Table of Contents
CHAPTER 1: INTRODUCTION TO THE LAW OF TRUSTS
Knowledge Objectives: The Definition of a Trust
(i)Difficulty in providing a definition for a trust
(ii)Flaws in the attempted definition of “trust”
(iii)Definitions
(iv)Schematic Diagram of Trusts
Knowledge Objectives: An Overview of the Administration of a Trust
(i)ID three issues that need to be addressed when administrating a trust
(ii)Distinguish duties and powers
(iii)ID three duties of trustees
(iv)Administrative powers vs. dispositive powers in the context of express trusts
(v)Personal powers, fiduciary powers and trust powers
Knowledge Objective: The Taxation of Trusts
(i)Income earned on property held in a trust will be attributed to settlor
(ii)Taxation of Trusts as a conduit
(iii)Tax rates for inter vivos vs testamentary trusts
(iv)Capital gains tax implications
(v)Disposition of property for tax purposes
(vi)Charities under the Income Tax Act
CHAPTER 2: HISTORY AND DEVELOPMENT OF EQUITY AND TRUSTS
Knowledge Objectives: The Meaning of Equity
(i)Four different meanings that might be associated with equity
Knowledge Objectives: Medieval Origins
(i)Administrative Beginnings
(ii)Development as a corrective law
(iii)Origin of “Equity follows the law”
(iv)Remedies in personam
Knowledge Objectives: Development of the Law of Uses and Trusts
(i)Early world formulation of the “use”
(ii)How the “use” was employed in its early development
(iii)Benefit of the early non-recognition of the use
(iv)Recognition of the use and an example
(v)Reasons for Statute of Use and its effect
(vi)Word formulas used to an attempt to avoid the Statute of Use
(vii)Reason for the enactment of the Statute of Wills
Knowledge Objectives: Describe the Development of Equity
(i)Development of Equity as Corrective Law
(ii)Administrative Beginnings of Equity
(iii)Development of Equity 1500 – 1700
(iv)Development of Equity 1700 - 1900
(v)Development of Equity in Canada
(vi)Benefits of Non-Recognition of the Use
Knowledge Objectives: Fusion
(i)Procedural vs Substantive concepts of Fusion
(ii)Example of the practical effect of distinction
(iii)Current status of debate over fusion of law and equity
CHAPTER THREE: CAPACITY TO CREATE A TRUST
Knowledge: The Requirements for the Creation of an Express Trust
(i)Five requirements for a legally valid express trust to be created
Knowledge: Who Must Have Legal Capacity?
Knowledge Objectives: Main Types of Legal Incapacity
(i)ID the two main types of legal incapacity
(ii)ID the circumstances where each of these main types of legal incapacity arises
(iii)Describe the potential limitations on the scope of legal capacity of minors
Knowledge Objectives: Other Capacity Issues
(i)ID two other situations where legal capacity may be an issue
CHAPTER 4: THE THREE CERTAINTIES
Knowledge Objectives: Introduction
(i)List the Three Certainties and Discuss the Rules Relating to Them
Knowledge Objectives: How a Trust is Constituted
(i)Describe three ways a trust can be constituted
(ii)Describe how interests in property can be transferred to a trustee
(iii)Cite case authority concerning how a trust can be effectively constituted by the transfer of property to a trustee or by a settlor declaring herself or himself to be a trustee
CHAPTER 5: CONSTITUTION OF EXPRESS TRUSTS
Knowledge Objectives: Requirement that a Trust be Constituted
(i)What is required to constitute a trust
(ii)ID and explain two reasons as to why a trust must be constituted
Knowledge Objectives: How a Trust is Constituted
(i)Three ways a trust can be constituted
(ii)Describe how interests in property (legal or equitable) can be transferred to a trustee
(iii)Cite case authority concerning how a trust can be effectively constituted by a transfer of property to a trustee or by a settlor declaring herself or himself to be a trustee
Knowledge Objectives: Forcing the Settlor to Constitute a Trust
(i)Enforcement of gratuitous promises to settle property or trust
(ii)Enforcement of a promise to settle property on trust where consideration was given in exchange for the promise
(iii)The enforcement of promises to settle future property on trust
CHAPTER 6: FORMAL REQUIREMENTS FOR SOME EXPRESS TRUSTS
Knowledge Objectives: The Statute of Frauds
(i)Describe the three situations in which some written evidence may be required under statute of frauds legislation
