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Law Notes Trusts and Equity Notes

Dispositive Powers, Standing And Enforcement, Certainty Notes

Updated Dispositive Powers, Standing And Enforcement, Certainty Notes

Trusts and Equity Notes

Trusts and Equity

Approximately 1016 pages

Equity notes fully updated for recent exams at Oxford and Cambridge. These notes cover all the LLB trusts cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Hong Kong or Malaysia (University of London).

These were the best Equity and Trusts Law notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LLB samples from outstanding law students with the highest re...

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Equity 2 Certainty Dispositive Powers, Standing and Enforcement, DISCRETIONARY DISPOSITIVE POWERS; STANDING AND ENFORCEMENT; CERTAINTY IN DEFINING THE ESSENTIAL ELEMENTS OF THE TRUST Abbreviations: C Claimant D Defendant T Trustee S Settlor B Beneficiary PoA Power of Appointment DISPOSITIVE POWERS Types 1) Discretionary trusts * Where T has duty to make appointments from the fund, but a discretion to select which objects should get, and how much they should get. * Husband leaving fund to Ts "to hold on trust for wife for life, should she survive him, remainder to such of his children as his trustees shall in their absolute discretion select" * DETAILS OF TRUSTEESHIP...Trustees' duties: T is a fiduciary! Owes fiduciary duties, which any potential object of the fund has sufficient standing to enforce (see Re Baden (No 1)) Power must be exercised for proper purpose, without taking into account irrelevant considerations. Obey the trust cannot make ultra vires appointments. Against third parties whom T wrongfully appointed in breach of trust, B can trace and recover. Fiduciary capacity must avoid conflicts of interests when exercising their powers.--* Proper purpose interpret terms of trust instrument in light of extrinsic evidence (eg. Letter of wishes) - question of law for court. STEPS: must survey entire permissible area of selection - Lord Wilberforce in Re Baden. group into generic categories of objects (eg. Employees, former employees, relatives etc) prioritise categories - at Ts' discretion; general decision making appoint to individuals in prioritised categories. [no need to have complete list of all potential subjects. Survey can be general] Trustee's power: this is a private law issue, trusts being private mechanism. T can change policies on distributions without a hearing, since private gift-giving allows certain degree of arbitrariness disappointed potential object might not even have right to be heard by trustees (Re the Y Trust, 2011) OBSTACLES TO PERFORMANCE OF TRUSTEE'S DUTIES Class might be too wide to administer to. Eg given by Lord Wilberforce in Re Baden: trust for benefit of 'all inhabitants of Greater London' administratively impossible to exercise/unworkable! R v District Auditor, ex p West Yorkshire District CC, 1985: "for the benefit of any or all or some of the inhabitants of West Yorkshire". CC had budget surplus and put money in trust, on above terms. Held to be unworkable - enormous class of objects, with no real criteria. (also, was a private purpose trust - void anyway!) But settlor can get round this by defining workable class of objects for discretionary trust, and then confer wide power to Ts to add objects to the class - expandable! Width of latter class from which Ts can select subsequent additions will not invalidate the power. 1 Equity 2 Certainty Dispositive Powers, Standing and Enforcement,+- Re Manisty's Settlement, 1974: settlor added such a secondary power - to declare that "any person or...corporation or...or charity or...(other than xx) shall thenceforth be included in the class of beneficiaries". -note secondary power is still fiduciary in characterTs might refuse or are unable to exercise duties (inactive trustees) Can be ordered by court to exercise duty - always subject to inherent supervisory jurisdiction of a higher court. Court can probably appoint new Ts. Court itself will take over administration of trust as last resort. If court has to take over, old approach was equal division, rather than exercising discretion. This was acceptable for orthodox family trust without many objects, but inappropriate for Re Baden type. Hence in latter case, court ordered Bs to prepare scheme of distribution for court authorisation (Bs had better idea for distribution). 