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SQE1 - Trusts

SQE1 - Trusts

Essential SQE1 Functioning Legal Knowledge (FLK) assessment preparation for Trusts

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with Jacob Anderton

250

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Description

This comprehensive course covers key aspects of trusts and related legal principles as required for the SQE1 exam. Participants will gain a robust understanding of:

- Introduction to trusts, creation of trusts and the three certainties

- Creation of trusts

- The Fiduciary Relationship

- Trustees' duties, powers and liabilities

- Equitable Remedies

- Summary of equity and trusts

The course emphasises effective application of core legal rules and principles to realistic scenarios, providing learners with the knowledge and practice to competently handle ethical and client-based issues in trusts.

What you'll learn

Provide learners preparing for the Solicitors Qualifying Examination (SQE1) Functioning Legal Knowledge (FLK) assessments the knowledge and practice needed to complete the Trusts topic for FLK1 and 2

Requirements

Watch the recorded webinars and review any supporting documentation.

Who is the target audience?

This course is designed for aspiring solicitors preparing for the SQE1 exam

Course Content

Recorded Webinars

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Part 1 - Webinar

00:23:28

Recorded webinar

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Part 2 - Webinar

00:17:24

Hi. Hello and welcome to this film on the topic of and trusts. Um My name is Jacob and today I'll be covering the instructor principles required for um, the SQ OS QE one X three and trust module. Um We're going to focus today on implied and Express trusts. Um So if we have a look at the instruction that I've prepared, so we'll focus on uh express trust and start with the difference between fixed interest trusts and discretionary trusts. I'll then go on to discuss the three certainties um and why they are so important um to comply with uh four Express trusts, I think that this will probably take up the bulk of the recording and before we then sort of touch upon the beneficiary principle perpetuity periods and formalities before sort of bringing it all together um in the summary at the end. So if we start with Express trusts, um an express trust is a trust that the Settler has expressly intended to create to ensure the trust is enforceable. The settler must therefore make a valid declaration of trust. The declaration um is an instruction manual of sorts. Um and it provides guidance as to how the trustees should run the trust and ultimately list out who will be the beneficiaries under the trust. So, in order to create a valid declaration, it must firstly um identify the trustees identify the property held in trust and also identify the beneficiaries. Uh This can be either by name or by description. So by name to Joe Bloggs or by description, it might say to such off my Children, the declaration of trust should also identify the powers and duties the trustees have. When administering the trust, there are some general law um statutes that sets out the sets up the default powers. Um but the set of law may wish to include additional powers or they may choose to restrict a set of powers um in their trust. For example, you may want to restrict the payment of capital under the trust um or you might want to um restrict payment of income because that might be allocated elsewhere. The list goes on. But you sort of understand what I'm saying that it's it, it can be sort of quite flexible once then the declaration has been made. It is then time for the settled law to put the assets into trust. And it is crucial at this point that there is certainty of the assets and that the declaration has been done properly to enable the right assets to be put into trust. So when it comes to express trusts, there are two different types. There are fixed interest trusts and discretionary trusts under a fixed interest trust. The trustees do not have discretion over how the trust property is distributed. It is usually very rigid because the set law has already stipulated who the beneficiaries are and a lot of the time also stipulate the percentage or shares that they will receive. For example, uh I give 100,000 pounds to my trustees to hold on trust for my Children in equal shares or I give my house known as One Silly Street to my trustees to hold on trust for my daughter. Amelia. The beneficiaries are fixed ie my Children or my daughter. In the example, beneficiaries do not necessarily need to be named uh as part of the first example where it just mentions my Children, but there must be a group or pool of beneficiaries that can be identifiable if the first example didn't say in equal shares that it's still a fixed interest trust and the default position assumes that the beneficiaries will take in equal shares. In my second example, I might also add in a restriction that my daughter can only take uh the property upon attaining the age of 21. Again, this would still be a fixed interest trust, but just with a condition that has been introduced. On the other hand, when it comes to discretionary trust, the clue is in the name there is trustee discretion. For example, I give 100,000 pounds to my trustees to hold on trust for such of my Children. And in such shares as my trustees think fit or it might be I leave the residue of my estate to my trustees in such shares at their absolute discretion among the class of beneficiaries in my will. This doesn't mean then that the trustees can go rogue and start distributing to others that aren't named uh within the class of people ie my Children, but they do have discretion over the shares that they will be entitled to. The shares are not fixed. And that's kind of where the discretion comes into it. The reason for doing this is that the settler may have minor Children and as they grow up, they might all have different needs. And so to avoid fixing the shares, discretion may be required um to allow the trustees to pay funds out at different times in different amounts to different Children. So when it comes to equity and trust study and trust law and in particular Express trusts, the three certainties will come up time and time again. Um And it's basically to say that a declaration of trust is only valid if there is sufficient certainty. The test for this was set out in the case of night to be Knights in 1840. So it's not a recent case. Um but there's been no need to amend this in the last al almost 200 years. Um So the three certainties are the certainty of intention. Or you may sometimes see this as the certainty of words. It must be clear that the person making the declaration of trust intended to create a trust. Number two, the certainty of subject matter. It must be clear what property is being held in trust and also what the individual interests of beneficiaries are. For example, it must be clear how that property will be shared. And then finally, the certainty of objects, it must be clear who the beneficiaries are. So circling back and focusing on certainty of intention, someone may part with their property to a trust for a number of reasons. But the most important part of this is that the settler must use words that impose a duty on somebody to act as trustee. The trustee must be holding the property for somebody else. For example, I transfer my property known as One Abbey Avenue to my brother Joe to hold in trust for my son Wilfred. This example is clear that there is a trust intended. It is preferable and advisable for the word trust to be used, but it's not necessarily a requirement. But when we're looking at the certainty of intention, it certainly helps if that is included. But in the case of Paul V Constance, all that was required in that one is that words or actions that impose a duty on somebody else to hold property for the benefit of others ie the beneficiaries um was sufficient, pre precatory words are to be avoided as they usually express a wish or an expectation rather than imposing a duty. For example, I hope that you will look after this car and pass it