Foundations of Equity and Trusts

Introduction

This paper focuses on the foundations of equity and trusts law and as such, answers three questions as follows:

Question 1

Despite the existence of the beneficiary principle ‘[that] seems to prohibit purpose trust in a non-charitable context, there are…situations in which non-charitable trusts have been upheld in English law…’

Beneficiary principle can operate, with the intention of invalidating significant private purpose trust boundaries (based on the law governing charitable trusts). This is owing to the fact that “private purpose” is not within the legal definitions of charitable purpose and as such, it demarcates the border between public trusts and private trusts. Moreover, beneficiary principles can as well frustrate the attempt of a donor to making a gift to an unincorporated association, which is non-charitable. This question will examine the non-charitable purpose trust concept. In this regard, the answer with explain how the non-charitable purpose trusts are regarded as void, owing to the fact that they do not comply with the provisions of the beneficiary principle. In this regard, the answer will describe various exceptional conditions in which non-charitable purpose trusts are regarded to be valid, as well as discusses various mechanisms for implementing non-charitable purposes. Moreover, the answer will provide the situations, under which non-charitable purpose trusts have been upheld in the English law. It is significant to take note of the fact that when dealing with issues to do with trust, it is vital to take into consideration, the manner in which, express trust can significantly be creates, and it is also of significant to know the necessity for establishing the three vital certainties, as well as the satisfaction of the beneficiary principle. The beneficiary principle makes it clear that trust property must be held, based on trust, for objects, or even identified beneficiaries. In this regard, it is just as similar as the final three entities. Based on this principle, it should be noted that a private trust can never be meant for a purpose, subject to exceptions.

Taking a close consideration on the case of Morice v Bishop of Durham [1804] EWHC Ch J80, it is worth noting that the Appeal Court held that for wants of objects, non-charitable purposes ought to be regarded as void. In this case, it is evident that the justification behind the beneficiary principle was significantly explained in detail. The court also stated that if there were no certain objects, the trustees were not to be subject to any form of obligation. In addition, the beneficiary principle was also and in detail, reiterated in the case of Leahy v Attorney General for New South Wales [1959] HCA 20, where it was made clear that trust could be created, with the aim of benefitting persons but not for a purpose. On the other hand, a perfect example in which trust failed for the sake of want of objects was in the Re Astor's Settlement Trusts [1952] Ch 534. In this case, it was evident that the settler established a trust, meant for various purposes that included the establishment of various schemes, meant for the relief or even the benefit of a person that was engaged in journalism, as well as the protection of writers’ independence, especially in newspapers. It is significant to note that the aforementioned instances are where the beneficiary principle regard non-charitable purpose trusts to be void. According to Roxburgh J, he stated that a trustee should not be expected to be subject to any form of equitable obligation, unless in an instance where there was someone who could be obligated to enforce a significant correlative equitable right. Notably, this statement purposes to reiterate the position that was established in the case of Morice v Bishop of Durham [1805] EWHC Ch J80.

There are various private purpose trusts that are valid, and yet considered to be exceptional. Despite the validity of the purpose trusts objections, the anomalous exceptions still exist, and they have been created to act as a concession to the weakness of humans. A case in which a private purpose trust is regarded as exceptional is on creation or even maintenance of tombs, as well as monuments. Evidently, this category is construed narrowly by the court of law. The court of law requires that the trust should be specific regarding the nature of its construction, its purpose, as well as any form of benefit that may arise from it. In this regard, it is very clear, as per the provisions in the case of Re Endacott [1959] EWCA Civ 5, in which, there was a bequest, which mandated the leave of £60,000, for the purpose of the provision of certain useful memorial to myself to the North Tawton Parish Council. The court held that the reasons provided in this case was not to be regarded as valid, owing to the fact that it was too vague. Notably, the second exception is trust that is associated with specific animals like pets. Based on a theoretical perspective, someone cannot have trust for an animal such as a pet, owing to the fact that legally, a pet is considered as a property. However, based on the case of Pettingall v Pettingall [1842] 11 LJ Ch 176, it was evident that there was a valid trust that was associated with a horse. This case had a disposition of £50 per year, which was meant for the maintenance of the horse, as it was the testator’s favourite horse, in which case, the executor, based on his estate had made a promise to honour. The court then held this case involved trust, owing to the fact that the residuary legatee was in a position to enforce the trust. In essence, it is worth noting that the beneficiary principle should entail an identifiable object of a trust, who is in a position to enforce the trust.

