Acing the SQE/Trust Law

Core principles of trust law ("Trust Law")

Creation and requirements of express trusts:

the three certainties of intention, subject matter and objects

the certainty of objects is a crucial element in determining the validity of a trust. The certainty of objects refers to the requirement that a trust must identify the beneficiaries or objects of the trust with sufficient certainty.

fixed interest trusts

The certainty of objects is usually satisfied because the beneficiaries are specifically identified and their interests are fixed and predetermined. For example, if a trust is established for the benefit of a particular individual, such as "to my daughter, Mary," the certainty of objects is satisfied because the beneficiary is clearly identified.

discretionary trusts

In a discretionary trust, the certainty of objects is more complex. In a discretionary trust, the trustee has discretion to determine which beneficiaries should receive distributions from the trust. The trustee has the power to select and vary the beneficiaries, so the beneficiaries are not specifically identified or predetermined. In such cases, the trust instrument should provide sufficient guidance for the trustee to exercise his or her discretion.

To satisfy the certainty of objects requirement in a discretionary trust, the trust instrument should provide clear guidance on the class of beneficiaries that the trustee may select from. For example, a trust may be established for the benefit of "my children and grandchildren," which would establish a clear class of potential beneficiaries. The trustee would then have the discretion to select which members of that class should receive distributions from the trust.

formalities to create express inter vivos trusts

creating an express inter vivos trust (i.e., a trust created during the lifetime of the settlor) requires the following formalities:

Capacity: The settlor must have the capacity to create the trust. This means that the settlor must be of sound mind and over the age of 18. If the settlor lacks capacity, any trust created by them may be void.

Certainty of intention: The settlor must have a clear intention to create a trust. This intention must be expressed in clear and unambiguous terms. The court will not enforce an arrangement that is ambiguous or lacks the necessary intention to create a trust.

Certainty of subject matter: The trust property must be identified or defined with sufficient certainty. This means that the property must be described with sufficient detail so that it can be distinguished from other property. The description can be specific or general, but it must be clear and unambiguous.

Certainty of objects: The beneficiaries or objects of the trust must be identified or defined with sufficient certainty. This means that the beneficiaries must be described with sufficient detail so that it is clear who they are or what class they belong to.

Formalities: The trust must be created in writing, signed by the settlor, and witnessed by at least one witness. If the trust property is land, the trust must be created by deed and must comply with the formalities required for the creation of a deed.

In addition, if the trust is to be enforced against third parties, it must be registered with the relevant authorities, such as the Land Registry, if it involves land.

It is important to note that failure to comply with the required formalities may render the trust void or unenforceable. Therefore, it is essential to consult a legal professional to ensure that the trust is created in compliance with all applicable legal requirements.

constitution of express inter vivos trusts and exceptions to the rule that equity will not assist a volunteer

Constitution of express inter vivos trusts

The constitution of an express inter vivos trust is the process by which the trust is created and the property is transferred to the trustee. This process usually involves the transfer of legal title of the property from the settlor to the trustee, who holds it on trust for the beneficiaries.

• The constitution of an express inter vivos trust can be achieved in one of two ways:

Transfer of Legal Title: The settlor transfers the legal title of the property to the trustee. This transfer can be made by deed, contract or other legal instrument.

Declaration of Trust: The settlor declares that they hold the property on trust for the beneficiaries, and appoints the trustee to hold and manage the property on behalf of the beneficiaries.

Exceptions to the rule that equity will not assist a volunteer under English law

Under English law, the general rule is that equity will not assist a volunteer, which means that a person who has not provided any consideration for a transaction will not be able to enforce it. However, there are a few exceptions to this rule in the context of trusts:

Proprietary Estoppel: Where a person has relied on a promise or assurance made by the settlor that they would receive a share in the trust property, and has acted to their detriment on that basis, equity may intervene to prevent the settlor from going back on their promise.

Unconscionable Conduct: Where the settlor has acted unconscionably in relation to the trust, equity may intervene to prevent them from relying on the volunteer rule. For example, if the settlor has made a promise to transfer the property to the volunteer, and then seeks to deny that promise for an improper reason.

Gift with Reservation of Benefit: Where the settlor makes a gift of the property to the trust, but retains some benefit or enjoyment from it, equity may intervene to treat the gift as ineffective and ensure that the settlor is not able to benefit from the property while it is held in trust.

It is important to note that these exceptions are narrowly defined, and each case will depend on its individual facts and circumstances. It is always advisable to seek legal advice if you are unsure about your legal rights in relation to a trust.

Beneficial entitlement

fixed, discretionary, vested, contingent interests

Fixed interests

a fixed interest is a type of beneficial entitlement that entitles a beneficiary to receive a fixed amount of income or capital from the trust property. This means that the beneficiary is entitled to receive a specific sum of money, which is predetermined by the terms of the trust.

A fixed interest can be either a fixed income interest or a fixed capital interest. A fixed income interest entitles the beneficiary to a fixed amount of income from the trust property, which is typically paid out at regular intervals. A fixed capital interest, on the other hand, entitles the beneficiary to a fixed share of the trust property, which may be paid out as a lump sum or in installments.

The key advantage of a fixed interest is that it provides a measure of certainty to the beneficiary. By knowing exactly how much income or capital they are entitled to receive, the beneficiary can plan their financial affairs with greater confidence. In addition, a fixed interest can provide some protection against inflation, as the amount of income or capital is fixed and not subject to fluctuations in the market.

From the perspective of the trustees, a fixed interest can also be beneficial as it simplifies the administration of the trust. By having a fixed payment schedule, the trustees can plan their disbursements more easily and avoid any uncertainty about the amount of money that needs to be paid out.

Overall, a fixed interest is a valuable tool under English trust law, providing a clear and certain entitlement for beneficiaries and simplifying the administration of the trust for trustees.

discretionary interest

A discretionary interest is a type of beneficial entitlement that gives the trustees of the trust the power to decide whether and how much income or capital to distribute to a beneficiary. Unlike a fixed interest, a discretionary interest does not provide the beneficiary with a guaranteed entitlement to receive any income or capital from the trust.

