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TRUSTS 2002

THE EXPRESS TRUST

THE CREATION OF AN EXPRESS TRUST

FOURREQUIREMENTSi) Settlor must have legal capacityii) The three certaintiesmust be satisfied

- intention- subject matter - objects

iii) the trust must be constitutedby the transfer of property to the trustee(s)iv) Any reuisiteformalitiesmust be met

1. CAPACITY

The Settlor! There are t"o elements to capacity "ith respect to the settlor! age and competency#i) Age! $inors cannot create a trust by "ay of "ill as they cannot% "ith certain e&ceptions%

create a valid "ill# 'ith inter vivos trusts% the trust is voidable and "ill become binding onlyif he ratifies the trust upon reaching the age of majority% or% in the case of trusts concerninglong-term interests in property% he fails to repudiate the trust "ithin a reasonable time afterattaining the age of majority#

ii) Incompetency! A person may be found incompetent to create a trust "here it is found that theyare not capable of properly understanding the nature and effect of the transaction# n the caseof a testamentary trust% the testator must also be able to understand the e&tent of the propertybeing disposed of and appreciate the needs of dependants#

The Trustee! Any individual "ho can hold an interest in property can be a trustee# 'hile minors andincompetents may lac capacity to deal "ith property% they can generally hold legal or euitable title andcan therefore be made trustees#

Bee!"#"$r"es! All persons "hether individuals or incorporated entities can be beneficiaries# This includesminors% mental incompetents% unborn children and even generally unascertained persons* ho"ever% entities

that are not recogni+ed as having separate legal personalities cannot be beneficiaries

2. THETHREECERTAINTIES

"% Cert$"t& o! Itet"o

,efers to the intention to create a trust "hich is itself an intention that another person "ho is to receive

property "ill be obliged to hold that property for the benefit of some other person

ntention must relate to more than a mere "ish or moral obligation

Re Shamas(./)% /1 3, (2d) 100F$#ts' Testator4s "ill included the follo"ing! 5 give all belong to my "ife# "ant her to pay my debts 6raise the family# All "ill belong to my "ife until the last one comes to the age of 2 years old# f my "ifemarries again she should have her share lie the other children if not% she "ill eep the "hole thing and see

that every child gets his share "hen she dies#7 The "ido" did not remarry and all children attained the ageof 2#Issue' 'hat are the interests created by the "ill8(u)*+et' Taen as a "hole% the intention of the "ill seems to be that his estate vest in eual shares in hischildren subject to a life interest to his "ido" and for her to have the right to encroach on the capital for thesupport and maintenance of herself and the children until the youngest child should reach the age of 2#9iven that the estate "as not of sufficient si+e at his death to support the "ido" "ithout encroaching of thecapital% it also seems liely that his intent "as such that the "ife "ould continue to have a right to encroachon the capital after the youngest child attained 2#


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R$t"o' n construing "ills% the entire document and the relevant surrounding circumstances are looed at todetermine the interest intended to be granted% so that "hile one passage taen by itself "ould appear togrant an absolute interest% other passages may indicate that this "as not the intention of the testator# n this"ay the uestion of repugnancy% "here a subseuent gift is voided as being inconsistent "ith a previous% isavoided#

""% Cert$"t& o! Su,-e#t M$tter

a) This has t"o aspects!i) :ertainty of the property subject to the trust obligationii) :ertainty of the amount beneficiaries are to receive

Sprange v. Bernard (;.)% 2 , 120F$#ts' Testator "illed ?100 to her husband "ith the stipulation that the remainder 5that he does not "antfor his o"n "ants and use7 should be divided among t"o others at his death#R$t"o(u)*+et' The held that husband "as entitled to the gift absolutely# At the property and person to"hom property is given must be certain% the remainder "as void for uncertainty as the "ill suggested thatthere might be nothing left and thus nothing to hold in trust#

