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1920 eqtr lg01 ce01 student guide

equity and trusts intro
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Equity And Trusts

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EQUITY AND TRUSTS

LG 1

Trust contexts:  An individual client might want to share his wealth with his children but, due to their young ages, he would prefer not to make outright gifts to them. A trust allows the client instead to put the property under the control of a trustee to manage it for the benefit of the children.

 Businesses may instruct their lawyer to set up a trust to provide pensions or other benefits for their employees.

 Create a charitable trust for your client e. the Microsoft billionaire, Bill Gates, has created a trust whereby the trustees use the extensive trust property to promote world health and reduce extreme poverty.

 Trusts also feature in many investment schemes and finance arrangements.

The lawyer’s role in creating a trust in different contexts:

 advising on the steps needed to create a trust;  advising on the duties which trustees owe when they run the trust; and  advising beneficiaries on their remedies if trustees breach their duties.

Outcomes

  1. explain the meaning of a trust

  2. use appropriate terminology

  3. How a trust is created, the duties of trustees, how disputes are resolved and the effect of a trust on property ownership

d4f8b1349412ae98afce989d0340b294 121 © The University of Law Limited

1. INTRODUCTION AND DEFINITION OF A TRUST

1 Why should the law enforce trusts?

Activity 1

Denise Barlow, a single parent, made a will as follows;

Denise was killed in a car accident last week. Kylie is six years old.

Paul has a gambling addiction and wants to use Denise’s property to pay off his extensive debts.

1 Should the law compel Paul to use the property as Denise wished? Yes

2 Justify your answer to 1.

  • Paul would be acting unconsciously in contravention of his promised to Denise. Equity steps in to

© The University of Law Limited 122 d4f8b1349412ae98afce989d0340b294

This is the last will and testament of me Denise Barlow of Flat 5, Garton Towers, Farlow, Essex which I make on 3 February 2018.

I give all my property to my partner, Paul Jackson, to hold it on trust and to look after it for the benefit of my daughter, Kylie, until she is 21 when he should transfer all my property to her.

(Assume that the will was properly signed and witnessed.)

1 Definition of a trust

‘A trust is an equitable obligation, binding a person ‘ a trustee’ to deal with property ‘trust property’ owned by him as a separate fund, distinct from his own private property, for the benefit of persons ‘beneficiaries’ or, in old cases, cestuis que trust), of whom he may himself be one, & any one of whom may enforce the obligation.’

(Underhill and Hayton, Law of Trusts and Trustees 18th edn (2010) Chapter 1, Article 1).

Trust: an arrangement where a trustee is given property to look after for the benefit of a beneficiary, for a period of time.

Settlor/Testator Trustee(s) transfers property to holds property

on trust for

Beneficiaries

Trust terminologies:

Settlor: a person who sets up a trust

Testator/testatrix

Trustees:

  • manages & controls the property subject to the ‘trust instrument’
  • hold the legal title/interest in the trust property

Trust property: the property held on trust with the trustee for the beneficiary

Trustee duties

Beneficiary:

  • the ‘real’ owner in the sense that he enjoys the benefit of the property
  • have an equitable/beneficial interest in the trust property

2 THE LAWYER’S ROLE

© The University of Law Limited 124 d4f8b1349412ae98afce989d0340b294

Activity 3 Case study

Watch the media clip ‘Mr Stewart’s Instructions-Part 1’. The family tree is set out below.

  1. Take an attendance note of Mr Stewart’s instructions.

Example of express trust ‘a trust set up intentionally by the settlor’: Note: ET mostly created in a written doc. ‘trust instrument’

Edward Stewart

Olivia (aged 10)

David Stewart = Susan

Tara Grant

Archie (aged 13)

  1. Complete the blanks in the diagram below.

Settlor

David Stewart

transfers property to

List the properties:  Techno shares  Greatco shares  £100,

Trustee

Edward Stewart

on trust for

Beneficiaries

 Olivia  Archie

d4f8b1349412ae98afce989d0340b294 125 © The University of Law Limited

  1. Advising the beneficiaries on remedies

5 Who can take action against the trustee in the light of the events in 4?

5 What remedies will the claimant seek?

d4f8b1349412ae98afce989d0340b294 127 © The University of Law Limited

4. WHY CREATE A TRUST?

A trust separates management/control of property from the benefits or enjoyment. - Trustee manages/control the property subject to trust - Beneficiary is ‘real’ owner in the sense that he enjoys the benefit of the property

An alternative to an outright gift.

© The University of Law Limited 128 d4f8b1349412ae98afce989d0340b294

4 Beneficiaries’ proprietary rights

 If the trustee dies.

 If the trustee goes bankrupt

A person may be declared bankrupt if he or she has insufficient money to pay his or her debts as they fall due.

 The trustee transfers trust property to another in breach of trust

© The University of Law Limited 1210 d4f8b1349412ae98afce989d0340b294

Activity 4

Recovering trust property from third parties

Watch the media clip, ‘Wrongful Disposal of the Trust Property’ and answer the following questions:

  1. What has happened to the £20,000 belonging to the trust? What does the beneficiary want?

  2. What has happened to the painting belonging to the trust? What does the beneficiary want?

  3. The beneficiary could sue the trustee, Mr Pearson, for compensation. Why might this action be unsuccessful?

The rule: A beneficiary can recover trust property from anyone who receives it in breach of trust except a bona fide purchaser of the legal title, for value, without notice that it was trust property transferred in breach of trust (BFPFVWN).

d4f8b1349412ae98afce989d0340b294 1211 © The University of Law Limited

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1920 eqtr lg01 ce01 student guide

Module: Equity And Trusts

643 Documents
Students shared 643 documents in this course

University: University of Law

Was this document helpful?
EQUITY AND TRUSTS
LG 1
Trust contexts:
An individual client might want to share his wealth with his children but, due to
their young ages, he would prefer not to make outright gifts to them. A trust allows
the client instead to put the property under the control of a trustee to manage it for
the benefit of the children.
Businesses may instruct their lawyer to set up a trust to provide pensions or other
benefits for their employees.
Create a charitable trust for your client e.g. the Microsoft billionaire, Bill Gates,
has created a trust whereby the trustees use the extensive trust property to
promote world health and reduce extreme poverty.
Trusts also feature in many investment schemes and finance arrangements.
The lawyer’s role in creating a trust in different contexts:
advising on the steps needed to create a trust;
advising on the duties which trustees owe when they run the trust; and
advising beneficiaries on their remedies if trustees breach their duties.
Outcomes
1. explain the meaning of a trust
2. use appropriate terminology
3. How a trust is created, the duties of trustees, how disputes are resolved and the
effect of a trust on property ownership
d4f8b1349412ae98afce989d0340b294.docx 121 © The University of Law Limited

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