satisfy any conditions under terms of the trust before becoming entitled to trust property
• contingent interest if conditional upon future event that may not happen or if beneficiary is not yet in existence
• once condition satisfied interest becomes vested
• if condition not met & trust fails, settlor can make provision of substitutional gift
• resulting trust: if trust fails & no provision made, returns to the settlor (implied trust)

Interests in possession and interests in remainder

• if beneficiary has interest in possession: he can enjoy immediately
• if beneficiary has interest in remainder: he can enjoy once another beneficiary's right to enjoyment expires

Absolute and limited interests

• limited interest: interest in trust income only
• absolute interest: interest in trust capital

Nature of beneficial interests

• beneficial interest may change with circumstances
• beneficiary absolutely entitled: beneficiary's interest is vested & in possession & not limited in enjoyment

  Saunders v Vautier (1841) 4 Beav 115

  • absolutely entitled if:
    1. vested interest, in possession & not limited &
    2. sole adult beneficiary
  • absolutely entitled beneficiary can end trust by requesting trustees hand whole trust fund over to him or other trustees
• rule in Saunders v Vautier to include trusts with more than one beneficiary, if:
  all beneficiaries are in existence & ascertainable
  over 18 & of sound mind
  all agree
  then trust can be ended by calling for a transfer of trust property to themselves or other trustees
• family trusts can be created under a will by a testator (male) or testatrix (female)

Collective ownership

• trusts can be used to allow a collective investment schemes, such as occupational pensions
• contributory scheme: employees & employers contribute to fund, held by trustees on trust for members (employees) & paid on retirement

  Air Jamaica v Charlton [1999] 1 WLR 1399

  • contractual nature of occupational pensions (consideration provided) must be recognised by courts when considering the trust instrument setting up the pension trust

  Pensions Act 1995

  • places restraints on who could be appointed as trustees (to ensure sufficient representation of employees)
  • trustees must obtain professional advice
  • restricts employer's rights to surplus funds
• public enforcement officers: Pensions Ombudsman & Pensions Regulator, Pension Protection Fund compensates beneficiaries who suffer shortfalls due to pension fund insolvency or fraud
• unit trusts: collective investment schemes allows investors to diversify investments by pooling money with other investors, management company acts as trustees & each investor allocated units to represent their share of equitable interest
• members' clubs also often hold property in trust on behalf of members (such as a golf club)

Insolvency

• companies risk losing money due to other companies going into liquidation (X provides Y with goods, Y has 30 days to pay X, Y goes into liquidation)
• trust can provide protection (Y (trustee) holds good on trust for X (beneficiary) until payment received)
• money held on trust is not part of trustee's beneficially owned assets available for the trustee's creditors (Y's other creditors cannot claim trust property)
• equitable interest in trust property belongs to beneficiary who can bring a proprietary claim/above creditors (X's claim priority over other creditors)

  Re Kayford [1975] 1 All ER 604

  Facts:

  • mail order company anticipated it may become insolvent
  • company received pre-payment for goods from customers
  • company's lawyers recommended paying money received into an account for benefit of customers
  • company went into liquidation

  Issue:

  • were creditors entitled to money in the account?

  Held:

  • the money was held under trust & unavailable to creditors

Express trusts

• express trusts created intentionally by settlor (in lifetime or by will & have effect on settlor's death)

Lifetime trusts

• settlor declares self a trustee: declaring asset held for benefit of another
• declaration of trust define terms of trust (beneficiaries, nature of benefits, define trust property & trustee powers)
• declaration can be oral (unless land) but usually written in trust instrument/document/deed
• settlor transfers property on trust to trustees: satisfy validity rules & transfer must follow correct procedure, depending on type of asset
• if valid trusts made settlors can only recover property if they reserved power of revocation

Wills

• settlors (testator or testatrix) can create testamentary trust in will
• trust terms must be declared & declaration must comply with validity rules

Implied trusts

• two types of implied trust: resulting & constructive
• resulting trust form where a gap occurs in beneficial interest (conditional trust not fulfilled so resulting trust for settlor is implied)
• constructive trust arise where it would be unconscionable for legal owner of property to deny an equitable interest