14. Investment

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. Part II of the Trustee Act 2000 gives every trustee the power to make any kind of investment as long as he is absolutely entitled to the assets of the trust, a power that permits trustees to hold investments jointly or in common with other persons. There are no unauthorised types of investment, but it is important to know whether the type of investment chosen was appropriate to the trust on the basis of the ‘standard investment criteria’. This chapter examines the types of investment permitted by the general law, a breach of the duty to invest with appropriate care, the significance of modern portfolio theory to trustee investments and the impact of the Trustee Act 2000 upon trustee investments. It also looks at the historical need for income production and discusses capital gains as investment returns, the standard investment criteria, the need for trustees to obtain and consider proper advice about investments, particular types of investment and investment policy.

1. Introduction to equity and trusts

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. Expressly created trusts are a special form of gift that do not require any formality. However, formality is extremely important with regard to the subsequent transfer of beneficial interests after the creation of a trust and with regard to trusts made by will (so-called testamentary trusts). Not everybody has the capacity to create a binding trust; where there is no capacity it is mainly due to poor mental health or minority (infancy). This chapter deals with capacity and formality requirements in relation to the creation of trusts and considers inter vivos transactions, the relevant provisions of the Law of Property Act 1925, lack of formality as a defence to disguise a fraud and testamentary trusts. It also examines whether a would-be settlor is legally capable of setting up a trust and discusses the equitable interest under a trust in compliance with the proper formalities, trusts for which there are no formality requirements and valid ‘mutual wills’ and ‘secret trusts’.

20. Equity: doctrines and remedies

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. In general, the leading cases on equitable doctrines and remedies are very old. Originally developed by the old Court of Chancery in constructive competition with the common law courts, equity is now applied by the unified Supreme Court of England and Wales. This chapter looks at particular doctrines and remedies that have been developed over many centuries to help predict the way in which equity will operate in various types of case. It first discusses the distinction between different doctrines of equity before turning to the requirements for the various equitable remedies, the likelihood of success when applying for an equitable remedy and the on-going significance of equity to modern commercial life. The chapter also examines the doctrines of conversion, reconversion, satisfaction, performance and election, along with the discretionary nature of equitable remedies, injunctions, rescission, rectification, account and subrogation.

19. The equitable liability of strangers to the trust

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. This chapter shows how a stranger to the trust may be threatened with personal equitable liability. It explains the rationale behind equitable liability for ‘knowing receipt’ of trust property, considers the distinction between ‘knowing receipt’ and ‘inconsistent dealing’, examines the nature of a stranger’s liability for dishonest assistance in (or procurement of) a breach of trust and looks at possible reforms of the law in this area. The chapter also discusses how liability of strangers differs from tracing, trusteeship de son tort, the four requirements for ‘dishonest assistance’ (existence of a trust, breach of the trust, assistance and dishonesty), the relationship between knowledge and dishonesty in cases of dishonest assistance and whether accessory liability should be a common law tort.

9. Variation of trusts

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. The courts’ jurisdiction to vary trusts is a tax avoidance facility that reduces the amount of revenue available to the Treasury. The question is whether the jurisdiction to vary trusts is advantageous to the average taxpayer. Not every variation is intended to achieve tax advantages. There are variations involving a variation of the beneficial interests under the trust, as well as variations involving a variation in the way in which the trust is administered. This chapter deals with variation of trusts and looks at the possible reasons for varying the terms of a trust. It also examines the numerous modes of varying trusts, the distinction between administrative variations and variations in beneficial interests, variation under the Variation of Trusts Act 1958, when a variation will be for the benefit of the beneficiaries and the extent to which courts take the settlor’s intentions into account when considering a variation. In addition, the chapter discusses the rule on variation of trusts in Saunders v Vautier and variation under the courts’ inherent jurisdiction.