Re Romaniuk (.;/)% @; Alta# 3, (2d) 22=* 21 >T, 2.@F$#ts' Testator4s "ill attempted to create a trust in favour of her nieces and nephe"s# The "ill contained

t"o paragraphs "hich raise some uncertainty as to the subject matter of the trust# n one paragraph she"rote! 5The rest of the contents of the house and my personal belongings are to be available to my brothersto divide among BC and DC and the rest sold as "ell as the house and car7# n a follo"ing paragraph% she"rote 5The money from the sale of my house% car and other propertyas "ell as the money from my bondsand ban accounts is to be divided into four eual shares and put in trust to be given to nieces andnephe"sC on their each reaching 2E7Issue' s the description of the subject matter uncertain such as to void the trust as a result of therelationship bet"een the t"o paragraphs8(u)*+et' The phrase 5and other property7 is capable of several interpretations# The :ourt has no cleargrounds upon "hich to determine "hich interpretation "as intended# As a result the subject matter of thetrust in favour of the nieces and nephe"s fails for lac of certainty#

"""% Cert$"t& o! O,-e#ts

,efers to certainty about "ho the beneficiaries of the trust are# The test for certainty depends of "hether the trust is fi&ed or discretionary*

The test for a fixed trustreuires that one be able to!o etermine "hether any person is a member of the class of beneficiaries

o dentify every member of the class 6 the trustee must be able to mae a complete list

The test for a discretionary trustreuires that one be able to!o etermine "hether any given person is or is not a member of the class

o ne need not identify every single potential member of the class* ho"ever%

o A distinction e&ists bet"een conceptual uncertainty and evidential uncertainty# (seeBadens

Deed Trusts o. !)o Ge" test establishes same test for po"ers and for trusts

"c#hail v. Doulton(nRe Badens Deed Trust) .C A: @2@/Test !or )eter+"$t"o o! #l$ss " $ )"s#ret"o$r& trust/

F$#ts'


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distribution to and among beneficiaries# To hold that a principle of eual division applies todiscretionary trusts is parado&ical# >ual division is surely the last thing the settlor intended#ther"ise% "hy create a discretionary trust8

Gotes that there can still be case "here the definition of the class is so "ide that the trust is

administratively un$orka%le#:onsider!

'hat about the problem of ascertaining intent8 Hudgment assumes that the settlor did not intend eualdivision# B gives D a violin subject to a charge of ?0 infavour of J# D is not obliged to pay J ?0* rather% J is entitled to ?0 from the proceeds of thesale of the violinC#In rem and not in personam

b# ot a trust o%ligation) The person "ho holds the property subject to a charge is not a trusteeof the property for the third party# The person holding the property can pay off the charge andretain the property himself# Further% there are no fiduciary duties attached#

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c# ot lia%le for loss due to fault! The person "ho holds the property subject to a charge is notliable for a loss to the property not due to his o"n fault#

d# Rights of a %ona fide purchaser for value! The interest of a person "ho has the benefit of acharge can be defeated by a bona fide purchaser for value "ithout notice#

"""% Perso$l O,l"*$t"os

A grant 5subject to7 or 5on condition that7 payment be made to a third party may be interpreted as agift su%*ect to a personal o%ligation on the part of the donee#

ifferent from a charge in that the third party has no claim on the property itself but has an euitable

claim against the donee personally#

An obligation is normally interpreted as personal "hen it is made in consideration of% or is subject to%

payment to a particular person# 'here property is merely given subject to a payment of a certain sum%the effect is to create a charge#

"4% Po5ers $) Po5ers o! A66o"t+et

A legal right given to another to useKdeal "ith property#

Lo"ers can be administrative or dispositive# Administrative po"er allo"s the donee of the po"er to

efficiently manage the property for "hich the po"er is given (can include po"er to mortgage% sell orinvest)# ispositive po"ers allo" the donee to dispose of the property#

A po"er of appointment allo"s the holder of the po"er to decide "ho out of a given class shouldreceive a share of the property or to determine the si+e of the chares given#

Lo"ers can be appointed either general% specific or hybrid# A general po"er can be given to anyone# A

specific po"er can be given only to members of a specified class# A hybrid po"er can be given toanyone e&cept members of a forbidden group#

'hile the discretion given under a discretionary trust is similar to a po"er of appointment% the

difference is that there is no obligation to e&ercise a po"er of appointment "hereas the discretiongranted under a discretionary trust must be e&ercised#

