Nature and Creation of Express Trusts Trust – is an arrangement involving property whereby one person, the trustee, has an obligation to hold the property for the benefit and on behalf of another, the beneficiary. - The most common type of trust arises when the trustee is the legal owner of the property and the beneficiary has a equitable beneficial interest. - The trustee will always have a fiduciary obligation to hold the property for the beneficiary. - The beneficiary will always have an equitable interest, which is enforceable in equity. The nature of the trustee-beneficiary relationship 11.2 - Fiduciary - Relationship of utmost trust and confidence - Enforceable only in the courts of equity Indicia of a trust The three indicia of a trust are: trustee, property and beneficiary. Characteristics and elements which both indicate the existence or and are essential for a trust: Trustee: The legal or equitable interest in the property is held by one or more persons and/or corporation. The holder of the interest must have an obligation to deal with and/or administer the property on behalf of and/or for the benefit of another person or persons - This is a trustee. Property: There must be some form of property that is capable of being held on trust. Must be clearly indentified and identifiable. If there is uncertainty as to the indentity of the property, there can be no trust. The property which forms the substance of the trust is called ‘the subject.’ Beneficiary: There must be one or more persons for whose benefit the trustee is obliged to hold the property. These are ‘beneficiaries’ or ‘objects’ of the trust. A trustee may be the beneficiary of a trust if there is one of more other beneficiaries but cannot be the sole beneficiary. If this occurs, the title to the property and the beneficial interest in the property will merge and the trust will no longer exist: Re Cook [1948] Obligations/Duty: Finally, the trustee must be under an obligation to hold and administer the subject matter of the trust for the benefit of the beneficiary. This obligation creates corresponding rights in the beneficiaries. If the person who is holding the property is not holding it for the benefit of another person, there is no beneficial interest and therefore, no trust. Categories of trusts Express Trust Express trusts are trusts created with the intention that the trustee holds the property for the benefit of the beneficiaries. Terminology: The settler – The person who creates the trust and who transfers the property to the trustee. A person may declare that they are holding property for the benefit of another and thereby become both the settler and the trustee. The trust instrument – Express trusts are usually created by the execution (or signing) of a trust deed, this is sometimes called a trust instrument. The deed sets out the name of the trustee, the exact identification of the property and the names of the beneficiaries. Under some circumstances a trust may be created by oral declarations. Public trusts – Are created for the charitable purpose which benefit the public generally. Private trusts – are formed for the benefit of specific beneficiaries or classes of beneficiaries. Testamentary trusts – These are trusts created pursuant to the terms of a will. Bare trusts A bare trust is the most straightforward form of express trust. The trustee’s obligation – • Hold property until the beneficiaries require title to be transferred to their name; Wade v Wade [2009] • Generally agreed that the trustee’s primary obligation is to preserve trust property. • The trustee’s duties depend upon the circumstances in which the trust is created; Chief Commissioner of Stamp Duties v ISPT Pty Ltd (1998). Fixed express trust Trustee’s powers and duties - • Set out in trust deed. Generally have little discretionary power. • If trustee does not carry out duties there will be a breach of trust. Beneficiary’s rights – have equitable proprietary interest in the trust property Discretionary Trust (opposite to fixed trust) Two Types: • Exhaustive discretionary trust – where the trustee is obliged to make distribution from the trust property to the beneficiaries; Sir Moses Montefiore Jewish Home v Howell & Co • Non-exhaustive discretionary trust – Trustee not require to make contributions and in which the income may be accumulated. Trustee powers and duties - • Trustee is given discretion as to certain aspects of dealing with the trust property and the entitlements of beneficiaries. • Although they are given certain powers in the trust deed – still subject to any obligations set out in the instrument • Still subject to obligation from equity and statue. Beneficiary’s rights: • Beneficiaries do not have any equitable proprietary interest in the trust property • Beneficiaries merely have the right to compel the proper administration of the trust and/or require the