The Perpetuity Rule

In an instance where a property is left, based on the trust of the beneficiaries, then the property must be vested in the individuals within the stipulated period of time. In this regard, if this fails to occur within the stipulated relevant time, then the interest in the property may be regarded as void. Notably, this rule in put in place, in order to stop various properties being indefinitely unavailable. This rule is also applicable to equitable interests that have been placed under a trust, based on a condition that is precedent attached. In an instance where the condition is not fully satisfied, especially within a particular time period, then the interest would definitely lapse. Notably, the perpetuity period, based on a common law should be 21 years. This law purposes to allow for a significant extension of the period through being expressly specified in a ‘life in being.’ Notably, this poses as the time when the period can be extended to a specific duration of a person’s life that is identified. It is also common in various non-charitable purpose trusts. Under time period of time, it should be noted that the trust property should be vested within a time period of 21 years of the trust creation. However, based on the section 5 of the Perpetuities and Accumulations Act 2009, this was changed. The change was made, in that the perpetuity period was extended to 125 years. In this regard, the trust property ought to be vested within a time period of 125 years, since the trust creation.

However, of importance to also note, is that fact that this is problematic, especially for purpose trusts, owing to the fact that the trust property would never be vested in an ascertainable beneficiary. This then implies that the property would remain inalienable. For instance, it would not be disposed of. As such, section 15 of the 2009 Act makes it clear that the 125 years that was then placed for the perpetuity period would not be application in relation to various purpose trusts. The notable significance of this rule against the concept of perpetuity is noted in the case of Musset v Bingle [1876] WN 170. Taking this case into critical consideration, two dispositions that were in the will of the testator were contested. In this regard, the first disposition of £300 was meant to be used for the purpose of the construction of a memorial. On the other hand, the second disposition, which was £200 was to be set aside, in order to aid in the maintenance of the same memorial. In this case, the court of law held that the first disposition was in all means valid, owing to the fact that it entailed a recognized exception whilst referring to the non-charitable purpose trust rule. On the other hand, the court held that the second disposition was to be regarded as void as it was against the perpetuity rules, owing to the fact that there was no duration that was set for the maintenance of the memorial. However, it is evident that this case contrasts to the case of Re Hooper [1932] 1 Ch 38, in which case, the court of law held that the maintenance of the monuments, as well as tombs was to be regarded as valid. Notably, the distinction, based on this was the fact that the disposition noted that they ought to maintain the monument legally, for as long as they could, and this was to be for a period of 21 years, based on the provision of the common law. In this regard, in order to consider a private purpose trust to be valid, it should come within the aforementioned provisions, as such, it should as well go against the perpetuity rule.

Conclusion

In a summary, it is clear that non-charitable purpose trusts may only be valid, in an instance where the purpose has been regarded to be directly or indirectly benefitting to certain individuals. Although they may not be having a proprietary interest in a property, the benefit obtained from a trust often given factual interest, thus providing a locus stand that can aid in enforcing a trust. It is worth noting that trusts meant for charitable purposes are often regarded as technical purpose trusts.