on to Kevin would probably be insufficient to create a trust. So what if there is no certainty of intention? What happens then? So if pre precatory words are used or if there's a lack of evidence as to the settler's intention, then usually it will be classed as a gift rather than creation of trust. So they're moving on to subject matter. There are two aspects to satisfy for this certainty. So the first one, the trust property must be described with certainty and the settler must define the beneficiary's interests with certainty. The trust property must be certain and identifiable. And if this, this was not met, the trustees would not know the property that they're holding on trust and managing for the beneficiaries. So it would be very difficult for them to know who they're paying the funds to at the end of it. Secondly, what is being held in trust must be property and in possession at that time. So for example, future property or what somebody expects to have in future doesn't count. So for example, this would be a fail failure to meet this requirement. I expect to receive 10,000 pounds from my dad when he dies. And I want that to be held in trust for the benefit of my cousin Jordan. This would not be a valid trust. You can however, make a trust over a collection of items. A good example of this is a shares portfolio. However, something like a wine collection would not be um considered a collection of items because each individual bottle of wine is different. And therefore, it wouldn't be possible to put that into a collective trust asset. It could be wine if all the individual bottles were identified and mentioned. But just my collection of wine isn't likely to be sufficient and just to go one step further on this, um the beneficiary's intent interests must then be certain as well. The trust will fail if the share or interests of the beneficiaries are not defined with certainty. The example that I use just there is very clear um I give 505,000 pounds rather to my trustees to hold on trust for such my Children in equal shares. It doesn't get much clearer than that. If you removed the equal share part, there would still be enough certainty. And if you even replaced it with, as my trustees decide there are still certainties and then the trustees are under a duty to decide who gets what to have a look at this in a little bit more detail. There's a good case, Bo V Voice um where this was a factor and it was held that the terms were unclear and there was a resulting trust created under the testator resid estates. And then again, what if there is no certainty? So if the settler intended to create a trust but no certainty of property and uh no, yeah, that if there's no certainty of property, then no trust and then the resulting trust means that the settler remains the owner of said property. If settler trusts as property to a third party to control part of it, then this would be classed as a gift, no trust. If the settler appointed trustee and intended to create a trust but does not specify the interests, then the trustee shall hold the property under his resulting trust. And then finally focusing on the certainty of objects. It must be clear who the beneficiaries are. The object of the trust is the beneficiary. So beneficiaries need to be identified with sufficient certainty. So the trustees know who to distribute to. If they distribute to the wrong person, there will be a breach of trust for fixed interest trusts. The certainty test is the complete list test to satisfy this. It must be possible to draw up a complete list of each and every beneficiary. A good example of where this would fail would be if I make a trust leaving it to my friends. This is not a complete list test and it would be subjective. There are people who I may consider friends who perhaps wouldn't consider me as a friend. And likewise, people may consider me to be a friend and I would not consider them to be a friend. So it'd be very difficult to prove this. There's a really good case. Uh Re Barlow's World Trust uh 1979. And the judgment on that um says more about um, the complete list test, which would be a good place to go and, and have a little read through the test for discretionary trusts. However, is very different. Trustees don't necessarily have to draw up a complete list, but they do need to ensure that the property is distributed to the right people. If there is no certainty of objects. In the case of discretionary trust, the trust is administratively unworkable and then there will be a resulting trust in favor of the sets law. So then moving on to the beneficiary principle and perpetuity in order for a trust to be valid, it must be for the benefit of individuals and the express trust I've discussed previously will satisfy their requirements ie the certainty of intention, subject matter and objects. Looking then at perpetuity. So trusts are often used to plan for the future and are good instruments for in inheritance, tax planning or creating generational wealth. But what they are not there for is to lock assets away for excessive periods of time in a market economy that we have in the UK property must be freely alienable. And if assets are tied up in trust for a long period periods, then money does not circulate freely and only anniversary and entry charges are paid on trusts which would not be good news for the economy or the free market. This is partly why the trust period is usually 100 and 25 years and trusts usually can't run for any longer but often they are wound up sooner. Another thing to avoid property being tied up in trust for indefinite periods is that the beneficial interest must vest and become unconditional at some stage ie after the period of 100 and 25 years. But usually it's just if there's bereaved, minors or beneficiaries that are minors, then usually it will vest in them when they reach adulthood. So for will trust to be valid, a declaration of trust must be contained within the provision of the will and those wills then must also comply with the Wills Act 1837 ie the wills must be in writing signed by the test in the presence of two witnesses who must then witness in the presence of the test data and each other. However, for lifetime trusts, most declarations are made orally, although this is not always advisable because of the um uncertainties that this creates. It's always better to writing in a recent case of Gil the Fin. In 2023 the court of appeal clarified the difference between a declaration of trust made in a document and one made orally. Um So have a little look at that one and see what the judgment said. But essentially um it followed a two stage process. So if it's in writing, it has to be proved that the settler signed the document and the document shows the proper, properly interpreted constituted declaration of trust. If it's done orally, it has to be proved that the settler said what they said to create a trust and demonstrate their intention to do so in any event, remember that any trust relating to land must be in writing and also comply with section 53 1 B of the law of Property Act 1925 and made by somebody who is able to declare to declare such trust. So then moving on to the conclusion of today's recording, so fixed interest trusts afford the trustees no discretion. So they can sometimes be inflexible. However, by creating a fixed uh interest trust, uh you do have that peace of mind knowing that your wishes will be carried out all but to the letter, discretionary trusts are great for flexibility, but with the wrong um wrong appointment of trustees or if there's any ambiguity. When it comes to the terms of the trust, there is scope for them to go wrong. The three certainties are absolutely crucial. So remember the certainty of intention, subject matter and objects, beneficiaries also need to be human and ascertainable. Make sure you're clear on who the beneficiaries are and for the avoidance of doubt back up the declaration of trust in writing. So that's it for today's recording in the next film, I intend to cover the beneficial entitlement under trusts. And if we have time, maybe touch upon charitable trusts and, and look forward to presenting that one to you next time.

