LAW6092 Equity & Trusts at Birmingham City University Assessment Answer

Assessment

The unfortunate demise of Jaspal has led to the initiation of an inter-vivo form of trust. An inter-vivos trust is an arrangement wherein Jaspal has formed the trust and selected Rashid, Oscar, and Holly as trustees to receive assets for the benefit of the creator and the beneficiaries throughout the creator's lifetime. The beneficiaries are to deal with Jaspal’s money, property, and estate after the death. Jaspal is to pay the deceased's taxes and debts and distribute the money and property to those who are entitled to it. The receiving of assets should be purely satisfied with the certainty of intention of Jaspal the testator, along with the subject matter or the property of the deceased and the objects of the beneficiaries to freely accept the transfers. This has been stated in the famous case of Knight vs Knight wherein the valid express trust in the aforementioned sentence should be satisfied.[1]

The trust assigned to Rashid for the further benefit of Jaspal’s descendants Edward and Kelly and the deceased’s sister Pamela is a Fixed Trust. Fixed trusts are living trusts used in order to plan the estate. Herein the settlor is assigned necessary authority over the money and valuables to benefit the beneficiaries of the trust. The beneficiaries of the fixed trust receive the trust property as per the timetable that the settlor has established. A fixed trust trustee has little or no discretion in distributing trust holdings and cannot modify the beneficiaries or the benefits that have been assigned to them.[2] Furthermore, fixed trusts should be covered as per certainty of trusts where the beneficiaries are required to be definite in order to maintain validity and should be enforceable. The famous case of Morice v Bishop of Durham (1804) clearly states that trusts cannot exist over which the court shall not have the authority to exert.[3] A live example of rejection of trust is the famous case of IRC v Broadway Cottages Trust 1955 wherein the trust failed to meet standards due to non-identification of the list of beneficiaries.[4]

The deceased Jaspal had made a declaration of the trust regarding the shares at Amazon to be sold for the benefit of his living descendants and Pamela his sister. Jaspal has rightly followed Section 53 (1) (b) and (c) of the Law of Property Act 1925 which altogether focuses on the scenarios wherein Jaspal has full rights to assign Rashid, the third party directly.[5] The Act also supports the provision by stating that Section 53 (2) makes no effect in the making or operations of the results on implied or constructive trusts. In the famous case of Morice v Bishop of Durham (1804), there was a mandatory requirement for the presence of an individual based on which the court had the right to grant the decree performance.[6] In precision, the famous case of Heys Walker v Gaskill (1914) shows that the will in the case had been duly revoked, and the deceased's rightful testamentary instrument was a subsequent will.[7] Wills are revocable by definition, and even a legally enforceable agreement not to revoke a will cannot prevent it from being revoked. Indeed, until the testator dies, the will has no legal significance or validity. A testator has the right to amend, cancel, or adapt his will at any point before his death, and a contractual contract to prevent this will not work.

This scenario is a prominent example of understanding where Rashid is in charge of the estate of the deceased Jaspal is known as the 'executor'. Had the scenario been such that the deceased individual left an invalid will or no will at all, Rashid would be known as the administrator. In such a context, the court may appoint an administrator prior to dealing with the Jaspal’s estate. Now that Jaspal has left a large sum of shares equivalent to a huge amount as the estate, there might be a need for Rashid to apply for a grant of representation for the access of funds followed by which a grant application is to be submitted to the Probate Registry.

The second type of trust that the deceased Jaspal has left behind is Discretionary Trust. Discretionary trusts are also known as trust funds that traditionally were utilized by wealthy families to retain money, investments, and assets inside the family for future generations. However, the adaptability of such trusts means that far from being a vehicle for the wealthy and famous, discretionary trusts may be an effective alternative for the deceased Jaspal who wanted to offer future assistance for children during his stay. A discretionary trust tends to allow the deceased Jaspal to place his assets or money into the trust for transferring those assets to his Phyllis and other close colleagues.[8] The scenario as the discretionary trust gives Oscar the trustee, the sole authority to decide the split of the most-prized trophy as the trust property, but has no authority to distribute but only used discretion. The 'is or is not' test shall be solely used for the determination of the certainty of objects in discretionary trusts. Therefore, the discretionary trust of Jaspal ensures that the proceeds of the most-prized trophy shall be used for the benefit of Phyllis and other assistants throughout their lifetime.

