Exam (elaborations)
PGDL Equity and Trusts Exam Structure
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Equity and Trusts Exam StructureUnit 1 – Introduction to Equity and Trusts
Express Trusts
Fixed Trusts
‘On trust for X for life remainder for Y’
Creates successive interests beneficial interests which have effect one after the other.
X is the life tenant, they have ‘life interest’:
o Trustees pay income to X during their lifetime.
o Income: rent of property, dividends from shares etc.
o Also known as an ‘interest in possession’ (IIP) trust (Pearson v IRC).
Y is the remainderman, has interest in the remainder:
o When X dies, trustee transfers the trust property (capital) itself to Y trust comes to an end.
‘On trust for C where C is an adult with full mental capacity’
Called a bare trust as trustees hold on trust for a sole adult with no limitations or conditions attached.
Beneficiary can end the trust at any time, using the Saunders v Vautier rule.
Bare trusts also arise when a beneficiary under one of the other types of trust becomes solely and absolutely entitled to the trust property.
‘On trust for A if he attains 21 but if he dies before then, for B’
A’s interest is contingent on A attaining 21.
If A dies before 21, A’s interest fails, and B becomes entitled.
Discretionary Trusts
Trustees have discretion over amount beneficiaries receive/if they receive anything at all, but trust capital/income must go to one of the beneficiaries.
No individual has an equitable interest UNTIL the trustees exercise their discretion in his favour.
They are ‘objects’ and have an ‘expectancy’ in the meantime.
Beneficial Interests
Vested/Contingent Interests
Vested= unconditional interest:
o The beneficiary exists and does not have to satisfy any conditions imposed by the terms of the trust before becoming entitled to the trust.
Contingent= conditional interest:
o If the beneficiary’s right to that interest is conditional upon the happening of some future event that may not happen, or if the beneficiary is not yet in
, existence (e.g. grandchildren).
Death can be a contingency if expressly stated in the will.
o If condition is satisfied interest becomes vested.
o If the settlor has not accounted for the failure of the interest (beneficiary dies before happening occurs) property is returned to them/their estate.
Interests in Possession/Interests in Remainder
In possession = enjoy benefit now.
In remainder = enjoy benefit later:
o Beneficiary must wait until other beneficiary’s right to enjoyment has expired (usually until death).
o Interest is ‘postponed’ – does NOT mean contingent/limited.
Absolute/Limited Interests
Absolute = capital of trust and income.
Limited = income only.
Points to note.
Absolutely entitled = the beneficiary’s interest is vested and in possession and not limited in enjoyment.
Saunders v Vautier rule:
o A group of beneficiaries can end the trust by calling for a transfer of trust property to themselves or to other trustees if ALL the beneficiaries under the
trust who could possibly become entitled as per Re Smith:
Are in existence and ascertained.
Are 18 or older and of sound mind.
Agree to the proposed course of action.
No trust property falls into the residuary estate.
, Unit 2 – Creating express trusts.
PRELIMINARY STEP: What type of trust is being created?
‘Constitution of trust only to be effective on death’ (WILL)
Must have a valid declaration (see below)
The legal effect of the will transfers the legal title to the trustees (via the estate’s personal representatives – PRs).
In order to make a valid will, the testator must comply with section 9 of the Wills Act 1837:
o The will must be in writing.
o Signed by the testator in the joint presence of two witnesses, who must then witness the testator’s signature by signing the will in the testator’s
presence.
NOTE: When the administration of the estate has been completed, the PRs cease to hold the subject matter of the trust as PRs At that point, they must ‘assent’
(transfer using the appropriate method) the trust property to the trustees appointed by the deceased in the will.
If the trust property is land, the assent must be in signed writing.
‘Constitution of lifetime trusts with settlor as trustee’
The settlor already has the legal title to the subject matter of the trust no need to satisfy constitution.
There must be a valid declaration (see below).
‘Constitution of lifetime trusts with third party trustees’
For the trust to be effective the settlor must, in addition to having a valid declaration of trust, transfer the proposed trust property to the trustees.
If both settlor and third party are trustees settlor must transfer the legal title to ALL trustees.
Step 1: Is there 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.
Note: remember mental capacity - under section 1 of the Mental Capacity Act 2005 a person is ‘assumed to have mental capacity unless it is established that they lack
capacity’.
THREE CERTAINTIES TEST (Knight v Knight):
1) Certainty of intention:
a. There must be an intention on part of the settlor or testator to create a trust – manifested by words.
b. Insufficient to use ‘precatory’ words ‘hoping that’, ‘believing that’, ‘expecting’ (Re Adams v Kensington Vestry)
c. It is not necessary for settlors or testators to use a particular form of words to create a trust In accordance with the equitable maxim, ‘Equity looks to
intent rather than form’ any wording, or even conduct, which manifests an intention to impose the trust obligation on the trustee will be sufficient ( Paul v
Constance).
2) Certainty of subject matter:
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