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Topic 1: Trust Classification
Trust: A relationship whereby a nominated person (trustee) is bound by an obligation to hold certain property for the benefit of another (beneficiary) (Jacobs).
Inter Vivos trust: A trust established during the lifetime of the settlor, effective immediately.
Testamentary trust: A trust established by will, effective upon the death of the settlor.
Trust by transfer: The settlor appoints another individual as trustee and must transfer trust assets accordingly.
Trust by declaration: The settlor appoints himself as trustee and no transfer is required.
Topic 2: Creation of Trusts
[X] is purporting to create a [type] trust. To be valid, there must be certainty of intention, subject matter and object (Knight), and compliance with statutory formalities and constitution of the trust property.
- If the trust fails for some reason, the property will go back to the settlor (T would hold on RT for S if trust by transfer) or be disposed of by the rest of the will.
- If a valid trust is created, there are binding consequences and it is too late for the settlor to change their mind (Mallott) – where T disclaims trust, reverts to S but trust does not end – S holds on trust 1. Certainty of Intention
1.1. Introduction
In order for the trust to be valid, [S] must have shown an immediate intention to create an legal arrangement with the characteristics of a trust, whether or not those words were used (Harpur v Levy). The onus is upon [B/one seeking trust] to demonstrate these elements exist (Byrnes).
If intention to create trust in future: If the intention is to create a trust in the future, certainty of intention fails unless consideration was paid and [S]’s conscience can be bound to complete the promised future transaction (Harpur v Levy).
- Consider whether the settlor has used explicit written words, inexplicit written words, or oral statements and actions only.
1.2. Explicit Words
[B] will argue the trust language used here [e.g. on trust] are an equivocal manifestation of [S]’s intention (Byrnes). Where there is an unambiguous, explicit declaration of trust, intention is satisfied (Byrnes per French CJ).
[X] will argue that the words are merely precatory and do not amount to an intention to create a trust (Countess of Bective).
- Have regard to the words used by the settlor and consider whether they convey a sense of obligation and compare the strength of terms used in different clauses.
- Question whether there is intention to create a trust or some other kind of legal relationship:
o E.g. a gift on equitable condition (Countess of Bective; Gill v Gill; Cobcroft) or a gift on legal condition (Re Gardiner).
o Equitable condition – keep the gift but can be sued. Legal condition – lose the gift.
Factors for intention:
- “Upon trust”( Byrnes)
- “On the understanding that” (Hayes)
Factors against intention:
- Precatory words (words
expressing hope or confidence)
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- “Look after her after I am gone” (Chang)
- “The money is as much yours as mine” (Constance) o Intention despite money put in personal acc
- Husband signs deed stating he holds half the share for wife (Byrnes)
- Father opens bank acc to get income then leaves to son (Armstrong)
- “Trusting to her” (Dean) - “In fullest confidence” (Re
Williams)
- “Feeling confident that”
(Mussoorie Bank)
1.3. Implicit / Ambiguous Words
A lack of explicit and unambiguous trust language is not fatal as laymen are not expected to use the formal language associated with creation of a trust (Constance).
Here [S] has arguably used informal/ambiguous words of [WORDS] in [DOCUMENT], thus we must examine the intention manifested with reference to the circumstances of the case (Brynes v Kendle).
[B] will argue that the words, considered in light of [INTENTION TO BENEFIT B] demonstrated [S]’s intention for [B] to benefit from [PROPERTY] and thus certainty of intention is present (Re Armstrong).
- Can interpret the words based on the balance of the deed (Harpur): where the other terms use [trust language] absent here, it may indicate unlikely intention to create a trust (Re Williams).
- Settlor need not know the relationship is one of trust (Re Armstrong)
- Courts reluctant to impose a trust in family relationships (Re Williams); potentially may create an alternative legal relationship (Cobcroft).
- Requirement to keep trust assets separate would demonstrate a trust obligation c.f a contractual one (Korda)
1.4. Oral Statements and Actions
Here [S] has not used any written words and [B] is alleging a trust was created orally. Accordingly, we must examine all the circumstances of the case to determine if the intention manifested (Brynes v Kendle).
Paul v Constance
- Facts: C paid winnings into a bank account that he could not open jointly with his de facto, P.
P was made a signatory. C orally said several times “the money is as much yours as mine”.
Money was only withdrawn to purchase shared furniture.
