Introduction to Trusts Associate Professor Cameron Stewart
Defintion • A trust exists when the titleholder of property is obliged to deal with that property for the benefit of another person
Elements • 1. the trustee — a legal person who holds a vested legal title (or a vested equitable title) in the property, subject to fiduciary duties; • 2. trust property — property in real or personal form which is identified or ascertainable and capable of being held on trust. The trust property can be legal or equitable property; and • 3. the beneficiary (sometimes referred to as the cestui que trust in older cases, or the object of the trust in modern cases) — a person, or group of persons, who hold a beneficial equitable estate in the property and on whose behalf the trustee must act.
Definitions • It should be noted that the person who creates the trust during their lifetime is usually referred to as a settlor. Such a trust is often described as an inter vivos trust or a settlement. When the trust has been created in a will, the creator is the author of the will, namely the testator (if male), or testatrix (if female). A trust created in a will is referred to as a post mortem trust. In this and following chapters, the word creator will be used as a collective term to cover both settlors and testators/testatrixs.
Actors in the trust • 1. creator; • 2. trustee; and • 3. beneficiary • The three legal actors need not always be different legal persons. It is possible for a creator and a trustee to be the same person, for example, when a trust is created by declaration of trustSimilarly it is possible for a creator to be a beneficiary, in cases where the creator instructs the trustee to hold the property for his or her benefit.
Actors in the trust • A trustee might also be a beneficiary, but only in situations where the trustee is one of a number of beneficiaries. It is impossible to be the sole trustee and sole beneficiary because once a person owns complete legal and equitable estates they are said to merge together, leaving no distinction between the legal and equitable estates
Henry and the purse strings Taxation in Tudor England – feudal tenures Primogeniture Devising land by will The legal remainder rules History of the trust
The use A --------------------------B --------------------C (Landowner) (feoffee to use ) (cestui que use) Legal estate Beneficial estate CL Equitable
The Statute of Uses 1535 • Collapse the use • Springing uses • The use on the use • Equity creates property where there was none before……
The three species of trust • 1. express trusts; • 2. resulting (or sometimes referred to as implied) trusts; and • 3. constructive trusts.
Contracts and trusts • Gosper v Sawyer (1985) 160 CLR 548 at 568–9; 58 ALR 13 at 26, Mason and Deane JJ stated: The origins and nature of contract and trust are, of course, quite different. There is however no dichotomy between the two. The contractual relationship provides one of the most common bases for the establishment or implication and for the definition of a trust.
Fiduciary relationships and trusts • Trusts are a subset of fiduciary relationships and the duties owed by trustees to their beneficiaries are fiduciary in character • Fiduciary duties and obligations of trust are not mutually exclusive. A person can owe separate and co-existing fiduciary and trustee obligations
Deceased estates and trusts • Executors of deceased estates occupy a similar function to trustees. Executors, like trustees, are fiduciaries. However, an executor’s duties exist in relation to the proper administration of the deceased’s estate
Bailments and trust • A bailment only confers a weak possessory title on the bailee. It does not create a trust as the bailee does not take a vested title in the property
Agency and trust • An agency exists where one person (the principal) authorises another person (the agent) to act as the principal’s representative. The actions of an agent bind the principal. Like bailments, agency agreements are based in contract
Debts and trusts • The position of creditors is therefore very different from that of beneficiaries. Beneficiaries have equitable interests in the property held by the trustee. Creditors do not have an interest in their creditor’s property. A creditor only has access to common law remedies to pursue the debt • The institutions of debt and trust can co-exist in the one transaction if there is a common intention that funds will be held for specific purposes eg Quistclose
Securities and trusts • Debts will often be secured. This means that the debtor has agreed to give the creditor a proprietary interest in one or more of his or her assets. Should the debtor not pay, the creditor can realise the security by taking possession of the secured property or by ordering that it be sold and the proceeds be used to satisfy the debt.
