Equity & Trusts

Question 1

What test applies to fixed trusts vs discretionary trusts?

Answer 1

Fixed trusts - complete list test so must state a list of names of who beneficiaries are (evidential & conceptual certainty)

Discretionary trusts - postulant test where the trustees must be able to say whether someone is or not a member of the class

Question 2

What is the maximum period under the rule against perpetuities?

Answer 2

Up to 125 years.

Means that the property must vest within this time

Question 3

What is the time limit for the rule against alienability?

Answer 3

21 years or ‘for as long as the law allows’

Question 4

What are the formalities for declaring a trust of personalty?

Answer 4

1) Property must be effectively transferred to trustee (unless already holding legal title). 2) Declaration of trust – can be oral

Question 5

What are the formalities for declaring a trust of land?

Answer 5

Must be manifested and proved by signed writing containing all terms of the trust.

Question 6

How is legal title to land transferred into trust?

Answer 6

By deed (s 52 LPA 1925) + registration at Land Registry (Form TR1). Legal title passes when trustee is registered as proprietor.

Question 7

How are CREST shares transferred into trust?

Answer 7

By electronic transfer via CREST

Question 8

How are private (non-CREST) shares transferred into trust?

Answer 8

Execute stock transfer form + share certificate

Question 9

How is money transferred into trust?

Answer 9

Cash by delivery

Question 10

How are chattels transferred into trust?

Answer 10

By physical delivery or deed

Question 11

What is the exception if the settlor validly declares themselves and a third party to be trustees but don’t make any steps to transfer legal title?

Answer 11

Trust will be valid in equity, with the result that the property will beneficially belong to the beneficiary

As it would be unconscionable for the ssettlor to back out of constituting the trust

Question 12

What is the ‘every effort’ test?

Answer 12

If settlor has done everything in their power to transfer property

Question 13

What is the rule in Strong v Bird?

Answer 13

An imperfect gift may be perfected on death if:

1) Failure of transferring legal title
2) Intention must be immediate
3) Intention must continue up until death
4) Transferor dies and Trustee is appointed Executor

Question 14

If the person receiving the donation is a trustee - do they meet the conditions for Strong v Bird?

Answer 14

No they must be executor

However, will satisfy conditions in Choithram v Pagarani

Question 15

What is the mandatory statutory requirement for the declaration of an express trust over property?

Answer 15

The declaration of trust must be by deed, signed, and in writing (s53(1)(b) Law of Property Act 1925).

Question 16

What contribution must have been given (and when) for a claimant to establish a resulting trust?

Answer 16

The claimant must have contributed cash consideration or the deposit to the purchase price at the time of the purchase

Does not include fees such as legal fees or stamp duty

Question 17

If a resulting trust is established, what is the remedy available to the claimant?

Answer 17

The remedy is % ownership of the property proportional to the percentage of the purchase price contributed.

Question 18

A property is bought for £200,000. Liam pays a £20,000 deposit, but the legal title is solely in Chloe’s name.

What is Liam’s share under a resulting trust?

Answer 18

Liam contributed 10% (£20,000 of £200,000). He is entitled to a 10% ownership share.

Question 19

When a father contributes money to the purchase of property registered solely in his adult child’s name, what presumption applies?

Answer 19

The presumption of advancement applies, meaning the contribution is presumed to be a gift, though this can be rebutted.

Question 20

If a family home is registered in the joint names of two cohabitants, what is the initial presumption regarding their beneficial ownership?

Answer 20

The presumption is that they intended to own the property jointly in equity.

Question 21

If property is registered in the name of only one person, what two elements must a claimant prove to establish a common intention constructive trust (CICT)?

Answer 21

1. A common intention to share ownership (express agreement or inferred from conduct)
2. Detriment suffered by the claimant in reliance on that intention.

Question 22

How is common intention to share ownership primarily inferred from conduct for the purposes of a CICT claim?

Answer 22

Common intention is primarily inferred from direct contributions to the purchase price, such as mortgage repayments or payment of part of the deposit.

Question 23

Under what specific condition can common intention be inferred from indirect contributions, such as paying substantial household bills?

Answer 23

Rare but the expenses must be substantial and explicitly enable the legal owner to meet the mortgage payments.

Question 24

Why is it often difficult for a claimant to prove that providing unpaid childcare constitutes detriment for a CICT claim?

Answer 24

The claimant must prove the childcare was based on the expectation of ownership, rather than merely out of love and affection.

Question 25

What is the sole remedy available to a claimant who successfully establishes a common intention constructive trust (CICT)?

Answer 25

% of ownership is the only remedy available. If no specific share was agreed, the court will look at the whole course of dealings to determine the share.

