Introduction to TrustsIntroduction to Trusts

Associate Professor Cameron Associate Professor Cameron StewartStewart

DefintionDefintion

A trust exists when the titleholder of A trust exists when the titleholder of property is obliged to deal with that property is obliged to deal with that property for the benefit of another personproperty for the benefit of another person

ElementsElements

1.1. the trustee —the trustee — a legal person who holds a vested a legal person who holds a vested legal title (or a vested equitable title) in the property, legal title (or a vested equitable title) in the property, subject to fiduciary duties;subject to fiduciary duties;2.2. trust property —trust property — property in real or personal form property in real or personal form which is identified or ascertainable and capable of being which is identified or ascertainable and capable of being held on trust. The trust property can be legal or equitable held on trust. The trust property can be legal or equitable property; andproperty; and3.3. the beneficiary the beneficiary (sometimes referred to as the (sometimes referred to as the cestui que trustcestui que trust in older cases, or the in older cases, or the object object of the trust of the trust in modern cases) — a person, or group of persons, who in modern cases) — a person, or group of persons, who hold a beneficial equitable estate in the property and on hold a beneficial equitable estate in the property and on whose behalf the trustee must act.whose behalf the trustee must act.

DefinitionsDefinitions

It should be noted that the person who creates It should be noted that the person who creates the trust during their lifetime is usually referred to the trust during their lifetime is usually referred to as a as a settlorsettlor. Such a trust is often described as an . Such a trust is often described as an inter vivos inter vivos trust or a trust or a settlementsettlement. When the trust . When the trust has been created in a will, the creator is the has been created in a will, the creator is the author of the will, namely author of the will, namely the testatorthe testator (if male), (if male), or or testatrixtestatrix (if female). A trust created in a will is (if female). A trust created in a will is referred to as a referred to as a post mortempost mortem trust. In this and trust. In this and following chapters, the word following chapters, the word creatorcreator will be used will be used as a collective term to cover both settlors and as a collective term to cover both settlors and testators/testatrixs.testators/testatrixs.

Actors in the trustActors in the trust

1.1. creator;creator;2.2. trustee; andtrustee; and3.3. beneficiarybeneficiary

The three legal actors need not always be The three legal actors need not always be different legal persons. It is possible for a creator different legal persons. It is possible for a creator and a trustee to be the same person, for and a trustee to be the same person, for example, when a trust is created by declaration example, when a trust is created by declaration of trustof trust Similarly it is pos sible for a creator to be Similarly it is pos sible for a creator to be a beneficiary, in cases where the creator a beneficiary, in cases where the creator instructs the trustee to hold the property for his instructs the trustee to hold the property for his or her benefit. or her benefit.

Actors in the trustActors in the trust

A trustee might also be a beneficiary, but A trustee might also be a beneficiary, but only in situations where the trustee is one only in situations where the trustee is one of a number of beneficiaries. It is of a number of beneficiaries. It is impossible to be the sole trustee and sole impossible to be the sole trustee and sole beneficiary because once a person owns beneficiary because once a person owns complete legal and equitable estates they complete legal and equitable estates they are said to merge together, leaving no are said to merge together, leaving no distinction between the legal and equitable distinction between the legal and equitable estatesestates

History of the trustHistory of the trust

Henry and the purse Henry and the purse stringsstrings

Taxation in Tudor Taxation in Tudor England – feudal England – feudal tenurestenures

PrimogeniturePrimogeniture

Devising land by willDevising land by will

The legal remainder The legal remainder rulesrules

The useThe use

A --------------------------B --------------------CA --------------------------B --------------------C

(Landowner)(Landowner) ((feoffee to usefeoffee to use ) ) ((cestui cestui que useque use))

Legal estate Beneficial Legal estate Beneficial estateestate

CLCL EquitableEquitable

The Statute of Uses 1535The Statute of Uses 1535

Collapse the useCollapse the use

Springing usesSpringing uses

The use on the useThe use on the use

Equity creates property where there was Equity creates property where there was none before……none before……

The three species of trustThe three species of trust

1.1. express trusts;express trusts;

2.2. resulting (or sometimes referred to as resulting (or sometimes referred to as implied) trusts; andimplied) trusts; and

3.3. constructive trusts.constructive trusts.

