A testator leaves the residue of their estate “to my wife for life and then to such of my children who attain the age of 21 and if more than one in equal shares.” The wife is alive, with two children - a son aged 22 and a daughter aged 17. What best describes the beneficiaries’ equitable interests?
The wife, as life tenant, is entitled to the income from the trust during her lifetime - a limited interest in possession. The children’s entitlement arises after her death, giving them interests in remainder. The son’s interest is vested (he is over 21), where the daughter’s remains contingent until she reaches 21.
Trustees hold a trust fund ‘on trust for such of my grandchildren and in such shares as my trustees think fit’.
Which of the following best explains what trust documents the grandchildren are entitled to see?
The grandchildren are entitled to see the trust deed and the trust accounts. Beneficiaries and the objects of a discretionary trust are entitled to be able to review the administration of a trust and to the protection of the courts (Schmidt v Rosewood Trust). They are, therefore, entitled to see ‘trust documents’. This would include the trust document, the trust accounts as well as documents showing how the trust capital is invested.
A trustee, a chartered accountant, learned of an office block for sale near the trust’s property at the end of a trust meeting. Acting on his own, he purchased it personally after speaking to the trust’s solicitor. Other trustees claim they would have been interested in buying it for the trust. Did he breach fiduciary duty?
Yes, because he was allowed his own personal interests to conflict with those of the trust. This is not self-dealing because no trust property was sold or bought directly by him.
Can the former son-in-law successfully claim ownership of the house under proprietary estoppel, given that he cared for and maintained the woman’s home without pay, relying on her assurance that he would inherit it, only to find himself excluded from her will?
Yes, because the equity has been established.
Based on the facts, proprietary estoppel can be established. There was a sufficient assurance from the woman - the assurance can be active or passive letting someone act in the mistaken belief that they have or will have an interest. Her assurance as to his future interest in the house does appear to have been intended to be relied upon (as an alternative of wages). The son-in-law relied on this assurance to his detriment. He continued to work for no wages and gave up a job on the basis of the assurance receiving the house when she died.
A trustee stole £30,000 from the trust’s bank account over a period of time and then disappeared. The trustee’s brother was employed as the trust’s accountant; he says that he knew about the thefts but did not notify the co-trustee because he thought nobody would notice that his brother would get away with it. The thefts occurred while the co-trustee was on a three-month cruise.
Which of the following best describes the action the beneficiaries should take?
Bring an action against the accountant for accessory liability.
The accountant may well be liable as an accessory because he assisted the breach and was dishonest (he did not act as an honest accountant would have acted).
Where can trustees’ direct investments?
The general power of investment contained in s3 TA 2000 is not limited to the UK. Trustees can purchase investments based in any part of the world, so long as the trustee complies with the investment duties. This is different to purchasing land, where the power is contained in s8 TA 2000 and is limited to land in the UK.
A settlor created a trust for her grandchildren. The trustees are her brother and a local stockbroker. The trust instrument contains NO CHARGING CLAUSE. Next month:
* The stockbroker retires, so he will no longer be acting in a professional capacity.
* The brother starts works as a landscape gardener, which is not a profession involving trust services.
From next month, can either trustee change the trust for their time?
Neither trustee can charge fees without a court order.
Because the trust deed contains NO EXPRESS CHARGING CLAUSE trustees may only charge fees if:
1. They act in a professional capacity and the co-trustee gives written agreement (TA 2000, s29) or
2. All beneficiaries consent, or
3. The court authorises remuneration.
A trustee learns of a profitable investment opportunity and tells his co-trustees. They are uninterested. He then asks if he may buy the shares personally, and they consent. He buys them and the shares double in value. Has he breached his fiduciary duties?
Yes, he allowed his personal interests to conflict with those of the trust.
A trustee must not profit from an opportunity that properly belongs to the trust, even if:
* the other trustees consent, or
* the trust itself did not intend to take the opportunity.
Because he personally profited from an investment opportunity that arose through his position as trustee, he is in breach. Only fully informed beneficiary consent (all being adults) or court authorisation could have allowed him to retain the profit.
A trustee sells trust property (an apartment valued at £300,000) to herself for its full market value. The property has been on the market for six months and no other offers were received. Can the beneficiaries set the sale aside?
Yes - the beneficiary can set aside the sale within a reasonable time because the trustee sold the property to herself.
This engages the self-dealing rule, which makes such a transaction voidable at the beneficiary’s election regardless of whether the sale was at full market value, or whether there were any other offers.
The sale is not automatically void and the beneficiary must act within a reasonable time.
