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Trusts Flashcards

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1
Q

How is a trust best described?

A

As a mechanism of giving away your property to someone in trust for your their benefit.

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2
Q

Who are the parties in a trust?

A
  • The truster (person who sets up the trust)
  • The trustee (person who must act in the interests of someone else)
  • Beneficiaries (person who benefits)
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3
Q

What is the difference between an inter vivos trust and a mortis causa trust?

A
  • Inter Vivos trusts are set up by someone who is alive

- Mortis Causa trusts in contrast are created by a persons will

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4
Q

What are the differences between a public and private trust?

A
  • Public trusts are set up for the benefit of the public or some section of the public (e.g. supporting cancer research)
  • Private trusts are for the benefit of a particular person, either name or unnamed but identifiable immediately or in due course ( e.g. usually trusts funds set up by wealthy grandparents for their grandchildren)
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5
Q

Describe what a discretionary trust is.

A
  • where trustees are given an element of discretion as to the extent beneficiaries will benefit
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6
Q

What is a trustee an example of?

A

A fiduciary

- The trustee must act in the interests of someone else

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7
Q

What distinguishes trustees from other fiduciaries?

A

That assets they adminster will actually belong to the trustee.

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8
Q

What may be recognised as the most important feature of a trust?

A

The insolvency effect

  • That being trust property cannot be touched by a trustee’s peronal creditors during insolvency
  • The beneficiaries rights overrule the rights of the trustees creditors
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9
Q

Identify what the scenario is an example of;
- Tom owns some land in trust for Beatrice.
He sells that land.
- The money he receives from the sale becomes trust money. He then uses that money to purchase UK Government stock.
-The stock is a trust asset, just as the money was.
Q. Does Tom still have the same duties to Beatrice due to the fact the trust property is no longer there.
(b) What is the term used to describe the replacement of one asset with another

A

(a) Tom will still have the same duty he had when dealing with the trust property, and Beatrice the same rights. Now they will relate to stock rather than land
(b) Real subrogation

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10
Q

the Recognition of Trusts Act 1987 provides certain characteristics that a trust possesses.
Q.(a) Where in the act can these be found
(b) What characteristics do trusts have according to the Act.

A

(a) Characteristics of a trust can be found in Schedule 1, Article 2 of the Act.
(b) Three characteristics as stated by the Act;
- The assets (of the trust) constitute a seperate
fund and are not part of the trustee’s own
estate
- Title to the trust assets stands in the name of
the trustee or in the name of another person
on behalf of the trustee
- the trustee has the power and the duty, in
respect of which he is accountable, to
manage, employ or dispose of the assets in
accordance with the terms of the trust and the
special duties imposed upon him by law.

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11
Q

How is a mortis causa trust created?

A
  • The trust is created from the will of the truster who has passed away
  • this is a straighforward type of trust as assets are identified and so are the trustees
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12
Q

In creation of an inter vivos trust, what are the two distinct steps?

A

(a) A ‘declaration of trust’

(b) The vesting of property in trustees

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13
Q

Give facts about the ‘declaration of trust’, used in the creation of inter vivid trusts.

(a) What typical form does a ‘declaration of trust’ take?
(b) What is the role of the truster and trustee
(c) What does the deed contain?
(d) Where may the deed be registered?

A

(a) Declaration of trust will take the form of a deed of trust
(b) This deed will be signed by the truster and then delivered to the trustee
(c) The deed will contain details about the beneficiaries and the trust purposes
(d) In the Books of Council and Session, however, this is not a legal requirement

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14
Q

It is common that in the creation of an inter vivid trust the ‘declaration of trust’ will identify some trust property which is usually nominal e.g. £10.
Why is this?

A

Reason for this is that it may be convenient for the trust to be established before it is possible to transfer over the main assets.

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15
Q

What did the case of ‘Allan’s Trustees v Lord Advocate 1971’ establish?

A

That truster-as-trustee trusts were lawful

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16
Q

What are truster-as-trustee trusts?

A

Where the truster has named themselves sole trustee of certain assets that he/she already have.

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17
Q

How have truster-as-trustee trusts been described as by a Scottish Law Commission discussion paper?

A

Uncertain and Contentious

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18
Q

How may a truster-as-trustee trust be created?

A

By written declaration of trust intimated to at least one beneficiary.

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19
Q

What was the problem in the case of ‘Garden’s Executors v More 1913’?