2) Mere powers of appointment (less control by settlor) * Donee has double discretion:- * *- 1) whether to make appointments at all, and if so 2) to which objects to make appointments, and in what amount Settlor leaves fund to Ts to hold on trust for his wife, for life, remainder to such of his children as Ts may in their absolute discretion select, and in default of appointment to his sister absolutely. Whether any further duties are owed by donee depends on whether donee is a fiduciary. FIDUCIARY POWERS OF APPOINTMENT Duties: 1) owes duty to consider, from time to time, whether to exercise the power. No obligation to exercise, but T must at least consider whether to do so. 2) T must exercise power responsibly for a proper purpose, without considering irrelevant considerations. Cannot simply "release" it 3) T must take responsible survey of potential objects, but less extensive/rigorous than that required of discretionary trustee - Re Hay's ST (less rigorous obligations to categorise/prioritise etc). Cannot make ultra vires appointments! When will a power of appointment be fiduciary?---Re Hay's Settlement Trusts, 1982 question of construction. Look at terms of trust instrument, and see if fiduciary duties were intended. Re Will's Trust Deeds, 1964 is donee also an object of the power? If not, probably is a fiduciary. If yes, then probably not, since if you exercise power for own benefit, would typically be a breach of fiduciary duty. Re Somes, 1896 is the donee also a trustee of the fund? If yes, probably a fiduciary. Idea that if he has powers of disposition over same fund which he manages as fiduciary trustee, then fiduciary duties will colour way in which he exercises powers as donee. What if T refuses to comply with duty to consider? Nothing much - court can order him to comply, but T can just say he considered but decided not to exercise. Mettoy Pension Trustees Ltd v Evans, 1990: extreme case where donee couldn't exercise power as a matter of law. Court will then stand in and exercise inherent supervisory powers - but reluctant to intervene in private discretionary gift-giving; only exceptional! Here, pension surplus and company gave itself power to increase range of benefits to employees. But company became insolvent, liquidator took over exercise of PoA, hence power was legally unexercisable - for liquidator to exercise it in favour of company would be in breach of fiduciary duties towards Bs. Court stepped in and treated power like trust, requiring Bs to submit scheme of distribution. NON-FIDUCIARY POWERS OF APPOINTMENT (even less control by settlor) 2 Equity 2 Certainty Dispositive Powers, Standing and Enforcement, Where testator leaves fund to Ts to hold on trust for his wife for life, should she survive him, remainder to such of his children as his friend may in his absolute discretion select, and in default of appointment to his sister absolutely. the friend is distinct from the trustees. Power of disposition vested in non-trustee. Duties/obligations: minimal! Just can't exercise power outside defined class of objects (no ultra vires), or for improper purpose. but NO duty to consider! Can do nothing at all, and objects will have no recourse.-- not duty to survey. Can give property to first object fitting description. can release power, allowing gift over to apply irrevocably and become fixed (rather than just applying in default of exercise)! Re Wright, 1920: must exercise power for proper purpose still - can't have fraud on the power wife had power to appoint remaindermen of property, and terms of power allowed her to exercise it in respect of blood relatives. wife exercised power in favour of brother. But she had done a deal with him - he would then make annual payment to herself (collateral benefit). wife herself was not object of the power - her benefit made the exercise of the power invalid.-[typical case where donee tries to confer collateral benefit on non-object of the power]-- Cf Re Somes, 1896: non-fiduciary donee can release power, allowing gift-over to take effect immediately. Doctrine of fraud on power does NOT apply to power to release - can be done for completely self-interested reasons. donee was father, with life interest in property - power to appoint remainderman in favour of daughter/her issue, and in default of appointment, property to vest entirely in daughter, father short of money, hence released power so that daughter had absolute remainder interest. Added to father's life interest, they were absolutely entitled, together. Then exercised Saunders v Vautier rights together, to get Ts to convey legal title to them and allowing father to mortgage property. later tried to unravel transaction saying it was for fraudulent purpose. But failed! Father was entitled to act entirely in self interest when releasing power. Hence the transaction was valid. Beneficiaries' and objects' rights * Who is the beneficial owner of the trust property?