trust

Chapter 2: List for Basic Rules of Trusts: Property, Obligations and trusts
1) Equitable title exists whenever equity will require the legal owner of property to hold the property for the benefit of some other person or group of persons (which group may include the legal owner himself.)
2) Cestuis que trust=beneficiaries
3) Settlor and trustee can be the same person.
4) Settlor and beneficiary can be the same person. (Settlor can convey property to a trustee on trust for himself.)
5) Express trust as the creation of settlor.
6) An express trust is created when a settlor effectively exercises his powers of ownership to do so.
7) A ‘power’ is the capacity to change or create rights, duties and other powers.
8) A settlor may be able to revoke the trust.
9) If the settlor has a power to revoke the trust or to appoint new trustees, the power must be an express or implied power in the terms of the trust itself; the power derives from the trust terms, not from the settlor’s position as the one who originally owned the property. Indeed, under the terms of the trust, the settlor may give such powers to anyone he chooses.
10) Fiduciary relationship exists when one person, the fiduciary, has agreed to undertake legal powers to affect the legal position, ie the legal rights, duties, or powers, of another, the fiduciary’s principal, and the fiduciary has discretion in the way he will exercise those legal powers. (Legal here meaning ‘recognised by law, so legal and/or equitable powers).
11) If land held on trust is occupied by squatters, then it is the trustee who has the right to evict them.
12) The beneficiaries do not have any power to enforce those legal rights themselves; the trustees must do so, for the simple reason that he is the one who has those legal rights. - MCC Proceeds Inc v Lehman Bros(1998)
If the trustee fails to do so, the beneficiaries may launch a legal action against third parties, joining the trustee, ie, suing the trustee as well as to make him participate and enforce his legal rights to the property for the benefit of the beneficiaries. –Parker-Tweedale v Dunbar Bank plc (1991)
13) Trustee’s obligations subcategorised into duties of 2 kinds:
i. Administrative duties: govern the trustee’s power to make contracts and his power of ownership to maintain the value of the trust property, which is also called the ‘trust corpus’ or ‘trust fund’. ii. Dispositive duties: are those that require the trustee to dispose of the trust property to the beneficiaries according to the terms of the trust.
14) In general, trustees are ‘indemnified’, have an ‘indemnity’ for any liabilities they incur in property carrying out the terms of a trust, which means that they have claim against the funds of the trust to meet any contractual obligations they incur in carrying out the trust according to its terms.
15) Bare trusts: A trustee holds property for a beneficiary on no specific trust terms; the trustees’ only obligation is to transfer the property to the beneficiary or to a third party as he directs.
Special trust is one created by a settlor with specific terms.
16) Nomineeship combines bare trust with a contract. A nominee is a bare trustee who has contractually agreed to comply with various orders the beneficiary makes with respect to the trust property.
Example:
A solicitor holds his client’s purchase monies prior to completion of the sale of land. The solicitor can only disburse the money according to his client’s instructions under their contract (often called a ‘retainer’) and, in the case of a sale of land, this will be the instruction to transfer the money to the vendor in return for the transfer of title to the land.
Note:
This is not a special trust, as there are no trust terms.
17) The trustee was essentially a mere ‘name-lender’.
18) Trustee is the owner at law, and has legal title, while, the beneficiary is the owner in equity, and has equitable title.
19) Property in a fund:
i. Pooled asset funds: the collection of assets held by someone’s trustee in bankruptcy. (Whatever happens to be in it at the time) ii. Substitutional funds: there is no requirement that there be more than one asset forming a pool. Rather, the idea is that the find assets may change over time as one is substituted for another. (Whatever happens to be in it in the future) iii. Typical trusts= pooled asset fund + substitutional funds.
20) Equity darling: bona fide purchaser of a legal interest in the trust property without notice, whether actual, constructive, or imputed, of the trust.
21) If the trustee transfer the legal title to the trust property to someone who has:
i. Given good (valuable, ‘consideration’ for it, ie has given money or money’s worth in exchange for it; and ii. Has no actual notice (knowledge, of the beneficiary’s rights) iii. Has no constructive notice (usual and reasonable investigations on property) iv. Has no imputed notice (no actual and constructive notice)
Note:
Then this purchaser takes the property with good legal title free of any trust obligations, and the beneficiary loses his equitable title in the trust property.
The beneficiary’s equitable title is extinguished with the result that he cannot demand the property back from the bona fide purchaser, nor can he demand that the bona fide purchaser act like a trustee and deliver his benefits under the trust as if it still applied to that property.