- Held: The words “as much yours as mine” considered in light of:
o the manner of use of the funds for shared matters only;
o the failed attempt to create a shared bank account (evidenced by bank manager); and o C’s lack of sophistication / knowledge of the technicality to create trust,
- This meant an intention to confer a benefit upon P and create trust could be inferred.
1.4. [X] will counter and say a trust was not intended.
[X] will argue that the words are merely precatory and do not amount to an intention to create a trust (Re Williams; Dean)
- Use of trust language elsewhere may indicate a lack of intention (Re Williams) Dean v Cole
- To my wife “trusting to her that she will...divide in fair just and equal shares between my children...all such part ...of my estate as she may be in the use and enjoyment of”
- HELD: merely precatory words she is basically getting full ownership of the property there was no enforceable obligation to divide the property
Re Williams
- Estate left to deceased’s wife absolutely “in fullest confidence” that she would leave two items to their daughter Lucy on death.
- HELD: precatory words only words of wish/hope/prayer and not imposing an obligation of the wife to do any particular thing. Further, the whole document quite clearly suggests that wife meant to get capital, not just life interest.
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Topic 3: Quistclose Trusts
Where a lender loans money on the basis of a “shared mutual intention” with the borrower that it be used for a specific purpose, a quistclose trust may arise (Quistclose). Here [S] has given money to [T]
for [specific purpose] which has failed because [failure]. [S] should argue that both s/he and [T] had a mutual intention that the borrowed moneys would never form part of the assets of [T] and they ought therefore be held on trust for [S] (Quistclose).
- NOTE: There is always a breach of contract action available given the loan context of a QCT (therefore if advising say they can go after them on the basis of breach of K)
1. Mutual Intention
Per Quistclose and AETT, the court will look for objective mutual intention. OTF…
Factors for a QCT
- Special bank account created for the specific purpose (Quistclose) o More generally has to be kept in a separate account (Barclays)
BUT mere request to put money in separate account is NOT enough (Barclays)
o Quistclose money held in separate account. Clear intention parties didn’t mean for it to be property of RR
- Language is imperative e.g. “exclusively”, “only” (Quistclose) - Lender would not have transferred money except for stated purpose
(AETT)
- If a lender makes a loan on written conditions and the borrower accepts, this will evince an intention to borrow on those terms - In writing – this is not required but helps show a mutual intention - Unclear how a mutual intention would be established when the
intention is expressed by a lender in the will given it is a trust power – probably have to ensure that trustee is conforming by this
Factors against a QCT - Language is
preferential not imperative (AETT) - Money mixed with other assets (AETT) - Lender would have
given the money independent of the specified purpose (AETT)
- Agreement that the money can be used for any purpose (AETT)
- Dal Pont: if a lender makes a loan on written conditions and the borrower accepts, this will evince an intention to borrow on those terms.
2. Effect of Quistclose Trust
There is judicial uncertainty as to what type of trust this creates. In Twinsectra the House of lords found that a resulting trust is formed in such a case, as the [borrower] has obtained legal title to the [money] but holds it on trust for [lender], subject to a power to use it solely for the [mutual
objective]. Contrastingly in Australia, in Gillepsie-Jones it was found that there is an express trust that forms. There is a primary trust as the [borrower] holds [property] on trust for mutually intended purpose. And a secondary trust (arises if the primary trust fails and the money is used for another purpose) because the [borrower] has obtained legal title to the [money] but holds it on trust for [lender].
In any event, [the lender] has a beneficial interest in [the property].
However, the difference in the approach will make a difference in the following:
No identifiable beneficiary
The first express trust needs to satisfy certainty of object and the purpose may not do so.
Loan of land s 53 would require the creation of a trust over land to be in writing. However, a resulting trust is not creating a new interest.
Bare Trust Does that mean the lender can demand repayment immediately? Even contrary to the loan agreement?
Intention Quistclose looks to mutual intention, resulting trust is an absence of intention.
If resulting trust is correct, intention of lender is only relevant intention.
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Topic 7: Trustees’ Duties
Introduction
Trustees have a number of duties which stem from different sources, including the trust instrument, general equitable principles (e.g. fiduciary law), and the Trustee Act 1958.
Trustees’ main duties are to (Green v Wilden):
- Adhere to the terms of the trust deed;
- Act fairly by beneficiaries and keep proper accounts;
- Exercise prudence in conducting affairs of trust;
- Adhere to profits and conflicts rules; and
- Disclose information to beneficiaries (but qualified – see below).
