Flashcards
Trusts & Estates - 1
Cards in this deck (80)
- 1What is a trust?It is:
1 - the RELATIONSHIP which arises whenever
2 - a person (trustee)
3 - is COMPELLED BY EQUITY TO HOLD PROPERTY (whether real or personal, and whether by legal or equitable title)
4 - for the benefit of BENEFICIARIES or
5 - FOR SOME OBJECT permitted by law in such a way that the
6 - REAL BENEFIT OF THE PROPERTY ACCRUES TO THE BENEFICIARIES OR OBJECTS OF THE TRUST. - 2SettlorPerson who creates an express trust by conveying property to the trustee
- 3TrusteeThe person who holds title to trust property for the benefit of the beneficiaries
- 4BeneficiaryThe person for whose benefit the trust property is held
- 5Trust property/resThe property that the trustee holds for the benefit of the beneficiaries (legal or equitable interest)
- 6The Trust InstrumentThe document which creates the trust (either a deed of trust or a will)
- 7Discretionary trustTrustee has discretion in the management of the trust.
Ex. to determine the amount the beneficiaries will receive, or which ones will receive capital or income, or both. - 8Fixed trustTrustee has no discretion in the management of the trust.
The beneficial interests have already been determined. - 9Express trustsCreated by the express will of the settlor for the benefit of:
1 - one or more named persons or an identifiable class of person, or
2- for purposes.
They require:
1. Capacity
2. CDesertainty
3. Constitution and
4. Formality - 10A university alumni of a university wants to create a scholarship for residents of a particular small town who study at the university. He wants it provide funds for the town's students beyond his lifetime. What kind of trust could he use to do this?Express trust for persons
- 11What is a trust for purposesThey are mostly charitable trusts.
2 kinds:
1. Non-charitable purpose trust (not legally enforceable)
2. Charitable purpose trusts - 12What are the 3 big categories of trusts1. Express trusts
2. Trusts by operation of law
3. Statutory trusts - 13What are trusts by operation of lawThese are trusts created as a remedial device by operation of the law, rather than a party's clear intent to create one.
- 14Resulting trustComes into being when the law assumes that an intent to create a trust would have existed had someone thought about it. They arise when a person has not disposed of all his or her beneficial interest in a property.
Imposed where an express trust fails (automatic resulting trust) OR imposed where a trust was not specifically created, but it can be implied (presumptive resulting trust). - 15Statutory TrustsTrusts created by legislature (both in federal and provincial statutes) for specific purposes:
a bankruptcy estate or builder's lien. - 16Foundational concepts of tax and trusts1. The trust is a separate tax payer
2. The taxation of the trust as a conduit - 17Deemed distributionA trust is taxed on all gains in a property in its hands after a period of 21 years.
- 18How can deemed distribution be avoided?By providing a roll-out of the trust property to the beneficiary prior to the expiration of the 21 year period.
- 19What are the different kinds of interest of a beneficiary under a trustIncome interest and capital interest
- 20What is income interestA right, which may be a contingent or a future right, to any part of the income of a trust.
The beneficiary with income interest must include the amount received for income interest, less the amount paid for interest in its tax return. This ensures it does not get converted into capital gains. - 21Capital interestAll other rights of a beneficiary under a trust, generally to the capital of the trust. Assets in a trust appreciate in value, and capital interest reflects that increase.
- 22Describe briefly the capacity requirements for each of the following: 1. Settlor 2. Trustee 3. Beneficiaries1. Settlor: must have legal capacity to make a property transfer. Emancipated minors and incompetents capable of understanding the nature and consequences of their acts are deemed to have capacity.
2. Trustee - Any person capable of holding an interest in that type of property (includes corporations and minors)
3. Beneficiaries - any legal person, including natural person. Excludes unincorporated associations or partnerships. - 23Name the 3 certainties required to have a valid trust1. Certainty of intention (oral or written, can be inferred from all circumstances)
2. Certainty of subject matter
3. Certainty of objects - 24Is "I Wish" sufficient to create a binding obligation to create a trust?No, as it is more of a hope rather than a clear intention to create an obligation.
