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This engaging introduction explores the key principles of equity and trusts law and offers students effective learning features. By covering the essentials of each topic, it ensures students have the foundations for success. The law is made relevant to current practice through chapters that define and explain key legal principles, and examples and exercises set the law in context and make the subject interesting and dynamic by showing how these rules apply in real life. Key facts sections and summaries help students remember the crucial points of each topic and practical exercises offer students the opportunity to apply the law. This updated edition offers added features, in particular comprehensive lists of further reading and also a glossary of key terms. Every chapter has been updated and new case law has been added. Exploring clearly and concisely the subject's key principles, this should be every equity student's first port of call.
there is no specific law concerning rights in the family home;
married and civil partners can claim rights in the family home under statute;
unmarried partners and family members must rely on property law in order to be awarded rights in the family home;
rights in the family home may arise under an express trust if the declaration complies with formalities;
rights may arise under an implied trust (either a constructive trust or a resulting trust);
a constructive trust will only arise where there is proof of common intention that both parties are to share the property;
a resulting trust is based on proof of contributions towards the purchase price;
quantification of the shares under a resulting trust depend on the size of the contribution;
quantification of the shares under a constructive trust depends on proof of the parties’ intention; and
rights in the family home may also arise under proprietary estoppel.
Introduction to trusts of the family home
The family home is one of the most significant assets that people own. However, surprisingly unlike other jurisdictions there is no separate law in England and Wales concerning ownership of the family home. Rights in the family home do not arise automatically within a relationship where both parties are living or have lived together in the home in the past.
a trust can be created by either declaration of self as trustee or appointment of a third party as trustee;
the settlor must have the capacity to create a trust;
a trust must comply with the proper formalities on creation;
property must be validly transferred to the trustee;
the creation of a trust of land requires specific formalities;
the transfer of an interest under a trust must comply with the proper formalities; and
the formalities for the transfer of an interest under a trust can be avoided if the transfer is not a disposition of an interest under a trust.
A key feature of the trust is that it separates the legal and beneficial interest in the property so the trustee holds the legal title and the beneficiaries hold the equitable interest. This contrasts with sole ownership of property. Once a trust has been validly created and is fully constituted it can be enforced by the beneficiaries in court. The court will step in and enforce on behalf of the beneficiaries but it will only do so once all doubt has been removed that the trust is valid. The court must first consider whether any formalities were necessary in the creation for the trust and whether they have been adhered to. Unless such formalities are complied with the court will be unable to enforce the trust.
in some circumstances a stranger to a trust may be held liable as a constructive trustee;
a stranger may be liable if he has received trust property knowingly;
a stranger may be liable if he has assisted in a breach of trust dishonestly;
a stranger may be liable if he has become a trustee de son tort;
the test for dishonesty is an objective test although the court can look at the state of mind of the defendant;
traditionally knowing receipt depended on proof of a requisite level of Baden knowledge;
today knowing receipt depends on proof of unconscionability;
a stranger is liable for knowing assistance if he satisfies the test for dishonesty; and
a trustee de son tort is someone who holds trust property not as a trustee but behaves as a trustee in relation to that property.
In some circumstances a person may be liable as if he is a trustee when he becomes involved in some way with a trust. The court can then make that person personally liable for breach of trust. The stranger will be liable to compensate the trust fund for any losses suffered. This will be particularly important where the trustees cannot be found or the trustee is bankrupt and therefore has no funds with which to compensate the trust fund.
a trust cannot be enforced unless there is an ascertainable beneficiary;
a trust for a purpose may fail because either the objects are uncertain or it infringes the perpetuity rule;
a purpose trust may be saved if it comes within one of the anomalous exceptions which includes trusts for specific animals and trusts for the building of monuments;
a purpose trust may be saved if there are hidden beneficiaries under the principle in Re Denley’s Trust Deed;
a purpose trust may be saved as a gift to an unincorporated association for the members of the association; and
a purpose trust may be saved if the purpose of the trust is charitable.