22) The bona fide purchase rule only applies in a contest between a legal interest holder and equitable interest holder.
23) General rule of equity is that the interest that was created first in time prevails. (first in time rule)
24) A beneficiary can declare a trust of it, which is called a ‘sub trust’.
25) Equitable in land, such as equitable mortgages or leases, are well-known proprietary rights in land. The main difference between legal mortgages and leases and their equitable counterparts is that the equitable versions are generally created informally, or less formally.
26) Legal interests in land typically require the observance of more or less strict formal requirements, such as being created by deed.
27) Bona fide purchaser rule does not operate, because a person cannot acquire a legal interest in an equitable interest in property; any interest in an equitable interest in property must itself be equitable.
28) An equivalent rule, called the ‘holder in due course’ rule, applies to negotiable instruments and money: a person who in good faith gives good values for money (eg sell goods taking money in return) or for negotiable paper- commercial rights ‘reified’ or ‘materialised’ in paper documents, like cheques- gets good title to them even if it turns out that.
29) In the case of chattels, the rule nemo dat quod non habet applies (one cannot give what one hasn’t got). Example: the thief has not got is good title to the goods, so he cannot pass a good title to anyone who buys them from him, no matter how innocent they are.
30) A bona fide purchaser for value of the legal title without actual, constructive, or imputed knowledge that the transaction is made in breach of trust will take free of the beneficiary’s interests.
31) Tracing rules: the law will keep track of the exchange of rights if it occurs again.
32) Traceable proceeds of the exchange are also called the ‘exchange products’.
33) Voluntarily undertaken obligation has 2 kinds:-
i. Contractual obligation ii. Trust undertaking
34) If the trust property is transferred in breach of trust, the beneficiary can enforce his continuing equitable interest in the property against anyone who acquires title to it except equity’s darling.
35) Creation of trust is fundamentally regarded not merely as the voluntary undertaking of an obligation, but as a transfer of the beneficial title to property, from the settlor, who has the legal beneficial title, to the beneficiaries, who together take an equitable beneficial title.
36) The case of equity’s darling is, on this view, a justifiable exception to the general nemo dat principle that protects security of title.
37) Creation of a trust is regarded as the unilateral act of settlor giving his property away, rather than the bilateral act of making an agreement with a trustee, ‘a trust will not fail for ant of a trustee.’
38) Creation of trust is regarded as merely his exercising the power of ownership to make a structured gift, because gift are unilateral transactions. (A done can, of course, refuse a gift, and so also a beneficiary can disclaim any interest given to him under a trust, but the existence of these rights of refusal does not turn the making of a gif into a bilateral agreement.)
39) Beneficial owners of the trust property- their property rights are second-order in the sense that they only receive then via trustee’s meeting his trust obligations, but they are nonetheless rights to the very trust property.
40) Joint ‘proprietary right’ and ‘personal obligations’ nature of the trust, the law might have favoured the personal obligations aspect, treating the trust as something like a contract between settlor and the trustee for the benefit of a third party, the beneficiary.
41) Beneficiary’s interest as neither a mere personal right, nor a proprietary right, but as ‘a right against the trustee’s property right’.
42) A testamentary trust is one created as a gift under a will. (Trusts created by living settlors are called inter vivos trusts, trusts ‘between person alive’.)
43) The property of a dead person is called the ‘deceased’s estate’. And, it passes to the living in one of 2 ways:
i. Deceased’s will ii. No valid will (rules of intestate succession): essentially ‘default’ rules that distribute the property in the way that most people would have distributed the property in the way that most people would have distributed it had they made a will; to their spouse first, then to their children; if there is no spouse or children, then to their parents, siblings and finally to more distant relations.
44) The person who makes a will is a testator(male) or testatrix (female), and the will normally nominates one or more ‘executors’ who will ‘prove’ the will, ie have the will declared valid by court of probate.
45) Land is ‘devised’ by will, and therefore the gift is called a ‘devise’ and the donees ‘devisees’. Generally, personalty is ‘bequeathed’, but gift of sums of money called ‘legacies’ and their recipients ‘legatees’.
46) If one of intended recipients dies before (predeceases) the testator, his gift lapses.
47) The formal requirement of wills, principally that a will be signed by the testator and attested by 2 witnesses, are prescribed to ensure that the will truly represents the testator’s intentions.
48) Testator can only conditionally impose trust obligations is that no one is ever required to take up the role of trustee; a trustee must undertake these obligations voluntarily.