- 25What 2 aspects are included in certainty of subject matter?1. Certainty of PROPERTY SUBJECT TO THE OBLIGATION
(must be established at time of making - can be a specific piece of property, a fixed amount in the fund, or a method for determining)
2. Certainty of the AMOUNT OR SHARE BENEFICIARY RECEIVES
(set out in a fixed trust or provide trustee's discretion in discretionary trust) - 26What does certainty of objects mean?It means knowing who the beneficiaries of a trust are in order for the trustee to fulfill his function.
- 27Certainty of objects test for a fixed trust Name test and describe itCLASS ASCERTAINABILITY TEST
Requires that trustee/court be able to:
1 - determine whether any person is a member of the class of beneficiaries and
2- identify every member of the class. - 28Certainty of objects test for a discretionary trust Name test and describe itIndividual ascertainability test - one must be able to determine with certainty whether any given individual is a member of the class of beneficiaries described by the settlor.
Discretionary trust is met if it can be said with certainty that any given individual is or is not a member of the class. - 29What are the 3 ways of constituting a trust1. Settlor transfers property to the trustee
2. A 3rd party transfers property to trustee
3. Settlor declares himself to be a trustee - 30What are the proper modes of transfer for the legal interest in the following property? a - Land b - Chattels c- Choses in action d - Negotiable instrumentsa - Land = deed
b - Chattels = delivery/by contract
c- Choses in action = assignment
d - Negotiable instruments = endorsement - 31How does one transfer equitable interest?1. Assignment of the interest to a trustee on trust for the proposed donee
2. Instruction to existing trustees to hold it for a new beneficiary
3. Declaration that owner of equitable interest now holds for someone else - 32How can we enforce a promise to create a trust?1. Gratuitous promises without a deed - CL does not enforce it. Based on doctrine of consideration, delivery was required for cautionary, evidentiary, and channeling reasons.
2. Gratuitous promises with a deed - Beneficiary might have a claim in contract for damages. Unlikely to get constitution of trust.
3. Contractual promises to create trust (non-gratuitous) - where there is consideration, a beneficiary or trustee might be able to get specific performance of the transfer. However, if property is unique, Specific performance is an issue. If property is fungible, B will likely get damages. - 33How does one create a trust?No particular words, but certain formalities exist for certain documents.
It can usually be done in writing, but it depends on what is in the trust. We have to consider if the formalities in the Statute of Frauds and of Wills are followed. - 34Constraints on Express Trusts1. Illegality and immorality
2. Public policy
3. Intrusions into family life
4. Defraud creditors - 35Fraudulent conveyanceCourt will void the trust and return it to settlor.
- 36Consequences of invalidity1. Resulting trust - where express trust fails.
2. Forfeiture - when trust has failed for illegality, the result is either a resulting trust or forfeiture. - 37In which way does the rule against perpetuities apply to Trusts?The equitable interest must mature within a life in being plus 21 years.
- 38What is the rule on accumulation and how do we get around itThe trust may not earn any more money after 21 years (according to the Accumulation act)
To get around it: trust might say "upon the expiration..." we create a new trust, or comes back into the estate. - 39What is a spendthrift trustDesigned to protect the assets from the weakness or defects of the beneficiary.
Settlor must:
1. Avoid violating the 3 certainties;
2. Provide the trustee with the power to care for the beneficiary;
3. Avoid allowing the creditors of the beneficiary to reach the trust assets. - 403 ways of overriding the trust instrument1. Early termination
2. Variation of trusts
3. Cy pres - 41What is the Saunders v. Vautier rule regarding early termination? How do we avoid this rule?If all of the beneficiaries of a trust are of full age and under no disability, the beneficiaries may require the trustee to transfer the legal estate to them and thereby terminate the trust.
To avoid:
Either have more beneficiaries or more restrictions not about age. - 42What does Cy Pres allow us to do?Modify a trust to ensure that the settlor's goals are met "as near as possible". This has more to do with how it is designed to function than technicalities.
- 43Purpose trust What are the different types of purpose trusts?Set up to accomplish a certain thing.