Under a discretionary trust, the trustees have the power to decide how much income or capital to distribute to each beneficiary, and when to make such distributions. This discretion is typically set out in the trust deed or other governing document, which may provide guidance on how the trustees should exercise their discretion.

The main advantage of a discretionary interest is that it gives the trustees flexibility to respond to changing circumstances and to the individual needs of each beneficiary. For example, if a beneficiary is going through a difficult financial period, the trustees may choose to make a larger distribution to help them out. Alternatively, if a beneficiary is already financially secure, the trustees may choose to make little or no distribution.

Another advantage of a discretionary interest is that it can provide protection against creditors or other third parties who may seek to make a claim on a beneficiary's assets. Because the beneficiary does not have a guaranteed entitlement to receive any income or capital from the trust, such assets are generally considered to be outside the reach of creditors or other claimants.

However, one potential disadvantage of a discretionary interest is that the beneficiary has no guaranteed entitlement to receive any income or capital from the trust, which may result in uncertainty and unpredictability. Additionally, the trustees' discretion is not unlimited and they must act in good faith and in accordance with their duties under the trust deed and the law.

vested interest

a vested interest refers to a beneficial interest that is certain to take effect in possession, either immediately or at some point in the future. A vested interest is a fixed and indefeasible right to the trust property, and the beneficiary who holds this interest is said to have a beneficial entitlement.

A vested interest may arise in different ways, depending on the terms of the trust deed. For example, a trust may provide for a beneficiary to receive a specific sum of money at a certain age or event, or for the trust property to be distributed to the beneficiaries in equal shares on a specific date. In these situations, the beneficiary has a vested interest in the trust property, which means that their entitlement to the property is fixed and certain.

Once a beneficiary's interest in a trust has vested, the beneficiary has the right to receive the trust property or income associated with that property. The trustee has a duty to distribute the trust property in accordance with the terms of the trust deed and the beneficiary's vested interest.

It is important to note that a beneficiary's vested interest in a trust cannot be taken away without their consent, unless there are specific provisions in the trust deed that allow for this to happen. This means that the beneficiary's vested interest is protected by law and cannot be interfered with by the trustee or any other party.

In summary, the beneficial entitlement of a vested interest under English trust law refers to a beneficiary's fixed and indefeasible right to the trust property, which arises when their interest in the trust has vested. Once a beneficiary's interest has vested, they have the right to receive the trust property or income associated with that property, and this right is protected by law.

contingent interest

A contingent interest refers to a beneficial interest that is not certain to take effect. Unlike a vested interest, which is a fixed and certain right to the trust property, a contingent interest depends on the occurrence of a future event or condition.

For example, a trust may provide that a beneficiary will receive a share of the trust property only if they reach a certain age or graduate from college. In this case, the beneficiary's interest in the trust is contingent on the occurrence of the specified event or condition. Until the event or condition is met, the beneficiary does not have a fixed right to the trust property.

Once the future event or condition has been met, the beneficiary's interest becomes vested, and they acquire a beneficial entitlement to the trust property. Until that time, the beneficiary's interest is purely contingent and subject to change based on the occurrence of the future event or condition.

It is important to note that the trustee has a duty to hold and manage the trust property in the best interests of the beneficiaries, even if their interests are contingent. The trustee must also keep the contingent beneficiaries informed about the trust and any relevant changes that may affect their interests.

In summary, the beneficial entitlement of a contingent interest under English trust law refers to a beneficiary's interest in a trust that is not certain to take effect, but rather depends on the occurrence of a future event or condition. Once the event or condition has been met, the beneficiary's interest becomes vested, and they acquire a fixed and certain right to the trust property. Until that time, the beneficiary's interest is purely contingent and subject to change based on the occurrence of the future event or condition.

the rule in Saunders v Vautier

The rule in Saunders v Vautier is a legal principle in English trust law that allows a beneficiary who is entitled to a vested and indefeasible interest in the trust property to demand the immediate transfer or distribution of the trust property to them. This rule is based on the common law case of Saunders v Vautier, which established the principle in 1841.

The rule applies when a beneficiary has a vested and indefeasible interest in the trust property. This means that the beneficiary has an absolute right to the trust property and can demand it immediately, without having to wait for any future date or event. This is true even if the trust was created for a specific purpose or for a fixed term, and even if the trustees object to the transfer or distribution.

For example, if a trust was created for the benefit of a minor child, and the trust deed stipulates that the beneficiary can only receive the trust property upon reaching the age of 25, the beneficiary could use the rule in Saunders v Vautier to demand the immediate transfer of the trust property to them once they have reached the age of 18. Similarly, if a trust was created for the benefit of several beneficiaries and one of them wants to take their share of the trust property immediately, they could use the rule to demand the transfer or distribution of their share.

It is important to note that the rule in Saunders v Vautier only applies to beneficiaries with vested and indefeasible interests. If a beneficiary has a contingent or future interest in the trust property, they cannot use the rule to demand an immediate transfer or distribution.

Overall, the rule in Saunders v Vautier provides beneficiaries with a powerful tool to demand the immediate transfer or distribution of trust property in certain circumstances, subject to their vested and indefeasible interest.

The distinction between charitable trusts and non-charitable purpose trusts

Charitable trusts and non-charitable purpose trusts are two distinct types of trusts, with different legal characteristics and requirements.

A charitable trust is a trust established for charitable purposes, which are defined in law as being for the public benefit. Charitable purposes can include the relief of poverty, the advancement of education, the advancement of religion, and other similar purposes that benefit the community. To be considered a charitable trust, the trust must satisfy a number of legal requirements, including having a charitable purpose that is for the public benefit, and the trust property being used exclusively for that purpose.

One important feature of charitable trusts is that they are subject to specific rules and regulations under charity law. For example, charitable trusts must register with the Charity Commission, which regulates and oversees charitable organizations in England and Wales. Charitable trusts also benefit from certain tax exemptions and reliefs.

On the other hand, non-charitable purpose trusts are trusts that are established for a specific non-charitable purpose, such as the maintenance of a family pet or the preservation of a historic building. These trusts are not considered to be charitable trusts and do not benefit from the same legal and tax advantages.