Question 26

What core requirement needed for Resulting Trusts and CICT is *not* needed for a Proprietary Estoppel claim?

Answer 26

No contribution to the purchase price or the mortgage is required.

Question 27

If a claimant relies on proprietary estoppel because they paid the mortgage, what factor will the court take into account when assessing their detriment?

Answer 27

Payment of the mortgage constitutes detriment, but any benefits received, such as rent-free accommodation, will be considered.

Question 28

What three core elements must a claimant establish for a successful claim of proprietary estoppel?

Answer 28

1) Assurance (active or passive) by the legal owner 2) Detriment suffered by the claimant 3) Reliance on that assurance.

Question 29

What is the range of remedies available to a claimant who successfully establishes proprietary estoppel?

Answer 29

Remedies are flexible, ranging from modest financial sums to outright ownership or forced sale of a property (Guest v Guest). The court can order a life interest, a monetary payment, a security charge, or grant an ownership share/entire property.

Question 30

To rebut a presumption of advancement, when must evidence of intention be shown from?

Answer 30

Evidence to rebut the presumptions must be of intentions **before or at the time** of transfer

Question 31

What are the conditions for beneficiaries to direct a trustee must retire under s19 TLATA 1996?

Answer 31

They must be all of full age and capacity (s19) Must be left with 2 trustees otherwise will need to replace them

Question 32

If a Trustee has been abroad for over 12 months, can they be removed? And if so, do they need to be replaced?

Answer 32

Yes under s36(1) of the TA, the current trustees can remove them but they **need to be replaced (even if over 2 trustees) and appointment must be in writing (deed)**

Question 33

Can a beneficiary with an interest in income be paid from the trust before they are 18?

Answer 33

If under, can apply income for maintenance, education or benefit but is discretionary

Question 34

Can a beneficiary with an interest in capital be paid in advance from the trust?

Answer 34

Yes but must be for their advancement and is discretionary Can only release 1/2 of their capital (if before 2014) or all of their capital (if after) Must have written consent from a life tenant if there is one

Question 35

If there is no life tenant, and the beneficiary has a contingent interest and over 18 - can the trustees pay them income from the trust? And is this mandatory?

Answer 35

Yes they **must** pay them income from the trust provided there is not already a life tenant

Question 36

Is the duty of care for trustees objective or subjective?

Answer 36

A trustee must take 'all those precautions which an ordinary prudent man of business would take in managing similar affairs of his own' *(Speight v Gaunt)* - which is **objective** Although standard will be higher for professoinal trustees

Question 37

A will contains the following provision: ‘I give £250,000 to my trustees to hold for all the employees and ex-employees of my late mother’s catering business.’ The catering business has no records of their employees prior to 2015. Which of the following best explains why this provision will not be valid? B) The provision will not be valid because it lacks evidential certainty. C) The provision will not be valid because it will be administrative unworkable.

Answer 37

B is correct - The provision creates a fixed trust. There is an obligation on the trustees to hold the property for the beneficiaries and in the absence of any express statement, it is presumed that they are to share the trust fund equally. There must be **certainty of objects** in the declaration and in a fixed trust, the **complete list test** applies. This test requires conceptual certainty, which there is. It also requires evidential certainty – it **must be possible to draw up a complete list** of all the potential beneficiaries (to allow for equal distribution). Those employed from prior to 2015 may not be able to prove that this was the case. It will not be possible to compile a complete, full list. On this basis, the provision will not be valid. Option C is wrong as administrative unworkability applies to the consideration of the objects of discretionary trusts rather than fixed trusts. The extent of the class of beneficiaries has been fixed by the testator; the trustees do not have to conduct any survey as to who is to benefit from the trust. This is distinct from requiring evidential certainty of membership of the ‘complete list’.

Question 38

Can Trustees buy land in the UK & overseas as an investment?

Answer 38

Yes in the UK NOT overseas

Question 39

If a Trustee wants to delegate their investment functions to a third party, what is the process?

Answer 39

1) Prepare policy statement that gives guidance how the agent should exercise their asset management functions in the best interests of the trust 2) Trusttees must regularly review the arrangements 3) Trustees must select suitably qualified person that the asset management functions will be delegated to

Question 40

Can Trustees be sued for the act or default of the agent?

Answer 40

No unless they have breached any of their personal duties (care with choosing person, regularly reviewing arrangement, creating policy statement) Trustees are not vicariously liable for defaults of investment agents

Question 41

Can Trustees make a loan secured on land to a beneficiary?

Answer 41

Yes but they must reasonanbly conclude it's a suitable use of money and take a mortgage over the land in exchange for the loan They must reference the standard investment criteria (suitability and diversification) and whether they are treating all the beneficiaries impartially.