AUESTHATMAYINFUENCEFININ3SONTHETHREECERTAINTIES

i) $a&imi+ing property valueso importance attributed to freedom to dispose of property

ii) >vidence of o"ner4s intention

iii) eliberation by o"ner o :onsider if decision made in haste or "ith reflection

iv) ,eliancev) Injust enrichmentvi) >nforceability and administrative costs

o Mo" vague is the trust8

o Mo" easyKdifficult "ould the administration of the trust be8

vii) istributional euityo s one of the interested parties more deserving or in need8

viii)


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F$#ts' eed "as intended to transfer shares to trustee# ividends "ere to go to niece during the life of thesettlor and after his death to her outright# The shares "ere only transferable by entry into the boos of theban by "ay of a form signed by the settlor# This "as never done#R$t"o'

n order to render the constitution of a trust valid% a settlor must do everything "hich% according to the

nature of the property forming the trust% is necessary in order to transfer the property and render the

settlement binding upon him# There is no po"er for euity to perfect an imperfect gift#

Transfer may tae place through various means* ho"ever% if the settlement "as intended to be

effectuated by one mode% the :ourt "ill not give effect to it by applying another mode#(u)*+et' The transfer of the shares "as not properly completed# The settlor plainly had the intention thatthe shares should vest in the trustee and the settlor could therefore not be said to be the trustee for the niece#As the shares "ere never properly transferred by the settlor% the trust is invalid#

In re Rose.=2C :h# @..F$#ts' Settlor e&ecuted forms for the transfer of shares to his "ife and others for the transfer of shares to"ife and company secretary jointly% the latter of "hich "ere to held in trust for "ife and children of settlor#The transfers "ere in the form reuired by the company# The forms "ere handed over to the secretary% "hodid not register the transfer for several months after they "ere completed by the settlor# The settlor died and

due to the delay in registering the transfer% the shares fell into the time period reuiring that the transfer besubject to an estate taR$t"o'

t is true that the trust "as intended to be created by transfer and it cannot be held that the deed "as a

declaration of trust "hereby the settlor became trustee# This "ould be to allo" the trust to beconstituted by a mode other than "as intended contrary to the principles in"ilroy v. +ord* ho"ever%the principle in"ilroy v. +ord cannot be construed too broadly# f a person purporting to transferproperty e&ecutes documents "hich are properly suited to that purpose it does not follo" that a trustmay not arise at some point for giving effect to the transfer#

The donor must do all that is in h"spo"er to vest title in the donee# t any act reuired is not done% then

the transfer fails# Mo"ever% it does not follo" that "hen there are reuirements over "hich the settlorhas no control and lie in the po"er and domain of others to do% that the settlement should fail onaccount of the failure of those others to properly effect the transfer so long as the settlor himself has

done all that is "ithin his po"er#(u)*+et' As a result% the transfer of shares% "hich is a transfer of all rights and interests in them% createda trust during the period pending final registration "ith the settlor as trustee by the necessary effect of hiso"n deed#

""% A th"r) 6$rt& tr$s!ers the 6ro6ert& to the trustee

"""% The settlor )e#l$res h"+sel! to ,e $ trustee 5"th res6e#t to h"s o5 6ro6ert&

Go transfer is necessary#

The o"ner retains legal title but the declaration has the effect of divesting the euitable title from the

settlor to the beneficiaries#

A clear declaration of trust is reuired#

#aul v. ,onstance .C '3, =2* All >, .=F$#ts' :onstances "ere married# After separation husband (A) met another "oman (:) and lived together#A received money in a la"suit and A and : opened a ban account# The account "as in A4s name% but Aand : acted as if the money "as their jointly# They both dre" on the account and the both put additionalmoney in the account that they "on playing bingo# A died intestate# 'ife (


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nuiries "ere made at time of opening the ban account by A regarding :4s abilities to access the fundsand the account "ould have been a joint one but for the fact that they "ere not married#R$t"o'Go particular form of e&pression is necessary for the declaration of a trust% if on the "hole it can begathered that a trust "as intended#:onsider!