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Part 3 - webinar

00:10:09

Hello and welcome to recording three for the Sqe One Equity and Trust module. My name is Jacob and today we'll be focusing on the fiduciary relationship in relation to equity and trusts. So as per um start with our sort of objectives for today's recording, so I'll start off by giving an instruction into the topic and clarifying the term and who might be classed as a fiduciary. I will then look at the main objectives of the fiduciary relationship and providing examples of when breaches of fiduciary duties may occur, identify any defenses available to those who have breached their fiduciary duties. And then finally, um the remedies available to those who may have been affected by the breaches of fiduciary duty. So a trustee has all the powers available to them under common law to manage property. Uh A reminder here that uh property is a broad term, it can be tangible or intangible property. Uh The trustee looks for all intents and purposes as if they were the absolute owner of trust property. Um But as we know, this isn't always the case whilst they need powers to properly manage and administer property for the benefit of the beneficiaries. It also um raises the prospect of abuse. The trustee could be tempted to exploit their control over trust property or the running of the trust in order to make a profit for themselves. Or they may choose to distribute trust funds to those outside the pool of beneficiaries. The fighter issue duty and the duties that underpin that relationship are designed to stop this abuse from happening. Uh The duties are applied in a very strict manner and are designed to deter a trustee from putting their own self interests apart the interests of the trust, so who can be a fiduciary. So there was a definition of this set out in Bristol and West building society versus Matthew in 1998. But essentially a fiduciary is somebody who has undertaken to act for or or on behalf of another in a particular manner in circumstances that give rise to a relationship of trust and confidence. So those who may fall into this category include trustees who owe fiduciary duties to beneficiaries. It might be company directors or business partners who owe fiduciary duties to their company or to their fellow business partners. Um It might be senior employees with access to confidential information who owe fiduciary duties to their employer or it might be lawyers, solicitors, accountants, ifa S legal executives who all owe fiduciary duties to their client. However, for the purposes of this module and in particular this recording and we'll be focusing on trustees as fiduciaries. Um I just wanted to provide the examples of different types of fiduciary duties um just to provide a little bit of context. So fiduciary duties. So while trustees are managing a trust, they may put their own interests above the trust, they may pay themselves from the trust for the work that they're doing. They may take loans without proper consent from the trust or sell assets to themselves at an inflated price to protect against this. Uh The fiduciary must not put themselves in a position where their own interests conflict with the interests of the principal ie the no conflict rule. Uh They must not make unauthorized personal profit from their position. Um That's not to say that people can't charge for their time being a trustee. Uh Many law firms will charge for their time dealing with a trust. Um But they cannot be seen to be paying themselves for other things just because they want to or feel like they're owed that money, personal profit can be paid to trustees. Um Only if, um, it's authorized by a declaration of trust. If all the beneficiaries are over the age of 18 and have consented or if it's been authorized by the court or statutory provision. Moving on to probably the biggest chunk of today's recording, sadly is breaches. Um And how they can come about when, um, people breach their five shoe duty and sometimes people just can't help themselves um or perhaps they can help themselves too much. So, first off looking at breaches, we've got self dealing. So trustees may sell to or purchase property from the trust whilst they have the property and the power rather to buy and sell in some circumstances. This should not be for their own personal gain or profit. If a trustee is purchasing from the trust, it should be for the highest price possible. But if they are going to be self dealing, then it's likely to be the opposite. The transaction is not automatically void though, if the beneficiaries agree that it is a good deal, but often that will not be the case. A trustee cannot get around the self dealing rule by retiring as a trustee before purchasing trust property. Unless they retire for another reason, not associated with that. It's also a breach of fiduciary duty. If a trust includes a business and they go ahead and set up another business in competition with the trust, they may be liable then to account for profits made by the computing business, an injunction can be obtained to prevent it. Trustees can be remunerated as I touched on earlier. Um Payment for services isn't authorized unless there is an express provision in a trustee. Um or if the beneficiaries consent or if there's a court order or it's authorized by statute, fiduciary duty does also prevent trustees from making instant or profits from the trust ie not making money on the side from the trust. Uh an example of this might be a commission to a trustee when that trustee places trust business with a particular firm and then received a commission or a kick back from doing so. And then finally, a trustee is liable to account for any profits they receive where they receive that profit by exploiting an opportunity that belonged to a trust. Likewise, a trustee who makes use of confidential information for their own personal gain when they only became aware of the information due to their trusteeship will have to account for any profits that they receive. This is the case whether or not the trust could have taken advantage of the opportunity or was interested in that information. If a trustee does breach their fiduciary duty and they've not obtained authorization to keep any personal profits, then the beneficiaries are either entitled to bring a personal claim that the trustee pays over their authorized unauthorized uh profit. The trustee must surrender their personal profit to the trust. Uh And just notes that this claim does not follow the usual loss measures that appear in contract or taught. The trustee is not making good any loss that their actions caused. Indeed, the trust may not have suffered any loss. But if the commission is paid by a firm or a trustee for the placement of trust business and the firm's services result in significant profits for the trust, the beneficiaries are still entitled to bring a personal claim against the trustee for the surrender of the commission. Even though the trust has not suffered any loss, the trustee must then surrender any unauthorized personal profits they have secured by virtue of their position. Uh Or somebody may make a proprietary claim. A proprietary claim will seek to recover property owned by the trustee that represents the personal profits they received. For instance, if a trustee made an unauthorized profit of 250,000 pounds by exploiting an investment opportunity that property belongs to the trust and use this money to buy shares in somewhere else. The beneficiaries could require that the trustee convey the shares over to the trust. This would be particularly attractive if the shares have gone up in value because then the trust would also get the benefit of that uplift. So, in conclusion, um fiduciary arrangements do arise in many circumstances, not just as a trustee, their responsibilities include uh not putting personal interests above those of the trust. You can't be put in a position where there is a conflict of interest. It is a bit of a minefield, but breaches are common and you need to keep uh to these sort of rules to avoid any self dealing or creating another company or trust, which is in competition with the existing trust. Um In most circumstances, you must not take a commission for acting as a trustee. Remember that there are a few circumstances where a trustee can be paid from uh being a trustee, for example, expressed for vision by statute or court order. Um or if it's in the declaration of trust or if all the beneficiaries are over the age of 18 and consent to it, remedies are available to those affected, including personal and proprietary claims. And, and that brings me to the end of today's recording. Next time we will be focusing on the trustees duties, powers and liabilities. Thank you for listening to today's recording.