Contracts and trustsContracts and trusts

Gosper v Sawyer Gosper v Sawyer (1985) 160 CLR 548 at 568–9; (1985) 160 CLR 548 at 568–9; 58 ALR 13 at 26, Mason and Deane JJ stated:58 ALR 13 at 26, Mason and Deane JJ stated:

The origins and nature of contract and trust are, The origins and nature of contract and trust are, of course, quite different. There is however no of course, quite different. There is however no dichotomy between the two. The contractual dichotomy between the two. The contractual relation ship provides one of the most common relation ship provides one of the most common bases for the establishment or implication and bases for the establishment or implication and for the definition of a trust.for the definition of a trust.

Fiduciary relationships and trustsFiduciary relationships and trusts

Trusts are a subset of fiduciary Trusts are a subset of fiduciary relationships and the duties owed by relationships and the duties owed by trustees to their beneficiaries are fiduciary trustees to their beneficiaries are fiduciary in characterin character

Fiduciary duties and obligations of trust Fiduciary duties and obligations of trust are not mutually exclu sive. A person can are not mutually exclu sive. A person can owe separate and co-existing fiduciary and owe separate and co-existing fiduciary and trustee obligationstrustee obligations

Deceased estates and trustsDeceased estates and trusts

Executors of deceased estates occupy a Executors of deceased estates occupy a similar function to trustees. Executors, like similar function to trustees. Executors, like trustees, are fiduciaries. However, an trustees, are fiduciaries. However, an executor’s duties exist in relation to the executor’s duties exist in relation to the proper administration of the deceased’s proper administration of the deceased’s estateestate

Bailments and trustBailments and trust

A bailment only confers a weak A bailment only confers a weak possessory title on the bailee. It does not possessory title on the bailee. It does not create a trust as the bailee does not take a create a trust as the bailee does not take a vested title in the prop ertyvested title in the prop erty

Agency and trustAgency and trust

An agency exists where one person (the An agency exists where one person (the principal) authorises another person (the principal) authorises another person (the agent) to act as the principal’s agent) to act as the principal’s representative. The actions of an agent representative. The actions of an agent bind the principal. Like bailments, agency bind the principal. Like bailments, agency agreements are based in contractagreements are based in contract

Debts and trustsDebts and trusts

The position of creditors is therefore very The position of creditors is therefore very different from that of beneficiaries. Beneficiaries different from that of beneficiaries. Beneficiaries have equitable interests in the property held by have equitable interests in the property held by the trustee. Creditors do not have an interest in the trustee. Creditors do not have an interest in their creditor’s property. A creditor only has their creditor’s property. A creditor only has access to common law remedies to pursue the access to common law remedies to pursue the debtdebtThe institutions of debt and trust can co-exist in The institutions of debt and trust can co-exist in the one transaction if there is a common the one transaction if there is a common intention that funds will be held for specific intention that funds will be held for specific purposes eg purposes eg QuistcloseQuistclose

Securities and trustsSecurities and trusts

Debts will often be secured. This means Debts will often be secured. This means that the debtor has agreed to give the that the debtor has agreed to give the creditor a proprietary interest in one or creditor a proprietary interest in one or more of his or her assets. Should the more of his or her assets. Should the debtor not pay, the creditor can realise the debtor not pay, the creditor can realise the security by taking possession of the security by taking possession of the secured property or by ordering that it be secured property or by ordering that it be sold and the proceeds be used to satisfy sold and the proceeds be used to satisfy the debt.the debt.