The beneficiary principle
One of the key rules in the creation of a valid trust is that a trust will only be valid if it has ascertainable beneficiaries. The reason for this is straightforward. The beneficial interest lies with the beneficiaries and it is only they who have the capacity to enforce the trust. Without beneficiaries the trust would have no one to enforce the trust and ensure that the trustees carry out their duties. Some examples of a private purpose trust are set out in the following sections.
trustees owe a duty of care to the beneficiaries both under common law and under statute;
trustees have a duty to provide the beneficiaries certain information including accounts;
the beneficiaries have no inherent right to disclosure of the trust documents;
disclosure of trust documents lies with the court’s discretion;
trustees have a duty to preserve and maximise trust assets;
the trustees’ power to invest is governed by the Trustee Act 2000;
trustees can delegate their powers to others but will remain liable unless the delegation complies with the general duty of care;
certain duties of a trustee can never be delegated such as the exercise of a trustee’s discretion;
trustees have the power to advance income to infant beneficiaries for their maintenance and to all beneficiaries with a vested interest; and
trustees have the power to advance capital to all beneficiaries if they can prove it is for their benefit.
Introduction: the office of trustee
The office of trustee carries with it a wide range of duties. Overriding all duties and powers of a trustee is the duty to carry out the terms of the trust and to act in the beneficiaries’ best interests at all times. The duties of a trustee must be carried out with care because failure to carry out a duty may make the trustee personally liable in an action for breach of trust.
a constructive trust is imposed by operation of law;
it has a number of different definitions;
it arises in a variety of different situations;
the key feature of all types of constructive trust is to prevent unconscionability;
in England and Wales the courts can only impose an institutional constructive trust; and
other jurisdictions can impose a constructive trust as a remedy in the form of a remedial constructive trust.
Introduction. What is a constructive trust? Problems in definition
A constructive trust is difficult to define. It is imposed by the court where it would be unconscionable for the legal owner of property to deny a beneficial interest to a claimant. It differs from a resulting trust because it does not usually give effect to the intentions of the parties but arises as a response to circumstances.
Key points on the historical background to equity and trusts
equity means fairness or justice;
equity was introduced to meet the deficiencies in common law;
common law lacked flexibility in remedies; it failed to recognise rights such as the right of a mortgagor or of a beneficiary under a trust and the writ system was inadequate;
equity provided a ‘gloss on common law’ rather than a complete system of rules and worked alongside common law;
equity was administered initially by the king with assistance from the Chancellor who was a religious person;
the Chancellor later took sole control of equity and the Chancery Court was established;
equity became inflexible and unpopular and consequently there were many conflicts with the common law;
equity and common law were fused under the Judicature Acts 1873–5; and
equity continues to exist as a separate system of law.
The introduction of common law
Until the Norman Conquest, there was no single system of law in England and Wales. The legal system before 1066 mainly consisted of customs that were local to a particular area and were administered and enforced locally or by the King’s Council. After 1066, a system of royal courts was introduced as well as a unified system of rules, which initially existed alongside the local rules. It was a gradual process but eventually a system of law was in place that was ‘common to all’ in England and became common law.
resulting trusts are said to give effect to the implied intentions of the owner;
there are two types of resulting trusts: presumed and automatic;
a presumed resulting trust is based on the presumed intention of the transferor;
a presumed resulting trust arises where the purchase money is provided by A or A and B together for the purchase of property in B’s name;
a presumed resulting trust can be rebutted by evidence that either a gift was intended or because of other circumstances;
a presumed resulting trust could also be rebutted in some circumstances by the relationship of the parties but this principle has been abolished;
a presumed resulting trust can be rebutted by evidence of a loan; and
an automatic resulting trust arises where a trust fails or there is a surplus of funds after the purpose of the trust has been carried out.
Definition of a resulting trust
A resulting trust arises by operation of law and contrasts with an express trust which arises because the settlor has taken the proactive step of creating a trust. The trust arises informally without the need to satisfy formalities such as s.53(1) Law of Property Act 1925.
charitable trusts are different from private trusts;
charitable trusts must be exclusively charitable;
charitable trusts enjoy a number of advantages;
a charitable trust must satisfy certain requirements;
the definition of a charitable trust is laid down in the Charities Act 2006;
the definition of charity now comprises thirteen different heads of charity;
all charitable trusts must satisfy the public benefit requirement; and
if a charitable trust fails the funds may be transferred to another charity under the rules of cy près.