One key distinction between charitable trusts and non-charitable purpose trusts is that charitable trusts are considered to be public trusts, while non-charitable purpose trusts are generally private trusts. This means that charitable trusts are subject to greater public scrutiny and oversight, while non-charitable purpose trusts are generally more flexible and can be tailored to meet the specific needs of the settlor.

Resulting trusts

A resulting trust is a type of trust that arises when the legal ownership of property is transferred to one person, but that person holds the property on trust for another person. The resulting trust can arise in a number of different circumstances, but the most common situation is when property is transferred to one person, but that person does not pay for it, or pays less than the full value of the property.

For example, if A buys a property and has it registered in the name of B, but does not intend to make a gift of the property to B, a resulting trust arises in favor of A. This is because the transfer of the property was not intended to create a beneficial interest in B, and it would be unfair to allow B to retain the property without compensating A.

Resulting trusts can be either express or implied. An express resulting trust arises when the transferor of the property explicitly states that the transferee is to hold the property on trust for the transferor or for a third party. An implied resulting trust, on the other hand, arises from the circumstances surrounding the transfer of the property, rather than from an explicit statement.

In addition to the common situation described above, resulting trusts can also arise in other circumstances, such as when a trust fails or when a trust comes to an end. In these situations, the property that was held on trust may be returned to the transferor or may be distributed among the beneficiaries of the trust, depending on the specific circumstances.

Overall, resulting trusts are an important legal concept in English trust law, as they can be used to ensure that the true ownership of property is recognized and protected, even in situations where the legal ownership has been transferred to someone else.

how they arise and when they are (or are not) presumed

Under English law, resulting trusts arise in two main ways: express and implied resulting trusts.

An express resulting trust arises when the transferor of the property explicitly states that the transferee is to hold the property on trust for the transferor or for a third party. For example, if A buys a property and has it registered in the name of B, but then tells B that B is only holding the property on trust for A, an express resulting trust would arise.

An implied resulting trust arises when the transferor of the property did not intend to make a gift of the property to the transferee, and the transferor did not intend for the transferee to have a beneficial interest in the property. Implied resulting trusts are further divided into two categories: automatic resulting trusts and presumed resulting trusts.

Automatic resulting trusts arise in certain specific situations, such as where a trustee purchases property with trust funds and then registers the property in their own name, or where a joint owner of property dies and the surviving owner is deemed to hold the deceased owner's share on trust for their estate.

Presumed resulting trusts, on the other hand, are not automatic but are presumed to arise in certain circumstances, such as when a parent transfers property to a child without any consideration, or when a partner contributes to the purchase price of a property, but the property is registered in the other partner's name. In these cases, the law presumes that the transferor did not intend to make a gift of the property, and the transferee holds the property on resulting trust for the transferor.

It is important to note that a resulting trust is not presumed in all cases where there is a gratuitous transfer of property. If the transferor intended to make a gift of the property to the transferee, then no resulting trust arises. The burden of proving the existence of a resulting trust falls on the party alleging its existence, and the evidence must be sufficient to establish the intention of the transferor.

Overall, resulting trusts are a complex area of English trust law, and their existence and terms will depend on the specific circumstances of each case.

Trusts of the family home:

establishment of a common intention constructive trust

trusts of the family home established as a common intention constructive trust are a type of trust that can arise when unmarried couples purchase a property together but do not hold it in joint names. This situation commonly arises where one partner pays for the property or contributes a larger proportion of the purchase price, but the property is registered in the other partner's name.

In such cases, the partner who paid for or contributed to the purchase of the property may be able to claim a beneficial interest in the property on the basis of a common intention constructive trust. This means that although the legal title to the property is in the name of one partner, there is a trust created by operation of law to reflect the parties' shared understanding that they own the property jointly.

To establish a common intention constructive trust, the partner seeking a beneficial interest in the property must show that there was a common intention, agreement or understanding between the parties that they would share the property beneficially, even though the legal title was not held jointly. The intention can be inferred from the conduct of the parties, such as how the purchase price was paid and how the property was used.

The trust will reflect the terms of the common intention, which may be an equal share of the property or a share proportionate to the contributions made. The parties' intentions will be a question of fact for the court to determine based on the evidence available.

The beneficial interest of the partner claiming the trust will depend on the specific circumstances of the case. For example, if the parties intended to hold the property equally, then the trust will reflect an equal beneficial interest. If one party contributed more to the purchase price, then they may be entitled to a larger beneficial interest.

Overall, trusts of the family home established as a common intention constructive trust are an important legal concept in English trust law, as they can provide a means for unmarried couples to establish a beneficial interest in a property they have purchased together, even if the legal title is held in only one party's name.

legal title in the name of both parties/sole party

In English trust law, the establishment of a common intention constructive trust in relation to the family home typically involves situations where property is held in the name of one party, but there is a shared understanding or agreement that the property is intended to be jointly owned. This concept is often referred to as a "common intention constructive trust," and it arises in the context of trusts of the family home.

Here's an explanation of how legal title can be held in the name of both parties or a sole party when establishing a common intention constructive trust regarding the family home:

Legal Title in the Name of Both Parties:

In some cases, the family home may be legally owned by both parties. This means that the property's title deed reflects joint ownership, such as "Mr. and Mrs. Smith."

When legal title is held jointly, it is often presumed that both parties have an equal beneficial interest in the property, typically a 50-50 split. However, the actual beneficial interests can vary depending on the specific circumstances and any prior agreements between the parties.

The existence of a common intention to jointly own the property is often inferred from the joint legal title, but it can also be established through direct evidence, such as written agreements or verbal understandings between the parties.

Legal Title in the Name of a Sole Party:

In many cases, the family home may be legally owned by one party, often referred to as the "legal owner," while the other party, the "beneficial owner," claims a share of the property based on a common intention constructive trust.

To establish a common intention constructive trust in such a situation, the beneficial owner must demonstrate that there was a shared understanding or agreement, either express or implied, that they would have a beneficial interest in the property despite not being on the legal title.

The common intention may be inferred from various factors, such as financial contributions made by the beneficial owner, the parties' discussions about property ownership, or promises made by the legal owner.

