Fully secret trust
Testator makes a gift of property in his or her will to a named person without expressly saying that person is to hold the property on trust.
Named person - legatee - informed by testator that they want legatee to hold property on trust and legatee agrees to be bound by this.
Half-Secret trust
Clear from will that the legatee will hold the property on trust but neither the terms of trust nor identity of beneficiaries disclosed in will.
Requirements for a fully secret trust
Testator must intend to create a trust:
- Its terms must be communicated to the legatee
- Must be accepted by the legatee during the testator’s lifetime
Categories of trustees
- Non-professional trustees, who are often family members or close associates of the settlor or testator who agree to act out of a sense of duty [i.e. unpaid] and
- Professional trustees, usually banks and financial institutions, which undertake the role only in circumstances where suitable provision is made for their remuneration
Trustee’s refusal of a trust
To avoid any uncertainty, the trustee has to express his intention by deed.
Retirement of a Trustee of the Trust
s11 Trustee Act 1893.
- if there is an express clause in the trust instrument permitting him to do so or
- if he receives the consent of all the beneficiaries, provided that they are all sui juris and between them entitled to the entire beneficial interest in the trust property
Arnott v Arnott (1924)
Jurisdiction of the court to remove a trustee should be exercised if the welfare of the beneficiaries demanded it, even though no dishonesty or incompetence had been alleged or proved against the trustee in question.
Moore v McGlynn [1894]
NO CONFLICT OF INTEREST principle for trustees
Duties of Trustee
1) Duty of loyalty
2) Duty to invest prudently
3) Duty to preserve and protect trust property
4) Duty of impartiality
5) Duty to account and inform
Learoyd v Whiteley (1886)
Standard of care definition:
In executing his duty to invest, the trustee must exercise the care that an ordinary prudent businessman would exercise in making investments, not only on his own behalf but on behalf of those for whom he felt morally bound to provide.
Types of Resulting Trusts
- Automatic
- Presumed
Automatic Resulting Trust
Arise regardless of the transferor’s intention whenever he has failed to dispose of the beneficial interest
Resulting Trust
An implied trust arising from the conduct of the parties. A trust in which a party holds the actual legal title to another’s property but only for that person’s benefit.
When resulting trust occurs ?
If lack of 3 certainties for example :
- Lack of beneficiaries - if they dies, can’t be found -automatic resulting trusts
- There is evidence that a trust was made - but the doc that stated the trust cannot be found- trust fails - results back
- Uncertainty or problems with the administration
Re Trusts of the Abbott Fund [1900]
- The money was held on resulting trust for the subscribers
- The purpose had been achieved
- The money was never intended to become the absolute property of the ladies, they were not in a position to demand it to be transferred to themselves
- It is unclear where the beneficial interest was vested in the trust before it failed
Constructive Trust
A trust that arises by operation of law where it would be unconscionable for a person who holds an asset to deny the beneficial interest of another person in the asset. Unconscionable duties, typically governed by some party having done something unlawful - court attempts to right the wrong.
Remedies for Constructive Trust
- Take a personal remedy against the trustee - damages
->Beneficiaries suing for the amount of the wrong
-> Beneficiaries are just creditors with no special rights against the trustee, meaning they must compete against all other creditors the trustee has. This is a problem when a trustee has no money to pay them back
- Get the actual property out of his hands
-> Proprietary remedy
-> Sue for the property
-> And if that prop goes up in value - the bens can keep that increase. If the prop goes down in value - bens can sue trustee for the difference
->Do not need to compete with other creditors AG for Hong Kong v Reid [1994]
When Constructive Trust ?
- A holds funds that he knows have been paid to him by mistake.
- A holds an asset that he has obtained by means of fraud.
- A and another person (B) share a common intention that B should have a beneficial interest in an asset, and B has acted to his detriment on the basis of that intention. This is known as a common intention constructive trust and is often argued in disputes about the ownership of property occupied by cohabitees, as in the leading cases of Stack v Dowden [2007] and Jones v Kernott [2011].
Institutional Constructive Trust
- Comes into being by the wrongdoers’ conduct
- Creates a prop right on behalf of the bens at the time of the wrongdoers (even if the court only acknowledges it later)
- Thus third party rights (creditors) that accrue after the institutional constructive trust will be limited
- Prop remedy can be cut off by a bona fide purchaser
No conflict rule in Constructive Trust
- Trustee cant put himself in a place where the duties they owe to bens conflicts with his own interests
- Conflict determined by rational man test. Another was if a fiduciary is on two diff trusts or a board member of two companies that are in business with each other
- Cant get the best outcome to both beneficiaries
- Disclosure - if there is a claim of wrongdoing - if the trustee has disclosed at the start that he was a part of other boards - he can say he made a mistake but didn’t do so maliciously
- Then he can ask for permission to continue working for the board despite divided loyalties
- If he doesn’t get consent - he can step down from one or the other transaction - or he could not get involved in the conflict transaction
- Divided loyalties
-> Conveyance of real property
-> Buyer and seller of house - usually both have one solicitor each. But sometimes - they have the same lawyer - but he needs informed consent from both parties
-> Need full disclosure - but still bound by confidentiality
No profit rule Constructive Trust
- If a Trustee gets pleasure from his work - is that a profit ? - no
- If a trustee gains a good reo for his work - is this a profit ? no
- The discreet information he gained as a trustee - is a benefit
- Does not need to a be loss to beneficiaries
- Because trustee captured an opportunity that he gained from being a trustee - he was required to disgorge his profits (personal remedy not prop remedy ) Keech v Sandford
- If a trustee gets fully informed consent to break the rules - he is not liable
- Court will be very strict on this - as if bens are minors
Remedial Constructive Trust
A remedial constructive trust is a type of constructive trust which allows courts to give a discretionary property remedy for breaches of certain obligations, or to acknowledge various rights.
- More discretion
- Doesn’t occur when the wrong occurs - comes into existence when court declares that the constructive is created
- Makes parties more likely to succeed Hussey v Palmer [1972]