(ii)ID and describe the problems that were created by statute of frauds
(iii)Describe the changes made to the typical requirements of statute of frauds legislation by s. 59 of the BC Law and Equity Act
Knowledge Objective: Testamentary Trusts
(i)Explain the terms secret trust (or “fully secret trust”) and semi-secret (or “half-secret”) trust
(ii)Set out the requirements for a valid fully secret trust and for a valid semi-secret trust
(iii)Case Authorities for Secret and Semi-Secret Trusts
Chapter 7: PUBLIC POLICY
Introduction
Knowledge Objectives: Trusts for Illegal Purposes
(i)Be able to provide an example of a trust likely to be found unenforceable on the basis that is is for an illegal purpose
Knowledge Objectives: Consequences of Illegality
(i)Discuss the potential consequences of finding that the trust is for an illegal purpose
Knowledge Objective: Trusts Imposing Conditions That Are Contrary to Public Policy, Impossible of Performance of Uncertain
(i)Provide an outline of the possible outcomes where a condition in a trust is contrary to public policy
(ii)Identify situations in which courts have historically found a condition in a trust contrary to public policy
Knowledge Objective: Trusts that Defraud Creditors
Knowledge Objective: Rules Against Perpetuities
(i)The basic common law rule against remoteness of vesting
(ii)The rule against perpetual duration
(iii)The rule in Whitby v Mitchell
(iv)The nature of legislation on accumulations
Knowledge Objective: Restraints on Alienation and Spendthrift, or Protective, Trusts
(i)Be able to describe protective and spendthrift trusts noting the difference between the American spendthrift trust and the Canadian protective trust.
CHAPTER 8: OVERRIDING THE TRUST INSTRUMENT
Knowledge Objectives: The Rule in Saunders v Vautier
(i)Be able to articulate the rule in Saunders v Vautier
Knowledge Objectives: Variation of Trusts
(i)Explain what variation of trust legislation (such as BC’s Trust and Settlement Variation Act) does and what the probable purpose was for the enactment of such legislation.
CHAPTER 9: NON-CHARITABLE PURPOSE TRUSTS
Introduction
Knowledge Objectives: The General Rule Against Validity of Non-Charitable Purpose Trusts
(i)Articulate various reasons advanced for the general rule of the non-validity of non-charitable purpose trusts and the arguments as to what the primary reason for the rule is:
(ii)(a) identify the exceptions to the rule
(iii)(b) explain why those exceptions may have been made
(iv)(c) Discuss whether the implication of those exceptions is that there is no general rule.
Skill Objective: Purpose Trusts with Individual Beneficiaries
Knowledge Objective: Statutory Reform
(i)Be able to describe the statutory reform in “wait and see” perpetuity legislation concerning purpose trusts
Knowledge Objective: The Problem of Unincorporated Associations
(i)Explain the problem with gifts to unincorporated associations to be held on trust
(ii)Identify ways in which a gift in trust to an unincorporated3 association may be saved as a valid trust or gift
CHAPTER 10: CHARITABLE PURPOSE TRUSTS
Knowledge Objectives: Introduction
(i)Discuss the modifications to : (a) the beneficiary principle; (b) the requirement of certainty of objects; and (c) the perpetuity rules for charitable trusts
(ii)Compare and contrast the tax basis for the definition of charitable purposes and the trust law basis for the definition of charitable purposes
Knowledge Objectives: The Relief of Poverty
(i)Discuss the relative concept of poverty and the notion that it is not limited to the provision of bare necessities
(ii)Discuss the modifications to the public benefit test in the context of “the relief of poverty” citing relevant authority
Knowledge Objectives: The Advancement of Education
(i)Discuss the potential scope of the advancement of education as a charitable purpose citing relevant authority
(ii)Identify, articulate and asses potential arguments that a trust is for the charitable purpose of advancement of education with reference to the relevant authority.
Knowledge Objectives: The Advancement of Religion
(i)Identify the origin of the advancement of religion head of charitable purpose and what is generally included in it
(ii)Indicate the requirement of a God and worship of that god and assess whether it will continue to be a requirement citing relevant authority.