Securities and trustsSecurities and trusts

The equitable charge is very similar to a The equitable charge is very similar to a trust. An equitable charge is a form of trust. An equitable charge is a form of security that allows the creditor (chargee) security that allows the creditor (chargee) to order the sale of the property, after a to order the sale of the property, after a triggering event, like default of payment. triggering event, like default of payment. The proceeds of sale can then be used to The proceeds of sale can then be used to sat isfy amounts due to the chargeesat isfy amounts due to the chargee

Securities and TrustsSecurities and Trusts

The equitable charge is very similar to a The equitable charge is very similar to a trust. An equitable charge is a form of trust. An equitable charge is a form of security that allows the creditor (chargee) security that allows the creditor (chargee) to order the sale of the property, after a to order the sale of the property, after a triggering event, like default of payment. triggering event, like default of payment. The proceeds of sale can then be used to The proceeds of sale can then be used to sat isfy amounts due to the chargeesat isfy amounts due to the chargee

Securities and TrustsSecurities and Trusts

If the transfe ror intends that the title be If the transfe ror intends that the title be transferred, ‘subject to’ payments being made to transferred, ‘subject to’ payments being made to another, then it will be construed as a charge. another, then it will be construed as a charge. For example, property might be given ‘to A For example, property might be given ‘to A subject to A paying B $1000’. This transfer subject to A paying B $1000’. This transfer evidences an intention that the obligation to pay evidences an intention that the obligation to pay is annexed to property as opposed to being a is annexed to property as opposed to being a fiduciary obligation imposed on the transferee. fiduciary obligation imposed on the transferee. The obligation is of a finite nature. It is satisfied The obligation is of a finite nature. It is satisfied after compliance. As such it is not of the same after compliance. As such it is not of the same extent and duration as the trustee’s fiduciary extent and duration as the trustee’s fiduciary obligations to care for the bene ficiaries’ interest obligations to care for the bene ficiaries’ interest in a trustin a trust

Conditional dispositions and trustsConditional dispositions and trusts

Transfers of property, which are subject to Transfers of property, which are subject to obligations being ful filled to third parties, will obligations being ful filled to third parties, will ordinarily be viewed as equitable charges.ordinarily be viewed as equitable charges. If a transferor of property indicates a motive, If a transferor of property indicates a motive, hope or expecta tion that the property will be hope or expecta tion that the property will be used in a particular way, the condition will be used in a particular way, the condition will be viewed as precatory and import no legal or viewed as precatory and import no legal or equitable obligations. For exam ple, gifts made in equitable obligations. For exam ple, gifts made in the belief that ‘justice will be done to my the belief that ‘justice will be done to my relatives’ will impose a moral obligation which relatives’ will impose a moral obligation which has no force:has no force: In the Will of Warren; Verga v In the Will of Warren; Verga v Taylor Taylor [1907] VLR 325[1907] VLR 325

Conditional dispositions and trustsConditional dispositions and trusts

However, if the transfer is made subject to a However, if the transfer is made subject to a binding condition precedent, the transfer will not binding condition precedent, the transfer will not take place until the condition precedent is sat take place until the condition precedent is sat isfied: isfied: Re GardinerRe Gardiner (dec’d)(dec’d) [1971] 2 NSWLR [1971] 2 NSWLR 494. If the condition is a condition subsequent 494. If the condition is a condition subsequent the property will be forfeited if the condition is the property will be forfeited if the condition is not ful filled: Dal Pont and Chalmers (2004) at not ful filled: Dal Pont and Chalmers (2004) at 434-5. If the disposition states that the obligation 434-5. If the disposition states that the obligation is to be fulfilled within a time period it is viewed is to be fulfilled within a time period it is viewed as a condition precedent: as a condition precedent: Re GardinerRe Gardiner (dec’d)(dec’d) [1971] 2 NSWLR 494 at 498, per Helsham J. [1971] 2 NSWLR 494 at 498, per Helsham J.

Conditional dispositions and trustsConditional dispositions and trusts

In cases where the conditional disposition In cases where the conditional disposition is possibly a charge, condition precedent is possibly a charge, condition precedent or condition subsequent, courts prefer to or condition subsequent, courts prefer to view the dispo sition as imposing a charge. view the dispo sition as imposing a charge. It has been said that a conditional It has been said that a conditional disposition will be treated as taking effect disposition will be treated as taking effect as a charge even where words of as a charge even where words of condition are used: condition are used: Re Gardiner (dec’d) Re Gardiner (dec’d) [1971] 2 NSWLR 494. [1971] 2 NSWLR 494.