A
  • In this case the testator directed his trustees to convey certain assets to his wife
  • He added that he would like not less than £50 to be left to the widow of his brother if she predeceases his wife
  • He added that he desired his wife to make a settlement providing for this
  • The wife inherited but later died without making any provision
    HELD - the quoted words did not create a trust
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20
Q

Are Mortis Causa and Inter Vivos trusts required to be in writing?

A

YES

Inter Vivos trusts are bound to be in writing by the Requirements of Writing (Scotland) Act 1995, s1(2)(a)(iii)

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21
Q

Do trust deeds have to be registered?

A

NO (unless registered property is involved such as shares or land then transfer to the trustee will require registration)

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22
Q

Why was it not possible to give effect to the trust in ‘Hardie v Morrison (1899)’?

A
  • In the truster’s will he stated the idea to set up a shop which promoted “free thought”
  • this confused the Courts and was HELD to be too vague
  • the trust was no valid
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23
Q

How can one check the validity of trusts?

A

By considering the purposes the newly created trust purports to have been created for.

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24
Q

Why was the trust not valid in the case of ‘Shaw’s Trs v Greenock Medical Aid Society 1930’?

A

‘Secret’ trusts are invalid

  • In this case the trust was void due to uncertainty
  • Gift of residue to husband as trustee to make payments to religious or benevolent societies
  • the truster stating “regarding which he knows my mind”
  • Trust purposes known only to the trustee and therefore invalid.
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25
Why in 'McCaig v UoG 1907' was no trust established?
As no specific beneficiaries were identified - In this case the testator, in a holograph settlement, gave details of trustees and that revenue from his heritable property should be used to erect statues of himself and members of his family - And, for artistic towers to be built on his estate - He directed that his plan was to inspire young artists and prizes should be given to those with the best planned statues/towers HELD - that by these purposes no beneficial interest was conferred upon any person
26
Who can be a trustee?
Legal, juristic or natural persons can be trustees
27
Why is the role of the trustee important?
As they are the ones tasked with ensuring the trust is carried out in the fashion set down by the truster's instructions.
28
How are trustees physically appointed?
-They are created by the trust deed itself
29
The trust deed appoints trustee, what else may the trust deed state in regard to appointment of trustees?
- They may contain provisions on how further trustees might be appointed
30
What default rule is given to trustees under the Trusts (Scotland) Act 1921 s3(b)?
Trustees have the power to assume new trustees in the absence of regulation in the trust deed
31
What is an 'ex officio trustee'?
Where a person becomes a trustee due to the 'office' they hold e.g. minister of a parish
32
How would a trusteeship be terminated?
- Death - Resignation, in most circumstances trustee can resign from their office as a trustee as per the Trusts (Scotland) Act 1921 s3(a) - May be removed (number of grounds for removal including insanity)
33
What duties must a trust fulfil?
Investment duties - they have an obligation to invest the trust funds in an appropriate manner - this is a common law duty and detailed in s4A of the Trusts (Scotland) Act 1921
34
What must a trustees investments be?
- Within the trustees power and 'proper'
35
A trustee must demonstrate awareness that 'diversification' of investments might be in best interests of the beneficiaries. What is meant by this?
That a trustee will not put all their eggs in one basket when investing trust money.
36
What happened in the case of 'Melville v Noble's trustees [1986]'?
Trustees were authorised to invest but did so improperly - In this case trustees left money on a deposit receipt (at the time was reasonable way of 'parking money on short term basis' - money was left on for 19 years and was likely to be a poor investment - The trustees had power to put money on deposit receipt but were HELD to be liable for not investing responsibly
37
Describe what happened in the case of 'Raes v Meek (1889)' and what the result of that case was.
- Case where trustees invested trust money in unfinished housing - this turned out to be a high investment that went wrong - the trustees were held to be personally liable HELD - law requires of trustees the same degree of diligence that a man of ordinary prudence would exercise in management of his own affairs
38
Other than duty to invest name another duty of trustees.
Trustees have a duty to keep accounts and vouchings.
39
How long do "vouchings" have to be kept for?
It is unclear how long they are required to keep such records.
40
Who must charitable trusts give information to?
The Office of the Scottish Charity Regulator (OSCR)