Introduction to charitable trusts
Charitable trusts are public trusts which carry a number of advantages. They are enforceable by the Attorney-General.
The advantages of charitable status
There are a number of advantages of having charitable status. Charities have always been regarded as beneficial to the public so the law has treated them in a more lenient way than private purpose trusts. The most significant of the advantages lie in the more lenient rules on taxation.
an unincorporated association does not have legal personality;
gifts to an unincorporated association will normally be regarded as invalid purpose trusts;
a gift to an unincorporated association can be upheld in a number of different ways;
the most popular theory is to uphold a gift to an unincorporated association in the contract-holding theory;
an unincorporated association must have two or more persons bound together for one or more common purposes;
persons within the association will have mutual rights and duties arising from the contract between them and rules concerning its control; and
in order to be recognised the members must be able to join or leave the association at will.
The law recognises private individuals and companies. They can both hold property and bring legal actions against others. The law does not recognise groups of people who do not have corporate status. Many groups of people join together for a common pursuit such as sport but do not want the difficulties and complications of registering as a company. This presents a problem where the group holds funds or is left a sum of money under a will, as it is difficult to see on what basis this property is held. There is a further difficulty in deciding what should be done with any surplus funds where the association is wound up. There are hundreds and hundreds of such associations so the law has had to find a way to recognise them.
Of all the subjects studied by law students equity and trusts can seem the most opaque and impenetrable. They are intimidated by the ‘fog of Chancery’ described by Dickens in his introduction to Bleak House. I have tried to lift some of this fog by explaining the principles of trusts in simple terms and then relating those principles to practical situations which affect all our lives. I have used detailed scenarios throughout the text to illustrate the key principles. I wanted to change the popular perception that the study of trusts is remote and detached from everyday life. Trusts no longer simply affect a limited section of the public but often govern the most important assets that people own, such as the family home and rights under a pension scheme. At the heart of trusts lies the relationship between the trustee and beneficiary and the strict duties imposed upon the trustee which can be traced back to the early forms of trust. Such duties are just as relevant today in cases involving commercial relationships as in the more traditional express trust. I hope that this practical approach will bring alive the subject and its many different aspects. I know that once the main principles of equity and trusts are grasped and their practical effect is fully understood this becomes a fascinating and intriguing subject.
I would like to thank Sinead Moloney at Cambridge University Press for her encouragement and support for the idea and writing of this book, also Deepa Somasunderam for her valuable contributions in reading the text and suggestions from a student’s perspective on the subject and most of all I would like to thank my husband Richard without whose support, good humour and invaluable advice this book would never have been completed.
an express trust can take effect as a bare trust or a fixed trust or a discretionary trust;
a fixed trust arises where the beneficiaries have clearly identifiable interests in the trust property;
a discretionary trust allows the trustees to choose from a group of beneficiaries who should benefit under the trust;
a power is discretionary and the donee can choose whether or not to make an appointment;
powers of appointment include bare powers and fiduciary powers;
if a power of appointment is not exercised, the property will revert to the settlor’s estate unless there is a gift over in default of appointment or a gift is implied in favour of all the objects;
the court can intervene where the donee of the power exercises it fraudulently;
a trust can be clearly distinguished from other legal concepts such as a debt, agency, bailment and a gift although there are also similarities; and
trusts are used today for a wide variety of reasons including pension schemes, investment schemes, charities, ownership of land and protective trusts.
Differences between a trust and a power
A trust imposes an imperative obligation on the trustee. This means that the trustee must carry out the wishes of the settlor. The trustee has no choice whether or not to act. If the trustee cannot act or refuses to act, the court can replace the trustee or step in and carry out the wishes of the trustee itself. A power of appointment is fundamentally different because the donee of a power has a discretion whether to act or not. No action can be brought if the power of appointment is not exercised, whereas the beneficiaries of a trust can bring an action whenever a trustee fails to act. There are similarities between the two and there may be a power imposed over a trust fund so the trustees act in both capacities. A power may be created where the donor wishes to allow the donee the right to choose among a group who is to benefit but does not wish the donee to carry all the responsibilities associated with trusteeship.