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Part 4 - Webinar

00:13:15

So, hello and welcome to recording 44 sqe One Equity and Trusts. My name is Jacob and today the focus of the recording is on trustees duties, powers and liabilities. So as per usual, um we're going to start off with an introduction, move on to the difference between trustee powers and trustee duties. Um Look a little bit around express provisions within trusts and the duty of care. I will then discuss the need to act impartially uh as a trustee or if this, this is not going to be possible how you can act personally and unanimously before uh looking at how discretion can be exercised as a trustee. So yeah, looking at the introduction here. So the trustees are the managers of the trust. They are under a duty to observe the terms of the trust and act in the best interests of the beneficiaries. Beneficiaries are able to complain um whether that be to fellow trustees, beneficiaries or even the court if the trustees commit a breach of trust. So the management role of trustees and the enforcement role of beneficiaries can sometimes create a conflict. Often a reason for the set law setting up a trust is that they believe that the trustee is perhaps better placed to manage property than the beneficiaries. It would be wrong if the law gave trustees complete autonomy, they have to be answerable to the beneficiaries whose properties they are managing. However, it would be equally uh unacceptable if the beneficiaries were allowed to dictate how the trustees managed every aspect of the trust. So there's got to be that sort of differentiation between the roles and therefore, uh a balance must be struck between these two extremes. Uh a key element of running the trust is maintaining and increasing the value of the trust fund, which is the role of the trustees for the benefit of the beneficiaries. Therefore, it is an absolute requirement that trustees regularly review the trust fund and assess whether they should sell certain trust investments and buy others um to keep it sort of growing at least at the level of inflection. So they're looking at powers or duties. So beneficiaries can compel trustees to perform duties. For example, where there's a fixed interest trust treaties, trustees are under a duty to distribute trust property at the right time to the right beneficiaries should the trustees refuse to do so. The beneficiaries can enforce that duty by obtaining a court order. Beneficiaries have very little control over the exercise of powers. On the other hand. So that's a key point there to differentiate. So most trustees that trustees take and the running of trusts involve the exercise of powers and when it comes to these powers, number one, the trustees must consider from time to time whether or not to exercise them and two, if they do decide to exercise them, they must ensure that they are exercising these powers properly. So, yeah, so um powers are subject to a little bit of discretion whereas duties um are the sort of absolute rights and responsibilities and trustees are bound by duties. Um So just make sure that you can work out the difference between the two. So then looking at the express provisions, um and before we look at what might amount to a breach of trust on the part of the trustees. All of the examples that I'm going to provide are subject to the express provisions of the declaration of trust that's created at the outset. So the settled law is in the trust document generally free to exclude, modify or amplify the general law that doesn't mean that they can flout the law, but they are sort of within their m uh means and powers to uh add extra provisions or remove certain things uh in order for the trust fund to sort of work in their favor. So then when uh running a trust, a trustee must take all those precautions which an ordinary prudent man of business would take in managing similar affairs of their own, which was set out in the judgment of speight, V Gaunt back in 1883. And this is an objective standard. Although the standard can be higher for paid professional trustees such as solicitors or legal executives or maybe even accountants who act as trustees from time to time. So legal professionals who are paid to act as trustees are expected to exercise that care and skill which could reasonably be expected of lawyers acting as experts in their own particular fields. A trustee newly appointed to office, whether that be at the start of a trust or part way through its life must a ensure that they have been properly appointed. B ascertain what the trust property consists of and take all reasonable and proper measures to obtain control of the trust property. If the transfer of trust property to the new trustee is outstanding, the new trustee must press for that transfer to take place c review the trust document and associated paperwork to familiarize themselves with the trust and how it works. The other trustees must produce papers relating to the administration of the trust d inquire into the past business of the trust to ensure that there have been no past breaches of trust and to make sure that the appropriate action is taken to action any remedy of those breaches and where there are chattels held in trust, it ensured that a proper inventory is drawn up. So they're looking at the duty to act. So when exercising their powers, a trustee may be faced with a choice between two beneficiaries whose interest appear to conflict with each other. Faced with such a situation, the trustee must act impartially and in the interests of each beneficiary. This does not necessarily mean that beneficiaries must be given equal treatment. Nor does it necessarily mean that beneficiaries? Sorry Banana. So uh if I just go back and say so, this does not necessarily mean that beneficiaries must be given equal treatment, nor does it mean that trustees must consult either or both beneficiaries nor give either side a fair hearing. However, a trustee must not benefit one beneficiaries at the expense of another and may find themselves in a breach of trust if they continue to prefer the interests of one beneficiary over the other. Therefore, it is best practice practice to have between two and four trustees running a trust at any one time. We have also seen that each co trustee is under a duty to take all reasonable and proper measures to take control of trust property preferably by ensuring that property is vested in the name of all the trustees. And then co trustees must generally take decisions unanimously unless the trust document provides otherwise. And this is an important safeguard as it limits the opportunities for one trustee to abuse their legal powers. So when it comes to exercising discretion, trustees must act in good faith. So, whilst beneficiaries cannot compel trustees to exercise discretionary powers in a particular way, they can intervene if the trustees exercise those powers improperly, having decided to exercise a power, trustees must exercise that power in good faith, rationally for the purpose for which it was created with regards to the relevant materials and without regard to the irrelevant ones, with regard to all the relevant facts and with regard to any legitimate expectation that a beneficiary might have the power to be exercised in a certain way. Trustees do not generally need to give reason for their decisions but they do n do need to decide to give reasons. The beneficiaries and the court can inquire into their soundness. So it's always good to back up those decisions with the rationale for doing so. However, where a particular beneficiary has a little legitimate expectation that discretion will be exercised in their favor, the trustees may be obliged to give reasons and advance warning if they are thinking of exercising their discretion differently. Beneficiaries throughout the um throughout the administration of the trust are entitled to see the following documents. They are able to see the trust documents or the will that created the trust, the trust accounts and a schedule of trust investments or other documents that shows how the trust is being properly invested. On the other hand, beneficiaries aren't allowed to demand documents that record trustees deliberation on a discretion or power. Trustees are not obliged to give reasons for their decisions. And beneficiaries cannot circumvent this by demanding documents in which decisions are recorded trust diaries and minutes of trust meetings. That record why trustees took particular decisions are therefore unlikely to be handed over by trustees. And then likewise, for similar reasons, beneficiaries cannot demand sights of letters of wishes from set laws as the intention of these is to remain private. And for trustees eyes only when creating a discretionary trust, the su the settler may furnish the trustees with a non binding letter of wishes that sets out how the Settler would like the trustees to exercise their discretion in distributing trust properties. Since the letter of wishes exists to facilitate the confidential exercise of a trustee's discretion. A trustee is not required to disclose the letter of wishes to the beneficiaries. If the beneficiaries want to see the documents that record the reasons trustees tip for exercising or not exercising power, they can. So to summarize, we have considered the trustee's duty of care when running a trust. So starting with the standard of care when running a trust, a trustee is held to the same standard or as an ordinary prudent business person who is managing their own affairs. But remember, the standard of care is higher. If it's someone in a professional capacity, ie solicitors or accountants the duties when running a trust. So trustees must make decisions unanimously and personally, they must be active in the running of the trust and must supervise the actions of their co trustees. And when exercising powers, the decisions that trustees take are a matter for their own discretion, but that discretion must be exercised rationally and in good faith, trustees must also document their reasons and documents for decisions. So they do not necessarily need to give reasons for the decisions that they take or the powers that they exercise. But it's always good to keep a track record of why they have done. So. Beneficiaries are entitled to see the trust document and some associated core documents such as the accounts, but cannot demand sight of documents that record the decisions that trustees have taken such as the minutes of the meetings. When trustees get together, if trustees want to see such documents, they will need to apply to the court. So that brings us to the end of this recording. Um I hope you enjoy the recording and next time we will be focusing on equitable remedies. Thank you very much.