41
What are the fiduciary duties of trustees?
(a) Must adhere to the terms set out in the trust deed and to general trust law (b) Trustee cannot act in his own self-interest (c) Trustee cannot be an "actor in rem suam" (give authority to transactions in his own interests) (d) Trustee must not buy, sell, borrow or lend to the trust.
42
What happened in the case of The Magistrates and Town-Council of Aberdeen v The University of Aberdeen[1877]'?
Trustee must not use his position for personal advantage - In this case the Council acted in a trust for the benefit of two UoA professors - Trust property consisted of land - The Council wanted land for themselves and proceeded to sell it at auction secretly to themselves - They also obtained a lease of the Crown estate of the salmon fishing in the land which they sub-let - UoA brought action against the Council 80 years later HELD - Breach of trust, Council obliged to return land and any income accumulated over the time for the salmon fishing to the University.
43
What was decided in the case of 'Inglis v Inglis (1983)'?
Where trustee has power to exercise discretion - it should not be exercised in their own favour - In this case it was held that an executor-dative could not transfer deceased interest as a tenant under a lease to himself as an individual - The defender had acted as an actor in rem suam
44
(a) Who's interest is the sole duty of trustees? | (b) When may a trustee's duties change?
(a) Trustees must solely consider the interests of beneficiaries - Where the trust deed states otherwise
45
Discuss the case of 'Martin v City of Edinburgh 1988'.
- Defenders were trustees who allowed their political outlook to influence investment decisions HELD - breach of trust, they was a conflict of interest between their duty as trustees and their political agenda
46
What are the duties of trustees?
(a) To pay correct beneficiaries (b) Duty not to delegate (c) To administer trust property in a proper fashion
47
Under what legislation would a trustee not be held liable for paying incorrect beneficiary?
Trusts (S) Act 1921, s29A Where the trustees acted in good faith and without negligence the would have no liability for overlooking a beneficiary.
48
What was decided in 'Scott v Occidental Petroleum (Caledonia) Ltd 1990'?
That a trustee cannot delegate their trust - Can delegate administrative tasks to agents - Cannot delegate where exercise of discretion or judgement is needed
49
Where can one usually find the powers of trustees?
- Commonly set out in the trust deed itself | - If not found in trust deed then common law and statute fill gaps.
50
If trust deed is silent on powers of trustees, what legislation sets out wide range of powers?
Trust (S) Act 1921, s4
51
Who may raise an action against a trustee for breach of trust?
- May be pursued by other trustees | - Beneficiaries may raise an action based on breach of trust
52
If a trustee has internal liability what does that mean?
- they have a duty to the beneficiary
53
What happened in the case of 'Hood v MacDonald's Trustee 1949'?
- Testator stated in will that his business was to be sold - Testator left provision in will that A ("my present manager") should be given first chance to purchase the business - A worked for the testator between 1934-1941 - In 1947 an agent of the trust informed A of the legacy (£50 left to him) but not of the provision (to buy the business) - The business had been sold in 1946 to the current manager - A learnt of the provision and sued for damages of £2000 for breach of trust HELD - this was a breach of trust as the trustees did not follow the terms of the trust deed
54
If a trustee is found to be personally liable to a third party will this come out of their own pocket?
NO If personal liability is established, the trustee will be reimbursed by the trust estate UNLESS that liability occurred through breach of trust
55
What is the impact of insolvency on; (a) The beneficiaries (b) the truster (c) the trustee (d) the trust itself
(a) Their beneficial interest becomes available to the creditors (b) Once established there is general no impact N.B. exception to this is gratuitous alienation (c) insolvency as an individual has zero impact upon the trust (d) If insolvent can be sequestrated as per the Bankruptcy (Scotland) Act 2016, s6(1)(a)
56
What are the three distinct types of breach of trust?
(a) ultra vires breach (b) intra vires breach (c) breach of fiduciary duty
57
If a gratuitous alienation does occur where a truster has become insolvent, what can the creditors do?
Insist that the assets be re-transferred
58
What did the case of 'Heritable Reversionary Co Ltd v Millar 1891' explain in regards to insolvency?
- That where a trustee has became bankrupt, the subjects he was holding as part of a trust would not vest in the trustee. - Reason given is although he owns them they do not belong to him
59
What is an ultra vires breach?
- Where the trustees do something which is outwit their powers - E.g. making an unauthorised payment
60
What is an intra vires breach?
- Where the trustees do something that is within their powers, but do it badly. - E.g. making an unwise investment decision
61