1. Non charitable (void)
2. Charitable (valid) - 44Why are non-charitable purpose trusts void?B/c there is no beneficiary, nobody to enforce duties of trustee, it is conceptually uncertain and violates perpetuities rule.
- 45Why are charitable purpose trusts allowed, whereas non-charitable purpose trusts are not?Although charitable purpose trusts have no beneficiary, they are valid b/c the Crown acts in pares patriae for the beneficiaries.
These trusts enjoy relief from perpetuity rules. - 46Requirements for a charitable trust to exist (legal meaning of charity)1. An exclusive dedication of property
2. For a charitable purpose
3. For public benefit. - 47What are the 4 HEADS OF CHARITY derived from the Statute of Charitable Uses1. Relief of poverty
2. Advancement of education
3. Advancement of religion
4. Other purposes beneficial to the community
+ we must add public benefit (there must be a benefit - practical utility - to the public; and public must be the beneficiary (section of the community) - 48What is the public benefit test1. No requirement that recipients of charitable trust be themselves poor
2. No necessary fit between popular notions of charity and what the law regards as charity. - 49What is required for a trust which is for the advancement of religion?Religion requires a belief in God and promotes the worship of this God. It these elements are present, it is assumed it provides a public benefit.
- 50What are other purposes beneficial to the community that could serve for the creation of a charitable purpose trust?1. Social welfare purpose (ex. orphanages, hospitals, disaster relief)
2. Community purposes (parks, cemeteries, sports associations) - 51What are other doctrines of charity?1. Exclusivity
2. Political purposes
3. Discriminatory conditions - 52What will courts consider when determining if the exclusivity criteria is met for the creation of a charitable purpose trust?1. The nature of the gift makes it clear that the purpose is exclusively charitable
2. Sever the charitable from non-charitable purposes
3. Consider whether the non-charitable purposes are merely ancillary to the charitable ones. - 53What are 2 reasons trusts for political purposes are invalid1. Inability to find public benefit
2. The law should be assumed to be correct (so the trust cannot do advocacy work, as it is not charitable - unless it is ancillary and incidental) - 54What is the rule relating to a discriminatory charitable purpose trust?Discriminatory conditions are allowed, providing they are certain.
There can be no conceptual uncertainty in discriminatory conditions. - 55What are the rules regarding condition precedent/subsequent and discriminatory provisions in a charitable purpose trust?A condition subsequent void for uncertainty will leave the beneficiary with unfettered access to the trust (the trust is valid but the condition fails).
A condition precedent that's invalid will leave the beneficiary with nothing as the trust will fail in its entirety. - 56What is the Cy-pres doctrineWhere a charitable trust becomes impossible or impractical to perform, the court may apply the funds to a purpose "near" to the original one.
If BEFORE the trust takes effect: there must be a finding of GENERAL CHARITABLE INTENT
If AFTER the trust takes effect: there is no need to find general intent - cy pres is automatic. - 57What must be looked at in determining how a trust is to be administered1. Trust instrument
2. Trust acts
3. The equitable law of trusts - 58Trustee - general ruleThe trustee is in charge. A trustee who takes directions from beneficiaries or the settlor may be in breach of trust.
- 59Must a trustee follow letter of wishes from the settlor?No, they are advisory and not binding.
- 60What are the 3 main issues which concern the trustee1. appointment
2. retirement
3. removal - 61How is a trustee appointed?a. Trust instrument that provides for his appointment
b. Trustee Acts - If trust instrument is insufficient of silent on matters of appointment, the relevant statute will be of use.
c. Judicial action - equity courts have inherent power to appoint, remove, or substitute trustees (applies if there is abuse). - 62Where is a trust located?Generally where the trustee resides, unless the trust is incorporated.
- 63What happens when a trustee wishes to retire?The trust instrument may provide for what happens.
Failing that, trust acts or judicial orders fill the gap.
The trustee must receive a discharge to free him from liability and responsibility for the trust as of the date of discharge. An audit will usually be done by the new trustee to pass the accounts. - 64How can a trustee be removed?Trust instruments may provide for removal by protectors.