The trust instrument is supreme. Per s 2(3) Trustee Act, powers, duties, immunities given to trustees by the Act are in addition to any in the trust instrument. Further, with few exceptions, trust deed can
‘contract out’ of duties imposed by equity or statute.
However, there are some core duties which cannot be altered by the trust instrument:
- To perform the trust honestly and in good faith for benefit of the beneficiaries;
- Adhere to the terms of the trust; and - To keep and render accounts.
On the facts, [T] may have breached [duties] owed to the beneficiaries, [Bs].
Duties
Duty Page
Adhere to terms of trust 29
Get in trust property 30
Not to mix trust assets 30
Equitable duties: self-dealing, fair-dealing, act gratuitously, profits/conflict 30 Duty to act personally (and not fetter discretion/act under dictation) 32 Common law rules to act in best interests of beneficiaries 33
Duty to act impartially 34
Duty to act with reasonable prudence 35
Statutory investment duties 36
Duty to keep accounts and inform 40
Duties re exercising powers and discretions 42
1. Duty to adhere to the terms of the trust
The paramount duty of [T] as trustee is to abide by the terms of the trust deed (Pikos Holdings).
The trust deed can override most of the statutory or equitable duties owed (s 2(3) TA).
Here [T] has arguably not complied with clause [#] and its requirement that s/he [FACTS]. This is evidenced by [FACTS] and will give rise to a breach of duty if made out.
Trustee must familiarise themselves with the terms of the trust deed and sort out any issues of invalidity and determine obligations.
- Making a distribution to someone who is not entitled to it would breach this duty.
- May modify duty to invest – see below.
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Topic 9: Rights of Trustees
1. Right of Indemnity
Prima facie, the trustee is personally liable for the expense incurred, however, per s36(2) [T] may reimburse his/her properly incurred expenses out of trust assets. This is called the right of indemnity (ROI). [T] will claim indemnity for [expenses].
- As a matter of policy, a trustee who is properly performing their duties as trustee should be indemnified for any expenses incurred in the management of the trust fund.
1.1. Is it excluded in the trust deed
[B] will argue cl [#] purports to exclude ROI. Its validity is different depending on the jurisdiction.
- If it is unclear where then either assume it is in Vic If in Vic:
Vic Pmt has suggested permission of exclusion of indemnity (RWG) supported by s2(3) TA which states that powers conferred by the Act are subject to the trust instrument, and s197 of the CA also implies that Pmt intends for a trust instrument to be able to exclude ROI. Therefore [T] personally liable.
If outside Vic:
Qld has legislation preventing exclusion as does NSW, per Jonco, held that ROI is so essential to a trust and to the office of a trustee that it cannot be excluded by the trust instrument.
1.2. Is [expense] incurred in the management of the trust?
Where [T] claims an expense is incurred in managing the trust it is presumed to be so unless [B]
proves otherwise (Hayman). Clearly … is a properly incurred expense, as it is not improperly incurred (Nolan), being incurred in the administration of the trust (Balkin).
- Includes postage fees, bank fees, taxation, property fees, legal costs (including defending actions for breach of trust (Hayman)).
- Does not include contracts. As a trust is not a legal person, the trustee takes on personal liability for contracts unless the other party agrees that they are not to be personally liable.
o Must expressly indicate no personal liability (e.g. J. Smith as trustee and not otherwise).
1.3. Is [expense] properly incurred
The expense will be properly incurred if it is not improperly incurred (Nolan). It is presumed to be proper unless it can be shown to be improper.
The expense will be properly incurred where it was incurred while [T] was acting within power, in good faith, and within required standard of prudence (Re Raybould; Nolan).
[B] will argue that the expense was not reasonably and honestly incurred (Nolan). Here, an ordinary reasonable businessperson in the position of [T] with the standard of ordinary diligence required in the management of trust affairs would/would not incur [particular expense [T]
incurred]. Therefore likely/unlikely properly incurred.
1.3.1. Is [expense] incurred in breach of duty?
Here [T] incurred in the court of [conduct], which is likely a breach of [duty].
1.3.1.1. Strict Duty Breach
In other states, only those expense incurred where [T] was actually negligence or reckless will be improperly incurred (Gatsios). However, in Victoria, Nolan has likely overruled Gatsios and expenses incurred in breach of strict duties are ordinarily characterized as improperly incurred without regard to the reasonableness of the trustee’s acts.
Strict duties:
- Duty to keep and render accounts - Fiduciary duties
- To invest trust property