Trusts Study Exercise 1 Question 1: Trusts are created when one person wishes to give another person the

benefit of certain property but does not want them to hold the property outright. Discuss Answer: The statement provides a simplified definition which may be useful to understand trusts in a simplified way but does not cover the range of ways in which trusts are created or the reasons why they arise. This essay will first expand on the different uses of a trust before going further into the different types of trust. There are many situations where someone may prefer not to give property outright to a beneficiary, firstly the intended recipient may be a minor; this situation would fit well within the definition provided for this question, but is far from the only reason for creating a trust. Trusts are very flexible instruments, for example in a discretionary trust the settlor will appoint a trustee to administer the gift to a group of beneficiaries based on who within the group has the greatest need or the lowest tax exposure. The flexibility of trusts are a major reason for their creation. Trusts also allow the settlor to split the beneficial interest over time, for example a trust may give the settlors wife a life interest after which property may pass in equal shares to their children. Trusts may also be created by the courts for various purposes, these are generally known as constructive trusts. Finally some trusts are created for charitable purposes, not to benefit one person or group but society as a whole. As there are many types of uses for a trust, the ways in which a trust might arise are multiple and varied. We will divide the types of trust into the way they are created and their structure. Firstly we have the express trust, this trust is expressly created by the settlor. To establish an express trust the settlor must meet the substantive requirements, these are similar to the rules for establishing a contract, there must be an intention to create a trust and other formal requirements. An express trust can be defined as fixed, discretionary or bare; all of these terms refer to the powers the settlor grants the trustees under the trust. A fixed trust is one where the interests of the beneficiaries or charitable purposes are determined at the outset. Even in a fixed trust the interests of the beneficiaries may be indeterminate, for example if the gift was a holding in company stock, the proportion of dividend to each beneficiary would be fixed but not the actual amount. The trust could also include contingent (arising if an event occurs) or defeasible (ending if an event occurs) interests. A discretionary trust, as the name suggests, occurs when the settlor presents the trustee with a set of principles according to which she should distribute the gift at her discretion with the provision that the class or group of beneficiaries must be defined and identifiable in the trust instrument itself. A bare trust is one where the trustee holds the trust rights to the order of the beneficiaries, this gives the beneficiaries discretion over how the interests are distributed. A protective trust is a device used by a settlor to ensure that the beneficial interest under a trust does not form part of an insolvent beneficiarys estate. This is done through the creation of a

defeasible interest normally this would be structured as a determinable life interest followed by a discretionary trust. This means that a beneficiary would have a life interest under the trust unless a determinable event, like bankruptcy, occurred; upon the determinable event occurring they lose the right to retain the income from the trust. Thus the bankrupt beneficiary and consequently her creditors, have no claim to the beneficial interest. A protective trust may be created by the inclusion of appropriate terms in a trust instrument or by reference to s.33 of the Trustee Act 1925. It is important to note that a settlor can create a protective trust in their own favour, provided that the first determining event to occur is not the settlors bankruptcy, re Burroughs-Flowler; re Detmold. In some areas of the law, the legislature has created law which uses trusts to resolve legal problems. For example, in land law, following the Law of Property Act 1925 co-ownership will always occur behind a trust. This was designed to facilitate the marketability of land by avoiding complicated transactions where many title holders had to collectively agree to sell a piece of land. The courts have also found trusts to exist without the help of Parliament or express declaration by the parties involved. These are called constructive trusts, Professor Birks argues that constructive trusts fall within three separate headings for creating private law rights: wrongdoing, unjust enrichment and other miscellaneous events. The fourth category, manifestations of consent describes an express trust. Constructive trusts can be subdivided into institutional or remedial trusts. Institutional constructive trusts arise when the courts apply legal rules while remedial constructive trusts arise when judges find it fair to the parties to do so. Traditionally, there is an additional category of trusts called a resulting trust. This can arise in one of two circumstances. If A transfers a right to B gratuitously, then B will hold the right on resulting trust for A. If a transfer is made on trusts which are either wholly or partially void then an automatic resulting trust is created. The problem modern legal scholars have with resulting trusts is their overlap with constructive and express trusts. Finally, we come to the category of purpose trusts. Purpose trusts are not intended for the benefit of a specific class of people but devoted to the carrying out of some purpose. Since such trusts do not have beneficiaries with defined interests and there is no one to enforce the trust against the trustee they are prima facie void. However, if the trust is enforceable by the state the trust may be valid. For this reason purpose trusts are called public trusts. As the above exposition highlights, while the statement that trusts may be created to give one person beneficial interest in a property, it does not define the entire spectrum and is a poor characterization of the subject of trusts generally.

