Week 2 Types of Trusts
EXPRESS TRUSTS
RESULTING TRUSTS AND CONSTRUCTIVE TRUSTS
SECRET TRUSTS
QUISTCLOSE TRUSTS
settlor creates the trust by
trust expressly by declaring himself or herself a trustee and thus hold the property for the benefit of himself or herself and others
Alternatively, the settlor may transfer the property to another person as trustee.
the person is both the trustee and the settlor
express trust can be created by direction: ‘the beneficiary of an existing trust directs the trustee to hold his or her interest on trust for another’.
Express trusts are usually created by the execution or signing of a trust deed known as the trust instrument
deed sets out
name of the trustee
the exact identification of the property
names of the beneficiaries
the terms of the trust
Where the settlor has expressed an intention to create a trust, subject to the required certainties and formalities, an ‘express trust’ arises
Classified as follows
Private and public express trusts
Fixed and discretionary trusts
Bare trust
Charitable trusts
Commercial trusts
Family trust
are established for the benefit of a family group
main advantage of the family trust is the associated taxation benefits
take the form of a discretionary trust held by a family member or ‘a proprietary company in which the family members are shareholders and directors
capacity to split income between family members can lessen the impact of taxation
Fixed
Discretionary
Beneficiaries
Trustee
Beneficiaries
Therefore, the beneficiaries of a discretionary trust may have no enforceable claim to these funds until the trustee elects to exercise the discretion in their favour.
Resulting trusts are based on a presumed intention on the part of the settlor
constructive trusts, a court may impose a constructive trust according to the principles of equity and where, on the facts, it would be unconscionable for the person/s upon whom the court imposes the trust to retain beneficial ownership of the property in question.
where the trust is intended to benefit one or more natural or corporate persons, or
a public trust, where its purpose is recognised as charitable in law and for public benefit
Private trusts are formed for the benefit of specific beneficiaries or classes of beneficiaries
created
settlor’s lifetime (i.e. inter vivos)
will
Testamentary trusts are created pursuant to the terms of a will.
trustee
If a trustee does not execute these duties, he or she will be in breach of trust
trustee of a fixed express trust generally has very little discretion as to how the trustee powers may be exercised
Beneficiaries of a fixed trust have fixed interests in the income and capital of the trust property, and can therefore enforce both the administration and distribution of the property of the trust
the powers and duties of a trustee are set out in the trust deed
They have an equitable property right in the trust property and can enforce both the administration and the distribution of property under the trust.
trustees of a discretionary trust have an absolute discretion to apply the income and capital of the trust property to the beneficiaries.
Cypjayne Pty Ltd v Rodskog [2009] NSWSC 301 [41]
Potential beneficiaries in a discretionary trust (i.e. those to whom income or capital is yet to be applied) have a right to due administration of the trust
Chief Commissioner of Stamp Duty (NSW) v Buckle (1998) 192 CLR 226.
trustee’s discretions will include
- Selecting ‘from the designated range of objects of the trust those who are to receive benefits of income, capital or both;
- Deciding the amount or proportion of income or capital to be allocated to the selected object or objects; and
- Deciding not to allocate benefits to some objects or, indeed, to allocate benefits to one object to the exclusion of all the others’
trustee will be subject to any obligations set out in the instrument as well as those imposed by equity and statute.
Beneficiaries of a discretionary trust do not have a proprietary interest in the trust property
They also have the right to be considered by the trustee in the exercise of the trustee’s powers
Re Smith [1928] Ch 915; Fay v Moramba Pty Ltd [2009] NSWSC 1428 [39].
there are distinctions between the rights of beneficiaries of a discretionary trust depending on whether the trust is exhaustive or non-exhaustive
exhaustive trust
requires the trustee to distribute income to the beneficiaries
non-exhaustive trust
the trustee has the option of accumulating the trust income
is a trust under which the only obligation of the trustee is to distribute the trust property to the beneficiary upon demand
Thorpe v Bristile Ltd (1996) 16 WAR 500; Jessup v Lawyers Private Mortgages Ltd [2006] QCA 432; Wade v Wade [2009] WASC 118.
The term bare trust was defined by Gummow J in Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271, 281
Like any other trustee, the trustee of a bare trust has an obligation to preserve the trust property
CGU Insurance Ltd v One Tel Ltd (in liq) (2010) 242 CLR 174, 182-3
One example of a bare trust is the circumstance in which a person has paid a purchase price for land. The vendor may still be in possession, though will hold the land on trust for the purchaser
Stern v McArthur (1988) 165 CLR 489, 523
a trust generally requires a beneficiary, in certain circumstances a valid trust can be created for a charitable purpose
Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 139, 144
may be created inter vivos or by will and must fulfil certainty of intention and subject matter
Critical to a charitable trust is that its ultimate beneficiaries are members of a class of persons that represents a section of the community sufficient to meet the ‘public benefit’ criterion.
Charitable trusts are under the control of the court
court has the power to review the administration of a charitable trust and ‘to execute the trust where the trustees fail to do so’
four categories of charitable trust
- Trusts for the relief of poverty;
- Trusts for the advancement of education;
- Trusts for the advancement of religion; and
- Trusts for purposes beneficial to the community.
charitable trusts attract taxation benefits and have no specific beneficiaries who can enforce the terms of the trust deed, the requirements as to what constitutes a charitable trust are strictly construed by the courts
defined bare trust as a trust under which the trustee of trustees hold property without any interest therein, other than that existing by reason of the office of the legal title as trustee, and without any duty or further duty to perform, except to convey it upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party.
trading trusts
unit trusts
corporate trustee invest trust fund for beneficiaries
used by business as they are subject to different tax regimes and reporting mechanisms
beneficiaries are based on the number of uniit they have purchased to enter the scheme
AIT Investments group pty ltd v Markham Property FUnd No 2 Pty Ltd [2015] NSWSC 216
Superannuation Trust
provides retirement and other benefits to their members