Wills And Trusts Study Notes

Wills and Trusts | 2010 1st March: Trusts: Three main players: 1. Settlor 2. Trustee 3. Beneficiaries Relationship between settlor and trustee: - Contractual relationship - Transfers legal ownership of property - Trustee holds it for the benefit of the beneficiaries - Settlor establishes terms on which trustee holds property - Trust deed/instrument - need it when the trust is about land. Don't need any particular words, only needs to be in writing. Relationship between trustee and beneficiaries: - Fiduciary relationship - relationship for benefit of beneficiary, with obligations and duties that attach - Must act in best interests of the beneficiary - Duty not to benefit from the trust (other than charging clauses) - Trustee can be a beneficiary (one person can have all three roles). Can't be the sole beneficiary though, because you would only owe duties to yourself. The legal and beneficial ownership wouldn't be separated. Kennan v Spry, HC Aus: - Spry QC, the author of "equitable remedies", tried to do unacceptable things with his trust - He was the only settlor and the only trustee - Initially there were four beneficiaries (wife and three kids) - But the trust had been set up ten years before the wife existed! There is growing unease about some kinds of family trusts, where the couple are trustees, settlors, and primary beneficiaries. The settlor sells the property to the trustees, and then forgives the debt over a period of years. To avoid gift duty (tax), you sell the property, then forgive the debt. Beneficiaries have rights - they can sue the trustees personally for mismanagement. They have some proprietary remedies, such as tracing. They also have some personal obligations and remedies, as well as the proprietary remedies. A third party involved has the bona fide purchaser for value without notice (good faith) defence. One of the most important powers that settlors frequently retain and exercise is the power to appoint and remove trustees. Purposes for Trusts: ? Protect from creditors/spouses/partners/IRD/asset-means testing ? Provide for others, e.g. vulnerable family members, education, successive interests, pension schemes Wills and Trusts | 2010 ? Manage businesses or organisations, e.g. farms, trading trusts, charities 3rd March: You have to have three certainties to create a valid trust: 1. Certainty that the settlor intended to create a trust 2. Certain of what the trust property is 3. Certainty of who and on what basis the beneficiaries are supposed to benefit Intention: Express Trusts are a manifestation of this intention. Implied Trusts/Trusts by Operation of Law: - Resulting trusts: 1. Incomplete disposition of capital 2. Voluntary disposition 3. Presumed intention: i.e. that the property will go back to the settlor, or that the property is to be held at least in part for your benefit - Constructive trusts: 1. Good conscience - Gillies v Keogh - Normally if you contribute to the value of something in money and time, a constructive trust will be imposed if the parties "reasonably expected" that the property would be shared. In this case, she made it clear that the property would be hers - there was no reasonable expectation. 2. Tracing - Once you trace property and identify it as yours, the court can impose a constructive trust. - Statutory trusts: 1. Intestacy Rules - say who it will go to and whether the estate will be held on trust for others. Express Trusts: Intention to create trust must be certain. Expressed intent can be in writing (e.g. Pillsbury trust deed, or will), or can be oral, e.g. "I give you $10,000 for the benefit of your son's education." Inferred intent can be from conduct and statement. E.g. Paul v Constance - "this money is ours". They weren't married, and the bank account was in his name. They had treated the money as theirs, not just his. The court found there was an express trust declared by Mr Constance. Re Burton: I give and bequeath all my money unto my wife... when she is finished with it, I desire that it will be divided equally between my two children. Is it an absolute gift? Or a life interest? If it was an absolute gift she could do with it what she liked. "I desire" = expressing a wish, not imposing an obligation. - Life interest? Erwood v Maxstead 1979: Mother wrote to solicitor: "It is my wish that my sons Frederick and Robert Erwood shall be able to remain in the house at Waimea Rd for as long as they wish". 1983: Mother sold house to another son, Edward. 1987: House registered in his name Wills and Trusts | 2010 2003: Edward dies, leaves house to Janet. Told Robert to vacate. Did the 1979 letter create a trust? If so, could Robert enforce it? She said "wish", and "shall be able to". Stronger than "desire", but still not strong enough to create a trust. If there was a trust, would it be enforceable against Edward? He could argue bona fide purchaser for value without notice? Then Registration, under the LTA - even if there was a trust, if he wasn't fraudulent, registration gives him an indefeasible title. When Janet gets it she would get the indefeasbile title. The LTA may trump interests that other people may have had. Fraser v Walker: Mortgaged house without husband's permission, forged his signature, defaulted on the mortgage, property sold to Walker. Rodomskys were not guilty of fraud, but she was. Walkers acquired indefeasible title. Palmer v Simmonds 1854: "As to