Equity & Trusts Law & Lawyers
Trust administration, beneficiary rights, and equitable remedies.
Equity developed in the early Middle Ages as a means of alleviating the strict application of legal rules by the then Royal Courts, collectively known as the Courts of Common Law. Those aggrieved would petition the Crown. The appeals were eventually handed over to the Lord Chancellor, then the Crown's principal minister and usually an ecclesiastic. Hence the origins of the jurisdiction as a court of conscience. By the 18th Century, equity had itself become rigid. The origins of the jurisdiction have, however, prevailed and the principles of equity can now be applied in every civil court in the land. One of equity's greatest inventions has been the Trust.
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The key remedies in equity can be grouped into the following topics:
• Declarations;
• Specific performance;
• Rescission;
• Injunctions;
• Compensation and damages;
• Tracing;
• Taking accounts; and
• Delivery up, cancellation and rectification.
Trust law applies whenever one person has placed trust and confidence in another person to manage his or her affairs. The full force of the law of equity governs such relationships and the trust now provides a mechanism for a number of situations, family relationships, charities, pension funds, to name but a few.
Aside from fascinating concepts such as proprietary estoppel and secret trusts, which allow the courts to circumvent formalities in the dealing of property which have been deliberately prescribed by Parliament, an understanding of trusts requires an understanding of a whole variety of technical terms, fiduciary, beneficiary, express trusts, fixed trusts, discretionary trusts, resulting trusts, constructive trusts, purpose trusts, charitable trusts, proprietary and personal remedies.
How do remedies at law differ from remedies in equity?
Remedies at law are generally paid in some amount of money whereas equitable remedies result in a court ordering one party to do (or not do) some action, e.g., an injunction.
Equitable remedies, unlike remedies at law, are granted at the sole discretion of a judge. A jury is not involved. Equitable awards also require that the person seeking equitable relief must have acted in good faith in the matter at hand (i.e., he who asks for equitable relief must come before the court "with clean hands").
Equitable remedies (I am excluding preliminary relief) are sought in those cases when money damages will not make a party "whole" in the eyes of the law, or where the other party has been unjustly enriched. Accordingly, it is not uncommon for courts to require the seller's performance of a contract to sell land to the petitioner if the seller has tried, unlawfully or unfairly, to back out of the deal. That is because, in the eyes of the law, land is unique: no amount of money will compensate for a seller's failure to sell a particular parcel of land he lawfully contracted to sell.
Sometimes equitable remedies are sought in cases where the strict imposition of the law would result in a great injustice to the person seeking equitable relief. The maxim that applies to this case is "Equity abhors a forfeiture."
The existence of equitable remedies is an acknowledgement by the legal system that even when a legal remedy exists, there are a few cases in which the legal remedy (adhering to the letter of the law) would produce an unjust result. These situations are relatively rare, but they do occur.
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Types of trust
The nature or legal structure of a trust, particularly whether it is a fixed or discretionary trust, affects the way its net income (including capital gains) is taxed. Special tax arrangements apply to some common types of trust, including super funds and corporate unit trusts.
Nature of the trust
Trusts can be created by intention of the settlor (express trusts) or through the operation of the law (non-express trusts).
Express trusts are generally classified as either fixed trusts or discretionary trusts according to the nature of the beneficiaries' interests in the income and capital of the trust.
Fixed trusts
The beneficiaries' entitlement to the trust property or income (or both), and the way in which this is fulfilled, is fixed by the trust deed. The trustee has no discretion to alter the prescribed entitlement of the beneficiaries. Very few trusts (if any) are wholly fixed because the trustee generally has some element of discretion.
Discretionary trusts
The trustee has a discretion as to how the income or capital (or both) is distributed between the beneficiaries or different classes of beneficiaries (also referred to as objects). A beneficiary of a discretionary trust has no beneficial interest in the trust property or income until the trustee exercises a discretion under the deed to distribute income or capital in the beneficiary's favour.
Common types of trust arrangements
Trusts are widely used for business and investment purposes. Special tax arrangements apply to some common types of trust.
Unit trusts
These are trusts where the interests of beneficiaries are denominated by units, which can often be bought and sold in a way similar to trading in shares in a company. Unit trusts are used in many commercial arrangements, including managed investment schemes.
Hybrid trusts
A hybrid trust is a trust that has features of a unit trust and a discretionary trust.
Family trusts
Many family trusts are discretionary trusts due to the flexibility they offer - income can be allocated to beneficiaries at the trustee's discretion.
Trusts that qualify as a family trust for the purposes of the trust loss provisions may benefit from concessional tax treatment.
Deceased estates
A deceased estate is technically not a trust while it is being administered, but is treated as a trust for tax purposes, with the executor or administrator of the estate taken to be the trustee.
Super funds
Super funds are generally trusts, and have trustees and beneficiaries (members). However, super funds are taxed differently to other types of trusts.
If you would like legal help regarding equity and trusts, including the set-up of a trust, then please complete your free legal enquiry form on the right, or click here.
Further Resources - Equity & Trusts Law & Lawyers
NEWS, UPDATES & FURTHER INFORMATION - Equity & Trusts Law & Lawyers
Equity & Trust
What are trusts?