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Part 5 - Webinar

00:15:15

Hello and welcome to recording five of the series for S3 1 Equity and Trusts. My name is Jacob and today I'll be discussing equitable remedies for when things go wrong when administering trusts. So as always, um we'll start with an instruction to the topic. Um Then we will look at personal claims, breaches of trust where trustees can be the subject matter of a personal claim and from whom uh causation value in personal claims, uh possible defenses for trustees and then finish with indemnities and contributions we have already discussed and considered the duties with which trustees must comply in previous recordings. Um and the types of claims brought by beneficiaries. But today, the focus will be on the topics as mentioned above. So starting with personal claims, uh claims can be brought by beneficiaries. Um and these can be divided into two main categories. So you've got personal claims. These claims are for monetary compensation brought against trustees for wrongdoing. The claim is personal because the wrongdoing trustee must satisfy the claim from their own property. So if it's proved that they have done wrong wrongdoing, then it will be from their own pocket. Um That any sort of claim is paid from you then have proprietary claims. And in these claims, the beneficiary is seeking the return of property owned by the trust or more usually property that's in the hands of the trustees that represent trust property. The claim is proprietary because the beneficiary is going after specific property. Um And in order to identify property that now represent trust property, the beneficiary utilizes what's known as the tracing rules which trace trust properties into the hands of the trustee. So we are going to look into the nature of a personal claim. And when a beneficiary would bring such a claim against trustees, when a beneficiary can bring such a claim uh against which trustees, the beneficiaries can bring a claim, the degree of liability of the wrongdoing trustee. Uh the defenses that might be available for the trustee and the ability of one trustee to apportion liability amongst their co trustees by way of indemnity or contribution. There are certain times where bringing a trust uh bringing a claim rather might not be appropriate. Uh Those circumstances include, if the trustee is insolvent, ie they cannot pay their own debts when they for you. Uh In this instance, a personal claim will be of little or no use. The beneficiary will rank as an unsecured creditor in any bankruptcy whose claims generally come at the back of the line where there is little money left uh to pay off creditors. Therefore, the beneficiary will recover very little. If anything at all, the trustees may have used trust property to buy themselves something that the beneficiary considers to be attractive. For instance, the trustee may have stolen 100,000 pounds from the trust fund and used this to purchase shares that have since doubled in value. So in this case, the beneficiaries should have ester a proprietary claim to recover those shares. And if successful, all of those shares will belong to the trust and the trust will be able to take advantage of the increase in value. By contrast, if the trustee has spent trust money on something other than tangible property, for example, paying off their credit card bills or going on luxury holidays, then a proprietary claim will not be possible. There is also a time limitation um in which claims can be made. Personal claims are sometimes statute barred for six years after the date of the breach. And after that time, the beneficiary can no longer bring a personal claim. However, proprietary claims are not subject to any statutory limitation period and might therefore still remain available if the wrongdoing happened more than six years ago. So in order for a personal claim against a trustee to be made and to be successful, the beneficiary must identify a breach of duty, often referred to as a breach of trust. The trustee must have done something wrong in the running of the trust. Trustees are not vicariously or or automatically liable for the um actions of their co trustees. However, if the trustee has breached trust and that breach has caused a loss to the trust, that trustee can be named as a, as a defendant to a personal claim. If more than one of the trustees has breached the trust, then their liability is joints and several. This means that the beneficiaries can choose either to bring a claim against all of them or bring a claim against an individual trustee. And in either case, the claim will be for the full loss suffered. Beneficiaries therefore may decide to bring a personal claim, the full loss against the wealthiest trustee or against a professional trustee who is more likely to be backed by insurance. So then in order to uh successfully claim compensation, the beneficiaries must establish uh causation, they must establish that the trustee's breach of trust caused the loss suffered. And in order to do so, the beneficiaries must satisfy the, but for test, they must show that the loss would not have occurred, but for the breach of trust, if the loss would have happened anyway, then the personal claim will fail. So it can sometimes be difficult to bring a personal claim against trustees in relation to investment decisions. They've taken a good example of this uh Edith Nestle who was the heiress to the Nestle fortune, complains the trustees failed to make proper investments and if they had done her inheritance would have been four times larger, but it wasn't possible for her to demonstrate that um the loss was caused by this and therefore no flame. So then when it comes to valuing claims and defenses, um the rules are so long as the beneficiaries can satisfy the above elements of a personal claim, they can recover compensation equal to the loss to the trust plus interest from the date of the breach. The rate of interest is at discretion of the court but is usually the rate rate allowed on the court's short term investment account. The