Question 2

This question looks deep into the relevant laws that govern trustees, and the beneficiaries. In this regard, the trustees in question are Zoe Palmer and Robert Granger, and they have been entrusted to divide a third of Sonia Norris’ residue of her estate equally upon her grandchildren namely Anna, Beth, and Colin. This then implies that the beneficiaries of this will are Sonia Norris’ grandchildren. Evidently, the three grandchildren have special requests, which need the attention of the trustees. This question purposes to produce an answer, using the relevant law, in a bid to advising the trustee on whether or not, each of the requests presented by Anna, Beth, and Colin should be granted.

The court’s power to order maintenance, based on a trustee’s application is on the assumption that the primary intention is to provide for the family members sensibly, which is of great importance. According to Re Downshire’s Settled Estate, the court usually orders maintenance in an instance where the immediate beneficiary has no funds for ensuring their presents maintenance. In this regard, an order for significant maintenance would obviously resort in a variation for the sake of ensuring beneficial interests. On the other hand, the court’s power of advancement consists of a payment application for a capital sum, with the intention of establishing a beneficiary in life, or making a permanent provision for the beneficiary. It is evident that advancement can be done in several occasions, provided that the total amount in question is not exceeding a half of the vested/ presumptive share of a particular beneficiary. Notably, what is given in advance has not be accounted for at the distribution time. Based on the first request, Colin (10 years old) is a musical prodigy, and as such, his teacher urges that he should be enrolled in an internationally renowned Midshire Music Academy to pursue his secondary education, and this would amount to 17,000 pounds per year. This request is made, to ascertain whether the money can be paid out from either the Family trust, or the grandchildren’s trust. According to section 31 of the of the Trustee Act 1925, it relates to the trust fund income amongst other things, as it allows trustees to make significant payments for the beneficiaries to be able to have sufficient income for their maintenance, education or other benefits. In line with this, cconsidering the case of Speight v Gaunt [1883] UKHL 1, the court stated that regarding the duty of care, whilst administering a trust, a trustee should be obligated to exercise similar care, as well as skill, just as an ordinary businessman would in conducting his personal affairs. Moreover, in the concept of trust, the trustee should perform the trust honestly, and also in good faith, for be benefit of all the involved beneficiaries, as there would be an essence of trust, in an instance where the trustee fails to act honestly. These sentiments thus make it clear that the trustees should grant Colin his wish and that his schools fees should be paid out from the family trust, owing to the fact that its annual income, shared amongst the three grandchildren would be on fair, and some amount would still be left for Colin. However, the trustees should not pay out his school fees from the grandchildren trust, as it accrue little income yearly, which would then imply that it would be unfair to derive his school fees from it.

Based on the second request made by Beth (18 years old), she has explained to her trustees that in September she would be enrolling at a university in London and asked for 10,000 pounds per year, to help her in paying her accommodation and also for her living expenses. She also notes that the money can be paid out from the grandchildren trust or from the family trust. According to section 32 of the Trustee Act 1925 a beneficiary if given the power of applying for a capital, which is known as a statutory power. Notably, this amount has to be given in advance, yet should be accounted for at the time when distribution is made. On the other hand, whilst considering the duty of the trustee to act impartially between different beneficiaries, it is then then the obligation of the trustee to exercise impartial action, based on the trust, and as such, they should purpose to administer the trust in question in a fair, and also detached manner. In other words, the trustees should always hold significant balance between different beneficiaries. This then implies that they should hold discretion whilst taking into consideration that there should be a clear distinction between the exercise administered by an administrative power and that exercised by a dispositive power. Taking a keen consideration of the latter, it is of great significance to note that the power that the power of the trustees should be above the power of the beneficiaries. In this regard, it is vital that the trustees grant Beth her wish and as such, it is evident that the money to be paid out for her university education can be derived, either from the grandchildren trust or from the family trust, owing to the fact that it would still be fair, if the pay-out is made wither side, as still it would be shared proportionally amongst the grandchildren.

