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Sample Questions for Trusts Quiz

By Marvin Gibson,2014-07-10 19:49
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Sample Questions for Trusts Quiz ...

    LAW 319 -- TRUSTS

    ANSWERS TO QUESTIONS FOR PART IIIA

Capacity

Note four main types of incapacity one should watch out for.

    -minors

    -mental incapacity understanding the nature and effect of the transaction

    -bankruptcy

    -non-legally recognized entities

Who must have legal capacity for the creation of an express trust? Who else should have

    capacity and explain why?

    -settlor must have capacity this is necessary to make a valid transfer of property

    in order to constitute the trust or to declare themselves a trustee of the property

    -trustee should have since otherwise limitations on ability to carry out the terms of

    the trust

The Three Certainties

Provide an outline of the law on certainty of intention.

    -intention that other person to hold property in trust or that the settlor

    himself/herself is holding the property in trust

    -can be express or implied from written or oral statement, or, in exceptional

    circumstances might be construed from conduct alone

    -no specific words are necessary

    -the words “in trust” or “as trustee for” normally will be sufficient to indicate a

    trust intention but not necessarily court looks to actual intention

    -precatory words such as “desire” “hope” “wish” are not normally interpreted as

    exhibiting an intention to create a trust but they might be so interpreted in

    appropriate circumstances

     2

    Note the two aspects of certainty of subject matter and for each aspect note three ways in

    which that aspect of certainty of subject matter can be satisfied.

    1. Property subject to the trust

    -reference to specific property

    -reference to a specific fund or a fixed amount out of a specific fund

    -a formula (e.g. sufficient to provide a payment of $50 per month

    2. Certainty of Amounts

    -set out specific amounts for each beneficiary

    -provide a method of determining the amount

    -give the trustee a discretion as to the amount

Explain why there must be certainty of objects.

    -the trustees must know on whose behalf the property is being held (i.e. what they

    must do with it)

    -court must know for the purpose of determining whether there has been a breach

    of trust

What is the test for certainty of objects for a fixed express trust for persons?

    -the whole range of objects must be ascertained or ascertainable [Broadway

    Cottages case] void for uncertainty unless at the outset it can be seen clearly

    that all the beneficiaries thereunder are then ascertainable or will be ascertainable

    when the time comes under the trust to distribute capital or income [Underhill &

    Hayton citing Re Gulbenkian’s Settlement Trusts]

What is the test for certainty of objects for an express trust for persons in which the

    trustee has a discretionary power of appointment?

    The class must not be so indefinite that it cannot be ascertained whether any

    person falls within it valid if it can be said with certainty whether any individual

    (or person) is or is not a member of the class.

Give three practical reasons for considering underlying values or concerns that may

    influence judges’ decisions in cases.

    -need a sense of how courts will respond where legal rules seem indeterminant

    -points to evidence one may want to get before the court even though on the strike

    legal rules the evidence is irrelevant

    -identifying risks that particular intended result might not be the one the court

    finds and may suggest ways of addressing it

     3

    Explain the similarities between trust and contract.

    -trust is a deal just a s contract is a deal settlor proposes deal and trustee accepts

     thus promise of trustee to act according to the terms of the trust

    -also promise of the settlor to settle property and question of whether it should be

    enforced similar to the question of enforcement of contracts for third party

    beneficiaries

Identify and explain four possible underlying concerns or values that may influence

    judges’ decisions in cases involving the issue of whether a trust has been created.

Constitution

What does the constitution of a trust require?

    -the trustee must hold the interest in property that is to be held in trust

Give two explanations for why an express trust must be constituted.

    -trustee needs to control the property in order to carry out trust obligations re the

    property unfair to hold trustee liable for breach of trust when trustee couldn’t

    deal with the property to comply with the trust

    -court will not force the constitution of a gratuitous trust since doing so would

    complete an incomplete gift equity follows the law and the law requires delivery

    for a gift delivery serves the purpose of confirming intention and deliberation

Note three ways in which a trust may be constituted.

    -Settlor transfer

    -3P transfer

    -settlor declaration

Describe how interests in the following forms of property are transferred: (i) land, (ii)

    chattels, (iii) choses in action, (iv) negotiable instruments.

    -land deed or statutory instrument of transfer

    -chattels by delivery

    -choses in action by assignment

    -negotiable instruments by negotiation (i.e. endorsement)

Note three ways in which equitable interests may be transferred.