following defenses might be available to a trustee who is facing a personal claim for a breach of trust. Number one, there's an exemption in the trustee itself. They had the knowledge and consent of the beneficiaries. And therefore, um there's no breach of trust under section 61 of the trustee act 1925 or that it falls outside of the limitation period. Exemption clauses may or may also be included in a trustee exempting trustees from liabilities for a breach of trust and such clauses can relieve the trustees from liability for negligent or innocent breaches but is void insofar as it tries to exclude liability for fraudulent breaches. Professional trustees who cause a settled law to include a cause in a trustee that has effect of excluding or limitation, limiting liability must before the creation of the trust take such steps that are reasonable to ensure that the trustee sorry, the settler is aware of the meaning and effect of that clause. If all of the beneficiaries have consented to a course of action that constitutes a breach of trust, they cannot subsequently bring a claim against the trustees. The consent must have been fully informed and freely given though. And the consenting beneficiaries must be adults and of full capacity. It's not possible for a minor to give valid consent if only one beneficiary consents to a breach of trust that beneficiary can no longer bring any personal claim against the trustee. But the other non consenting beneficiaries can. And then under section 61 of the trustee acts, the court has a discretion to relieve trustees from liability wholly or in part if they acted honestly and reasonably and ought to be excused. As I mentioned previously, a personal claim for breach of trust is subject to a six year limitation period. That's section 21 of the Limitations Act 1980. This period usually starts to run from the date of the breach. However, if the breach is against a minor time only starts to run when they reach the age of 18. And as against the remainder of the beneficiaries time only starts to run when their interest falls into possession. For example, when the life tenant of a fixed interest, life interest trust dies, the six year period also does not run against trustees who have committed a fraudulent breach of trust. And whilst there is no statutory limitation period. The court might still have regards to the equitable doctrine of latches and latches prevent a claim from being made um where the claimant knows the fact that gave rise to the breach of trust, the claimant delays and taken action and this delay is either deemed to constitute acquiescence in or in the process of waiving a breach of duty by the claimant or causes detriment or prejudice to the trustee. Delay by itself is not usually a su sufficient form of detriment. And the court will want to see some sort of evidence that prejudice has been caused. For example, in the case of Seaman v Hewson in 2002 beneficiaries took 15 years to start proceedings even though they knew of the matters they complained about at the very beginning and therefore their claim was unsuccessful. So then on to indemnity and contribution. So so far we have identified that the liability between trustees in the breach of trust is jointly and severally, the beneficiaries can choose to bring their claim against all of the wrongdoing trustees or just one of them. If one trustee is sued for the entire loss, the question is, can they share the burden of paying the monetary compensation with the trustees that are in breach? So there are two possibilities. One, the defending trustee may be able to claim the full amount of compensation from a co trustee or the defending trustee. May be able to claim a contribution towards the compensation from a co trustee under the Civil Liability Act 1978. But a trustee who is sued for breach of trust can then recover a full indemnity from a co trustee if they acted fraudulently when the others acted in good faith, or if it's a solicitor who exercised such controlling influence that the other trustee blindly followed their advice. Three, they have benefited personally from the breach or if the beneficiary uh benefited from the breach. And in which case, the indemnity is limited to the value of the equitable interest. There's further statute to back this up. So under section one Civil Liability Act, 1978 a court can also order a cot trustee to make a contribution that is just and equitable having regard to the extent of that cot trustee's responsibility up to 100% but this usually depends on the severity and how much that individual trustee is to blame. So, in conclusion, personal claims are claims for monetary compensation and the claim is brought against the trustee who has been accused of wrongdoing and the compensation is payable out of their own personal funds, which trustee is liable and for how much. So, in order to bring a personal claim against the trustee, they must have breached trust and that breach must have caused the trust to suffer a loss. Trustees are not vicariously liable for the uh for their cot trustees but if a trustee has breached trust in a way that causes loss to the trust, that trustee will then become jointly and severally liable for the full amount of loss, the trust has sustained and usually it's for the full amount plus interest, there are sometimes defenses available. So they may be able to defend themselves against a personal claim where there's an express clause in the trustee that exempts them from liability. The beneficiaries gave fully informed consent to the trustees course of action. The trustees have acted honestly and reasonable so they ought to be excused or the brain. The claim is brought too late. And then finally, the trustees in breach of trust can apportion liabilities between themselves either by claiming an indemnity from a cot trustee or a contribution from the cot trustee who is also responsible for the loss. So that brings us to the end of today's recording and then the sixth and final recording will be a recap of all the topics that have been looked at in the previous five recordings.