8. Charitable trusts

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. Charitable trusts are not subject to the objections against private purpose trusts and enjoy certain privileges. Charities are not public institutions, but are nevertheless subject to judicial control, to the constitutional protection of the Crown as parens patriae (acting through the Attorney-General) and to the supervision of the Charity Commission. Moreover, they are not subject to the beneficiary principle and to the rule against inalienability of capital. This chapter deals with charitable trusts and discusses the distinction between legal and ‘everyday’ notions of charity. It also examines a charitable purpose, the advantages and disadvantages of charitable status, limits on the recognition of charitable trusts, what happens when a charitable purpose fails, whether the purpose of a charitable status is sufficiently beneficial to the public and the administration of charitable trusts. The chapter furthermore considers trust law and tax law privileges; the roles of charities, such as the prevention or relief of poverty and the advancement of education and religion; the public benefit requirement in educational trusts; recreational charities; the exclusivity requirement; the doctrine of cy près; and the disposal of surplus donations.

7. Purpose trusts

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. The object of a trust can be a legal person (human or corporate), a public (charitable) purpose or a private purpose. This chapter shows that trusts for private purposes are generally void, although there are a number of important exceptions to this general rule, that is, where trusts for private purposes are valid. A trust for private purposes usually takes the form of a permanent endowment, which potentially renders the capital inalienable in perpetuity. The chapter explains why trusts for private purposes are generally void and discusses the anomalous exceptions to the general rule, trusts of imperfect obligation, purpose trusts with indirect human beneficiaries and distribution of surplus donations. It also looks at various devices for avoiding the prohibition against trusts for private purposes, outlines the special problems raised by gifts to unincorporated nonprofit associations and considers how a donor can achieve their intentions in making a gift to an unincorporated association.

2. Understanding trusts

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. Expressly created trusts are a special form of gift that do not require any formality. However, formality is extremely important with regard to the subsequent transfer of beneficial interests after the creation of a trust and with regard to trusts made by will (so-called testamentary trusts). Not everybody has the capacity to create a binding trust; where there is no capacity it is mainly due to poor mental health and minority (infancy). This chapter deals with capacity and formality requirements in relation to the creation of trusts and considers inter vivos transactions, the relevant provisions of the Law of Property Act 1925, lack of formality as a defence to disguise a fraud and testamentary trusts. It also examines whether a would-be settlor is legally capable of setting up a trust and discusses the equitable interest under a trust in compliance with the proper formalities, trusts for which there are no formality requirements and valid ‘mutual wills’ and ‘secret trusts’.

18. Tracing

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. Trustees have personal liability in an action for compensation or account. If the action proves worthless in practice because the trustees are impecunious or have been declared bankrupt, and hence cannot repay trust monies to the fund, the beneficiaries may be able to trace the value of their trust property into bank accounts and into assets that have been bought with the trust property. It is the value of the trust property, not the precise item of the property itself, which is sought or traced in most cases. Tracing is a process that gives rise to the ultimate remedy of recovering misapplied money or property. This chapter examines tracing and the limits to common law tracing, the distinction between proprietary remedies and personal remedies, and how the rules for tracing in equity may be applied to unmixed funds, mixed funds and assets purchased with such funds. It also discusses the artificiality of the distinction between common law and equitable tracing rules, defences to the common law restitutionary claim and advantages of proprietary rights.

17. Informal trusts of land

Without assuming prior legal knowledge, books in the Directions series introduce and guide readers through key points of law and legal debate. Questions, diagrams and exercises help readers to engage fully with each subject and check their understanding as they progress. The trust law that applies to family land might not be applicable to other types of land. Resulting trusts present a particular challenge in this regard. Although the doctrines of resulting trust have long been settled in the law of trusts, they have recently been questioned in the context of the family home. This chapter focuses on informal trusts of land and the social reasons why they are recognised, first looking at the problem of informality before turning to the different kinds of informal trusts of land. It also examines whether facts give rise to a resulting trust or a constructive trust, the practical significance of the distinction between constructive and resulting trusts of land, the relationship between proprietary estoppel and constructive trust, express agreement plus detrimental reliance, and the decision of the House of Lords in Stack v Dowden. The chapter concludes by considering some of the problems addressed by, and caused by, the operation of informal trusts in the context of cohabitation.