all the residue of my estate, I give and devise the same unto TH for his own use and benefit, as I have full confidence in him that if he should die without issue he will leave the bulk of my residuary estate to the said William..." "The bulk" = the greater part = unclear. Uncertainty of property. Void for lack of certainty of subject matter. "I have full confidence" would have been okay in 1954, but would no longer suffice today. If you are establishing a trust of land, you have to have it in writing, s25 PLA 2007. A trust created through a will will also need to be done in writing. The will must comply with the Wills Act. Property must get into the hands of the trustees. Land must be transferred through the LTA. Chattels are transferred through sale/gift - s18-24 SGA. Ownership passes when the parties intend it to pass, which doesn't necessarily occur on delivery. Gifts - Intention to give, intention to receive and delivery. Pennington v Wayne, "unconscionable to revoke", Milroy, "done everything the donor has to do to complete the gift." Perpetuity Rule: Trust can't continue indefinitely. There has to be a finite length of time. Perpetuities Act. 10th March: Guest Lecturer - David Fox. An express trust is rather like a contract. Operates in equity. Beneficiaries are not parties to the original contract. 'Freedom of trust' - Can define any interest or any duty. Trustee as fiduciary - not allowed to benefit. Can include a charging clause to contract around the general law. Need to read a trust deed to know what the particular trustees' duties are. The rules are different overseas. Purpose trust - can make different rules aply to your trust. Good enough if one trustee can hold Wills and Trusts | 2010 another trustee accountable. How far can a settlor go before the court will say no? The 'come off it test' Armitage v Nurse: General duty of care for the trustee (Speight). Prudent person rule. Paula alleges by fault of trustees, she lost out. Formal exemption clause in trust instrument, saying that they were not liable for negligence. Can they remove this duty? Trustee has full licence to be negligent - settlor can exclude that duty of care. 'Minimum functionality' as a trust. The minimum duties necessary to give substance to the trust. Trustees need to have duties so as to have the meaningful position as non-beneficial owners. Morice v Bishop of Durham: - Must be a beneficiary to supervise - Must be under control of the court Leahy: - "Irreducible core" of duties. e.g. Duty to account. Certainty Rules: Duties are owed by the trustee, but also certain basic rules that the settlor has to follow. If the settlor doesn't comply, the instrument will be void. Re Gulbenkian: Certainty of objects. "Class of potential objects sufficiently certain, so as to execute the trust." Basic test of functionality. A duty to prioritise/determine the objects of the trust. If your instructions are meaningless, you can't do anything. Bargain between settlor and trustee is a legally binding arrangement. If the deed isn't functional, you can't do much. Need to be clear. - Certainty of intention - Certainty of subject matter - Certainty of object Hunter v Mors: - 80/950 shares - Court said it doesn't matter whether the settlor identified specific shares. All shares are the same. Third party aspect. What if 50 shares are sold to a third party, then the money is spent, and the person who sold goes bankrupt. Who's shares did he sell? Court will imply a term that makes the problem better - minimum balance of 50 shares for the beneficiary. "Try harder" - court is intervening in private bargains. Constitutional function of the court. Only a court's function to interpret, oversee and enforce the bargain. Wills and Trusts | 2010 15th March: Certainty of Objects: Trustees need to know who they are holding the property for, and how they are supposed to benefit. Those who want to benefit from the trust but not 'own property' want to make sure they don't have a vested interest or a contingent interest - only want to have a discretionary interest. Fixed Trust: - No discretion for trustees - Distribute to children - have to find out who the children are. - Children obtain vested interest in the property before the property is distributed. They have benefical ownership - Creditors can claim it. Discretionary Trust: - Trustee is to decide how to distribute between all the children, and/or the discretion can be as to which children will benefit and how they will benefit. - In the first situation, they will have a beneficial interest in the property - In the latter, they will not. Absolute Discretion: - Trustees don't have to do anything - They have to decide 'who counts as family' - And then they can decide who gets how much - The 'family' definition is too wide - could not be a valid trust Court doesn't tend to make trusts work if they are unclear - but some courts do try to salvage things. They may look at the instrument as a whole. May be clear from wider documents whether wide or narrow meaning was meant. Re Gulbenkian Settlements: Father settled the trust for maintenance and personal support on benefit of all or any one or more of the following: NG (Son), any wife, children and remoter issue of NG; and Any person(s) in who's house or apartments, or in who's company or under who's care or control N may be from time to time employed or residing... in such proportions and in such manner as the