Knowledge Objectives: Other Purposes Beneficial to the Community
(i)Be able to describe the types of things that have been included in other purposes beneficial to the community
Knowledge Objectives: Exclusivity
(i)Articulate the exclusivity requirement and the reason for it
(ii)Discuss ways of avoiding the application of the rule
Knowledge Objectives: Political Purposes
(i)Articulate the general rule concerning political purposes and charitable purpose trusts
(ii)Give reasons for the rule and arguments against the rule
Knowledge Objectives: Discriminatory Conditions
Knowledge Objectives: Administrative Scheme-Making Powers and Cy-Pres Scheme-Making Powers
(i)Describe the administrative scheme-making power of the court
(ii)Give examples of circumstances when the administrative scheme-making power will apply and when it will not apply
(iii)Describe the cy près power of the court and the purpose for the power
(iv)Give examples of circumstances when the cy près power will apply and when it will not apply
(v)Discuss how the cy près power applies in cases of initial failure and cases of subsequent failure
Knowledge Objectives: Seizure of Assets Held in Charitable Purpose Trusts with a Common Trustee
CHAPTER 1: INTRODUCTION TO THE LAW OF TRUSTS
TRUST: It is an equitable obligation the binds the trustee, to deal with property owned by him, the trust property, for the benefit of persons,known as beneficiaries, of whom he my be one, and anyone of who may enforce the obligationOR for the furtherance of certain purposes, such as charitable purposes.
Knowledge Objectives: The Definition of a Trust
(i)Difficulty in providing a definition for a trust
- The trust has developed over hundreds of years and adapted to a wide range of situations
(ii)Flaws in the attempted definition of “trust”
- Some definitions are too narrow and some too encompassing, making them difficult to comprehend
(iii)Definitions
SETTLOR: a person who creates an express trust through expressing an intent to create a trust in relation to a specific property and conveying that property to the trustee. The person may also declare themselves a trustee of the property they have title to.
TRUSTEE: the person who holds title to the trust property for the benefit of the beneficiaries.
BENEFICIARY: the person for whose benefit the trust property is held in trust for persons.
TRUST PROPERTY: the property the trustee holds for the benefit of the beneficiaries OR for purposes. The trustee may hold either legal or equitable interest in trust property.
TRUST INSTRUMENT: a document which creates an express trust by expressing the intention to create the trust and it may describe the rights and obligations of the parties to the trust.
BARE TRUST: a trust in which the trustee has no duties other than taking care of the property and conveying it ot the beneficiaries.
DISCRETIONARY TRUST: where the trustee has the discretion/power to determine which beneficiaries will receive income from the trust or how much income the beneficiaries will receive.
FIXED TRUST: the beneficial interests have been determined. There is no discretion on the part of the trustee.
TESTAMENTARY TRUST: a trust created by will. The settlor is then referred to as the testator.
INTER VIVOS TRUST: a trust created during the life of a settlor as opposed to a created on the death of the settlor through a will.
(iv)Schematic Diagram of Trusts
TRUSTS- Express Trusts
- Trusts by Operation of Law
- Statutory
Trusts for Persons / Trusts for Purposes / Resulting / Constructive
Inter vivos OR testamentary / Inter vivos OR testamentary / Automatic vs Presumptive
Fixed / Discretionary / Charity / X-Charity
- EXPRESS TRUSTS: created by the settlor clearly expressing an intention to create a trust, or implied by the words and surrounding circumstances
- Trusts for Persons: to be held for the benefit or particular person or a class of persons.
- Inter vivos OR testamentary
- Fixed OR Discretionary: see definitions above
- Trusts for Purposes: to be held for a particular purpose.
- Inter vivos OR testamentary
- Charitable
- Non-Charitable: most non-charitable purposes are not considered valid trusts and the property reverts back to the settlor
- TRUSTS BY OPERATION OF LAW: trusts that exist because the court has ordered so, even though there may have been no express intention to create a trust.
- Resulting:property results (goes back) to the settlor.
- Automatic Resulting Trust: where the property returns to the settlor, whether or not the settlor had intended for the property to be returned.
- Presumptive Resulting Trust:
- Constructive: Aconstructive trustis an equitable remedy resembling a trust, imposed by a court to benefit a party that has been wrongfully deprived of its rights due to either a person obtaining or holding legal right to property which they should not possess due to unjust enrichment or interference.
- STATUTORY TRUSTS: created by statute.
Knowledge Objectives: An Overview of the Administration of a Trust
(i)ID three issues that need to be addressed when administrating a trust
- Did the alleged trustee accept the role as trustee?
