Summary SQE1 FLK2 Equity and Trusts Complete Notes

Equity and Trusts:


Express trusts:
 One that the settlor expressly intends to create
 Types:
o Fixed interest trusts
 The trustees have no discretion as to how the trust
property is to be divided between the beneficiaries.
 If it simply says £100000 to a group of people, and
nothing more, it will be assumed to be split in equal
shares, and therefore a fixed interest trust.
 Where a trust is created for a specific purpose, which
cannot be satisfied anymore, the money will result back
to the lender
 EG money into company to repay a debt, then
they go into liquidation and never repaid
o Discretionary trusts
 Trustees have a discretion as to the amounts any person
may receive or whether they receive anything at all.
 Generally, it must say ‘as my trustee thinks fit’ – ‘at a
reasonable amount’ will not be a valid discretionary
trust
o A bare trust (also called a simple or nominee trust):
 This is the simplest form of trust, where the trustee
holds property on behalf of a beneficiary who is
absolutely entitled to it.
 Express trusts must have a valid declaration of trusts- this is
satisfied when the three certainties are met…
 1- Certainty of intention to make the trust
o Must use mandatory or obligatory wording.
 2- Certainty of subject matter (clear what the trust property is
and how it will be shared)
o Interests must be clear – ‘generous amounts’ will not be clear
for example.
o NOT future property
 3- Certainty of objects (who are the beneficiaries)
o Fixed trusts: Need to be able to draw up a complete list of all
beneficiaries.
 If the beneficiaries are described as a class of people,
this description needs to be clear and we must have
evidence of who will benefit.

,  NOTE- Administrative unworkability ad capriciousness is
not a problem for fixed trusts.
o Discretionary trusts: Need to be able to identify whether any
given individual would be a member of the class of objects
(given postulant test)
 Trustees must know what kind of person they are
looking for.
 This class cannot be so big that it is administratively
unworkable for the trustees to identify them.
 Cannot be capricious- absolutely no rational basis for
the trustees to exercise their discretion.
 ALSO- Alongside the 3 certainties there must be compliance with
the beneficiary principle and the relevant rule of perpetuities for
there to be a valid declaration of trust.
 A trust must be declared:
o For trusts in land, this means the declaration of trust must be
evidenced in signed writing.
 NOTE- If these formalities have not been complied with
it does not mean that the trust is invalid, it just means
that it is unenforceable.
o Must set out all the elements of the trust.
o For other property, oral declarations can suffice.
 Trusts must also be constituted…
o A trust in land must be executed as a deed (written and
signed by the settlor and a witness) and a transfer deed must
also be executed handing over ownership.
 If this is evidenced in a letter, it doesn’t necessarily
need to be posted.
o A lifetime trust of a chattel requires delivery of the subject
matter or transfer by deed.
o A lifetime trust must be constituted by the lifetime transfer
of legal title
 UNLESS the settlor declares themselves as trustee
 UNLESS the every effort test is satisfied
 UNLESS there has been an agreement to transfer legal
title with consideration, even before the transfer is
completed.
o A trust of shares requires the execution of a stock transfer
form, the handing over of this form and share certificate to the
trustee, and the registration of the trustee as the new
shareholder in the company books.
 NOTE- If the settlor holds shares with themself as
trustee, this transfer of shares will not be needed as

, they already own them. Only an oral declaration of trust
would therefore be needed.
 For a trust to be valid it cannot be perpetual- the perpetuity
period is 125 years.
o NOTE- If a trust does not allow for the use of capital, but
income, this may suggest a perpetual trust.
 ‘Equity will not assist a volunteer’ and ‘equity will not perfect
an imperfect gift’
o Volunteer= beneficiary
o If the settlor has not properly transferred the trust property,
there will be no trust and equity will not interfere.
o BUT- There are some exceptions to this rule…
o EXCEPTION 1: The every effort test
 Where the settlor has passed the point of no return
 Generally only applies in cases where land or company
shares are being transferred.
o EXCEPTION 2: The rule in Strong v Bird
 If a donor intended to make a gift but didn’t complete it
during their lifetime (usually due to a failure to comply
with formalities)
 The gift can become perfected on their death if that
intended trustee later becomes the executor or
administrator of the donor’s estate.
 That gift must have been intended to be immediate- not
for the future.
 So long as this intention continued up to their death.
 Not if they made a subsequent will or gift for
example to someone else.
o There is a rare exception where equity will intervene just
because it would be ‘unconscionable’ not to allow the trust
 Usually where the donee has relied on this
 Usually where the donor has died shortly after




Beneficial entitlement to a trust:
 Beneficiaries will either get capital, income, or both from a trust.
o Capital= value.
 A beneficiary with an interest in capital is referred to as
having an ‘absolute’ interest