A settlor creates a trust with three trustees: an independent financial adviser; a bank manager and a civil servant (no relevant professional expertise). The trust deed contains NO CHARGING CLAUSE. All three trustees agree among themselves to charge £1,000 per hour for their trustee work. Can any of them lawfully charge?
None of the trustees may charge for their trust work. Where a trust instrument is silent: only professional trustees may charge; their remuneration must be reasonable and all trustees must consent in writing (TA 2000, ss28-29).
A solicitor-trustee manages a trust fund held for a life tenant, with the remainder to the settlor’s niece. The niece needs capital but the life tenant refuses to agree to an advancement or to ending the trust. The solicitor wishes to help by buying the niece’s beneficial/remainder interest. Is the solicitor permitted to purchase her interest?
Yes: the solicitor may buy the niece’s interest provided she receives independent advice and full information. Because a trustee seeks to purchase a beneficiary’s interest, the fair-dealing rule applies. There is a presumption of undue influence but it can be rebutted.
A solicitor, acting as trustee of a fixed trust and discretionary trust, steals £10,000 from the fixed trust and £15,000 from the discretionary trust, mixing both in an empty personal account. After adding £2,500 of their own salary the solicitor spends money on credit card bills (£2,000), a gym membership (£5,000) and buys £10,000 worth of shares. £10,000 remains in the account when the solicitor is made bankrupt. How should the trust beneficiaries recover the funds?
The fixed trust may be able to claim 40% of the remaining account balance after challenging the strict application of Clayton’s case.
Under Re Hallett, the solicitor’s own £2,500 is treated as spent first (credit card and part of gym payment), so none of the balance belongs to the solicitor. Applying CLAYTON’S CASE (first in, first out) £5,000 of the fixed trust’s money is treated as spent on the gym membership and lost. The remaining £5,000 of the fixed trust’s money went into the purchase of shares - so the fixed trust is entitled to half of the shares. The discretionary trust gets the other half of the shares, plus all £10,000 remaining in the account, because these funds are traced entirely to the discretionary trust’s money. This results in 100% recovery for the discretionary trust, but only 50% recovery for the fixed trust. The best advice is that the fixed trust may claim 40% of the remaining balance.
A trustee mixes £80,000 of trust money with £5,000 of their own in a personal account. They spend £20,000 entering a luxury rally and buy a classic sports car for £60,000 which later doubles in value. £5,000 remains in the account. What is the best option for the beneficiaries to maximise recovery?
As the trustee is deemed to spend their own money first, the beneficiaries should claim all the money remaining in the account or any asset purchased from the money in the account as belonging to the trust.
Because Re Hallett applies, the trustee is deemed to spend their own money first, so their £5,000 is lost on the rally entry, together with £15,000 of trust money. £60,000 of that trust money was used to buy the car - the car (and its increased value) belongs to the trust. The £5,000 still in the account is also trust money - recoverable in full. Thus, the beneficiaries should claim both the full value of the car and the remaining account balance.
A trustee misappropriates £30,000 from a trust to purchase shares worth £50,000 (shares later increase in value). The trustee later steals £20,000 more, mixes it with £40,000 of personal money, and spends £40,000 on a car and £20,000 on a luxury holiday. How can the beneficiary recover the trust property?
The beneficiary can claim 60% of the shares (proportionate to the trust’s contribution of £30,000 toward the £50,000 purchase) and half the car (representing £20,000 of trust money traced into the car). Re Oatway allows the beneficiary to trace misappropriated funds into mixed assets and assert a proprietary claim in the assets that provide the best value.
Twelve years ago, trustees renewed a valuable market lease in their own names (through a partnership involving themselves and their spouses) after the lessor refused to renew it for the trust. Only the widow life tenant consented; the remainder beneficiaries are minors. The lease has since become extremely profitable. After the widow’s recent death, the children now wish to recover the lease for the trust. Can they succeed?
Yes. The trustees are strictly liable for breach of fiduciary duty because they renewed the trust lease for their own benefit without fully informed consent of all beneficiaries. The beneficiaries may bring a proprietary claim to recover the lease for the trust. Such a proprietary claim is not subject to a limitation period, though laches may apply.
A trustee mixes £100,000 of trust money with £10,000 of her own in a personal bank account. She spends:
- £10,000 on a holiday (dissipated).
- £80,000 on a house (now worth £120,000).
- £20,000 on a vintage car.
What is the best outcome for the trust?
The trust is entitled to a £120,000 share in the house and the car in its entirety.
Under Re Hallett, the trustee’s own £10,000 is deemed spent first on the dissipated holiday. Under Re Oatway the beneficiaries may trace into the best remaining assets - here, the house and car. The trust money funded both valuable assets therefore the trust takes: full value of the house’s increase, following Foskett v McKeown (the trust obtains the uplift from £80,000 to £120,000). The entire car, as it was wholly bought with trust funds.
