MLL406 Lecture Notes - Lecture 6: Debenture, Condition Subsequent, Australian Elizabethan Theatre Trust
1 Jul 2018
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Topic 6: The Nature of a Trust
What is a Trust?
•Trust is not a juristic person like a corporation; it is a type of relationship.
•Trust is the separation of legal and equitable title.
•‘Trust is an equitable obligation, binding a person, called a trustee, to deal with
property (called trust property), owned by him as a separate fund, distinct from his
own private property, for the benefit of persons (beneficiaries/cestui que trust)
(Underhill and Hayton: Law of Trusts and Trustees, 17th ed at 1.1)
4 essential elements:
•1. Trustee: person or corporation. Trust will not fail for want of a trustee –
reappointment provisions exist. Court of equity will restrain a person in whom trust
property is vested from dealing with that property other than in accordance with the
trust.
•2. Trust Property/Subject matter: Property which is capable of being held on trust.
Must be vested in the trustee. Must be identifiable. Must be presently existing and
not conditional. Can be real/personal and corporeal or incorporeal.
•3. Must be a beneficiary (object) or a charitable purpose: (Beneficiary Principle):
There must be a beneficiary or a charitable purpose because there must be someone
who can enforce the trust. Attorney-General will enforce charitable trusts. A trust
may be created without communication to beneficiary and beneficiary does not have
to be born or even selected from a designated class – but must exist OR purpose
defined as a charity.
•4. The trustee must be under a personal obligation which attaches to the trust
property: The personal obligation of the trustee towards the trust property is the core
characteristic of the trust. It attaches to the trustee in personam but is also annexed to
the property and confers upon the beneficiary an equitable interest in the trust
property.
Further Express Trust Requirements:
•Settlor must intend to create a trust and to separate legal and equitable title (as
opposed to a different albeit similar legal relationship) - Korda
•Intention can be manifested through writing/deed/conduct.
•Trust property must be vested in the trustee. If the express trust is by transfer this
means compliance with legal requirements for transferring ownership of the trust
property over to the trustee.
•Settlor will usually disappear but may reserve powers to direct trustees in the exercise
of their discretion: see foreign trust examples.
•Beneficiaries under an express trust must be defined – whether individually or via a
defined class.
•If the trust supports a purpose rather than beneficiaries the purpose must come within
the definition of a charity (beneficiary principle)
•Trustee holds fiduciary duties and additional trustee duties
•Once express trust created it cannot be dissolved even if trustee refuses to take office.
find more resources at oneclass.com
find more resources at oneclass.com
Social and Commercial Context of Trusts:
•Family Trusts: Trusts are often used for the management of family assets. The
trustee is a family member and the family are beneficiaries. Trust is usually
discretionary (ie. beneficiaries are appointed by trustee from the family class).
Benefit is that income can be distributed to non-working spouse or children over 18.
•Superannuation Trusts: Express trust with trustee/managers appointed to look after
contributions by employees/employers during currency of employment. Vests upon
retirement. Contributions are tax deductible.
•Public Unit Trusts: Investment vehicles whereby trustee/manager appointed.
Trustee has duty to obtain money. Manager deals with investments on behalf of unit
holders. Unitholders may redeem units.
•Trading Trusts: Trusts set up to run individual businesses. Trustee is the business
company. May have few assets but usually have wide powers of investment to deal
with business income. Preferable to corporations because not taxed in the same way
regarding income tax and payroll tax.
•Commercial Trusts: Examples: corporate custodian trusts (hold securities);
debenture trusts (trust is a security device for bondholders); subordination trusts (one
creditor subordinated to another); securitisation trusts (trust assets available as
security to investors); bills of lading trusts; client trust accounts.
Discretionary Trusts:
•The discretionary trust is the most common type of express trust
•Because of its abilty to change and its tax benefits
•Defined by the fact that the trustee has a discretion or power to deal with or distribute
the beneficial interests in the trust estate.
•Discretion to select beneficiaries, to select benefits of income, to select capital (or
both)
•Power to determine proportions of income/capital.
•In a discretionary trust, no beneficiary (object) has any interest in the trust property
other than a chose in action (equitable) to be considered as a potential beneficiary.
•Discretionary trust utilised for unborn beneficiaries in a family context; to increase
taxation benefits, to confer difficult discretionary matters relating to who/how much
upon trustee corporations/boards.
Recurring Themes in the Evolution of the Trust:
•Maitland: Trust is ‘an institution of great elasticity and generality.’
•From the earliest time the primary objective of the express trust was to settle land and
assets for future generations of a family, to avoid onerous taxation and to avoid
creditors.
•In age of landed estates – trust helped the wealthy settled their land on family
members in need.
•In 19th and 20th centuries, trust concept expanded to managerial role over large
financial assets and commercial ‘protection’ objectives.
Distinction between Trusts and Other Similar Legal Relationships:
•Trust vs Contract: Trust confers beneficial title upon beneficiary and vests
ownership in the trustee. Confers in personam and in rem rights. Contract is purely in
personam.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
What is a trust: trust is not a juristic person like a corporation; it is a type of relationship, trust is the separation of legal and equitable title. 4 essential elements: trustee: person or corporation. Trust will not fail for want of a trustee reappointment provisions exist. Court of equity will restrain a person in whom trust property is vested from dealing with that property other than in accordance with the trust: trust property/subject matter: property which is capable of being held on trust. Can be real/personal and corporeal or incorporeal: must be a beneficiary (object) or a charitable purpose: (beneficiary principle): There must be a beneficiary or a charitable purpose because there must be someone who can enforce the trust. It attaches to the trustee in personam but is also annexed to the property and confers upon the beneficiary an equitable interest in the trust property.