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Part 6 - Webinar

00:14:32

Hello and welcome to SG One Equity and Trust recording six. And this is going to be the last recording in the series. And the idea of today's recording is to summarize everything else that's been covered in the previous five recordings. So as per usual, um start off with the session objectives. Um So the instruction today will just be introducing uh the main topics that were covered in the previous five recordings. So we've got the Express and Implied Trusts. Um I'm gonna talk then about the three certainties um as set out in night V night 1840 the fiduciary relationship, um trustees, duties, powers and liability and then finally finishing with equitable remedies. So starting with Express versus Implied trusts. So, um when it comes to the creation of trusts, there needs to be three key people involved. So we've got the settler, the person who sets up the trust, you've then got the trustee or the multiple trustees and then you've got the beneficiary or the beneficiaries trusts can be created in one's lifetime known as a settlement or they can be created on death via a will trust. Uh This can take many forms it could be, um, life interest trusts, it might be discretionary trusts, it might be trusts up to the value of the nil rate bands. Um It could be bereaved miners trusts. Um And just remember that, um, some of these trusts are um created um by the express intention of the um, settler, they might be created um by implied trust as we were saying, or they might be created by statute. Um And when I say created by statutes, that's where there must be a trust ie under a Grove Miners trust, but there was no express or implied. Um And so statute steps in to create um trust in those circumstances. So then there are sort of two different types of trust. You've got fixed interest trusts and discretionary trust. When it comes to fixed interest trust, the sort of terms are pretty fixed and usually the beneficiaries are pretty fixed. For example, I give 100,000 pounds to my trustees to look after for my Children in equal shares or discretionary might be I give to my trustees um the residue of my estate to hold on trust and divide in shares at their absolute discretion amongst my Children and grandchildren. Not all trusts are in writing. Some declaration of trusts uh can be declared orally, but it's a bit more difficult to um satisfy the intention requirements if that is the case. However, when it involves land, ie flats houses, then the declaration of trust must be in writing. So just in a bit more detail when it comes to express trusts, so there must be intention from the settler to create uh the trusts, whereas implied trusts are usually created without the intention of the set law. Um and then this usually results in resulting all constructive trusts. So an example of a resulting trust is that um wife gives property to husband to hold on trust. Um The likelihood is that she didn't actually intend to give that to him as a gift. So the result goes back, the, the the property as a result goes back to the wife, whereas a constructive trust may be where two people have purchased the property, but it's only gone into one of the owners names. Um But it was always their intention that it was going to be held jointly. So and equity would step in and ensure that it was fair. And likelihood it could be that the property could then be put into joint names or if it was being sold, then shares divided equally between the two people. So they're moving on to the three certainties which is um key around the creation of express trust. So, um there must be intention from the settler to create a trust, the trust deed if it is in writing, must use words that impose a duty on another. So Settler is appointing a trustee to look after trust property or the beneficiaries. It's key when it comes to this to avoid wishes and precatory words. For example, I wish that you would um, look after my car until my son reaches 17, probably hasn't got sufficient intention to satisfy this requirement. The second one is subject matter. So the trust property must be described with certainty. The trust property must, or the trustee must divine beneficiary's interests with certainty. That's not to say that there can't be discretion, but it must be um, that the beneficiary's interests are certain. And if there is a lack of certainty, then it may be that there's a gift rather than the creation of a trust. And then finally, there must be certainty of objects. So when it comes to fixed interest trust, you must be able to uh satisfy the complete list test. For example, I give uh the residue of my estate on trust for my Children in equal shares. You can do a complete list test of your Children. Whereas if you said I give 50,000 pounds on trust to be divided amongst my friends, it's probably not possible to do a complete list test of all of your friends because it's subjective. There are people who you may consider to be friends that don't consider you to be their friends and the same the other way around. Whereas when it comes to um, discretionary trusts, there's no need, no need for a complete list test and it could be to such of my friends at the discretion of my trustees and then they can decide what happens with it. If there is a lack of certainty, then usually a resulting trust and it goes back to the original owner. So then moving on to the discussion around the fiduciary relationship. So first of all, who can be a fiduciary, so it does arise in many situations, but in the context of trust law, it's where a trustee owes a duty to the beneficiary. Um There's the sort of standard test where a layperson is acting as a trustee. And then also the um standard above where there's a professional trustee appointed, for example, solicitor, legal executive or accountant, um where the duty o is, is the, the, the bar is a lot