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Trusts Notes

Law Notes > LAWS203 Property Law Notes

This is an extract of our Trusts document, which we sell as part of our LAWS203 Property Law Notes collection written by the top tier of Univerity Of Otago students.

The following is a more accessble plain text extract of the PDF sample above, taken from our LAWS203 Property Law Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Trusts A trust is:

1. Relationship i. One of duties of trustee and rights of beneficiary against trustee + the world. ii. A 'juridical device', legal institution involving this relationship.

2. Fiduciary nature i. A duty on trustee to act for benefit of other party in relation to matters within the relationship's scope. ii. No personal profit from trust (unless instrument say otherwise) iii. No conflict of interest

3. Relationship with respect to property i. Where title to property is held by one person for the benefit of another. 1) Possession + title (equitable or legal) ii. Allows proprietary remedies

4. Equitable duties i. Stops legal owner (trustee) from claiming best right to property he has promised to deal with for benefit of another (with eq uitable title) Creation of trusts: i. Express trust, an objective manifestation of intention to create a trust must be found. 1) Need not be in writing, EXCEPT FOR LAND (s 25 PLA) ii. Constructive trusts: imposed by law for a reason other than to effectuate intention. 1) Circumvents form requirement for trusts relating to land (s 25 PLA) iii. Statutory trusts: imposed by statute, e.g. When someone dies intestate. Express trusts require three elements:

1. Certainty of intention i. Either settling on a trustee, or settlor declaring self to be trustee.

2. Certainty of subject matter i. Make certain and identifiable what is to be subject to the trust (and what is not) ii. e.g. 'the bulk' or my property, not sufficiently identifiable.

3. Certainty of objects (beneficiaries) i. Who are the beneficiaries?
ii. How are they to benefit?
Paul v Constance - informal, express trust Mr Constance and Paul had de facto relationship, shared bank account which included mostly C's money, but also shared bingo winnings. Mrs C claimed the money after Mr C died intestate, while Paul claimed the account was held on trust by C for the benefit of both of them jointly. C's words declaring trust: "the money is as much yours as mine." C's actions declaring trust: C intended P to be able to take out money, joint winnings deposited, withdrawal jointly used,

Held: Intention to transfer by one mode (e.g. Gift) will not give effect it a transfer by another mode (e.g. Trust). There must be a clear declaration of trust - clear evidence from what is said or done so that someone else acquires a beneficial interest in property. Court needn't find exact words - lay people are not lawyers, we must regard the substance and effect of words used. There was a trust, not necessary to pinpoint specific moment of declaration. Different interests in a trust: Nature of beneficiary interests Vested Where an interest is definitely going to be held by the beneficiary at some point in the future. e.g. "to my wife, then to my children" If beneficiary dies before testator, then on wife's death the property will pass to the child's estate, as if they already owned the capital. Contingent When the existence of an interest is contingent on the fulfilling of a condition (e.g. Of being alive when testator dies) If condition is not fulfilled, the property will not pass to/benefit that person. Discretionary When trustees have discretion to choose which beneficiaries are to benefit from the trust property
* Concurrent interests (beneficiaries with concurrent interests):
? Joint tenancy
# "Right of survivorship": If concurrent owner dies, the share of each other joint tenant enlarges to absorb share of the decea sed.
? Tenancy in common
# Each co-owner owns just his or her own share, despite division not yet having taken place. If concurrent owner dies before division, interest goes to estate of deceased.
* Interests in succession
? Life interest: an equitable interest limited to a specified time period.
# Time period need not be for life - e.g. 'for 20 years'.
# Trust with only a life interest = incomplete, law implies such trusts back to the settlor - a "resulting trust"
# Can't have infinite line of successive life interests, due to the rule against perpetuities (to stop a deceased settlor from controlling property indefinitely)
? e.g. "to A for life, then to B for life, then to C absolutely"
# All beneficiaries have an interest now (unlike contingent/discretionary beneficiaries)
# A has a "life interest in possession", by default is entitled to income from trust property.
# B has a "life interest in remainder", and will usually eventually have a life interest in possession.
? While in remainder, still an interest - a valuable asset, can be transferred.
? Those with life interests want maximisation of the trust property's income.
# C is a 'remainderman', indefinite interest, will want trustees to maximise trust's capital. Property Page 11

? Those with life interests want maximisation of the trust property's income.
# C is a 'remainderman', indefinite interest, will want trustees to maximise trust's capital.

