IFSP Trusts Foundation Certificate flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Three certainties

Intention, subject matter, and objects. All three must be satisfied for a valid express trust; failing any one renders the purported trust void and the property returns to the settlor.

Certainty of intention

The settlor's words or conduct must show a binding intention to create a trust, rather than a mere moral obligation, hope, or precatory wish. No particular form of words is required.

Certainty of subject matter

The trust property must be identifiable and ascertainable. A declaration over an unascertained part of a larger whole (e.g., 'some of my shares') fails for uncertainty.

Beneficiary principle

A trust must have identifiable beneficiaries (or a valid charitable purpose) in whose favour the court can enforce it; a non-charitable purpose trust with no ascertainable beneficiaries is void.

Fixed trust

A trust where beneficiaries' shares are predetermined. Certainty of objects requires a complete list of beneficiaries (IRC v Broadway Cottages), and each beneficiary's entitlement is fixed at outset.

Discretionary trust

Trustees have discretion over distribution among a class of beneficiaries. Certainty of objects requires only that any given individual can be shown to be in or out of the class (McPhail v Doulton).

Resulting trust

A trust arising by operation of law where beneficial interest returns to the settlor, e.g., where an express trust fails for uncertainty or on a voluntary contribution to property (rebuttable presumption).

Constructive trust

A trust imposed by law to prevent unconscionable conduct, such as breach of fiduciary duty or knowing receipt. It does not depend on the parties' intentions and arises regardless of formality.

Charitable trust

A trust for purposes recognised as charitable and for the public benefit. It is exempt from the beneficiary principle and from the rule against perpetual duration.

Rule against perpetuities

Non-charitable trust interests must vest within the perpetuity period (125 years in England & Wales under the Perpetuities and Accumulations Act 2009). Charitable trusts are exempt.

Formalities for land trusts

A declaration of trust over land must be evidenced in writing and signed by the settlor (LPA 1925 s.53(1)(b)); a disposition of an equitable interest must be in writing signed by the transferor (s.53(1)(c)).

Constitution of a trust

A trust is fully constituted only when title to the trust property has vested in the trustees. Equity will not assist a volunteer, so a promise to settle is generally unenforceable without consideration.

Secret trust

A trust arising where a testator leaves property to a person on a secret understanding to hold it for another. Fully secret trusts operate outside the Wills Act formalities to prevent fraud.

Half-secret trust

A will states the property is held on trust but does not name the beneficiary; the trust terms are communicated outside the will. The trust is enforceable against the trustee but the terms must be proved.

Protective trust

A trust where a beneficiary's interest terminates on a specified event (e.g., bankruptcy or alienation) and the property continues to be held for others, protecting the fund from creditors.

Power of appointment

An authority given to a person (donee) to appoint trust property to persons within a defined class. A fiduciary power must be considered; a mere power may be exercised or ignored.

Duty of care and skill

Trustees must exercise such care and skill as is reasonable in the circumstances (Trustee Act 2000 s.1), with higher expectations of professional trustees and those with special knowledge or experience.

Standard investment criteria

Under Trustee Act 2000 s.4, investments must be suitable for the trust and appropriately diversified. Trustees must review investments periodically and consider proper advice.

Duty of impartiality

Trustees must act impartially between beneficiaries, balancing the interests of income beneficiaries and capital beneficiaries, and must not favour one class over another without authority.

Self-dealing rule

A trustee cannot purchase trust property from the trust, even at fair value, unless authorised by the trust instrument, statute, or the court. The transaction is voidable by beneficiaries.

No-profit rule

A trustee must not make an unauthorised profit from the trust. Any secret profit is held on constructive trust for the beneficiaries, subject to disclosure and informed consent.

Trustee Act 1925 s.61

The court may relieve a trustee from personal liability for breach of trust if the trustee acted honestly and reasonably and ought fairly to be excused in the circumstances.

Exemption clauses

Trust instruments may exclude or restrict trustee liability for breach of trust, but cannot exclude liability for fraud or dishonest breach. Professional trustee clauses are construed strictly.

Saunders v Vautier

A beneficiary (or all beneficiaries together) with a vested interest and full capacity may terminate the trust and demand transfer of the trust fund, overriding the settlor's intended duration.

Appointment of trustees

Trustees may be appointed under an express power in the trust instrument, by statute (Trustee Act 1925 s.36), or by the court (s.41) where appointment is expedient.

Retirement of trustees

Under Trustee Act 1925 s.39, a trustee may retire without replacement if, after retirement, at least two trustees remain (or a trust corporation), with consent of co-trustees or the court.

Delegation of trustee functions

Under Trustee Act 2000 s.11, trustees may delegate certain functions (e.g., investment management) to agents but must review the arrangement and remain liable for the agent's acts.

Trustee remuneration

A trustee is not entitled to remuneration unless authorised by the trust instrument, by statute (charging clause), or by the court. A professional trustee may charge only where expressly permitted.

Duty to account

Trustees must keep proper accounts and records of trust property, produce them to beneficiaries on reasonable request, and be ready to account to the court for their stewardship.

Breach of trust

A trustee's failure to perform a duty or breach of a power. Remedies include reconstitution of the fund, compensation for loss, and account of profits; beneficiaries may also trace trust property.

Tracing

A process by which a beneficiary follows trust property into the hands of a third party or into substituted assets, subject to mixed-fund rules and the defence of the bona fide purchaser.

Variation of trusts

Trusts may be varied by the trust instrument, by statute (Variation of Trusts Act 1958 with court approval for beneficiaries), or by consent of all adult beneficiaries with capacity.