'hen "as the trust formed8 f a trust has to be created at a specific moment in time% "hen did the trust

get created8 f you choose to say that the court looed at the longevity of the relationship bet"een Aand : in determining the e&isting of a trust there is a contradiction# The moment the money "asdeposited seems to be the most liely moment the trust "as created% but then the course of actionargument is strictly speaing irrelevant as this occurred after the attempted creation of the trust#

UNCONSTITUTE TRUSTSASMERE3RATUITOUSPROMISESTOTRANSFERPROPERTYTOBEHEIN

TRUST

'ithout the constitution of a trust there is only a promise to transfer property to another person to be

held in trust# 'hen "ill the :ourt enforce such a promise8

:ourts are unliely to enforce the promise if it "as made gratuitously* ho"ever% if the promise "as

made for consideration the purported settlor may be contractually bound to constitute the trust

:ourt may consider reliance% unjust enrichment% and facilitation of value-ma&imi+ing uses of property

3RATUITOUSPROMISESTOCREATEATRUSTNOTBYEE :ourts "ill not enforce a gratuitous promise

Larallel reasoning to e&pression of intention to mae a gift 6 constitution as delivery

,euirement of delivery satisfies t"o main concerns!

o First% delivery may demonstrate that the gift to B in trust "as deliberately made#

o Second% it provides clear evidence of the gift (especially in circumstances "here the gift "as

made orally orKand the donor is no longer available to corroborate the alleged gift or claimsnot to have made such an e&pression of intent

3RATUITOUSPROMISESTOCREATEATRUSTEXPRESSEINAEE

Lromise in a document under seal responds to t"o ey delivery concerns!

o ocument itself provides strong evidence of intention to mae gift

o Lrocess of preparing% signing% and sealing document suggests a deliberative process that

provides some assurance that the person maing the gift intended to do so

elivery and promise in document substitute for one another in providing evidence of intent and in

sho"ing that the disposition of property "as deliberately made

,omparison of ,ovenants in 'avour of a -olunteer to s for the Benefit of Third #arties

espite the above% :ourts may still not enforce such promises in favour of third parties "ho have not

provided consideration for the promise (5volunteers7)# 'hy8

:ourts generally "ill not allo" a third party to enforce a O#

/

F"*ure 1

:ontract

Lromisor LromiseeThird party cannot enforce

O e&cept in e&ceptional

circumstances(no privity of O)

Third Larty

F"*ure 1

eed of Trust

Settlor TrusteeLromise under seal%

but trust not constituted


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o > B D J* D can enforce O "ith B * J can enforce O "ith D* ,utJ cannot enforce O

bet"een B and D as he has provided no consideration for the O# no privity of OC

This line of reasoning applies as to the case of unconstituted trusts in deed#

$a&im! 5>uity "ill not assist a volunteer7

'hile generally courts "ill not enforce these promises% there are cases "here courts have found a

variety of "ays to find in favour of third parties

/nderlying ,oncernsa# ,eliance ! if the third "as a"are of the promise% they may have acted in reliance on the promise to their

detrimentb# Injust >nrichment ! if the promisee has conferred a benefit on the promisor then not allo"ing the third

party to enforce the promise may allo" the promisor to be enriched in circumstances "here theenrichment "as not intended as a gift#

c# Frustration of Ises of Lroperty ! Frustrates attempts by persons to deal "ith their property in themanner they "ish and thereby reduces the benefits that such persons derive from their property

d# nterference "ith $odifications of Arrangements ! :ourt may be inclined not to enforce "here this"ould limit the ability of the parties to the arrangement to alter their affairs#

e#


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fund from her mother4s marriage settlement# Trustees of Oay settlement claimed these funds% but Oayrefused to settle them on the trusts of her earlier settlement# Trustees applied for directions about "hetherthey should tae action against Oay to have these funds conveyed to them in trust#R$t"o(u)*+et' ,eiterated the decision inRe #ryceand held that the trustees should not enforce thecovenant# The beneficiaries (children) are volunteersand the ratio ofRe #ryce e&tends to both actions ineuity (specific performance) and actions for damages at la"#