Once the common intention is established, the beneficial owner can argue that they have a beneficial interest in the property, and the court may recognize their claim. The court will then determine the extent of the beneficial interest based on the facts of the case.

It's important to note that the establishment of a common intention constructive trust in relation to the family home can be complex and fact-specific. It often requires careful consideration of the parties' intentions, actions, and contributions. Legal advice from a solicitor with expertise in property law and trust law is highly recommended for individuals involved in such disputes or seeking to establish their beneficial interest in a family home held in the name of another party.

express declaration or agreement as to equitable ownership

In English trust law, a common intention constructive trust can be established in relation to the family home when there is an express declaration or agreement as to equitable ownership between the parties involved. This legal concept recognizes that parties may have agreed, either in writing or verbally, to share beneficial ownership of a property even if the legal title is held in the name of one of the parties. Here's an explanation of how an express declaration or agreement plays a crucial role in establishing a common intention constructive trust:

Express Declaration or Agreement:

An "express declaration" or "express agreement" refers to a clear and unequivocal statement or understanding between the parties involved, explicitly outlining their intentions regarding the ownership of the property.

This declaration or agreement can be made in various forms, including written documents (e.g., a cohabitation agreement, a trust deed, or a letter), verbal discussions, or a combination of both.

The key requirement is that the declaration or agreement must be explicit and specific, leaving no room for doubt about the parties' shared intention to have equitable ownership rights in the property, despite the legal title being in the name of one party.

Elements of Establishing a Common Intention Constructive Trust:

To establish a common intention constructive trust based on an express declaration or agreement, the following elements typically need to be demonstrated:

a. Agreement: There must be a clear agreement or understanding between the parties that they intended to share ownership of the property in a specific manner, such as a specific percentage or as joint tenants or tenants in common.

b. Reliance: The party claiming a beneficial interest (the non-legal owner) must show that they relied on this agreement to their detriment. In other words, they must have acted, often by contributing financially or making other significant contributions, based on their understanding of the shared ownership arrangement.

c. Detriment: Detriment refers to the economic or financial sacrifices made by the party claiming the beneficial interest. This could include contributing to mortgage payments, renovation costs, or maintenance expenses.

d. Unconscionability: It must be unconscionable or unfair for the legal owner to go back on their agreement or understanding with the non-legal owner. Unconscionability involves a sense of injustice or inequity if the agreement were not honored.

Legal Remedies:

If these elements are successfully established in court, the legal owner may be required to recognize the non-legal owner's beneficial interest in the property. The court can order various remedies, including a declaration of trust, specifying the parties' respective shares, or even a sale of the property with proceeds divided according to the shared intentions.

In summary, an express declaration or agreement as to equitable ownership is a crucial element in establishing a common intention constructive trust in relation to the family home. It involves a clear and explicit understanding between the parties about how they intended to share ownership, and it must be accompanied by evidence of reliance and detriment by the non-legal owner. Legal advice is essential when dealing with such matters, as the specific circumstances of each case can greatly affect the outcome.

direct and indirect contributions

In English trust law, when establishing a common intention constructive trust regarding trusts of the family home, the contributions made by the parties involved, both directly and indirectly, play a significant role in determining their equitable interests in the property. These contributions are essential elements in proving the existence of a common intention to share ownership. Here's an explanation of direct and indirect contributions in this context:

Direct Contributions:

Direct contributions refer to financial or non-financial contributions made by one or both parties towards the acquisition, maintenance, improvement, or mortgage payments of the family home. These contributions are often tangible and quantifiable.

Types of direct contributions may include:

Financial Contributions: Payments made towards the purchase price of the property, mortgage payments, property taxes, utility bills, and other household expenses. Non-Financial Contributions: Non-financial efforts, such as home renovations, repairs, or maintenance work, which enhance the value of the property. Initial Purchase Price: The actual payment or financing of the initial purchase price of the property. The key is to establish a direct link between these contributions and the understanding or agreement between the parties regarding shared ownership. It should be evident that these contributions were made with the intention of benefiting both parties' interests in the property.

Indirect Contributions:

Indirect contributions are more intangible and may involve contributions that indirectly enhance the value of the property or support the family's well-being. These contributions are not as easily quantifiable as direct financial contributions but can still be vital in demonstrating a common intention.

Types of indirect contributions may include:

Contributions to the Family's Welfare: Contributions to the family's well-being, such as homemaking, childcare, or caring for the family's elderly members, can indirectly support the family home's stability and contribute to its value. Career Sacrifices: Career or employment sacrifices made by one party to allow the other party to further their career or education, thus benefiting the family and indirectly contributing to the family home. Like direct contributions, it is essential to establish that these indirect contributions were made with the understanding that they would be recognized in the form of shared ownership rights.

Proving a Common Intention:

To establish a common intention constructive trust, the party claiming a beneficial interest (usually the non-legal owner) must demonstrate that they made contributions, either directly or indirectly, based on the understanding that they would have a share in the property.

Evidence of this shared intention may include written agreements, correspondence, verbal discussions, or other forms of communication between the parties that reflect their understanding of shared ownership.

The court will consider the totality of the circumstances, including the nature and extent of contributions, to determine the parties' equitable interests in the property.

In summary, both direct and indirect contributions are essential factors in establishing a common intention constructive trust regarding trusts of the family home under English trust law. These contributions must be made with the understanding that they would contribute to shared ownership. Legal advice is crucial when dealing with such matters, as the specific circumstances of each case can greatly affect the outcome.

requirements to establish proprietary estoppel

Proprietary estoppel is a legal doctrine under English law that may be used to establish a claim to a beneficial interest in property based on a promise, representation, or assurance made by the legal owner of the property. In the context of trusts of the family home, proprietary estoppel may be used by a person who has made contributions to a property held in the name of another person to claim a beneficial interest in the property.

To establish a claim based on proprietary estoppel, the claimant must satisfy three requirements:

Assurance or representation: The legal owner of the property must have made an assurance or representation to the claimant that they will have some sort of beneficial interest in the property. This assurance may be express, such as a promise made directly to the claimant, or it may be implied, such as by the conduct of the legal owner.

Reliance: The claimant must have relied on the assurance or representation, and taken some action on the basis of that reliance. This action may be a financial contribution towards the property or some other form of contribution, such as labor or other work carried out on the property.