higher. So there's lots of core duties when it comes to the fiduciary relationship. Um sort of looking after the trust fund and making sure that um you're looking out for the best interests of the, the trust itself. There can't be any sort of conflict arising between your own personal interests and the interests of the trust where personal profit is concerned. Um Usually this isn't allowed unless um it's expressly stated in the trustees or statutes or at the agreement of all the beneficiaries that are over the age of 18. Sometimes um trusty relationships can break down and there could be a breach of trust. The example of this is self dealing. Um So giving themselves money out of the trust where they don't have permission to do so, setting up another company that's in direct competition with the trust funds. Um And again, remuneration, not possible unless it's, as I said, in the trust deed by statute or the beneficiaries are all in agreement. There are remedies uh where there's a breakdown on this. Usually it's um damages, but under trust law, it can be a little sort of more wide ranging. For example, if um shares are bought under the trust and they go up in value, but perhaps, maybe um the trustee was trying to do it for their own personal gain, then the remedy could be that the trusts are, uh the shares are transferred back into the trust rather including the profit that was made on the sale of those trusts, uh those shares rather. So they're moving on to duties, powers and liability. So what is the difference between a power and a duty? So powers are usually discretionary, whereas there is a duty upon trustees to um have a duty of care and these duties must be carried out. Trustees must act impartially. Um Coming back to the point on the previous slide about um not putting their own interests above that of the trust um acting as impartially as they can acting personally and unanimously. Um So trustees usually should come together to make all decisions or kind of by the overwhelming majority and usually in the best interests of the trust. Um when it comes to investment, that's kind of a, a power. Um And it's uh subjective whether investments are good or bad decisions sometimes. So in the Nestle case, the, the niece of the deceased, she was in line to receive um a large amount of inheritance from um the Nestle Cong Conglomerate. Um but she argued that her inheritance should have been four times greater, had good investment decisions been made. Um But in that case, it was quite hard to prove that that was the case. So, um that claim failed. If there are any claims against the trustees, then um liability, so trustees can be personally liable. Um We're gonna go into this in a bit more detail. But if there's more than one trustee that was maybe um acting improperly, then that liability can be shared across the multiple trustees that were wrongdoing, which brings me on to remedies. So sometimes uh disgruntled beneficiaries may make a personal claim against the trustee or they might make a proprietary claim where personal claims aren't going to be successful. Is that if the trustee doesn't have the means of payment to satisfy any claims, whereas a propriety claim might be against a firm where there's been some wrongdoing or um there's the, there's a remedy being sought by beneficiaries, um which is more likely to succeed because they're usually backed by insurance. You must uh that the beneficiaries must prove that there's been a breach of trust and that, that breach of trust then caused the loss to the beneficiaries, um which is why the but for test comes into it. So, um they must satisfy that the had the breach of trust not occurred, then the loss wouldn't have happened off the back of it, um which brings one to the value of claims. So the whole amount can be recovered by the beneficiaries. Um Trustees may provide a defense that they acted uh honestly and in the best interests of the trust and therefore there is no remedy to be had, but in the, in cases where um the beneficiaries bring forth a claim which is successful. Um And maybe that it's one or more trustees who are reliable, they may choose to go after the wealthiest trustee because they've got the means of payment to um pay funds back to the disgruntled beneficiaries. Um or they may choose to uh go after just one of the trustees or all of them depending on who has done the wrongdoing. But the key key here is that the full amount is recoverable. So that brings us to the end of the recording for today. Um I appreciate that's a little bit of a whistle stop tour. But the other recordings are the core sort of learning, whereas this was more sort of an overview in time for revising for the exam. Best of luck with that. And thank you for listening.

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Part 1 - Slides

13 Pages

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Part 2 - Slides

7 Pages

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Part 3 - Slides

8 Pages

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Part 4 - Slides

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Part 5 - Slides

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Part 6 - Slides

8 Pages

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SQE prep course

Instructor

Jacob Anderton

Jacob Anderton

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Jacob is an experienced legal professional specialising in private client practice, with expertise spanning wills, powers of attorney, probate, and trusts. He also possesses specialist knowledge in charity law and has worked with a number of national charities, providing tailored legal guidance in this area.

Jacob has several years of practical experience in the legal field and is committed to supporting learners in private client modules, including Wills & Succession and Probate Practice.

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