In the famous case of McPhail v Doulton [1971], the trustees of the discretionary trust are to use their discretion and shall distribute/divide the property and exercise their judgment. The trustees are to necessarily use the authority at the time of having their power, meaning that they have a choice of splitting the property at the time of attainment of power.[9] Herein, the beneficiaries have the right to complain if the discretion has not been exercised and not powers. The famous case of In Re Ogden [1933], wherein the previous statute wherein the trustee had discretions of distribution of funds to certain political groups.[10] The Court employed the list test by the use of ancient law and the the trustee consequently created a list. Therefore, the court declared the trust to be lawful. One of the landmark judgments is McPhail v Doulton 1971 which establishes current law wherein the trust for the employees or the Company’s former employees or any of their relatives.[11] Therefore, it was adopted by the House of Lords that the Re Gulbenkian test is the 'is or is not' test for the evaluation as to whether or not a trust fails due to object ambiguity.

The beneficiaries of Discretionary trusts have the legal right to inspect the trust's accounts, which include the profit and loss statement, balance sheets, tax returns, and meeting minutes. The trust deed may specify which papers the trustee must disclose to the beneficiaries. If the trustee decides to make a distribution to you as a discretionary beneficiary, you will get a proprietary interest in the trust to the extent of that distribution, even if it has not yet been paid, which is known as an 'unpaid present entitlement' (UPE).[12] A beneficiary has the right to request that the trustee pay any UPEs and can take legal action to obtain payment if this does not occur. A discretionary beneficiary may petition the court for an order requiring the trustee to conduct specific actions or processes, such as providing documents. A discretionary beneficiary may also file a claim to compel a trustee to pay a UPE. The famous case of Saunders v Vautier was established by the Court in the rule that if a beneficiary has an absolute or irrevocable interest within the trust and is of legal age and sound mind, there shall be a requirement by the sole beneficiary of the trust to be terminated. Thereafter, the trustee has the right to transfer the legal estate prior to the specific date in the trust.[13] Therefore, it was established by the Court that the concept of the lone beneficiary, or the unequivocal assent of all beneficiaries of a trust, tends to terminate or transfer their beneficial interest in the trust. 

A fiduciary is someone who works on another person's behalf, usually in a legal or financial capacity. In this scenario, the fiduciary is Holly in the context of the trust and is considered a trustee, in charge of managing the trust's residuary estate that will be provided to Jaspal’s cat. Holly is to transparently act, and maintain honesty and should not place them in such a position where the personal interests or responsibility to another party might conflict with the duty to seek the other person's interests. It shall be the necessary duty of Holly, the trustee, to observe the following fundamental rules that they should only operate in the best interests of every beneficiary. Holly is not supposed to put him in any situation where their personal interests clash with their fiduciary obligations or the beneficiaries' interests, or where there is a serious chance of conflict. Holly is to remain free from the jeopardy of the interests of the recipients and put their personal interests aside in favor of the recipients. Therefore, Holly should not prefer the beneficiary or set of beneficiaries above another.

The rights of beneficiaries with discretion are such that they have the basic legal right to have the Trust to be handled according to the conditions of the trust deed. The decision in the famous case Schmidt v Rosewood Trust Ltd (Isle of Man) [2003] UKPC 26 is widely held by courts that every discretionary trust’s beneficiary attains the right to ask the Trustees for relevant documents.[14] They are to be treated equitably and to have their best interests taken into account in every decision that the Trustees have made, to seek assistance from the courts, and to petition the courts for the removal of a Trustee. Beneficiaries may approach the Trustees directly to obtain information or to inquire about the logic behind a decision. It is not necessary to involve the Court. The Trustees may, however, decline such request at their discretion. In case the Trustees tend to continue refusal, the beneficiaries might petition the Court for intervention. In the circumstances of the emergence of conflicts, the main ingredient to the entire process is that the Trustees can establish that they behaved properly. Therefore, this tends to interpret the aim of the inquiry of the beneficiaries, and have acted in an exclusive manner within the best interests of the beneficiaries by declining the request. Trustees who are unable to provide a sound explanation for a denial risk being personally responsible for Court expenses if a disagreement reaches that stage. Beneficiaries might also make necessary petitions to the Court to have the trustee removed or replaced.