Detriment: The claimant must have suffered some form of detriment as a result of their reliance on the assurance or representation made by the legal owner. This detriment may be financial, such as the loss of money spent on contributions towards the property, or it may be in the form of some other loss, such as the time and effort expended on maintaining and improving the property.

If the claimant can satisfy these three requirements, they may be able to establish a claim to a beneficial interest in the property, even if the legal title to the property is held in the name of another person.

Overall, proprietary estoppel is a complex area of English trust law, and its application in the context of trusts of the family home will depend on the specific circumstances of each case.

Liability of strangers to the trust

strangers to a trust may sometimes be held liable to the beneficiaries of the trust for losses suffered as a result of a breach of trust. This liability can arise in a number of ways, including through knowing assistance, knowing receipt, or through the doctrine of equitable fraud.

establishing recipient liability

a stranger to a trust is a person who is not a trustee or a beneficiary of the trust. In some cases, a stranger to a trust may become liable to the beneficiaries of the trust if they receive trust property knowing that it is held in trust and they have no right to it. This is known as recipient liability.

To establish recipient liability, the following conditions must be met:

The property must be trust property: The property received by the stranger must be trust property, meaning that it is held by the trustee for the benefit of the beneficiaries of the trust.

The stranger must have received the property: The stranger must have received the trust property, either directly from the trustee or from someone else who was not authorized to transfer the property.

The stranger must have known that the property was held on trust: The stranger must have known or ought to have known that the property was held in trust and that they had no right to it. This may be inferred from the circumstances of the transaction, such as if the stranger knew that the property was being sold for the benefit of the trust.

The stranger must have received the property in breach of trust: The stranger must have received the property in breach of trust, either because the trustee did not have the authority to transfer the property, or because the transfer of the property was not in the best interests of the beneficiaries of the trust.

If these conditions are met, the stranger who received the trust property may be liable to the beneficiaries of the trust for any losses suffered as a result of the breach of trust. This may include the value of the trust property that was received, any profits made from the trust property, and any other losses suffered by the beneficiaries as a result of the stranger's actions.

Overall, recipient liability is an important concept in English trust law, as it provides a means for beneficiaries to hold strangers to a trust accountable for any breaches of trust that may occur.

establishing accessory liability

A stranger to the trust can be held liable as an accessory if they assist or participate in a breach of trust by a trustee. To establish accessory liability of strangers to the trust, the following elements must be proven:

The existence of a trust: The first requirement is to establish that a trust exists. This means that there must be a settlor who has created a trust, a trustee who is responsible for managing the trust assets, and beneficiaries who are entitled to the benefits of the trust.

A breach of trust by the trustee: The second requirement is to establish that the trustee has breached their duties to the trust. This could include a failure to act in the best interests of the beneficiaries, a failure to properly invest trust assets, or a failure to distribute trust assets to the beneficiaries as required.

Assistance or participation by the stranger: The third requirement is to establish that the stranger to the trust has assisted or participated in the breach of trust by the trustee. This could include knowingly receiving trust assets from the trustee that were obtained through a breach of trust, giving advice or encouragement to the trustee to commit the breach, or actively participating in the breach.

Dishonesty or knowledge of the breach: The fourth requirement is to establish that the stranger acted dishonestly or had knowledge of the breach of trust. This means that the stranger must have known that the actions they were assisting or participating in were a breach of the trustee's duties to the trust.

If these four requirements are met, the stranger to the trust may be held liable as an accessory to the breach of trust. This means that they will be responsible for any losses suffered by the trust as a result of the breach, and may be required to compensate the beneficiaries for those losses. It is important to note that establishing accessory liability can be a complex and challenging process, and it is recommended that legal advice is sought in such cases.

The fiduciary relationship and its obligations:

duty not to profit from fiduciary position

a trustee has a duty not to profit from their fiduciary position. This duty is based on the principle that a trustee must act in the best interests of the beneficiaries and not use their position for personal gain. The duty not to profit requires the trustee to act with utmost good faith and avoid any conflicts of interest.

The following are the trustee's obligations under the duty not to profit:

Duty to avoid conflicts of interest: A trustee must avoid any situation where their personal interests conflict with the interests of the trust. This means that a trustee cannot enter into any transactions with the trust or take advantage of any opportunities that come to them as a result of their position as trustee.

Duty to disclose conflicts of interest: If a trustee does find themselves in a situation where their personal interests conflict with those of the trust, they must disclose this conflict to the beneficiaries. This duty of disclosure helps to ensure that the beneficiaries are aware of any potential conflicts and can take steps to protect their interests.

Duty to account for profits: If a trustee does make a profit as a result of their position as trustee, they must account for that profit and return it to the trust. This duty is designed to prevent trustees from using their position for personal gain and to ensure that any benefits that come from the trust are distributed to the beneficiaries.

Duty to act in the best interests of the beneficiaries: Finally, the duty not to profit is part of the broader duty that a trustee has to act in the best interests of the beneficiaries. This means that a trustee must always act with the utmost good faith and make decisions that are in the best interests of the trust and its beneficiaries.

In summary, the duty not to profit is an important part of a trustee's obligations under English trust law. It helps to ensure that trustees act in the best interests of the beneficiaries and avoid any conflicts of interest that may arise as a result of their fiduciary position. By fulfilling this duty, trustees can help to maintain the trust and confidence of the beneficiaries in the management of the trust assets.

trustees not to purchase trust property

Trustees are obliged not to purchase trust property, unless there is an express power to do so in the trust instrument or a court order allowing them to do so. This is known as the rule against self-dealing. The reason for this rule is to prevent conflicts of interest and ensure that trustees act in the best interests of the beneficiaries. If a trustee were to purchase trust property, they would be both the seller and the buyer, and could potentially benefit themselves at the expense of the beneficiaries. This goes against the fiduciary duty that trustees owe to the beneficiaries, which requires them to act in good faith, with loyalty, and in the best interests of the beneficiaries.