Retention of title clauses and trustsRetention of title clauses and trusts

Romalpa’ clauses, are contractual clauses Romalpa’ clauses, are contractual clauses used in the sale of goods. They allow used in the sale of goods. They allow suppliers to retain title in deliv ered goods suppliers to retain title in deliv ered goods until such time as full payment has been until such time as full payment has been made: made: Aluminium Industrie Vaassen BV v Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd Romalpa Aluminium Ltd [1976] 2 All ER [1976] 2 All ER 552552

Retention of title clauses and trustsRetention of title clauses and trusts

, Romalpa clauses operate very much like , Romalpa clauses operate very much like a bailment and are therefore quite distin a bailment and are therefore quite distin guishable from a trust relationship: Dal guishable from a trust relationship: Dal Pont and Chalmers (2004) at 424. Pont and Chalmers (2004) at 424. However, where the goods have been However, where the goods have been mixed with other goods or used in a mixed with other goods or used in a manufacturing process or sold, Romalpa manufacturing process or sold, Romalpa clauses can operate like a trust or a clauses can operate like a trust or a charge. charge.

Powers of appointment and trustsPowers of appointment and trusts

In a power of appointment, the titleholder of In a power of appointment, the titleholder of property (the property (the donordonor) gives another person (the) gives another person (the doneedonee) the power to deal with, or dispose of, the ) the power to deal with, or dispose of, the property that is the subject of the power. property that is the subject of the power. Normally the power will allow the donee to Normally the power will allow the donee to transfer the property to a third party who can be transfer the property to a third party who can be chosen from a class of people specified in the chosen from a class of people specified in the power (the power (the objects objects of the power). Unlike a of the power). Unlike a trustee, the donee of a power is not usually trustee, the donee of a power is not usually given the title to the propertygiven the title to the property

Powers of appointment and trustsPowers of appointment and trusts

1.1. general powersgeneral powers, where the donee is , where the donee is empowered to appoint the property to anyone empowered to appoint the property to anyone including himself or herself;including himself or herself;2.2. special powersspecial powers, which are powers to , which are powers to appoint the property to specific individuals or appoint the property to specific individuals or classes of objects, not including the donee;classes of objects, not including the donee;3.3. hybrid powershybrid powers, where the donee can give , where the donee can give the property to anyone in the world except for a the property to anyone in the world except for a particular group or class or individual; andparticular group or class or individual; and4.4. intermediate powersintermediate powers, where the donee can , where the donee can add to the specified class of objects in the add to the specified class of objects in the power.power.

Powers of appointment and trustsPowers of appointment and trusts

Why does the distinction between trust Why does the distinction between trust powers and mere powers matter? Both powers and mere powers matter? Both mere and trust powers are required to mere and trust powers are required to describe their objects with sufficient describe their objects with sufficient certainty. It used to be the case that trust certainty. It used to be the case that trust powers and mere powers were subjected powers and mere powers were subjected to different tests of certaintyto different tests of certainty

ProblemProblem

Characterise the following dispositions contained in Jock’s will:Characterise the following dispositions contained in Jock’s will:1.1. I give my Rolls Royce to Isaac, and on the condition that I give my Rolls Royce to Isaac, and on the condition that Isaac pays my debts to Christos.Isaac pays my debts to Christos.

2.2. I give my house in Brewarina to Pauline absolutely, with the I give my house in Brewarina to Pauline absolutely, with the hope that she shall allow my mother to live there until she dies.hope that she shall allow my mother to live there until she dies.

3.3. I give $25,000 to David, to be used for the costs of I give $25,000 to David, to be used for the costs of educating Millie and to be hers absolutely when she attains 21 educating Millie and to be hers absolutely when she attains 21 years.years.

4.4. I give the residue of my estate to Frances who may, at her I give the residue of my estate to Frances who may, at her absolute discretion, give such residue to anyone she thinks fit, absolute discretion, give such residue to anyone she thinks fit, barring herself, Isaac, and Pauline. If Frances fails to dispose of the barring herself, Isaac, and Pauline. If Frances fails to dispose of the residue in her lifetime, it shall become the property of Millie.residue in her lifetime, it shall become the property of Millie.