trustees in their absolute discretion. Can you ascertain who these people are going to be? - Not really But you can ascertain remoter issue even if they don't yet exist. You don't know who the people will be in the second part? - Held not void for uncertainty. Establishes a power to distribute income, not duties. - They could decide not to do anything Court said because they have a power, need to establish whether a particular beneficiary qualifies or not. Don't need to establish a whole list. Test - 'Criterion' test. Can you say about any person with certainty who qualifies? Yes. Could show that they cared for, employed, or lived with NG. - Trustees obligation in order for trust to function is to survey the potential beneficiaries at Wills and Trusts | 2010 any given time. - There is no duty to actually distribute the income. Discretion too wide? - Still owe a trust - may not be entitled to own property, but can hold trustees to account. - If they fail to consider or misapply the money to someone else. Duty to administer capital to people within the inside of the trust, not people outside. - Have a property right which they can enforce - can trace property if misapplied by the trustees. Gulbenkian established that if you have a power to distribute, the criterion (certainty) test is used, and you don't need to draw up a complete list of beneficiaries. McPhail v Doulton: - "Trustees shall apply" - Under an obligation to distribute. - Obligation to act. - Different category to Gulbenkian. - Wanted to extend the Gulbenkian test to discretionary trusts. Difference between a mere power and a trust is that a power does not force them to act. HL in the end accepts that the Gulbenkian test should be applied to discretionary trusts for certainty of objects. Criterion test - must be certain that any given individual is in or out of the class of beneficiaries. Broadway Cottages: - Said needed complete list of beneficiaries - court could only divide equally so would need a complete list. Discretionary Trusts: - Trustee has duty to act - Must survey wide range or potential beneficiaries - Court will compel performance of duties - Court will execute trust per settlor's intention Powers: - Trustee has power to act - Trustee's duty to survey range of beneficiaries but not as wide or comprehensive - Court will not compel performance unless: Trustee exceeded powers, or possibly if they acted capriciously (no reasonable person would have acted in this way) e.g. Brackstone v Whitney: - Plaintiff, Mr's B's costs of residential care exceeded her income from superannuation and her husband's estate. - Wanted to compel the trustees to give more capital so there would be less dependence on the state. - All of the income was to go to her, then after death the residue would go to the children. If the income is insufficient, the trustee may supplement the income with capital (power to invade the capital). This would occur at the expense of the residual beneficiaries, the children. Wills and Trusts | 2010 - Mrs B - has no particular needs, is very old. Trustees said no, because she is actually fine. Court said no. Provision leaves discretion entirely up to the trustees. Can't compel the trustees to give the money. How could you compel? Change the law. 17th March: Challenging Trusts: Trusts as protection against: creditors, relationship partners, the state. If something goes wrong, they can say that they don't own anything, because it's all in trust. Need a valid trust and want to have no property interest in the trust. Need the trust to be discretionary. Even though they have no property, but they are in control (beneficiaries, settlor, trustees) Structure is coming under closer scrutiny. Social Security Act 1964: Gives WINZ the right to assess whether an applicant has assets or income available to them above the limit. Assets-means testing. They don't look back more than five years. WINZ has the right to investigate whether or not they disposed of any assets. They are beginning to go back more than 5 years. If you genuinely no longer own it, then you are in trouble. You will be deemed to still own it. Creditors: s194 Insolvency Act, s348 PLA 2007, Common law. Relationship Partners: PRA, ss 44, 44C, 44F, 47. Common Law. Sham Trusts: - Jurisdiction which has raised its head recently, because of the trusts that are around more often now. - Not a genuine trust, looks like a sham. Sham trust - void, never intented to become a trust. Snook: Dictum cited every time. Acts done or documents executed intended to give the appearance of a different situation of rights and duties than what was intended to be created. All parties must have a common intention that the acts or documents are to be a sham. Trusts are slightly different. Establishment of the trust only depends on the settlor's intention. Official Assignee v Wilson and Clyma: - Involved a person who was bankrupt - Mr Reynolds - He had been bankrupt before, discharged from his first bankruptcy. - Decided to buy a house, and so put it into trust. He was an entrepreneur in risky business. - Went to lawyer, lawyer said to nominate persons as trustees to buy the house. - Mr Reynolds nominated his defacto partner's mother, and the lawyer as trustees. - The beneficiaries were the children. - They all moved into the house, but with no lease agreement or anything from the trust - so it

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