However, there are some exceptions to this rule. For example, trustees may be allowed to purchase trust property if they obtain the consent of all the beneficiaries, or if the purchase is authorized by the court. Additionally, if the trust instrument specifically allows for the trustees to purchase trust property, then they may do so.

fiduciary not to put himself in a position where his interest and duty conflict

a fiduciary has an obligation not to put themselves in a position where their personal interests conflict with their duties to act in the best interests of their beneficiary. This is known as the duty of loyalty and arises from the fiduciary relationship between the trustee and the beneficiary.

The duty of loyalty requires the fiduciary to act in good faith, to avoid conflicts of interest, and to act solely in the interests of the beneficiary. This means that the fiduciary should not allow their own personal interests to influence their decisions or actions, and they should not put themselves in a position where their personal interests conflict with their duties to the beneficiary.

For example, if a trustee owns a business and the trust invests in that business, the trustee must disclose this to the beneficiaries and seek their consent to the investment. If the trustee does not disclose this conflict of interest, they could be in breach of their duty of loyalty.

Similarly, if a trustee has a personal interest in a particular investment, they should not make that investment on behalf of the trust without first disclosing the conflict of interest to the beneficiaries and seeking their consent.

If a fiduciary breaches their duty of loyalty by putting themselves in a position where their personal interests conflict with their duties to the beneficiary, they can be held liable for any losses suffered by the beneficiary as a result. They may also be required to account for any profits they made as a result of the breach.

Trustees:

who can be a trustee; appointment, removal and retirement of trustees

Who can be a trustee

any individual or legal entity can be a trustee, subject to certain restrictions and qualifications.

Individual trustees can be any person who is legally competent to hold property, regardless of their age, gender, nationality or residency. However, a person who is bankrupt or has been convicted of a crime involving dishonesty or fraud may be disqualified from acting as a trustee.

In addition to individual trustees, legal entities such as corporations, charities, and other organizations can also act as trustees. In these cases, the legal entity must be capable of holding property and have the necessary legal capacity to act as a trustee. The entity must also have the power to appoint a natural person as its representative to act as a trustee on its behalf.

It is common for trusts to have multiple trustees, which can be a combination of individual and corporate trustees. This can help to ensure that the trust is managed effectively and that decisions are made in the best interests of the beneficiaries.

It is important to note that in order to be a trustee, a person or legal entity must be willing to assume the duties and responsibilities of a trustee. This includes the duty to act in good faith, to avoid conflicts of interest, to act prudently and with due care, and to act solely in the interests of the beneficiaries. A person or entity that is not willing or able to fulfill these duties should not act as a trustee.

Trustee appointment

a trustee can be appointed in a number of ways, depending on the specific circumstances of the trust. The most common ways of appointing a trustee are as follows:

Appointment in the trust instrument: A trustee can be appointed in the trust instrument itself, which is the legal document that creates the trust. The trust instrument can name one or more individuals or legal entities as trustees, and can also specify the terms and conditions of the appointment.

Appointment by the settlor: The settlor, who is the person creating the trust, can also appoint one or more trustees. This can be done either before or after the trust is created, and can be done by way of a written instrument or a verbal declaration.

Appointment by a co-trustee: If the trust already has one or more trustees, they can appoint an additional trustee to act alongside them. This can be done either with the consent of the beneficiaries or by way of a court order.

Appointment by the court: In some cases, the court may appoint a trustee to act in the best interests of the beneficiaries. This can happen if there is no trustee in place, if the existing trustee has died or is unable to act, or if there is a dispute between the trustee and the beneficiaries.

Once a trustee has been appointed, they have a duty to carry out their responsibilities in accordance with the terms of the trust and the law. This includes managing the trust property, investing the trust funds, and distributing income and capital to the beneficiaries as required by the trust instrument.

Trustee removal

a trustee may be removed from their position in certain circumstances. The following are some of the common reasons why a trustee may be removed:

Breach of trust: If a trustee breaches their duties and obligations under the trust, they may be removed. This can include cases where the trustee has acted dishonestly, failed to act in the best interests of the beneficiaries, or failed to properly manage the trust property.

Incapacity: If a trustee becomes physically or mentally incapable of carrying out their duties, they may be removed from their position.

Conflict of interest: If a trustee develops a conflict of interest that cannot be resolved, they may be removed. For example, if a trustee has a personal interest in a particular transaction that is being considered by the trust, they may be required to step down.

Resignation: A trustee may resign from their position at any time, although they must follow the proper procedures for doing so.

Court order: The court may order the removal of a trustee if it is in the best interests of the beneficiaries to do so. This can happen if there is a dispute between the trustee and the beneficiaries, or if the trustee has acted improperly.

The process for removing a trustee will depend on the specific circumstances of the case. In some cases, the trustee may be able to resign voluntarily. In other cases, the beneficiaries may need to seek a court order to remove the trustee.

In general, the process for removing a trustee will involve notifying the trustee of the intention to remove them, and providing them with an opportunity to respond. The beneficiaries will need to provide evidence to support their case for removing the trustee, and may need to attend a court hearing to make their case.

Trustee retirement

a trustee may retire from their position if they wish to do so. The following are some of the key aspects of retiring as a trustee:

Trust instrument: The first step in retiring as a trustee is to review the trust instrument to determine if there are any specific provisions relating to retirement. The trust instrument may specify how a trustee can retire, and may include terms and conditions for doing so.

Notice: The trustee must provide notice of their intention to retire to the other trustees and the beneficiaries of the trust. The notice should include the effective date of the retirement, and may also include any other relevant details.

Replacement: If the retiring trustee is the only trustee, a replacement trustee will need to be appointed to ensure the continuity of the trust. The trust instrument may specify how the replacement trustee is to be appointed, or the beneficiaries may be required to make the appointment.

Handover: The retiring trustee must ensure that all trust property and documents are properly handed over to the replacement trustee, and that all necessary steps are taken to transfer any legal title to the trust property.

Liability: The retiring trustee may still be liable for any actions they took while they were a trustee, even after they retire. To avoid this, the trustee should ensure that they have properly fulfilled their duties and obligations under the trust before retiring.