Trustees loaned a valuable trust-owned painting to a community gallery for safekeeping during lengthy property repairs. The gallery now refuses to return it, genuinely believing it was donated. The painting has increased significantly in value. The trust instrument includes a clause excluding trustee liability except for actual fraud. Can the beneficiaries successfully bring a proprietary claim to recover the painting?
The beneficiaries can bring a proprietary claim to recover the painting, because the gallery is a volunteer (it gave no consideration), and the exclusion clause in the trust instrument has no effect on proprietary claims.
A settlor creates a trust: “To my husband for life, remainder to my daughter.” Both adult beneficiaries complain they have received nothing. Has there been a breach of trust?
Yes - there has been a breach of trust BECAUSE THE HUSBAND, AS LIFE TENANT, IS ENTITLED TO THE INCOME AS IT ARISES. The daughter’s interest is postponed until the husband’s life interest ends, so she is not yet entitled to capital.
A testatrix wrote to her executor one month before her death stating that, when her silver collection was returned from a museum loan, she intended the executor to hold it on trust for her niece. At death, the silver was still on loan. Her will leaves the entire estate to a charity.
Who is entitled to the silver collection?
The charity inherits the silver collection.
The attempted trust in favour of the niece was never properly constituted. To create a valid trust of chattels, there must be physical delivery or a deed transferring legal titles to the trustee. The testatrix’s letter was NOT A DEED, and the collection was never delivered to the executor.
No exception to the rule that “equity will not assist a volunteer” applies:
- The every effort test does NOT apply because no delivery/deed occurred.
- Strong v Bird does NOT apply because the trust was intended to arise only in the future (once the loan returned), not immediately.
What is the rule in Strong v Bird?
Rule: if a person intends to make an immediate gift or create a trust for someone, but fails to properly transfer the property during their lifetime, AND THE INTENDED RECIPIENT SUBSEQUENTLY BECOMES THE EXECUTOR (OR ADMINISTRATOR) OF THE DONOR’S ESTATE, the gift or trust will be perfected upon the donor’s death because the executor automatically acquires legal title.
Key Points:
1. The donor must have intended the gift or trust to be immediate, not conditional or for the future.
2. The intended recipient must become the executor of the donor’s estate.
3. The property must form part of the donor’s estate at death.
Example: A parent intends to give a son a sum of money but does not formally transfer it. The parent dies, and the son is appointed executor. The son can take the money as part of the estate and the intended gift is perfected.
Strong v Bird flowchart.
Step 1: Was a gift or trust intended?
Yes - step 2.
No - Rule does not apply.
Step 2: Was the gift/trust intended to take effect immediately?
Immediate - step 3.
Future/conditional - Strong v Bird does NOT apply.
Step 3: Was the intended recipient appointed executor or administrator?
Yes - step 4.
No - Strong v Bird does NOT apply.
Step 4: Did the donor still own property at death?
Yes - Gift/trust perfected via Strong v Bird.
No - Rule does NOT apply.
Step 5: Result.
If all conditions met - imperfect gift or trust is validated automatically.
If any condition fails - trust remains imperfect, property passes according to the will or intestacy.
A trustee, who is a property specialist, used part of the family’s trust capital to purchase a villa in Marseille and let it out as a holiday rental. A later decree by the local authorities made it unlawful for foreigners to let holiday properties, leaving the villa empty. The trust deed contained no express investment powers. The beneficiaries now complain.
Does purchasing the villa amount to a breach of trust?
Yes. The purchase of the villa was a breach of trust because, under s8 Trustee Act 2000, trustees may only purchase land in the UK unless the trust instrument expressly provides otherwise. Buying overseas property was therefore an UNAUTHORISED INVESTMENT.
A group of trustees want to delegate their investment functions to an independent financial adviser for three years.
What is their legal position once the adviser is appointed?
Trustees may delegate their investment powers under the Trustee Act 2000. They are NOT VICARIOUSLY LIABLE for the adviser’s investment decisions. However, they remain responsible for their own duties - they must use reasonable care and skill in selecting the adviser and must periodically review the adviser’s performance.
A solicitor-trustee wants to charge her firm’s standard rates for managing a trust. The trust deed does not mention trustee remuneration.
Can she charge fees without court or beneficiary approval?
No. A sole professional trustee cannot charge fees unless the trust deed expressly allows it, the beneficiaries consent or the court authorises it. Under the TA 2000, professional trustees can only claim remuneration if more than one trustee is in office and there is a written agreement.