- What are the obligations?
- Has the trustee received legal or equitable title to the property, into order for the trust to have come into existence.
(ii)Distinguish duties and powers
- DUTIES: obligations of the trustee that they must do. Also, there are presumed duties attached to a trustee.
- A. Duty of Loyalty: act in the best interest of the beneficiaries.
- B. Duty of Impartiality: not favour one or more beneficiaries over other beneficiaries.
- C. Duty not to Delegate: not to delegate the carrying out of the trust to other persons.
- D. Duty of Care: must manage the property in a way a reasonably prudent trustee would.
- POWERS:gives a person permission to do something. The range of possible powers is infinite, constrained only to the extent that powers contrary to public policy will not be valid powers.
- Powers may be given to any person, not just the trustee. Powers given to a non-trustee creates an agent and the power is known as a power of attorney.
(iii)ID three duties of trustees
- A. Duty of Loyalty: act in the best interest of the beneficiaries.
- B. Duty of Impartiality: not favour one or more beneficiaries over other beneficiaries.
- C. Duty not to Delegate: not to delegate the carrying out of the trust to other persons.
- D. Duty of Care: must manage the property in a way a reasonably prudent trustee would.
(iv)Administrative powers vs. dispositive powers in the context of express trusts
- ADMINISTRATIVE POWERS: allows the trustee to manage the property. Includes power to sell, invest and insures the property.
- DISPOSITIVE POWERS: allow for the disposition of property. Includes the distribution of income or capital to beneficiaries.
- Power of Appointment: allows for the trustee to choose among a class of persons for a distribution of income or capital.
- General: allows the trustee to make the gift to anyone, including him or herself
- Special:power may only be exercised in favour of one or more persons from a specific list
- Hybrid:anyone exception a specified list or class of persons
(v)Personal powers, fiduciary powers and trust powers
- PERSONAL POWER: donee of the power is under no obligation to exercise the power, only obligation is that he or she must exercise in accordance with the terms of the power of appointment
- FIDUCIARY POWER: donee of the power is expected to consider the exercise of the power. A settlor who entrusts a power to his trustees must be relying on them in their fiduciary capacity so that tey cannot simply push aside the power.
- TRUST POWER: the done must exercise the power. Considering is not enough, failure to exercise the power is a breach of trust. There is a duty (legal obligation) to exercise the power but the exercise involves a choice.
- it is a duty to exercise the power – to give income to a beneficiary – but the power allows them to choose which beneficiary.
Knowledge Objective: The Taxation of Trusts
(i)Income earned on property held in a trust will be attributed to settlor
- If the settlor retains certain powers (i) the power to determine who will receive income, (ii) the power to revoke a trust or (iii) the power to consent to whom distributions of the property of the trust will be made, then he will be taxed on the income of the trust, even though he will not personally be receiving the income.
- This occurs because the settlor has not really relinquished control over the property and, in a sense, still retains a benefit from the property
- Usually it would make sense for the beneficiaries to pay the taxes because they are usually in a lower tax bracket, however sometimes the settlor may want to retain some control over the trust – even if it means the settlor pays the taxes
(ii)Taxation of Trusts as a conduit
- Trusts are considered a separate taxpayer and therefore a tax return must be filed for a trust and tax paid by the trustees on income earned from the trust property
- Income earned on trust property that is paid or payable to beneficiaries can be deducted from the income of the trust
- Income that is paid to the beneficiaries is treated as their income and they are taxed on it
(iii)Tax rates for inter vivos vs testamentary trusts
- Tax concern with inter vivos trusts is that a person can create many of them so the income is split and the tax would be for low income – the approach to this is that tax income retained in a trust is taxed at the highest rate for individual tax payers.
- 2016 New tax rules for testamentary trusts is that the trusts will be taxed at individual rates for the first 36 months and thereafter will be taxed in the same ways as inter vivos trusts.
- Currently taxedat a lower rate
(iv)Capital gains tax implications
- If capital gains tax must be paid, the Income Tax Act requires the taxpayer to include one half other capital gain in the tax payers income and the taxpayer pays tax at the applicable tax rate on that amount
(v)Disposition of property for tax purposes
- Income Tax Act deals with the fact that capital gains tax is only paid when the property is disposed of by deeming a trust to dispose of property every twenty-one years.
(vi)Charities under the Income Tax Act