It is important to note that the process for retiring as a trustee may vary depending on the specific circumstances of the case. In some cases, the trust instrument may provide detailed guidance on the retirement process, while in other cases, the trustees and beneficiaries may need to work together to develop a plan for the retirement of the trustee.

trustees’ duty of care

trustees have a duty of care towards the beneficiaries of the trust. This duty of care is intended to ensure that the trustees act in the best interests of the beneficiaries and do not act negligently or recklessly. The following are some of the key aspects of the trustees' duty of care:

Prudent management: Trustees are required to manage the trust property in a prudent manner, taking into account the best interests of the beneficiaries. This may include investing trust assets wisely and taking appropriate risks to achieve the objectives of the trust.

Standard of care: Trustees are required to exercise a reasonable standard of care in the management of the trust property. This means that they must act with the same degree of care and skill that an ordinary, prudent person would use in similar circumstances.

Professional advice: Trustees may be held to a higher standard of care if they have special knowledge or expertise in a particular area. In such cases, the trustees may be expected to seek professional advice to ensure that they are making informed decisions.

Record keeping: Trustees are required to keep accurate and up-to-date records of all trust transactions and decisions, and to provide regular reports to the beneficiaries on the state of the trust.

Delegation: Trustees may delegate certain tasks to others, but they remain responsible for the proper management of the trust property. This means that they must exercise care in selecting and supervising any agents or advisors that they appoint.

Avoiding conflicts of interest: Trustees must avoid any conflicts of interest that may arise between their own interests and those of the beneficiaries. If a conflict of interest does arise, the trustee must disclose it to the other trustees and beneficiaries and take appropriate steps to manage it.

If a trustee breaches their duty of care, they may be liable to the beneficiaries for any losses or damages that result. The specific consequences of a breach of the duty of care will depend on the circumstances of the case.

trustees’ duty to invest (and powers in relation to investment)

Trustees have a duty to invest trust assets in a prudent and profitable manner. The duty to invest requires trustees to act in the best interests of the beneficiaries, taking into account a range of factors such as the objectives of the trust, the level of risk involved, and the need to balance the interests of current and future beneficiaries. At the same time, trustees are also granted a range of powers under English trust law to help them fulfill their investment duty.

The following are some of the key aspects of trustees’ duty to invest and their powers in relation to investment:

Duty to invest: Trustees are required to invest trust assets in a way that is likely to achieve the best return for the beneficiaries while taking into account the risks involved. The investment strategy should be consistent with the terms of the trust and the objectives of the beneficiaries.

Standard of care: Trustees must exercise a reasonable standard of care when making investment decisions. This means that they must take appropriate advice, keep up-to-date with market developments, and act in accordance with a prudent investor rule.

Power to delegate: Trustees may delegate the investment function to a professional investment manager or adviser, provided they exercise due diligence in the selection and monitoring of the manager or adviser.

Power to vary investments: Trustees may sell or buy investments, vary the portfolio of investments and borrow money, provided the decision is made in the best interests of the beneficiaries.

Power to invest in land: Trustees may invest in land if it is consistent with the terms of the trust and is likely to achieve the best return for the beneficiaries.

Diversification: Trustees are encouraged to diversify their investments to reduce risk.

Professional advice: Trustees should seek professional advice from qualified investment advisers if they are uncertain about their duties or powers or when making specific investment decisions.

If a trustee breaches their duty to invest or misuses their powers in relation to investment, they may be liable for any losses that result. The consequences of a breach or misuse will depend on the specific circumstances of the case.

trustees’ statutory powers of maintenance and advancement.

trustees have statutory powers of maintenance and advancement which enable them to use trust property to support the maintenance and advancement of beneficiaries. These powers are designed to help trustees fulfill their duty to act in the best interests of the beneficiaries by providing them with financial support as needed.

The following are some of the key aspects of trustees' statutory powers of maintenance and advancement:

Maintenance: Trustees have the power to use trust income and/or capital to provide for the maintenance of a beneficiary. This includes the provision of food, clothing, and shelter, as well as other necessities of life.

Advancement: Trustees have the power to use trust capital to advance the interests of a beneficiary, such as paying for education or training. The power to advance is limited to a specific percentage of the beneficiary's share of the trust property or a specific amount determined by the trustees.

Age restrictions: The power of advancement can only be exercised for a beneficiary who is under the age of 18, or for a beneficiary who is over the age of 18 but has not yet reached a certain age specified in the trust deed.

Standard of care: Trustees must exercise a reasonable standard of care when making decisions about maintenance and advancement, taking into account the best interests of the beneficiaries and the objectives of the trust.

Record keeping: Trustees are required to keep accurate and up-to-date records of all decisions relating to maintenance and advancement, and to provide regular reports to the beneficiaries on the state of the trust.

Limited power: The power of maintenance and advancement is a limited power and cannot be used to provide for the general welfare of a beneficiary, or to provide gifts or benefits that are not necessary for the maintenance or advancement of the beneficiary.

If a trustee breaches their duty when using the powers of maintenance and advancement, they may be liable to the beneficiaries for any losses or damages that result. The consequences of a breach will depend on the specific circumstances of the case.

Trustees’ liability

breach of trust

trustees can be held liable for breach of trust if they fail to fulfill their duties and obligations as trustees. A breach of trust occurs when a trustee acts or fails to act in a way that is inconsistent with their obligations to the beneficiaries of the trust.

The liability of a trustee for breach of trust is both personal and unlimited, which means that they may be held personally responsible for any loss suffered by the trust as a result of their breach of trust. This liability may extend to their personal assets, even if they have acted in good faith and with the best interests of the trust in mind.

The following are some examples of situations where a trustee may be held liable for breach of trust:

Failure to invest prudently: Trustees have a duty to invest trust assets prudently and with the aim of achieving the best returns for the beneficiaries. If a trustee fails to invest prudently, or invests in high-risk investments without proper consideration, they may be held liable for any loss suffered by the trust.

Misappropriation of trust property: Trustees are not allowed to use trust property for their own personal benefit. If a trustee misappropriates trust property for their own use, they may be held liable for any loss suffered by the trust as a result.

Failure to keep proper accounts: Trustees are required to keep accurate records of all transactions relating to the trust. If a trustee fails to keep proper accounts, or fails to provide beneficiaries with sufficient information about the trust, they may be held liable for breach of trust.