Finally, Anna has made the third request (22 years old). She recently got married to Tim, who is a doctor and thus, an opportunity has arisen, which requires Tim to purchase a long-established medical practice. This would form a large Georgian house where the two couples would live. However, it is evident that Tim does not have the required money and as such, he needs 50,000 pounds. In this regard, Anna has made a request to the trustees if she can be given the amount so that she can give it to Tim. Anna also notes that the money can be given to her from the grandchildren’s trust and or from the family trust. Following the duties of the trustees, it is of importance and it is required of them to reach certain standards. This is owing to the fact that it would not benefit a trustee, who is incompetent and as such, chooses to cause loss to the trust or to the beneficiary. In trust management, in an instance where the trustees have failed to exercise their reasonable skill, as well as care, they it would be held upon them as they would be considered to have breached the trust, and as such, be liable for any consequence that may result due to the breach. In this regard, it is advisable that the trustees should not grant Anna her wish and she would be acting in total unfairness to the rest of the beneficiaries. Notably, even if the money she requires if derived from both the family trust and the grandchildren trust, it would not be proportional to the equal amount that should be given to the remaining grandchildren and as such, it would be a loss to the other grandchildren.

Question 3

This question involves a case study, in which Colin Kelly, Jack Healey, as well as Brian Ferris were appointed as trustees in George Harrad will trust. This was a discretionary trust, meant for the benefit of George Harrad’s children and their issue. A year after, Colin died and Brian had plans to migrate to Australia, and in this regard, Brian is seeking for advice on whether, and if so, how he should retire as a trustee.

Notably, it is possible for Brian to retire as a trustee, and this is stipulated in the provisions of the Trustee Act 1925. The stipulation in this act makes it clear that a trustee can retire from his or her office in an instance where there would be at least two appointed trustees remaining (in which case, one of them may act as his or her replacement) or even a trust corporation. Secondly, a trustee may retire from office in an instance where other trustees, as well as anyone nominated by the deed of the trust to appoint the trustees (an appointer), and this should be consent to the retirement of the trustee. A perfect example is in this case, whereby the three individuals (Colin Kelly, Jack Healey, as well as Brian Ferris) were appointed as trustees. Unfortunately, Colin died and Jack and Brian remain the only trustees. When Brian wishes to retire, then Jack needs to give consent to it, and as such, there would be no need for him to be replaced, or rather, the two can come to an agreement to appoint another trustee in replacement. If incase there is need for Brian to be replaced, then this would occur simultaneously, based on the same deed. In such a case, any individual that might have been given the power of appointing a new trustee, based on the trust deed is obligated to appoint and thus, find a replacement for Brian. Moreover, it should be noted that when there is no such an appointer, then the remaining trustees, plus the one who wishes to retire have the power to appoint a new replacement. Notably, there is a trust deed, which contains an express clause that permits the retirement of a trustee and as such, it requires a trustee like Brian to comply with the significant provisions provided in the relevant clause. Additionally, under section 36 of the Trustee Act, it is evident that a trustee is allowed to retire if he desires to be discharged from all of the trusts that have been conferred to him. As such, the retiring trustee can be replaced by any other individual who has been nominated, based on the trust deed by the remaining trustees. In addition, based on a court order, it is worth noting that the court possesses an inherent jurisdiction of sanctioning the retirement of a trustee. Moreover, considering the provisions of section 19 of the Trusts of Land and Appointment of Trustees Act, it requires that beneficiaries of full age, as well as mental capacity have the authority to appoint a trustee of their own choosing.

It is worth noting that provided that nobody is nominated in a trust, for appointing a new trustee, beneficiaries may be given the opportunity to appoint a new trustee collectively, under the aforementioned section 19. In line with this, it is also clear that beneficiaries can force a trustee to retire provided that the total number of trustees is not exceeding four, especially when the trust property deals with land. It is then required that Brian should ensure that he does everything in order to ensure that the said legal title to the property is transferred to the new trustee, as provided under section 14 (4) of the Trusts of Land and Appointment of Trustees Act.

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