Constructive trusts Where the courts construe a trust from the circumstances of the case by asking whether in good conscience the claimant ought to have some interest in the property legally owned by the defendant. Depends on what the parties reasonably expected from their relationship. Gillies v Keogh An interest can only arise by constructive trust if a reasonable person in the claimant's position would have understood that s/he was to receive one. This has the same effect as looking for unconscionability, estoppel, unjust enrichment, unfairness etc. Look to reasonable expectations in respect to following factors:

1. Degree of sacrifice of the claimant 1) The length of the union (between de facto partners) creates a presumption, due to giving up other opportunities

2. Value of the broadly measurable contributions of claimant compared to benefits received

3. Whether parties have made their own property arrangements 1) No reasonable expectation arises, despite sacrifice, if other party positively declined to share property or other rights. Gillies had bought house while in relationship with Keogh, had made it clear that the house was hers and hers alone. Keogh had contributed towards renovations on the house, but... In these circumstances, one cannot say a reasonable person would understand that he was acquiring an interest. Note: Property Relationships Act 2002 changes the law in terms of de facto partners, but not the test of constructive trusts. Lankow v Rose Elements: Must show:

1. In/direct contribution to property 1) Not enough for claimant to show a contribution to relationship: must show in/direct contribution to the property at issue.

2. An expectation of an interest in the property

3. That the interest was reasonable 1) Here, defendant had never discussed beneficial ownership while living together for 10 years.

4. That the defendant should reasonably yield claimant an interest 1) (Court considers defendant's conscience) If 4 points can be shown, equity will regard a denial of claimant's interest as unconscionable. Contributions: Direct financial contribution to acquisition/mortgage/property value will qualify. Indirect contributions will qualify if they:

1. Assist in the acquisition, improvement or maintenance of the property or its value

2. Help the other party acquire, improve or maintain the property or its value. a) e.g. By paying for groceries while other party pays mortgage. "Contributions in the home may qualify as contributions to the home" Result: L claimed 50% of beneficial interest in house ($15000) Duties of an (express) trustee Trustees are jointly and severally liable.

1. Duties of obedience to trust a. Hold and distribute assets as directed b. Duty of even handedness between beneficiaries i. Default: benefit both life tenants + remaindermen, maximise income + capital. ii. Easily and commonly modified by trust instrument

2. Duties of prudent ownership a. Duty to invest prudently i. General prudence: Need to know what the assets are, what they are worth, etc. a) When to sell assets, how to produce income ii. If duty neglected, remedy against trustees personally. iii. Duty of diligence

3. Duties of loyalty Prudent ownership: Trustee Act 1956 S 2(4) Powers in Act are in addition to those in trust document, as far as they are not contrary to trust document. S 13A Trustee has power to invest any trust funds in any property S 2 Property includes real and personal prpoerty, estates, shares, interest in property, debt, anything in action, any other righ t or interest. S 13B Trustee must exercise care, diligence and skill that a prudent person of business would exercise in managing another's affair s. S 13C If a trustee's profession includes acting as a trustee/investing others' money, must exercise diligence of a prudent person i n that profession. S 13D Trust can vary the duty of care required of a trustee in ss 13B,C. S 13E Factors to guide trustee's exercise of power of investment. Diversification, nature of investments, maintenance of capital/income, depreciation, appreciation, income return, length, dur ation of trust, marketability, aggregate value, tax liability, inflation. S 13M Court may take into account investment strategy

S 13Q Power of Court to set off gains v losses from investment Now, can invest in a risky area (high income, risky for capital) which may lose money, but look to total, overall loss in con sidering breach. Re Mulligan - leading case on prudent investment, impartiality between beneficiaries

Property Page 12

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