Validity of Trust Funds in Rita's Will: An Analysis of Basic Trust Elements

PART – A:

Ans. 2

In the given case study, it is essential to identify and understand the basics of a valid trust before we can thoroughly examine the validity of the given circumstances of Rita’s will. For a trust to stand and act valid, it requires three of its most basic elements – i) the intention of the settler, ii) a certain subject matter and iii) the objective or the object of the trust fund. Also, it is to be remembered that a trust cannot go on forever and hence a trust must fulfill the quality of being perpetuities as well. Keeping these basics of a trust fund in mind, an analysis is therefore conducted on the given two circumstances of trust fund created by Rita in the given case study.

Trust 1

In the first scenario of Rita’ will, a certain trust fund has been fixed for the purpose of being distributed among the best students of the law department of a certain university. According to the basic principle of the trust fund, it is necessary to have an ascertained beneficiary at the end of the trust fund and it shall not be vague in nature. As Lord Evershed has mentioned in the case of Re Endacott, if no ascertained or definite person has been mentioned as the beneficiary of a certain trust fund or will, it shall not be considered as a valid trust.

In the given scenario, the term ‘best among successful’ students do not provide us with a clear picture of ascertained beneficiary herein and hence it can be stated that according to section 2 and 3 of the UK Charities Act, 2006, the abovementioned trust shall be regarded as being invalid in the eyes of the English law.

However, in the given case study, Rita has appointed one Sonia for the purpose of distributing of the trust fund and certain loophole can be found in the beneficiary principle herein. Sonia has been entrusted as being an independent enforcer of the given trust fund and even though Sonia is not directly affected by the trust fund and is not benefitted from Rita’s trust fund directly, it can be argued that Rita has held Sonia to be enforcer of the given trust fund and it is not the place of the court to invalidate the position as well.

Also, as per the case of Re Denley and Re Barlow’s, it was held that a trust fund can be held valid for the benefit of a group of people and it can be termed as being a collective trust herein. It was also held that for the purpose of consider it to be a ‘person’s trust, it needs to benefit the foundation as a whole. Thus, combining the two characteristics of the given scenario as Sonia being appointed by Rita as the distributer of the given trust fund and as per Re Denley case, a trust fund stands valid for the benefit of a group of people, in cases where the end beneficiary is said to be vague in nature, the trust fund shall be held valid in the eye of the law herein.

Apart from that, we can also argue that this is a charitable trust, entrusted in the hands of Sonia, who has been appointed by Rita personally and hence it shall be an exception to the beneficiary principle herein.

Trust 2

In the second scenario of Rita’s will, a certain trust fund has been fixed for the purpose of building a monument for her great grandmother. However, according to basic concept and purpose of a trust fund, it is necessary to have a beneficiary at the other end of the trust fund. Thus, Contradictory to the abovementioned necessity of a trust fund, Rita wanted to have it applied on building a monument or statue which is an objective or a cause and hence it goes against the invaluable beneficiary principle of the United Kingdom trust law which states that as per UK Charities Act, if a trust is not of the charitable character and a trust that has not been appointed for the benefit of a particular person or a defined people or group of people, such trust fund shall be regarded as void hereunder. In the case of Morice v. Bishop of Durham, it was held that a trust fund of non-charitable character must and should have an end beneficiary and it cannot be appointed in pursuit of an object.

Also, in the case of Corpe V Endacott and Ors, it was held by Lord Evershed that for a trust to be valid in the eyes of the English Law it should have an ascertained beneficiary or else it would be considered as invalid or void ab initio.

However, as it has been mentioned under the case of Re Hooper, a ‘monument’ is considered to be a legal exception to the beneficiary principle. Thus, if a trust fund is to be built in the name of the person and her past benevolent character, it shall come under the exception of trust beneficiary principle.

Thus, for the purpose of second scenario, the purpose of building a monument in the name of her great grandmother for her benevolent activities shall fall under the exception of the beneficiary principle of the English trust law and it can be stated that Rita’s will would stand as valid herein.

BIBLIOGRAPHY

Journals

• Long, Joseph R. “The Definition of a Trust.” (1922). Virginia Law Review, vol. 8, no. 6, pp. 426–433.
• McWilliams, Robert L. “Consideration and the Law of Trusts.” (1926). California Law Review, vol. 14, no. 3, pp. 188–197
• Parkinson, Patrick. “Reconceptualising the Express Trust.” (2002). The Cambridge Law Journal, vol. 61, no. 3, pp. 657–683.

Legislation

• The Charities Act, 2006

Case Laws

• Corpe V Endacott and Ors.[1959] Ewca Civ 5, [1960] Ch 232
• Morice v. Bishop of Durham, (1804) 9 Ves Jr 399
• Re Barlow’s Will Trusts [1979] 1 WLR 278 (Ch)
• Re Denley’s Trust Deed [1969] 1 Ch 373 (Ch)
• Re Hooper [1932] 1 Ch 38

PART 2

Ans. 1

For the purpose of the given case study, it is necessary to understand the duties of the Trustee under the English trust law or Trustee Act, 2000 as per Part – I herein. According to the law of the land of United Kingdom, a trustee has several duties to fulfill while taking care of a trust such as – i) Carry out the terms of the trust, ii) be impartial among the beneficiaries of the assigned trust iii) Inform all the beneficiaries about the whereabouts of the trust fund and iv) Defend the trust.

Background

In the given case study, it has been seen that Glen has acted as the trustee of the discretionary trust of Tami where the children of Tami are the beneficiary of the given trust. Dominica and Peter are the children of Tami and Mary is the person who has been looked after by Tami during her lifetime but Mary is not a legal child of Tami and hence, she is not a legal heir or beneficiary of the discretionary trust fund herein. As an active trustee of the abovementioned trust fund, Glen has allotted all of the trust fund in the name of Mary, in good faith, believing that Mary is a legitimate child of Tami.