trustee to consider making distributions from the trust assess; Kennon v Spry Charitable Trust (discussed later) A fixed, express public trust created for a charitable purpose – for public benefit. Four types 1. The relief of poverty 2. The advancement of religion 3. The advancement of education 4. Other purposes beneficial to the community Trading Trusts Type of express trust which is generally for a corporation conducting a business for the beneficiaries Superannuation Trusts • Hold property for the purpose of providing retirement benefits to beneficiaries. • Regulated pursuant to the Superannuation Industry Supervision Act 1993 (Cth) Unit Trusts • Unit trusts are trusts purchased by the beneficiaries or unit holders who thereby acquire a share in the corpus of the trust and become entitled to a proportion of the trust income. Beneficiary/unit holders rights: • An equitable interest in trust • They are more similar to shareholders in a corporation then beneficiaries of an express trust. Trust imposed over property by the court Sometimes a beneficial interest in an express trust may fail, in which case the court will declare that the beneficial interest reverts to the settler. Alternatively they may order a ‘court-created trust:’ Resulting trusts (discussed later) - Created or imposed by the court when there has been a failure of beneficial interest in the trust. ‘Automatic’ resulting trust - Beneficial interest which is not disposed under the trust deed will be vested by the court ‘automatically’ in the settler. ‘Presumed’ resulting trust - This is when the settler or purchaser’s intention to created a trust in imposed by the court. Constructive trust (discussed later) - Imposed if it would be unconscionable for one party to hold property free of the beneficial interest of another. Quistclose Trusts A Quistclose trust is a particular type of trust which arises when A provides or lends money to B and the parties intend that: - The funds are to be held by B for a specific purpose, but - If that purpose cannot be achieved, or can be only partly achieved, then - B will hold the money on trust for A until it has been repaid to A. Developed from the below case: Barclays Bank Ltd v Quistclose Investments Ltd Facts – In this case “Rolls” was in severe financial difficulty. It had to borrow money from Quistclose Investements so that he could pay dividend to shareholders. The declaration to the dividend created a debt owed by the company to the shareholders. It was agreed between Rolls and Quistclose that the funds should not form part of the assets of Rolls, but would be used solely for the payment of the dividend. The funds provided by Quistclose were accordingly paid into a special account held with Barclays Bank and Barclays were informed by Rolls of the purpose of the special account. Before the dividends could be paid, however, the directors of Rolls placed the company in voluntary liquidation. Barclays attempted to use the funds in the special account to pay off Rolls indebtedness to the Bank. Issue: - Whether, because of the arrangement between Rolls and Quistclose, Rolls held the fund son trust for Quistclose - Whether the funds became part of the assets of Rolls as a result of the non- payment of the dividend - If Rolls were a trustee of the funds, whether Barclays has been given notice of the fact. Outcome – it was held that the agreement between Rolls and Quistclose in regard to the purpose of the funds and their disposition in a special account gave rise to a ‘primary’ trust in favour of the shareholders. It was the intention of Rolls and Quistclose that if the money was not paid out as a dividend, the fund was to be held on a ‘secondary’ trust in favour of Quisclose. Quistclose had the right to be repaid and also the beneficial interest in the funds; ‘the secondary trust.’ Distinction between trusts and other forms of property relationships Trust – fiduciary obligation A fiduciary has a fundamental obligation to act in the best interests of his principal and not to put himself in a position in which his duty conflicts or may possibly conflict with his interest, unless his principal gives his informed consent after full disclosure Whilst all trustees are fiduciaries, not all fiduciaries are trustees. For example, company directors are not trustees: Re International Vending Machines Pty Ltd [1962] NSWR 1408 per Jacobs J, comparing the company director with the Trustee A trustee always holds property for the beneficiary. ii) Trustee – executor An executor is like trustee in that he owes fiduciary duty to the legatees of a will. However, although after probate the executor holds legal title to the deceased’s estate, he does not become a trustee. An executor will only become a trustee if, for some reason there has been a delay in the distribution of the assets (“the executor’s year”) AND the court thinks it appropriate.