2# Actions by Trustees on :ovenants in eeds (future property interest e&pected to arise in the future)

Same sort of issues arise (as above) "hen a person promises to settle property on trust that he or she

does not o"n but e&pects to get at some point in the future (e promisor might e&pect to getinheritance from parents)#

n these inds of situations% the trust cannot be constituted until the future e&pectation is reali+ed#

Re 0llen%orough To$ry +a$ v. Burne

R$t"o' n considering "hether a volunteer can enforce a contract made by voluntary deed to dispose of ane&pectancy% the :ourt held that "hile a deed for value (consideration) could be enforced in euity% "henassurance is not for value% a :ourt of >uity "ill not assist a volunteer#

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o Mo"ever% does not automatically mean that DKJ could force J to mae transfer as normal

remedy for breach of O is damages#o Since O deals "ith land% specific performance may be available at the discretion of the :ourt

if damages inadeuate#

FORMAITIES

3ENERA'

1. Trusts 8"th Res6e#t To $) 9St$tute o! Fr$u)s%

The Statute of Frauds applies to trusts in three conte&ts!i1 s that ,reate Trusts Involving +and

Section @ of Statute of Frauds!

no action shall be brought upon any contract or sale of lands, tenements orhereditaments, or upon any interest in or concerning them unless the agreement uponwhich such action shall be brought, or some memorandum or note thereof shall be inwriting, and signedby the party to be charged therewith, or some other person thereuntoby him lawfully authorized

O4s to purchase land may involve the creation of a trust "ith respect to land# n this case% the signed

"ritten document does not have to be the instrument creating the trust itself% but there must be some"ritten evidence of the agreement or else the trust cannot be enforced#

ii1 ,reation of Trusts in +and.

Section of Statute of Frauds!

All declarations or creations of trusts or confidences of any lands shall be manifestedand proved by some writing signed by the party who is by law enabled to declare suchtrust, or by his last will in writing, or else they shall be utterly void and of non effect

This section applies not only to trusts created by transfer of an interest in land to another person but

also "hen the o"ner of an interest in land declares himself to hold that interest in trust for the benefitof another person#

Also applies "here a beneficiary has an interest in land subject to a trust and directs the trustee to hold

that interest for the benefit of a third party#

'hat is reuired is a "ritten document signed by the person "ho declared the trust that acno"ledges

the declaration or creation of the trust# The document need not necessarily be the trust instrument itself#

The document need not be made at the same time as the declaration or assignment#

iii1 Assignment of 0(uita%le Interest In Trust

Section of G Statute of Frauds!

All grants and assignments of a trust or confidence shall be in writing signed by the partygranting or assigning the same, or by his or her last will or devise, or else are void and ofno effect.

,efers only to euitable interests

9rants and assignments of an euitable interest must themselves by in "riting% signed by the party

maing the grant or assignment% cannot be evidenced by some separate or subseuent document

acno"ledging the grant#

Pro,le+s 5"th the St$tute o! Fr$u)s $) Res6oses

'hile created "ith the intention to reduce the ris of fraud in relation to transactions dealing "ith land%

the Statute actually at times had the effect of assisting in the perpetration of frauds#

Short of fraud% promises acted on the promises captured by the Statute that "ere not evidence by

"riting# n this circumstance% the promisor "ould benefit at the e&pense of the promisee "ho acted onthe un"ritten O or declaration of trust# This could lead to situations of unjust enrichment

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As a response to this% >nglish jurisprudence developed the notion that as the Statute "as aimed at the

reduction of fraud% it could not be relied upon to permit fraud# As it is a fraud on the part of the personto "hom land is conveyed as trustee% and "ho no"s it "as so conveyed% to deny the trust and claimthe land himself# :onseuently% not"ithstanding the statute% a person claiming land conveyed toanother can introduce parol evidence that the land "as conveyed it trust and that the grantee isfraudulently denying the trust (Rochefoucauld v. Boustead)#

TESTAMENTARYTRUSTS

3ie trusts created "ith respect to lands% testamentary trusts must be created according to certain

reuirements in order to be valid#

$ust be in "riting signed by testator and 2 "itnesses (unless holograph)