Legal Issue

Hence, it can be said that even if the trustee has acted out of good faith and truly believed that Mary was a legitimate child of Tami and Mary, also in good faith believed that she was adopted by Tami and added a legitimate beneficiary of the trust fund and as a rule of the discretionary trust fund herein, the trustee can act on his/her own accord and distribute the trust fund among the beneficiary, the trustee cannot breach his/her duties to fulfill under the Trustee Act, 2000 of the United Kingdom herein.

According to the case of Youyang Pty Ltd v Minter Ellison Morris Fletcher, a trustee is herein under an obligation to carry out the terms of the trust. Also, according to the Trustee Act, 2000 and the basic principle of the discretionary trust of UK, it is the duty of the trustee to investigate in order to identify the beneficiaries of the trust fund as in case of discretionary trust, the whereabouts of the trust fund is not accessible to its beneficiaries and it is according to the trustee, such a trust fund is distributed. In this given case study, the terms of the discretionary trust was to count Tami’s children as the beneficiary and in the given case Glen has allotted the trust fund in the name of Mary, who is not a child of Tami. Hence, the trustee, Glen has breached the duties of the trustee under the Trustee Act, 2000.

Also, according to case of Hawkesley v May, it is the trustee’s duty to keep all the beneficiary informed about the whereabouts of the trust fund and the same shall be applied in the case of discretionary trust, even if in case of discretionary trust, the trustee distributes the trust fund according to his/her own accord amongst the beneficiaries. In case of discretionary trust fund, a beneficiary needs not be benefitted from a trust fund to know about the allotment herein as it has been decided in the case of Fletcher v Collis.

According to the case of Tanti v Carlson, it is also the duty of the trustee to act impartial while distributing a trust fund among the beneficiaries and even in the case of a discretionary trust, a trustee must act according to the duty ensured under the Trustee Act, 2000 herein and be impartial while distributing the given trust fund as well.

According to section 61 of the Trustee Act, 1925, a trustee may be excused from a breach of Trustee Duty, if the same has been done in good faith herein.

Application of the legal issues

Hence applying the abovementioned case laws and the basic principle of the Trust Law of England and the duties of the trustee as mentioned under the law of the land herein, it can be said that the act of Glen of allotting all of the trust fund in the name of Mary, whom she believed to be a beneficiary in good faith, shall be considered as invalid.

It has been seen that Mary has invested some of the trust fund in different shares in different companies and spend a part of the trust fund in the name of her insurance and her own personal expenditure. Also, Mary has been severely injured by an accident and she is in need of her insurance herein.

In this given case, section 61 of the Trustee Act, 1925 could be applied as it has been proved that Glen has acted in good faith for the purpose of the discretionary trust fund and thus she may be excused from the court of action to be held liable. But an act of negligence cannot be equated with an act of good faith and honesty. In the case of Various Claimants v Giambrone & Law (a firm) & Ors, it was held by the Lord Nicholls that an act done recklessly and imprudently, can be termed as an act done in dishonesty. Hence, the theory of acting in good faith shall not be applied as Glen has acted negligently while identifying the beneficiaries of the trust fund which is the basic duty of a trustee of a discretionary trust.

Thus, in the given case, Dominica and Peter has the right to sue Glen for the mismanagement of the trust fund as she has breached some of the duties of trustee such as informing other beneficiaries about the whereabouts of the discretionary trust fund and impartial among the beneficiaries while distributing the trust fund. Also, in the case of a discretionary trust, it is the sole duty of the trustee to ensure and understand who the beneficiaries of the instant trust fund are and carry out the terms of the trust fund accordingly. As it can be seen that in the given case problem, Glen has not carried out the terms of the discretionary trust by ensuring the identity of the beneficiaries of the trustee and she has relied on her good faith alone and thus she has essentially breached her duty as a trustee for the purpose of the given trust fund.

Hence, in the given case, Dominica and Peter has the right to hold the given allotment of the trust fund in the name of Mary as invalid and void ab initio as Mary was not a beneficiary of the given trust fund and it was meant for the children of Tami only. Also, Glen has breached the duties of a Trustee under the Trustee Act, 2000 and she has essentially acted arbitrarily, without paying proper attention to the details of the beneficiaries and she has essentially acted partially in favor of Mary and she also had forgotten to inform the other beneficiaries about the allotment of the trust fund as well. Continue your journey with our comprehensive guide to Analysis of the Trustee Act 2000.

Thus, a court action for the recovery of the abovementioned trust fund can be instituted against Glen and as a third party who have been a part of such misconduct, a court action for recovery of the trust fund can be brought against Mary as well.

BIBLIOGRAPHY

Article

• “Trustees' Duties And Powers” (2021), Dutton Gregory Solicitors < https://www.duttongregory.co.uk/site/personal/tax-wills-and-probate/trusteesdutiesandpowers/ > [accessed on 17th Aug, 2021]

Journal

• Hopkins, John. “Trusts. Discretionary Trusts. Certainty of Objects.” The Cambridge Law Journal, vol. 28, no. 2, 1970, pp. 206–210.
• Frandkel, Tamar. “The New Palgrave Dictionary of Economics and the Law, Definition of "fiduciary duties" (1983) Vol.2, p.127-128"

Legislation

• Trustee Act, 2000

Case Laws

• Fletcher v Collis [1905] 2 Ch 24
• Hawkesley v May [1956] 1 QB 304
• Tanti v Carlson - [1948] VLR 401
• Various Claimants v Giambrone & Law (a firm) & Ors, [2015] EWHC 3315 (QB)
• Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15