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Week 1 Introduction to Trusts (Types of trusts. (Express trusts: created…
Week 1
Introduction to Trusts
Trusts
; beneficial ownership of property is separated from legal ownership.
Obligation of titleholder has its origins in equity and he/she must use the property for benefit of others
Unlike contracts trusts do not require consideration for them to be
valid.
Elements of trust
Trustee
: legal person
holds an interest in property subject to 'personal equitable obligation'.
contractual obligation of confidence
fiduciary relationship i.e. client solicitor or trust relationship
Trust property
: property in real or personal form
Any type of legal or equitable interest in real or personal property may be subject to a trust - unless there is a policy against it (
Controller of Stamps v Howard Smith
(19336) 54 CLR 614)
Property must be clearly identifiable (
Herdegan v Federa
l Commissioner of Taxation (1988) 84 ALR 271)
Beneficiary
(a.k.a.
cestui que trust
or object)
There cannot be a sole trustee and a sole beneficiary because once a person owns legal and equitable estates these are merged:
DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW).
must be at least one beneficiary. A trustee can also be a beneficiary (
Goodright v Well
(1781) 2 Doug 170).
Note: settlor creates trust (
inter vivos
trust or settlement)
Becoming a trustee
taking property with notice of a trust
declaring that property will be held on trust for another
by express agreement
Trustee as a fiduciary
Trustee is a fiduciary to the beneficiary of the trust, however the obligations will vary with the terms of the trust
Parties
(or roles of officers
Settlor / testator
Settlor creates the trust
Testator is the creator when a trust is made under a will
Trustee
person who operates the trust, and has legal title to property if it is involved
Beneficiary
person who obtains the benefit of the trust
Obligation and duty
trustee has personal obligation to the beneficiary with respect to trust property (
DKLR Holdings Co (No 2) Pty Ltd v Commissioner of Stamp Duties
[1980] 1 NSWLR 510.
this creates right in the beneficiaries
Every trustee is a fiduciary
Fiduciary duties and obligations of trust not mutually exclusive. Trustee can owe separate and co-existing fiduciary and trustee obligations:
Chan v Zacharia
Executors of deceased estates are also fiduciaries
Johnson v
Trotter
Types of trusts.
Bare trusts
: trustees only obliged to hold trust property until beneficiaries ask
for its transfer to them.
Charitable trusts
are express trusts created for a particular purpose but have
no beneficiaries.
Discretionary trusts
: beneficiaries’ entitlements are subject to trustees’
discretion
Commercial trusts
are used to operate businesses e.g. superannuation trust.
Fixed trusts
: each beneficiary has a set quantum of interest in trust property
Family trusts
: used to lessen impact of income tax by splitting income
between family members.
Express trusts
: created via express declaration transfers or directions
Express trusts are often created by contracts under seal (a.k.a.
deeds).
Resulting trusts:
imposed by equity where it’s presumed a trust was intended
but was never properly constituted.
Constructive trusts:
imposed by court to remedy breaches of equitable
obligation.
Power of Appointment
According to
R & I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd
there are
four
types of power
Donee has mere or bare power where they are under no obligation to
exercise the power.
General powers: donee can appoint property to anyone including himself/herself;
Special powers: which are powers to appoint property to specific individuals or classes of objects, not including the donee;
Hybrid powers: donee can give property to anyone except for a particular group or class or individual; and
Intermediate powers: where donee can add to the specified class of objects in the power.
Creation of a Trust
4 main ways
By declaration
title holder expresses their intention to hold their property in trust for another
By Transfer
title transferred to a person with instructions that it be held for another
By direction
beneficiary of a trust directs the trustee to hold their interest in trust for another
By court order
Construction trust