- * Whether or not the objects of a discretionary trust/PoA can be considered 'owners', or if they have any 'interest' in the trust fund, depends on the context of the question. Gartside v IRC, 1968: [Lord Wilberforce] approached this by splitting it into the internal and external perspectives. Issue here is whether object of discretionary trust had sufficient right in relation to property to have taxable economic value. INTERNAL: all B has is right to compel due exercise of T's duty - not a right with economic value. This is significant cos if object becomes bankrupt, there's nothing to be passed to trustee in bankruptcy. Only has "right to be considered as a potential recipient of benefit by the trustees". EXTERNAL: if T pays assets to third person who is not potential object, then as against third party, B does have vested fixed property right to make latter restore misapplied trust assets! Third party will be constructive trustee. But constructive trustee (third party) does not hold subject to all the same duties (eg. Surveying), which apply only internally, between B and express trustee. How about the beneficiary of a gift over in a PoA? If gift over is phrased as interest under fixed trust, B of gift-over might have vested interest (present right), albeit liable to be divested should donee choose to exercise power. If settlor does not specify gift over in default... Wilson v Duguid, 1883: donee died without exercising power, and there was no express stipulation of gift over in default of appointment. 3 Equity 2 Certainty Dispositive Powers, Standing and Enforcement, look to rule of construction in Burrough v Philcox (1840) - if you have settlor indicating general intention in favour of whole class of people (eg children), but there is only a power to appoint within that class, you then have gift over by way of fixed trust for all the potential objects of the power. But if power is exercised in favour of certain subjects, no more fixed trust. If power not exercised, though there's no gift over, children become Bs in equal shares by fixed trust - implied gift over!!! this is NOT a rule of law, just guide of interpretation.* Re Llewellyn's Settlement, 1921: life interest to husband and wife, remainder to such of their kids as they should appoint - no express gift over. Failed to appoint. Burrough v Philcox applied so entire gift over vested entirely and equally in children, subject to divesting should power be exercised. But note it might not even be possible to imply a gift over - if so, ultimate default position is for a resulting trust - brings beneficial interest back to settlor (undisposed beneficial interest). T will then have 2 statuses resulting trustee for undisposed portion, and also express trustee for power to appoint. Collective rights of beneficiaries under discretionary trusts/PoAs? Collectively, if absolutely entitled + full age and capacity, can exercise Saunder v Vautier rights. Re Smith, 1928: illustrates this in a case of a discretionary trust. Collectively, potential objects are absolutely entitled. T has obligation to exercise power of distribution at some point, in favour of at least one of the Bs. For PoA, can too, but must join the beneficiary of the gift over donee might decide not to exercise power at all. NB: for the mechanics of the process of transfer, once donee/T decides to exercise PoA in favour of one object, Nolan thinks the operation of the power must be separated into 2 aspects - at law and in equity. at law, B becomes legal owner because Ts are legal owners with power to alienate title. This transfer does not depend on the trust instrument/equity! B takes beneficially because an authorised disposition (by the terms of the trust instrument) will be overreaching in effect! Any beneficial interest of others is extinguished. The flip side is that if the disposition is ultra vires, only legal transfer of title - others will still have equitable right to recover property. This transfer is dependent on equity! THE 3 CERTAINTIES * * For the creation of a trust: property must be vested in T (completely constituted) + formalities complied with + three certainties must be present (intention, subject matter and beneficiaries). Ensure that the trust obligations are administratively workable and capable of policing by court (legally enforceable) Balance between settlor's freedom to express intentions, and need for trust to be workable. I) Certainty of intention * Important because it is settlor's unilateral decision to bring trust into being which gives rise to a trust. * * *Trusts can be created unilaterally: where Ts/Bs don't know they are trustees/beneficiaries. Equity will not allow trust to fail for want of a trustee - in testamentary trust, should Ts disclaim the intended trust, the property will fall to be held on trust by the executor/administrator. Must have intention to create a legally binding trust obligation. Question of construction of relevant documents/inference from settlor's words and conducts. Note a trust may be imposed behind a debt relationship, to ringfence assets against other debtors in case of insolvency (see Re Kayford and Re Farepak in later notes) but Insolvency Act 1986 ss238, 239: such declaration of trust by claimant/creditor might amount to voidable preference in his favour, though being effective on its own terms as a trust. 4

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