CONSTRAINTS ON EXPRESS TRUSTS'hile generally individuals are free to deal "ith property as they "ish% there are certain limits to thisgeneral principle#

1. TRUSTSCONTRARYTOPUBICPOICYETC.

$% Ille*$l $) I++or$l Trusts

The terms of a trust used in connection "ith or to promote any crime cannot be enforced through thecourts

9enerally the purpose of the trust is irrelevant# The la" does not loo into this unless it offends a

narro" range of concerns#

Trusts that contravene general criminal la"#

The difficulty arises "hen trusts are established to do certain things that in and of themselves do not

violate the la" but that may do so vicariously or indirectly or may foster criminal acts#

Also distinguish "here the trust is valid but trustees are not legally allo"ed to act in certain

circumstances#

Trusts 5against morality7# Technically "hile not illegal trusts may be found invalid based on moral

constraints# (archaic e&ample! 3cclestone v. 'ullalove trust to provide for future illegitimate childrenstruc do"n)#

:onseuences of llegality !a) 9enerally% the property "ill revert (resulting trust) to the settlor if an illegality has not occurred*ho"ever% if the illegal purpose is carried out the :ourts have held the settlor unable to recover,% Trusts I+6os"* I4$l") Co)"t"os

i) Trusts :ontrary to Lublic Lolicy

:ommon e&amples "ould be trusts that restrain marriage% that interfere "ith normal husbandK"ife

relations% meddle in the discharge of parental duties and trusts that are discriminatory#

The condition placed on the trust must be ascertained# There is also the consideration of "hether the

condition is a condition precedent or a condition subseuent# A condition precedentmust be fulfilledbefore a grant taes effect "hereas a condition su%se(uentmust tae place after the grant* the gift canbe divested ifK"hen the condition is violated#

:ommon la" rule "as that if the invalid rule "as precedent the entire gift fails# f it "as an invalid

condition subseuent% the condition is struc do"n and the beneficiary receives the gift free of the

condition# n :ourts of >uity the above rule applies "ith real property but a condition precedent dealing "ith

personal property does not al"ays fail# They fail only "hen the are 5against nature7# f the invalidcondition is malum prohi%itum(invalid at la") then the condition "as struc out and the gift "as oay#

The >uitable rule is operationally difficult# The distinction bet"een the t"o is difficult# The different

rule for real and personal property is also of uestionable merit# :ourts generally avoid this rule oftenby 5restructuring7 the condition from precedent to subseuent and vice versa# This can be furthercomplicated "hen the court deems that it is neither but are 5"ords of limitation7# 9enerally% "hen thelines are blurry% the :ourt "ill interpret it so that the gift taes place#

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>&ample! conditions restraining marriage# To B so long as she is not married# This could be construed

as either a condition precedent% subseuent or "ords of limitation##rima faciea condition constrainingmarriage is void# The :ourts "ill consider if it is a condition that impels celibacy in "hich case it isinvalid# f it is a constraint for other reasons% then the different intent of the settlor "ill be consideredand possibly held valid# n this "ay partial restraints on marriage are not invalid (conditions againstsecond marriages% against marriage to specified person)# :onditions that demonstrate that the intention

"as not to prevent childrearing also not invalid as are those that are conditions against marryingspecified classes of people#

ii) Trusts That are mpossible to Lerform

Trusts that set out an e&isting state of fact that do not and cannot e&ist#

The condition subseuentKprecedent rule applies#

iii) Incertain :onditions

>! 5to B so long as he conforms to the :hurch of >ngland7# 'hat e&actly does this mean8

The condition subseuentKprecedent rule applies#

:onditions that are unclear% uncertain or vague are invalid

2. FRAUONCREITORS

Trusts are often used as you can place property in trust "ith another "ith you as the beneficiary*

ho"ever% t is considered a fraud to mae any transfer of assets "ith the intention of eluding creditors

This ind of activity "as originally forbidden in the /thcentury by


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c) on or for the spouse or children of the settlor of property that has accrued to the settlor aftermarriage in right of the settlors spouse of children

4e$daleandRamgottra!

