Express Private Trusts #1

FIXED, PROTECTIVE AND DISCRETIONARY TRUSTS - AND POWERS
1. Fixed Trusts
  1. What is a fixed T?
    1. The T instrument sets out share/interest that each B is to take and the Ts must distribute accordingly.
    2. Doesn't matter if shares are different or how many Bs there are
    3. Time of distribution can also be established
  2. Nature of B's interest
    1. B is the equitable owner of his specified interest or share.
    2. Bs between them are entitled in equity to the entire property and may call for the T to be ended.
      1. Saunders v Vautier (1841)
        RULE - where all Bs are over 18 and mentally capable, they can bring T to an end.
    3. Collection of rights.
2. Discretionary Trusts
  1. What is a discretionary T?
    1. Exists where Ts have a discretion to decide (in relation to capital/income) within the stated class WHO shall benefit and/or in WHAT SHARES.
    2. Advantage of flexibility and responsiveness to changing circumstances.
    3. Modern DT - likely to be a mixture of Ts and powers, designed to give Ts the greatest possible discretion.
  2. Further distinctions...
    1. Exhaustive DT
      1. All income must be applied (a duty to distribute, but a power to select amongst a class) - must exhaust the whole fund
    2. Non-exhaustive DT
      1. In addition to the duty to distribute and the power to select, Ts have power to 'accumulate' the income (i.e. where it turns into capital)
  3. Nature of Bs interest
    1. Very different from FT. Where does the B interest actually lie?
    2. Assumption that legal title is generally in the Ts. Equitable title must be somewhere.
    3. Gartside v IRC [1968]
      1. Inland Revenue argued that a B under a DT MIGHT receive whole lot of T property. When he dies - subject to state duty on entire undistributed capital in T fund. Ambitions argument failed.
    4. Re Smith 1928
    5. More than a hope, but less than a ben. int. in property
      1. Individual rights or ints. which are separate, unquantifiable and limited - more a right to be considered as a potential B
      2. A right to have that int. protected by a court of equity - e.g. if the trustees refused to exercise their discretion at all of if they exercised it improperly
        If court have to exercise, may not be equal distribution between Bs.
      3. A right to take whatever the Ts give him
      4. A right to have the T property managed properly
      5. A right to have the T account for his management
    6. Where is the equitable interest in a DT? Not the same as FT. In suspense? - Until Ts have exercised discretion?
      1. Does not have equitable interest as would a named B under a FT.
3. Protective Trusts
  1. What is a protective T?
    1. A determinable life interest followed by a DT.
      1. Designed to protect against (typically) the perceived threat of insolvency of the principal B (life tenant)
      2. Determinable life int - will come to an end.
    2. Used as if B is likely to go off the rails i.e. the spendthrift son.
    3. If bankruptcy occurs - funds available to CREDITORS.
    4. PT cannot protect against the threat of insolvency to the settlor
      1. Re Burroughs-Fowler [1916]
    5. DT appears! Then payable, as Ts discretion, to B and those entitled
  2. How is it created?
    1. Drafting is critical.
    2. Cannot be a life interest which is subject to a condition subsequent whereby the interest comes to an end on alienation. The life int. has to be determinable LI.
    3. Condition precedent - must be complied with BEFORE something happens/gift takes effect. Condition subsequent - if condition is complied with, then something is going to be taken away. Must be known at outset. Latter is a far more stringent test.
    4. s33 Trustee Act 1925
  3. Determining events
    1. Usually an act of bankruptcy, but not necessarily
    2. Re Detmold (1889)
      1. Court order following following judgment debt
    3. Re Dennis' S T [1942]
      1. Son, at 21, entered a supplemental deed (providing for accumulation of income) to change previous agreement. Would let him have some money but let rest accumulate for 6 years. Some income had been diverted - acted to determine life interest. Became DT.
    4. Re Gourju's W T [1943]
      1. Testator of French origin left estate on PT for widow, who remained in France. TWTEA 1939 - WW2. Meant that she couldn't receive income because she was in France. Acted to determine life int. under PT.
        Trading with the Enemy Act 1939
4. Powers of Appointment
  1. What is a PoA?
    1. A power is permissive; whereas a T is mandatory.
    2. A power to appoint/allocate ben. ints. amongst a class of objects; dispositive power, not a managerial one; permissive rather than mandatory; revocable or non-revocable; might envisage immediate distribution or appointment of ints. in remainder,
    3. Testamentary P - donee may exercise by his or her will.
    4. Different types of PoA
      1. General - allows to appoint anybody in whole world. Not very common.
      2. Special - anybody with a stated class/list. Confined group.
      3. Intermediate (or 'hybrid') - to anyone EXCEPT those in a confined group. Common.
    5. The donee may be someone acting in a fiduciary capacity or only a personal capacity
  2. Terminology
    1. Donor gives power to donee to appoint among the objects (ones to benefit) of power. Once/if exercised, donee = appointer and objects =appointees.