Question 42

If the beneficiaries are all over 18, know the full facts and consent - can a trustee keep personal profit?

Answer 42

Yes They can also keep if authorised by court or declaration of trust

Question 43

Are transactions automatically void when Trustees 'self deal'?

Answer 43

No - beneficiaries may decide that transaction was a good deal Or beneficiaries can set the transaction aside for any reason within reasonable period of time

Question 44

Can Trustees be paid from the trust if authorised by: a) beneficiaries consenting b) court order

Answer 44

a) Yes if all beneficiaries are over 18 b) Yes the court should order remuneration if it's in the interst of beneficiaries e.g. if trust needs skill of trustees and fees are reasonable

Question 45

Can Trustees receive remuneration if the other trustees agree?

Answer 45

Yes under TA, if a trustee is acting in a **professional capacity** then they are entitled to receive reasonable remuneration if the other Trustees agree **in writing** Must be professional - not retired etc otherwise will need a court order

Question 46

Can Trustees receive a directors salary from the trust if they were a director before they became trustee?

Answer 46

Yes - only have to surrender salary if you became a Director by virtue of being a Trustee Calculate whether without the votes attached to the trust's shares - would they still have sufficient support among other shareholders to be appointed?

Question 47

Two private client solicitors are appointed trustees of a family trust. Four years ago, the trustees decided to use trust funds to purchase warehouse space in Turkiye following investment advice that Turkiye was the fastest growing real estate market in the world (advice which has been repeated during subsequent trust investment meetings). During that time, the warehouses have appreciated in value. One of the beneficiaries has recently written to the trustees. In their letter, the beneficiary complains that when they wrote to the trustees four years ago to ask the trustees to purchase an office in London for the beneficiary’s new business, the trustees refused to do so. The beneficiary has threatened to bring a claim against the trustees. There are no express provisions in the trust deed dealing with investments. **Will the claim threatened by the beneficiary be successful?** A) Yes, because the purchase of real estate outside the UK is unauthorised and therefore is a breach of trust. E) No, because whilst the trustees have breached trust, the trust has not suffered any loss.

Answer 47

Option E is correct. In the absence of any express provision in the trust deed, the purchase of real estate outside the UK is an unauthorised investment. The trustees are therefore in breach of trust. However, a personal claim will only be successful if the trust has suffered a loss, or the trustee has obtained an unauthorised personal profit – neither of which have happened on the facts. Accordingly, option A is wrong. Whilst the trustees are in breach of trust, that breach has not caused the trust to suffer loss.

Question 48

Can you bring a proprietary claim if someone has spent the money on installing an office at their home or repairing the roof?

Answer 48

Yes - can bring proprietary claim to recover the amount of trust assets spent on home by securing a charge over it

Question 49

What is difference between absolute and limited interests?

Answer 49

Limited - only in income generated e.g. life tenant Absolute - interest in capital of trust, or both income & capital

Question 50

What is the difference between in possession or in remainder

Answer 50

In possession - can enjoy interest immediately (no other beneficiary entitled before) In remainder - have to wait until some other beneficiary's right of use and enjoyment expires

Question 51

Can a trustee buy a beneficial interest in the trust? (Fair dealing rule)

Answer 51

Yes but the presumption of undue influence applies The Trustee must show it's fair and there is no undue influence (obtains independent advice & is fully informed)

Question 52

Difference between: a) Deliberately not asking questions b) Constructive knowledge c) Constructive notice

Answer 52

* **Deliberately not asking questions** - thinking something is wrong but choosing not to ask to maintain appearance of innocence * **Constructive knowledge** - with the information, a reasonable person would have known something was wrong * **Constructive notice** - reasonable pesrson would not have any knowledge that something is happening but would (e.g. in course of business) make further enquiries that would uncover issues

Question 53

Can a trustee retire?

Answer 53

Yes - provided that 2 or more trustees remain Continuing trustees should appoint a replacement in writing (prefereable by deed) and executed by remaining trustee (the retiring trustee can be included in this if they wish)

Question 54

Can beneficiaries appoint or remove trustees?

Answer 54

**Written direction** Beneficiaries can provide written direction to a trustee to retire or appoint new one if: 1) All in agreement 2) All sui juris 3) Together absolutely entitled to the property **Application to court** Can apply to court but this is considered last resort, and will only intervene if difficult or impracticable to make appointment without court's assistance

Question 55

Can a trustee receive remuneration?

Answer 55

Yes if: * All beneficiaries consent (all must be 18+) * Court order * If professional trustee - if all other trustees consent

Question 56

What are the rules in *Saunders v Vautier*?