The famous case of Schmidt v Rosewood has brought precision that Trustees are required by the law to provide papers upon request.[15] These papers include the contact information of the Trustees, along with the accounts of trust, assets and liabilities, deeds and appointments of trusts, distributions, and the amendments of trusts. In case of being paid for from the trust fund, the legal advice shall remain privileged against the third parties and not to the beneficiaries. Thus, such legal advice that relates to the disputes of Trustees with the beneficiaries is privileged and the Court might order the disclosure of the documents of the company where the Trustees have the controlling shareholding in the corporate entity. The scenario is supported by the Re Gulbenkian’s settlement wherein it was ruled by the Court of Appeal that the trust is to be recognized as lawful until any claimant could be claimed as belonging to the relevant class. Such litigation constituted the challenge to Gresham's case. In all of such circumstances, in the case of a specific individual, there can be claims of maintaining fairness within the class meant to benefit, then the clause is valid. Therefore, there shall be no dismissal due to reasons that tend to imagine the borderline circumstances wherein this would be difficult in determination as to whether or not a person belonged to such class.

Bibliography:

Primary Sources
Cases

Knight vs Knight

Morice v Bishop of Durham (1804)

IRC v Broadway Cottages Trust 1955

Heys Walker v Gaskill (1914)

McPhail v Doulton [1971]

Re Ogden [1933]

Saunders v Vautier

Schmidt v Rosewood Trust Ltd (Isle of Man) [2003] UKPC 26

Schmidt v Rosewood

Re Gulbenkian’s settlement

Legislations

Law of Property Act 1925

Secondary Sources

WebPages

 “Knight v Knight (1840) 3 Beav 148 – Law Journals” (The Legal 500)

Rickman J, “What Is the Difference Between Fixed and Discretionary Trusts in England?” (LegalVision UK, August 3, 2022)

C MR, “THE RULE IN MORICE v. THE BISHOP OF DURHAM.” (2017) accessed November 16, 2023

 “Inland Revenue v Broadway Cottages, [1954] EWCA Civ 4 | England and Wales Court of Appeal (Civil Division), Judgment, Law, Casemine.Com” (https://www.casemine.com)

Participation E, “Law of Property Act 1925”

C MR, “THE RULE IN MORICE v. THE BISHOP OF DURHAM.” (2017) accessed November 16, 2023

 “Walker v Gaskill [1914] P 192 – Law Journals” (The Legal 500)

 “Trusts and Inheritance Tax” (GOV.UK, April 5, 2023)

 “Re Baden (No 1) McPhail v Doulton, [1970] UKHL 1 | United Kingdom House of Lords, Judgment, Law, Casemine.Com” (https://www.casemine.com)

Leigh LH, “Trusts of Imperfect Obligation” (1955) 18 The Modern Law Review 120

 “Re Baden (No 1) McPhail v Doulton, [1970] UKHL 1 | United Kingdom House of Lords, Judgment, Law, Casemine.Com” (https://www.casemine.com)

 “What Information Does a Trustee Have to Disclose To...” (The Gazette, November 14, 2023)

 “The Rule in Saunsers v Vautier and Variation of Trusts” (Law Reform Commission, 2017) accessed November 16, 2023

 “Maitland Chambers”

[1] “Knight v Knight (1840) 3 Beav 148 – Law Journals” (The Legal 500)

[2] Rickman J, “What Is the Difference Between Fixed and Discretionary Trusts in England?” (LegalVision UK, August 3, 2022)

[3] C MR, “THE RULE IN MORICE v. THE BISHOP OF DURHAM.” (2017) accessed November 16, 2023

[4] “Inland Revenue v Broadway Cottages, [1954] EWCA Civ 4 | England and Wales Court of Appeal (Civil Division), Judgment, Law, Casemine.Com” (https://www.casemine.com)

[5] Participation E, “Law of Property Act 1925”

[6] C MR, “THE RULE IN MORICE v. THE BISHOP OF DURHAM.” (2017) accessed November 16, 2023

[7] “Walker v Gaskill [1914] P 192 – Law Journals” (The Legal 500)

[8] “Trusts and Inheritance Tax” (GOV.UK, April 5, 2023)

[9] “Re Baden (No 1) McPhail v Doulton, [1970] UKHL 1 | United Kingdom House of Lords, Judgment, Law, Casemine.Com” (https://www.casemine.com)

[10] Leigh LH, “Trusts of Imperfect Obligation” (1955) 18 The Modern Law Review 120

[11] “Re Baden (No 1) McPhail v Doulton, [1970] UKHL 1 | United Kingdom House of Lords, Judgment, Law, Casemine.Com” (https://www.casemine.com)

[12] “What Information Does a Trustee Have to Disclose To...” (The Gazette, November 14, 2023)

[13] “The Rule in Saunsers v Vautier and Variation of Trusts” (Law Reform Commission, 2017) accessed November 16, 2023

[14] “Maitland Chambers”

[15] “Maitland Chambers”

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