Question 2: Equitys flexibility is all very well, but the trouble is that it can lead to irrational and random decision making. It is essential for the courts to emphasise that equity is a principled system of legal rules, and that a vague sense of justice is not enough to warrant granting someone the remedy they desire. The statement calls for an examination of equitys development and an examination of its ability to stand as a system of legal rules as opposed to a purely discretionary vehicle within the common law for the administration of justice. To fully understand equity it is important to consider its historical development as a dynamic system which was a compliment to the development of the common law. This essay will also consider to what extent equity can be considered a separate system of law from the common law. Equity developed out of the Court of Chancery, where the chancellor heard petitions to the King from dissatisfied litigants who had failed in the common law courts. The reason for this was the relatively rigid common law system of writs which was in place at the time. In order for a plaintiff to bring a claim against a defendant the complaint had to fit within one of the standard writs that the Chancellor could issue to bring the complaint to court. If there was no writ there could be no legal remedy. The Chancellor, who held the highest office under the King, was a member of the clergy and considered to be the conscience of the King as such the court of Chancery was a court of conscience with less concern for formalities which dominated the rigid common law system. At the outset, as the above statement indicates; the concept of the court and its decisions were said to vary with the length of the Chancellors foot (Lord Eldon). While this may have been an accurate portrayal at the inception of the court; over time the position of Chancellor became more formalized; the position was held by lawyers and records of cases were kept. Thus a body of precedent and principles developed in the court of chancery. Notably, equity developed a series of maxims which continue to operate as guiding principles, having been interpreted and defined through case law. By 1878 it was maintained by leading judges that the court of Chancery was not a court of conscience but a court of law (Jessel MR). Following the Judicature Acts 1873-5 the rules of the common law and equity are administered by the common law courts but the distinctions between common law and equitable rights remain. It is worth bearing in mind that equitys role in the English legal system was always derivative of the common law, it could not stand alone as a system of law. As Ashburner explained after the Judicature Act there were two streams of jurisdiction, though they run in the same channel, run side by side, and to not mingle their waters. While it is arguable that equity is a system of legal rules, it is important to note that equity is not an independent system, it is, as Maitland described it, a gloss on the common law. The fact that equity cannot exist independently of the common law is an important element to understanding how flexible it can be. Seen from this perspective we understand that equity is a device or subsystem within the framework of the common law as such it true that equity exists within a principled system of legal rules. An important distinction which gets to the heart of the above statement is the way remedies lie in the common law and in equity. What may seem as a judges bending the law in the interest of a

vague sense of justice is in fact a strict adherence to the principles of equity, which are different from those of the common law. Equity acts in personam that is to say on the person while in the common law remedies lie as of right. This means that the courts will have discretion as to whether equitable remedies should be available and in two identical factual situations i.e. an incomplete contract for sale of land, the court may decide differently based on the intentions of the parties. There is nothing random or overly discretionary about equity, it is merely the fact that the primary consideration in equity is governed by different criteria. It is this distinction between equitable and common law rights that has given rise to the law of trusts. Fundamentally, one must recognize the distinction between legal and beneficial ownership and that someone can have a duty, outside of contract to perform their duty under an agreement for the benefit of a third party. Finally, it is important to note that while equity is governed by principles different from those of the common law it is more concerned with clean hands and intention over form in general the sphere over which equity exercises power is much smaller than the totality of the common law. Equity exists within a pre-defined area of influence and there is no risk of equitable decisions overturning centuries of established common law.