What is the distinction between intra vires and ultra vires breaches?
In an ultra vires breach the liability is strict (fault need not be proved), whereas the liability in an intra vires breach is fault based.
62
What did the case of 'Governors of Dollar Academy v Lord Advocate 1995' allow trustees to do?
- Provided that trustees could insure themselves against personal liability - It is also possible for premiums of the insurance to be charged to the trust fund if the trust deed so allows or the Court permits
63
If a trustee is held to be personally liable for a breach, what must they do?
They must restore to the trust the lost value
64
If a trustee transfers trust property in breach of trust to a third party, and the third party knows it is in breach of trust is the title void?
NO - Contrary to the usual rule of property law a third party will take title even if they are in bad faith. -
65
Would a trustee be liable where they act as an auctor in rem suam?
YES - the trustee would be personally liable for loss(if there is one) - the transaction would also be void or voidable
66
What may happen where a trustee is in serious breach of trust?
- they can be removed by the Court on petition of the beneficiaries or fellow trustees
67
What did the case of 'Gilchrist's Trs v Dick 1883' establish?
A trustee who is in serious breach of trust can be removed by the court on the petition of the beneficiaries or co-trustees.
68
If no trustees are left after the Court has removed them, what can be done to remedy this?
Trusts (Scotland) Act 1921, s22 | - the Court can appoint new trustees
69
What additional feature is available where there is a breach in a public trust?
The breach can be enforced by the Lord Advocate
70
Who can enforce breaches in a charitable trust?
The Office of the Scottish Charity Regulator (OSCR)
71
What civil law remedies are available to beneficiaries for serious breach of trust by trustees?
(a) Declarator (b) interdict (c) payment
72
When will a trustee be paid?
- where the trust provides for payment - where the are remunerated for reasonable expenses - trustee will be paid when appointed in sequestration by virtue of the Bankruptcy (S) Act 2016 s,133
73
What does "variation" mean with regards to trusts?
Means the varying of the terms of the trust.
74
Who may bring about variation of a Private trust?
- All beneficiaries of the trust at common law | - All beneficiaries musst agree
75
Can Private trusts be varied by the Court?
YES | - unusual however and the they are limited to only enlarging admin and enabling trustees to make an advance of capital
76
Who may bring about variation of Public Trusts?
To a very narrow extent the Court may bring about variation or the trustees.
77
What does s9 of the Law Reform (Miscellaneous Provisions) Act 1990 allow?
Allows trustees to petiton the court to alter the purpose and powers of the trust
78
When may trustees alter the purpose of a trust themselves?
``` Law Reform (Miscellaneous Provisions) Act 1990, s10 - Allows trustees to alter purposes of the trust themselves if the trust has a turnover of less than £5000 ```
79
What is open to the trustees under s11 of the Law Reform (Miscellaneous Provisions) Act 1990?
If a trust's annual income is below £1000, it is open to the trustees to determine to just spend the trust money on an item in keeping with the spirit of the trust.
80
Did the case of 'Inverclyde Council v Dunlop 2005' show a successful variation of a trust?
YES - In this case the terms of a trust were to preserve a park for the use of the public - the trustees sought to vary the trust as they lacked funds to maintain a pavilion on the park - they wanted to build and lease out a gym to raise the fund and meet original purpose - Accepted by the Court
81
What is the 'cy pres' scheme?
Where a charitable is unworkable, the court has the power to modify its provisions and make it workable.
82
What are the two main cases where the court can make a 'cy pres' scheme?
(1) Initial failure - where the charitable trust cannot be put in to operation (2) Supervening failure - where the charitable trust is up and running but later becomes unworkable.
83
The case of 'Macdonald Charitable Trust Trustees v Scottish Society for the Prevention of Cruelty to Animals 2009' stated what about cy pres schemes?
That a cy pres scheme is always possible for a charitable trust in the case of 'strong and compelling expediency'.
84
What is a cy pres scheme meant to ensure?
That the variation is done in a manner which remains as close as possible to the intention of the truster.
85
When may a truster revoke the trust?
In very limited circumstances; (a) due to insolvency (b) qualification in the trust deed
86
When may beneficiaries terminate a private trust?
- Unanimous decision by ALL beneficiaries can terminate trust
87
What may a single beneficiary in a trust compel a trustee to do?
Can compel trustee to make over the property to the beneficiary at any point if the beneficiary is over 16.
88
What did the case of 'Miller's Trustees v Miller (1890)' establish?
That a single beneficiary may request for partial or complete termination of a trust where they ate the only person with an interest.
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