Trusts are arrangements whereby assets, money or property is owned and managed by a single individual for the benefit of another. Trusts are created by someone called in legal terms a settlor, who entrusts some or all of his assets to a person or people of his or her choice, known as trustees. Trustees legally own the trust property, but they are legally required to hold the property for the benefit of one or more individuals or organisations, known in law as beneficiaries. A document known as the trust document, usually written and in deed form, governs the terms of the trust.
Trusts are an ancient law, developed in England during the Crusades. At this time, when a landowner left the country to fight in the Crusades, he would convey his lands to a friend who would hold the land until the Crusader returned. This caused complicated situations, and at the time was not recognised in English law. Over time this was rectified, and crusaders were beneficiaries and the holder of the land would be a trustee.
Since this time, trusts have grown into one of the most effective parts of English law, and property of any sort can be held in trust. Trusts may be created during life, or even after death in a Will, and may be either written or implied. Trusts generally require three things: intention, subject matter and an object. Trustees can be either companies or individuals, and there may be multiple trustees. Trusts can be created without any knowledge on the part of the trustees, and being a trustee by its nature is unpaid. However, some professional trustees (such as lawyers) cannot afford to work for free, and the trust document can specify payment.
The beneficiaries are the beneficial owners of the trust property, and will at some point receive income from the property or the property itself. The level and extend of beneficiaries interest depends on the trust document.
Types of Trusts
Trusts are generally in one of the five following forms. Interest in Possession trusts are usually part of a will and leave a spouse able to draw income for the rest of his or her life. Accumulation and Maintenance trusts exist for young beneficiaries and allow them to receive money if the trustees agree. Discretionary trusts usually leave the trustees to choose the beneficiaries. Bare trusts allow the beneficiaries to demand any or all property at any time. Charitable trusts encourage charitable giving and are unique in English law.
Trusts are private, prevent spending, help in wills and estate planning, charitable giving, investment, pension, asset protection and tax planning. Trust law governs all aspects of the trust.
The maxims of equity evolved, in Latin and eventually translated into English, as the principles applied by courts of equity in deciding cases before them.
Among the traditional maxims are:
1 Equity regards done what ought to be done
2 Equity will not suffer a wrong to be without a remedy
3 Equity delights in equality
4 One who seeks equity must do equity
5 Equity aids the vigilant, not those who slumber on their rights
6 Equity imputes an intent to fulfill an obligation
7 Equity acts in personam.
8 Equity abhors a forfeiture
9 Equity does not require an idle gesture
10 One who comes into equity must come with clean hands
11 Equity delights to do justice and not by halves
12 Equity will take jurisdiction to avoid a multiplicity of suits
13 Equity follows the law
14 Equity will not aid a volunteer
15 Where equities are equal, the law will prevail
16 Between equal equities the first in order of time shall prevail
17 Equity will not complete an imperfect gift
18 Equity will not allow a statute to be used as a cloak for fraud
19 Equity will not allow a trust to fail for want of a trustee
The Trust Deed and Beneficiaries Rights
Beneficiary rights are for the most part are a derivative of the beneficiary principle and one of the important things to recognise in regards to trusts, is that the courts do not enforce trusts on their own volition, but rather, it is a person who must bring a matter before the courts. Beneficiaries who have standing before the courts can gain relief if there is a breach of trust and are able to seek the following actions:
(a) an injunction to prevent any further breaches of the trust;
(b) the appointment of a receiver to the trust property;
(c) a monetary or proprietary remedy for any losses that may have been incurred due to the breaches committed by a trustee; or
(d) holding the trustees accountable for any gains secured through their duties, which are deemed to be illegitimate.
Furthermore, proprietary relief can also be sought against third parties in regards to trust property – except for bona fide purchasers for value without notice of the trust – even if the trust has changed form. Additionally, in the event where a trustee is unwilling to pursue a matter on behalf of the trust, then action against a third party, who has an obligation to the trust, can be initiated by a beneficiary who has standing against the third party. Causes of action against a third party volunteer who has received the trust property in breach of the trust, rests on the information that is available to the beneficiary in relation to how the trust is managed.
If you would like legal help regarding equity and trusts, including the set-up of a trust, then please complete your free legal enquiry form on the right, or click here.
Can a trustee be removed due to unsatisfactory performance?
In circumstances where a beneficiary is dissatisfied with the performance of a trustee, the beneficiary can petition the court for the removal of a trustee and another trustee may be appointed.
Readers should keep in mind, that the primary duty of a trustee is to administer the trust in accordance with the terms of a trust deed, either through prior consent, subsequent acquiesce or release.
Who ‘owns’ trust property?
Ownership of trust property is split between a trustee and a beneficiary. Legal ownership of the trust property is vested with the trustee, whilst a beneficiary has equitable ownership of the trust property. Therefore, beneficiaries upon universal consent and who have full capacity, can request the trustees to pay over the beneficiaries respective interests under the trust, which would then ultimately extinguish the trust.
Assignment of trusts
Trusts which are proprietary in nature, the law for the most part, recognises the rights of a beneficiary to transfer or assign their interest. However, for non-proprietary interests, such as choses in action or mere expectancies in regards to discretionary trusts – can be assigned and is subject to agreement.
Furthermore, for equitable trusts, transfer and assignment may be limited by the terms of the trust deed, and it’s also worth noting that the law recognises that a beneficiary has the ability to disclaim a trust.
If you would like legal help regarding equity and trusts, including the set-up of a trust, then please complete your free legal enquiry form on the right, or click here.
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