BTF1010: Commercial Law: Trusts

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Monash University
Business Research
Mark Bender

Chapter 14: Introduction to Trusts What is a trust?  A trust is a relationship pursuant to which a person is obliged by the rules of equity to deal with certain property of other persons or for a particular purpose  Strong fiduciary relationship exists Essential elements of a trust:  The trustee  The trust property  The beneficiary (or beneficiaries) Parties to the creation of an express trust: 3 essential parties:  The settlor: the person who creates the trust  The trustee(s) the person appointed to carry out the settlor's instructions and hold the trust property for the benefit of the beneficiary  The beneficiary (or beneficiaries): the person (or persons) for whose benefit the trust was created Trustee:  May be a natural person or a body corporate  The law recognises the trustee as the legal owner of the trust property  Trustee can be the settlor and/or one of the beneficiaries but not the sole beneficiary  A trust would be unworkable if the trustee was unable to determine whether any particular person was a beneficiary.  A trust is not a separate legal entity. It is a relationship in which one person (the trustee) holds an asset of some type on behalf of another (the beneficiary). It is the trustee who sues or is sued Duration of a trust:  The duration of a trust may be stated in the trust itself or may be implied from the terms of the trust.  Trusts cannot last indefinitely. The trust property must vest in a particular person or persons within the time period allowed by the law ('rule against perpetuities'). o (Old) common law: a trust must vest within a life in being plus 21 years. o Today in most Australian states, the perpetuity period cannot exceed 80 years (eg Perpetuities and Accumulations Act 1968 (Vic) s 12). Types of trusts : Trusts can be classified in three ways: 1. How they were created: trusts are created by the settlor (express and implied trusts), or by law (constructive trusts) 2. The nature of the beneficiaries’ interest: varies depending on if it is a fixed or discretionary trust 3. When the trust will begin to operate: a trust may operate during the life of the settlor or only post mortem (testamentary trusts) Discretionary trusts:  In a discretionary trust, a range of beneficiaries are named, and the trustee is given the discretion of determining which one(s) should receive a particular benefit at any particular point in time, and in what proportions. Fixed trusts:  In a fixed trust, the proportion of the trust property which vests in particular beneficiaries is fixed. One type of fixed trust is the unit trust  Unit trusts: trusts fund is divided up into a number of equal units.   In a unit trust, operating as a trading trust, the units are transferable.  Operation of a trading trust: Shareholders of a limited liability corporate trustee have limited liability – limited to the amount still unpaid on their shares. Trustees’ Powers  Express powers: trust deed will usually list the powers of the trustee  Implied powers: trustee will generally be given the implied power to do anything and everything that i
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