Conflicts of interest: Trustees have a duty to act in the best interests of the beneficiaries and to avoid any conflicts of interest. If a trustee has a conflict of interest, or stands to benefit personally from a transaction involving the trust, they may be held liable for any loss suffered by the trust as a result.

If a trustee is found to have breached their duties and obligations, they may be required to compensate the trust for any loss suffered as a result of their breach. In addition, they may be removed from their position as trustee and may be disqualified from acting as a trustee in the future. In extreme cases, they may also face legal action and potential criminal sanctions.

measure of liability

the measure of liability for trustees who breach their duties and obligations varies depending on the nature and extent of the breach.

The starting point is that trustees are personally liable for any loss suffered by the trust as a result of a breach of trust. This liability is unlimited, which means that trustees may be held personally responsible for the entire amount of the loss suffered by the trust.

However, trustees may be able to limit their liability if they can show that they have acted in good faith and with the best interests of the beneficiaries in mind. For example, if a trustee invests in a high-risk investment that ultimately fails, but can show that they made the investment based on expert advice and with the aim of achieving the best possible returns for the beneficiaries, they may be able to limit their liability.

In addition, trustees may also be able to rely on certain statutory protections that limit their liability in certain circumstances. For example, the Trustee Act 2000 provides that a trustee who acts reasonably and prudently in the management of trust investments will not be liable for any loss suffered by the trust as a result of those investments.

Ultimately, the measure of liability for trustees will depend on the specific facts and circumstances of each case, as well as the nature and extent of the breach. In general, trustees should take their duties and obligations seriously, act in the best interests of the beneficiaries, and seek professional advice if they are unsure about any aspect of their role as a trustee. By doing so, they can help to limit their liability and protect the interests of the beneficiaries.

protection of trustees

trustees are entitled to certain protections that can help to limit their liability and provide them with some degree of protection against claims and legal action. Some of the key protections available to trustees include:

Indemnity: Trustees are entitled to be indemnified out of the trust property for any expenses or liabilities incurred in the proper performance of their duties. This means that if a trustee incurs expenses or is held liable for a breach of trust, they can be reimbursed from the trust property, provided that they acted properly and in accordance with their duties.

Exoneration: Trustees are entitled to be exonerated from liability for any breach of trust that was not their fault. For example, if a trustee relies on professional advice when making an investment decision, and the investment ultimately fails, they may be able to argue that they are not liable for the loss suffered by the trust.

Limitation of liability: Trustees may be able to limit their liability for breach of trust in certain circumstances. For example, if a trustee acts reasonably and prudently in the management of trust investments, they may be protected from liability under the Trustee Act 2000.

Professional advice: Trustees are entitled to seek professional advice when making decisions about the management of the trust. If a trustee relies on professional advice in making a decision, they may be able to avoid liability for any losses suffered by the trust as a result.

Trustee insurance: Trustees may be able to purchase insurance to protect themselves against claims and legal action. Trustee insurance can provide coverage for legal fees, damages, and other costs associated with a breach of trust.

It is important to note, however, that these protections are not absolute, and trustees can still be held liable for breaches of trust in certain circumstances. Trustees should therefore take their duties and obligations seriously, seek professional advice where necessary, and act in the best interests of the beneficiaries at all times.

limitation period.

the limitation period for trustees' liability is set out in the Limitation Act 1980. The Act sets out a general time limit of six years from the date of the breach of trust for any action against a trustee for breach of trust.

This means that beneficiaries or other interested parties have six years from the date of the breach of trust to bring legal action against a trustee. If legal action is not taken within this time period, the claim will usually be time-barred, and the trustee will no longer be liable for the breach of trust.

However, there are certain circumstances in which the limitation period may be extended. For example, if a beneficiary was under a disability (e.g. they were under 18 years of age or lacked mental capacity) at the time of the breach of trust, the limitation period may be extended until three years after the beneficiary has recovered from the disability. Similarly, if the breach of trust was fraudulent, the limitation period may be extended to 12 years from the date of the breach.

It is important to note that the six-year limitation period applies to all claims for breach of trust, regardless of whether the trustee has acted negligently or intentionally. Trustees should therefore be aware of the limitation period and ensure that they take their duties and obligations seriously to avoid breaching the trust and potentially being held liable. They should also keep accurate records of their actions as trustees, in case legal action is taken against them at a later date.

The nature of equitable remedies and the availability of tracing in equity

Equitable remedies are a set of remedies available under English trust law that are designed to provide relief in situations where a breach of trust or breach of fiduciary duty has occurred. Equitable remedies are generally considered to be more flexible and discretionary than legal remedies, and are aimed at achieving a just and equitable outcome in the particular circumstances of the case.

Some of the main equitable remedies available under English trust law include:

Injunctions: An injunction is a court order that requires a party to either do or refrain from doing something. In the context of trusts, an injunction may be used to prevent a trustee from taking actions that would be in breach of their duties, or to compel them to perform certain actions that they are required to do under the terms of the trust.

Rescission: Rescission is a remedy that allows a contract or transaction to be set aside, usually due to some form of misrepresentation, mistake, or undue influence. In the context of trusts, rescission may be used to set aside a transaction that was entered into by a trustee in breach of their duties.

Account of profits: An account of profits is a remedy that requires a person who has received a benefit as a result of a breach of trust or breach of fiduciary duty to give up the profits that they have gained. This remedy is designed to prevent unjust enrichment, and to ensure that the beneficiaries of the trust receive the benefits to which they are entitled.

Specific performance: Specific performance is a remedy that requires a party to perform a specific obligation, usually under a contract or agreement. In the context of trusts, specific performance may be used to compel a trustee to carry out their duties under the terms of the trust.

Rectification: Rectification is a remedy that allows a document or instrument to be corrected in order to reflect the true intentions of the parties involved. In the context of trusts, rectification may be used to correct errors or misunderstandings in the trust document or other related documents.

Overall, equitable remedies provide a range of tools that can be used to enforce the rights of beneficiaries and to hold trustees accountable for breaches of their duties. The precise remedy that is appropriate in a particular case will depend on the specific facts and circumstances involved, and will be determined by the court on a case-by-case basis.