    -by the settlor assigning the equitable interest to another person as trustee for the

    benefit of the settlor’s intended beneficiary

    -by the settlor giving a direction to the trustee to hold the interest in trust for

    another person

    -by declaring himself or herself a trustee of the equitable interest for the other

    person or persons who the settlor intends to benefit

     4

    What underlying concerns may influence whether or not a court will force a settlor to

    constitute a trust?

Formalities

Describe the three types of situations in which writing is required for trusts under sections

    4, 7 and 9 of the English Statute of Frauds.

    -contracts concerning interests in land that create a trust as part of the contract

    -declaration or creation of trusts of interests in land

    -the grant or assignment of interests in trust

Identify and describe two responses to problems created by the Statute of Frauds.

    -Part performance i.e. some act has been done that is consistent with the alleged

    oral contract and that can only be explained by the alleged oral contract

    -use of statute to perpetrate a fraud where there is clear evidence of an oral

    contract (or declaration or creation of trust or grant or assignment of an interest in

    a trust) the statute will not operate to deny the contract or trust since that would

    allow the statute to be used to perpetrate a fraud one does not have to prove a

    fraudulent intent, just clear evidence of the oral contract, declaration or creation of

    trust or grant or assignment of an interest in trust

What are the basic requirements for a valid will under the Wills Act in British Columbia?

    -signed at end by the testator (or in the testator’s name by some other person in

    the testator’s presence or at the testator’s direction)

    -testator makes or acknowledges the signature in the presence of two other

    witnesses

    -two or more attesting witnesses (i.e. attesting to the testator’s signature by

    signing their names in the presence of the testator)

Constraints on the Creation of Express Trusts

Identify and describe five situations in which a trust may be invalid on the basis that it is

    illegal or contrary to public policy.

    -restraint of marriage

    -interference with marital relationships

    -interference with the discharge of parental duties

    -discriminatory conditions

    -restraints on alienation

     5

    Under what three pieces of legislation (federal or provincial) can a transfer to a trust in

    British Columbia be void against either creditors or a trustee in bankruptcy? In what

    situations under these pieces of legislation will it not be necessary to show that the debtor

    was insolvent, or on the eve of insolvency, at the time of the transfer or settlement?

    -Fraudulent Conveyance Act

    -Fraudulent Preference Act

    -Bankruptcy and Insolvency Act

    -it is not necessary to show insolvency or the eve of insolvency under the

    Fraudulent Conveyance Act or under the provision in the Bankruptcy and

    Insolvency Act making settlements within a year of bankruptcy void against the

    trustee in bankruptcy

Set out the common law rule against perpetuities.

    -there are actually three main rules one is the rule against remoteness of vesting;

    another is the rule against perpetual duration; and another is the rule against

    accumulations (pursuant to the English “Thelusson’s Act” (or now provincial

    Accumulation Acts)

    -the rule against remoteness of vesting is that an interest is valid if it must vest, if

    it is going to vest at all, within a period calculated by taking the lives in being, at

    the date the instrument takes effect, plus 21 years

Note three of the legislative modification under the British Columbia Perpetuities Act

    that can serve to save a trust from being invalid on the basis that it violates the rule

    against perpetuities.

    e.g.

    -wait and see (i.e. don’t deem to be an invalid gift from the outset but wait and see

    if the gift actually vests outside the perpetuity period)

    -the 80 year rule

    -deeming of the age at which persons can have children (14+ for male and 12 to

    55 for female)

    -age reduction (if a gift on a person reaching an age greater than 21 would render

    the gift void on the rule against perpetuities then the court can reduce the age as

    necessary to as low as age 21 to save the gift

    -class splitting (if the gift vests in some members of the class in the perpetuity

    period but not others then those in whom it might vest outside the period are cut

    off)

    -cy pres (if all else fails try to vary the gift in a way that fits with the general

    intention of the gift within the perpetuity rule)

Describe and contrast the Canadian protective trust and the American spendthrift trust.

     6

     American spendthrift trust the trustee is prohibited from distributing any of the

    trust property to anyone other than the specified beneficiary thus if the beneficiary attempts to assign his or her interest the trustee will not be permitted

    to pay out anything to the assignee this will discourage assignment by the

    beneficiary since no one would be willing pay the beneficiary for such an

    assignment

Canadian protective trust the American spendthrift trust would run the risk in

    Canada that it would be an invalid restraint on alienation the approach that has been accepted in Anglo-Canadian law (and often referred to as a protective trust)

    is to provide that the beneficiary loses his or her interest in the trust if the he or

    she becomes bankrupt or subject to charge in favour of a creditor

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