Otherwise, courts have inherent power to remove trustees, and will primarily consider the welfare of the beneficiaries.
There must be neglect, breach of duty or serious misconduct (mere friction or disagreement between beneficiaries and trustees will be insufficient cause).
However, the court's removal must nevertheless be in accordance with the settlor's wishes. - 65Difference between a duty and a powerDuty: obligation to do something
Power: authority to do something (but not an obligation) - 66What standard must the trustee meet in exercising his other duties?Standard of reasonable care
- 67What are the trustee's absolute duties? What is the level of liability for failing to discharge these duties?1. Duty of loyalty
2. Duty of impartiality
3. Duty to pay the beneficiaries
Automatic liability, no defence. - 68Duty to act loyally and in good faithTrustee must act solely in the interest of the trust.
Failing to do so creates a conflict of interest and trustees will be liable for any profit or loss. - 69Duty of care - general ruleTrustee must exercise due care when making decisions.
Due care: Standard of a "man of ordinary prudence in managing his own affairs", which means mistakes are allowed. - 70Duty of personal performanceNon-delegation - Trustees cannot delegate the power of discretion (how to invest, who to pay, and when to pay), but they can use agents.
Unanimity among multiple trustees : solution is to feature a "majority rules" clause in the trust instrument - 71What are the rules trustees must follow if using agents1. Act prudently in selecting the agent;
2. Use an agent within the scope of the agent's expertise; and
3. Use due care in supervising the agent. - 72What are other general duties of the trustee?1. Duty of personal performance (not to delegate)
2. Duty of care
3. Duty of impartiality
4. Duty of loyalty - 73What are special duties of the trustee?1. Duty to provide information
2. Duty to invest prudently - 74What are the rules the trustee must follow with respect to his duty to invest?1. The standard of "ordinary prudence" (act as a prudent investor)
2. Ethical or socially responsible investment
(the trustee must take into serious consideration an investment that would be beneficial to the fund, regardless of Trustee's personal opinions about ethical or social responsibility). - 75What does the trustee's duty to act impartially include?1. Investing prudently
2. The duty to provide information - upon reasonable notice by beneficiaries, or when a minor beneficiary reaches the age of majority.
3. Duty to account - allow inspection of accounts upon reasonable notice. - 76What are the powers of the trustee1. Exercise of discretionary powers:
whether or not to exercise a given power is a matter for the trustee's discretion.
2. Judicial supervision: Courts will only interfere exceptionally where there is evidence of mala fides (bad faith). It does not matter if the exercise of trustee's discretion was wise or unwise. - 77How can a presumptive trust be rebutted?By arguing gift. A person claiming a resulting trust must show:
1. That he advanced the purchase money
2. That he was actually the purchaser and not making a gift or a loan. - 78What are the general elements of a presumptive trust?1. PURCHASE IN THE NAME OF ANOTHER - presumption that the other is trustee for the purchaser.
2. VOLUNTARY TRANSFER - presumption of resulting trust for the transferor UNLESS transferee rebuts presumption by showing gift was intended.
3. RESULTING TRUST IN CONTEXT OF JOINT BANK ACCOUNTS : bank docs that set up a joint account are generally not evidence of an agreement between them as to beneficial title, unless there is evidence to the contrary.
4. PRESUMPTION OF ADVANCEMENT: applies between husband and wife and parent and child (limit: applies only to minor children, and doesn't apply if a mother voluntarily transfers property to her child). - 79How can presumptions of advancement or resulting trust be rebutted?Court will look at the intention of the transferor.
Where there is unambiguous evidence of the transferor's intention, the presumption of a resulting trust does not apply. It only applies where there is some unresolved ambiguity in the evidence of the intention of the person.
Direct evidence (written or oral) that shows there was no gift can displace the presumption based on a standard of balance of probabilities. - 80When is an automatic resulting trust created?Where an express trust fails (ex. b/c its purposes do not fit within the accepted charitable purposes or limited exceptions concerning non-charitable purposes).
Trustees of the express trust simply become trustees of the resulting trust.
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- Description
- Beginning of class - ends with purpose trusts.
- Created by
- Nathalie Buissé
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