      1. Donor is like the settlor, donee like the T and objects like the Bs.
    2. Fiduciary power = power conferred on someone who is a fiduciary
  3. Duties of donee
    1. Fid and non-fid donee
      1. If the power is exercised, must be exercised within terms and not capriciously (properly and not outside its powers)
      2. Fid also must...
        Consider, from time to time, whether or not to exercise power. Can't ignore it.
        'Survey the field' - get an idea of size of the class, who is in it etc.
        Should really only survey when someone claims to be in class.
        McPhail v Doulton, Re Baden (No 1) [1971]
        Re Hay's Settlement Trusts [1982]
        Court may direct him to consider
  4. Power or trust?
    1. Matter of construction
    2. A 'gift-over' will indicate that a disposition is a power
    3. Consider the absence of a gift-over - not always a resulting trust
      1. Burrough v Philcox (1840)
        Survivor of testator's children given power to dispose by will amongst nephews and nieces as shall think proper. Didn't exercise. Trust was 'created' and held in favour of nephew and nieces.
    4. Objects must be sufficiently certain.
    5. The person entitled to take if the power is not exercised has a vested int. defeasible on the ex. of the P. That int. becomes indefeasible (i.e. absolute) if the donee decides not to ex. the P.
  5. How important is the distinction between PoA and Ts?
    1. T is imperative; P is not.
      1. So what if not exercised?
      2. Mettoy Pension Trustees v Evans [1990]
    2. Tests for certainty of objects used to be very different, but no longer
      1. Re Sayer Trust [1956]
        'The management committee shall be empowered to make payments...' POWER
      2. Re Saxone Shoe Co Ltd's Trust Deed [1962]
        '...fund shall in the discretion be applied...' DIS TRUST
    3. Duties of the donee/trustee
      1. What practical difference is there (if any) between a non-exhaustive DT and a fiduciary power?
    4. Rights of the beneficiary?
      1. Schmidt v Rosewook Trust Ltd [2003]
        Senior Executive Director of oil company in Russia. Father died in Moscow intestate. Father involved in two off-shore trust settlements. Son reckoned $105m had been settled, but, acting as admin, had only received $14.6m. Tried to find out where funds had gone. Trustee was Isle of Man corporate, and son was having difficulties obtaining information. T argued that he had no right to see documents because son was a subject under a power. Court disagreed - must recognise different natures.
    5. Might there be a difference in the way courts apply concepts of administrative unworkability and/or capriciousness?
REQUIREMENTS FOR EPTs
1. The Three Certainties
  1. Certainty of INTENTION
    1. Intention that a trust should exist must be sufficiently certain. In the absence of such an intention, there can be no trust.
    2. If property is transferred by A to B, is it a gift to B or is B to hold it on T?
      1. Do words import obligation? Words are construed in their context; there is no magic in the word 'trust'
    3. Precatory wording - careful!
      1. Re Diggles (1888)
        'to X, desiring that X should allow Y an annuity of £25...' X stopped doing this. Y argued T. No T.
      2. Re Adams and the Kensington Vestry (1884)
        '...in full confidence that she would do what was right' regarding the children. No T.
      3. Comiskey v Bowring-Hanbury [1905]
        '...absolutely in full confidence that she will make such use of it as I should have made myself...' Amounted to a T.
    4. Cases of surplus
      1. Re Abbott Fund Trusts [1900]
        Doctor made provisions for family, some of whom were deaf and dumb. T disappeared with all money. Doctor's friend asked for contributions - fund set up. When the sisters died, £376 remained. Should money go back to donors? Resulting T for Ds.
      2. Re Andrews Trust [1905]
        Fund paid for educating certain children. Knew of money - when finished, they wanted money - and won. Gift.
      3. Re Osoba [1979]
        Left estate to provide for widow and daughter at university. Once graduated, there was surplus. Son claimed partial intestacy and share. Held on T for wife and daughter. Wife died, and the daughter got everything.
    5. Payments in a commercial context?
      1. Re Kayford Ltd (in liquidation) [1977]
        Intended to set up T despite not putting money into T account.
      2. Re Nanwa Gold Mines Ltd [1955]
      3. Re Chelsea Cloisters Ltd (in liquidation) (1980)
        Tenants' deposits in different accounts against landlord. Were to be held on T for tenants.
      4. Re Lewis's of Leicester Ltd [1995]
      5. Re Farepak [2006]
        Christmas bust - saving scheme. Insolvent. 3 days before administration, claimed T over account of £1m. £390k received after bust. EPT - but money already in account? Preferring the creditors. ET ruled out. Resulting failed - money not in separate account. Tried to argue Quistclose case. Constructive on unconscionable conduct. Because nof difficulties in establishing when monies were paid in, also failed.
    6. No written document
      1. Jones v Lock (1865)
        Businessman (father) came home with cheque for baby (made out to the father). Father died. Intended to make gift but you cannot gift a cheque to someone in your own name.
      2. Paul v Constance [1977]
        C (Mr.) suffered injury and received compensation. P - mistress. C put money in his account and said to P that the money was as much hers as his. Trust?