Securities and trusts • The equitable charge is very similar to a trust. An equitable charge is a form of security that allows the creditor (chargee) to order the sale of the property, after a triggering event, like default of payment. The proceeds of sale can then be used to satisfy amounts due to the chargee
Securities and Trusts • The equitable charge is very similar to a trust. An equitable charge is a form of security that allows the creditor (chargee) to order the sale of the property, after a triggering event, like default of payment. The proceeds of sale can then be used to satisfy amounts due to the chargee
Securities and Trusts • If the transferor intends that the title be transferred, ‘subject to’ payments being made to another, then it will be construed as a charge. For example, property might be given ‘to A subject to A paying B $1000’. This transfer evidences an intention that the obligation to pay is annexed to property as opposed to being a fiduciary obligation imposed on the transferee. The obligation is of a finite nature. It is satisfied after compliance. As such it is not of the same extent and duration as the trustee’s fiduciary obligations to care for the beneficiaries’ interest in a trust
Conditional dispositions and trusts • Transfers of property, which are subject to obligations being fulfilled to third parties, will ordinarily be viewed as equitable charges. • If a transferor of property indicates a motive, hope or expectation that the property will be used in a particular way, the condition will be viewed as precatory and import no legal or equitable obligations. For example, gifts made in the belief that ‘justice will be done to my relatives’ will impose a moral obligation which has no force: In the Will of Warren; Verga v Taylor  VLR 325
Conditional dispositions and trusts • However, if the transfer is made subject to a binding condition precedent, the transfer will not take place until the condition precedent is satisfied: Re Gardiner(dec’d)  2 NSWLR 494. If the condition is a condition subsequent the property will be forfeited if the condition is not fulfilled: Dal Pont and Chalmers (2004) at 434-5. If the disposition states that the obligation is to be fulfilled within a time period it is viewed as a condition precedent: Re Gardiner(dec’d)  2 NSWLR 494 at 498, per Helsham J.
Conditional dispositions and trusts • In cases where the conditional disposition is possibly a charge, condition precedent or condition subsequent, courts prefer to view the disposition as imposing a charge. It has been said that a conditional disposition will be treated as taking effect as a charge even where words of condition are used: Re Gardiner (dec’d)  2 NSWLR 494.
Retention of title clauses and trusts • Romalpa’ clauses, are contractual clauses used in the sale of goods. They allow suppliers to retain title in delivered goods until such time as full payment has been made: Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd  2 All ER 552
Retention of title clauses and trusts • , Romalpa clauses operate very much like a bailment and are therefore quite distinguishable from a trust relationship: Dal Pont and Chalmers (2004) at 424. However, where the goods have been mixed with other goods or used in a manufacturing process or sold, Romalpa clauses can operate like a trust or a charge.
Powers of appointment and trusts • In a power of appointment, the titleholder of property (the donor) gives another person (the donee) the power to deal with, or dispose of, the property that is the subject of the power. Normally the power will allow the donee to transfer the property to a third party who can be chosen from a class of people specified in the power (the objects of the power). Unlike a trustee, the donee of a power is not usually given the title to the property
Powers of appointment and trusts • 1. general powers, where the donee is empowered to appoint the property to anyone including himself or herself; • 2. special powers, which are powers to appoint the property to specific individuals or classes of objects, not including the donee; • 3. hybrid powers, where the donee can give the property to anyone in the world except for a particular group or class or individual; and • 4. intermediate powers, where the donee can add to the specified class of objects in the power.
Powers of appointment and trusts • Why does the distinction between trust powers and mere powers matter? Both mere and trust powers are required to describe their objects with sufficient certainty. It used to be the case that trust powers and mere powers were subjected to different tests of certainty
Problem • Characterise the following dispositions contained in Jock’s will: • 1. I give my Rolls Royce to Isaac, and on the condition that Isaac pays my debts to Christos. • 2. I give my house in Brewarina to Pauline absolutely, with the hope that she shall allow my mother to live there until she dies. • 3. I give $25,000 to David, to be used for the costs of educating Millie and to be hers absolutely when she attains 21 years. • 4. I give the residue of my estate to Frances who may, at her absolute discretion, give such residue to anyone she thinks fit, barring herself, Isaac, and Pauline. If Frances fails to dispose of the residue in her lifetime, it shall become the property of Millie.