Answer 56

If all beneficiaries under the trust who could possibly become entitled: a) Are in existence and ascertained b) Are 18+ and mental capacity c) Agree to what is proprosed There must not be any other person with a potential interest in the trust fund

Question 57

Who will a presumption of advancement apply to?

Answer 57

Father to child Husband & Wife (finance / financee)

Question 58

A man bought shares in a company. His son’s name was listed as the owner of the shares in the company’s register of members. The son was aged 25 years. On the same day as the purchase took place, the son emailed the man to say, ‘Hi Dad. When I get the share documents, I will send these over to you as agreed. As we also agreed, if any dividends are paid on these shares, I will forward those on to you as well.’ A year later, the man instructed a solicitor to draw up a will for him and leave them to his wife. **Does the man have a beneficial interest in the shares?** a) Yes, because he paid for the shares b) Yes, because the email from the sun is sufficient to rebut the presumption of advancement that would have otherwise applied c) Yes, because the fact he instructed a solicitor to draft a will leaving the shares to the wife is sufficient to rebut the presumption of advancement that would have otherwise applied

Answer 58

B is correct - man has purchased shares in name of his son so presumption of advancement applies father to child. There is evidence to rebut that presumption in the email and likely the main retained a beneficial interest in the shares A is not the best answer as just because he paid for them doesn't mean he will retain an interest C is wrong - presumption of advancement must be rebutted by evidence of words and conduct at the time **not after purchase had taken place** Evidence must be before or at the time of transfer - any evidence of intention after transfer **can only be used against you** - you can't rely on own acts or declarataions after as it would mean you could win your case by making up evidence after the event

Question 59

Can trustees delegate investment powers to a beneficiary?

Answer 59

No - only to an appropriately qualified third party

Question 60

Can beneficiaries collectively consent to a breach of trust e.g. self-dealing, conflict of interest, profit?

Answer 60

Yes but must all be over 18 and have mental capacity

Question 61

If a trust is created to use income to provide holidays to the staff of a care home, is this valid?

Answer 61

Not valid as charitable purpose trust as no benefit to the public To be a valid purpose trust, the rule of alienability has not been satisfied. The trustees must use the income to pay for the holidays and trips. This suggests that they cannot use the capital, and there is therefore a risk that this trust will last in perpetuity. Note - if charitable then can use income as no rules against alienability

Question 62

A woman executed a trust deed under which she declared that her brother would hold her shares in a private limited technology company on trust for her two children. The woman handed her share certificate to those shares to her brother. A week later, the woman died. In her will, she left all her estate to her sister. **Are the shares held on trust for the children?** B) Yes, because the woman has satisfied the every effort test. C) No, because the brother does not have legal title to the shares and therefore cannot hold the shares as trustee.

Answer 62

To transfer the shares, the woman must have: 1) Execute a stock transfer form 2) Hand the stock transfer form and share certificate to her brother 3) The brother would have to be registered as the new shareholder in the books of the company. The woman did not take these steps – in particular, she did not execute a stock transfer form and did not hand that form to her brother. As the brother does not have legal title to the shares, the trust has not been constituted and the shares do not belong beneficially to the children. B is incorrect - the every effort test isn't satisfied as she didn't execute or hand over a stock transfer form (for land, TR01)

Question 63

How long can a personal & proprietary claim be bought against trustees?

Answer 63

* Personal claim if not against a trustee who has committed a fraudulent breach - 6 years from date of breach * Personal claim if trustee has committed fraudulent breach of trust - no limit but laches applies * Proprietary claim - no limit but doctrine of laches still applies

Question 64

In a telephone conversation with his daughter who is aged 17, a father says, “From now on I’m holding part of my property portfolio for your benefit”. The father has a property portfolio containing 15 properties in Birmingham. **Is there an enforceable trust?** A) No, because there is no signed written evidence of what the father said in the telephone call. B) No, because the father must complete a deed and send it to the Land Registry so that the daughter can be registered as the new owner.

Answer 64

A is correct - as the trust contains the land, the declaration should have been evidenced in signed writing. Additionally, there is no certainty of subject matter as the father hasn't specified which properties he is holding on trust B is wrong as father is declaring himself to be trustee and he already holds legal title to properties. The daughter is only to have a beneficial interest so no transfer needed

Question 65

Are trustees liable if they delegate their trustee duties?

Answer 65

Not vicariously liable if they collectively delegate functions to an agent e.g. investment decisions to a financial advisor They are liable if an individual Trustee appoint a power of attorney (e.g. if ill or abroad) and delegation must be for max 12 months

Question 66

What is the date cut off where a child can only be advanced 1/2 of the capital of the trust?

Answer 66

1 October 2014