  2. Certainty of SUBJECT MATTER
    1. If the subject matter is uncertain, there can be no trust.
    2. Uncertainty as to the exact LOCATION of identifiable subject-matter does not prevent a valid trust from arising.
    3. Difficulties in identifying the SM
      1. Palmer v Simmonds (1854)
        Tried to leave 'bulk of residue' of estate on T. No T as couldn't define SM.
      2. Re Golay's Will Trusts [1965]
        Reasonable income?
      3. Sprange v Barnard (1789)
        For husband's sole use - anything he didn't want would go to X. Uncertain amount for X, so held entirely for husband.
      4. Re Last [1958]
        Children (on T)
    4. Residue IS certain
    5. Where the T property is part only of a larger whole
      1. Hunter v Moss [1994]
        Intention to give 50 shares to co. Tax wouldn't allow. Held 5% of share capital on trust and would pay dividends. He owed 950 shares. He sold them. CoA - yes, there was a T. However, shares are all the same. No need to be segregated, but no necessarily all the same. There was no insolvency in this case.
      2. Re London Wine Co {1975)
        Buyers of wine, paying for/buying goods (for investment) but remained in general bulk - not separated from 'unidentifiable chattels'. No T. Had wine been segregated, there would have been a T.
      3. Re Goldcorp Exchange [1995]
        Bullion remained with co. No T.
      4. s.20A SGA 1979 (inserted by s.1(3) SG(Am)A 1995) - tenants in common over bulk.
    6. Distinguish between inter vivos and testamentary Ts?
    7. Uncertainty in the ben. share in T property which is itself certain
      1. Boyce v Boyce (1849)
        Two houses on T for daughters; Maria (eldest) and Charlotte. M would get first choice. M died before she chose. M had family involved in will etc. Court did NOT decide to choose, so therefore no T for Charlotte!
  3. Certainty of OBJECTS
    1. If the objects specified are uncertain, or if none is specified, there will be a resulting trust. Depends on the nature of the disposition how clearly it should be defined.
    2. Different types of certainty to be considered; conceptual, evidential, ascertainability, administrative (un)workability.
    3. Fixed Ts
      1. View is that a FT requires sufficient certainty that a list might be drawn up of all bens. - list test.
        IRC v Broadway Cottages Trust [1955]
        OT Computers Ltd v First National Tricity [2003]
      2. What should Ts do if the bens are unknown or missing?
        s.27(2) Trustee Act 1925
        Benjamin orders (with guarantee) or insurance - lets Ts 'get on with it' and distribute to those they known. Court may ask for security.
    4. Discretionary Ts and Ps
      1. Used to be subject to different tests. DTs needed to satisfy list test, but Ps were 'sufficiently certain' if it could be said that he was or was not within the class of bens.. Latter known as the 'individual ascertainability test.
        Re Gestetner's Settlement [1953]
        Harman's test for powers! power with T in default. '...for such member(s) of a specified class as the Ts MIGHT appoint.' Wide class.
        IRC v Broadway Cottages Trust [1955]
        Wide class. T in absolute discretion in Ts. £80k fund. Charities included in class. Need a list.
        Re Gulbenkian's Settlements [1970]
        Powers. HoL, unanimous. Poor drafting; 'any person or persons in whose house...or in whose company or under whose care or control or by or with whom the said Nubar Sarkis Gulbenkian may from time to time be employed or residing'. DA FUQ. Power, gift-over.
      2. Following development of DT, and the difficulties in construction, the law produced results which were difficult to defend.
        Re Sayer Trust [1956] - VALID
        Re Saxone Shoe Co Ltd's Trust Deed [1962] - VOID
      3. The tests for DT and Ps were assimilated by the HoL.
        Re Baden (No 1) Mc Phail v Doulton [1971]
        The application of the test was not straightforward. See SACHS, STAMP and MEGAW LLJ in (No 2)
    5. Individual gifts subject to a condition precedent
      1. Different test applies if the disposition can be construed as a series of gifts, each subject to a C.P. Sufficient if at least one person answers description.
        Re Barlow's Will Trusts [1979]
        Paintings - friends could purchase at lower price. One painting to each of my friends - gift.
        Re Allen [1953]
        Re Tepper's Will Trusts [1987]
        'Conditions of defeasance'
2. Third party references
  1. To what extent can uncertainty be 'cured' by giving a third party the power to resolve disputes?
    1. Re Tuck [1978]
      1. Jewish faith - Chief Rabbi can decide?
3. Administrative unworkability
  1. What constitutes this? To what does the test apply?
    1. Baden (no 1) [1971]
    2. Blausten v IRC [1972]
    3. R v District Auditor ex p West Yorkshire Mertropolitan CC [2001]
    4. Re Manisty [1974]
    5. Re Hay's Settlement Trusts [1982]
4. Capriciousness
  1. What constitutes this? When might this invalidate a disposition?
  2. Re Manisty [1974]
  3. Re Hay's Settlement Trusts [1982]

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Express Private Trusts #1

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	Created by Laura Phillips almost 10 years ago