:oncerned "ith trust lie instruments#


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(&) 'he restrictions imposed by subsection ($) apply to every disposition of real or personal property,whether made before or after its enactment. () 3here an accumulation is directed contrary to this Act, such direction is null and void, and the rents,issues, profits and produce of the property so directed to be accumulated shall, so long as they are directedto be accumulated contrary to this Act, go to and be received by such person as would have been entitledthereto if such accumulation had not been so directed

ational Trust ,o. v. "cIntyre5 In the 0state of ,lara +ucile Adamson(..)F$#ts' Terms of trust provided for monthly allo"ance for testator4s sister# t earned more income than "asneeded# From time to time% the trustee has dra"n on the capital of the fund% as they "ere authori+ed to do#Mo"ever% for 2 years% amounts accumulated that e&ceeded capital encroachments and the monthlyallo"ance#Issue' Trustees sought direction of the court as to "ho should receive the 5e&tra income7 in the estate "henthe Accumulation Act bars further accumulation# s this an intestacy or is the residual beneficiary entitled toit8(u)*+et' Lartial intestacy and income to be distributed accordingly#R$t"o' An intestacy is found in the event that the intention of the testator cannot be determined or inferredunless it falls into an e&ception#

=. RESTRAINTSONAIENATIONANSPENTHRIFTTRUSTS

Trusts that impose limitations for the "ell-being of beneficiaries 6 often called 5spendthrift7 or5protective7 trusts

:lassic e&ample isRe 'ox"here the settlor inserted a clause in "ill giving e&ecutors the po"er to

maintain a = year probation over his son and empo"ered them to sell the property if son did not remainsober# n upholding the provision the judge stated that 5iCt "ould be unfortunate if the court "asobliged to impose difficulties in giving effect to the intentions of the testator so obviously framed frothe "ell-being% and "ell-doing% of the objects of his bounty% and especially so "hen these objects arehis o"n children7

:ourts are sympathetic to these sorts of trusts% there are technical barriers to achieving the objectives of

these inds of trusts#

Re Driscoll (.;1)F$#ts' Father set up a trust# $ain asset of trust "as family farm# At the time of the hearing the farm "as

valuable as it could be developed for residential purposes# ne of the beneficiaries (B) "as the testator4sson "ho "as also an alcoholic# According the "ill% "ife "as to have a life interest% after "hich each son% Band D% "ere to have a half interest provided B continue to "or on the farm# Further% if B reuested thatthe farm be sold% and D consented% then each son "ould have a half interest in the proceeds# f the farm "asnot sold% then B had a life interest "hich "ould go to D upon his death# B reuested farm be sold(u)*+et'

:ondition subseuent "hich called for B to "or on the farm void for uncertainty#

B had more than a life interest as he had the po"er to initiate a sale of the land# Hudge characteri+es

this as a determinable life interest "ith a po"er of disposition and therefore an interest in half theestate (in trust)#

D does not have a general veto po"er over a decision to sell that land# ,ather% the reuirement that he

consent "as intended to protect B from maing an improvident sale but this condition is a repugnantcondition subseuent and is therefore void#

The general and dominant intent of the testator "as to care for B

R$t"o'

A condition that serves to limit the right of a beneficiary to alienate land is void (though only "hen

they acuire a fee simple)# >&ample fromRe 3"ullane 5to B provided that the property is not sold"ithout consent of e&ecutors7 "as found to be invalid#

OERRIIN3 THE TRUST INSTRUMENT

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1. EARYTERMINATION

A. The Rule "Saunders v. Vaultier

,ule holds that if a beneficiary "ith full legal capacity is entitled to all the beneficial interest in the

trust% he may apply to have the trust terminated and the assets transferred% even though the trustinstrument calls for final payment of capital to be delayed#

>&tends to situations "here there are several beneficiaries "ho together are entitled to all the beneficialinterest% are in agreement about the termination of the trust% and have full capacity#

The :ourt must% of course% ensure that no contingent interests of parties not before the court are not

e&tinguished "hen applying the rule#

Saunders v. -aultier

F$#ts' Settlor left stoc to nephe" in trust# ividends "ere to be accumulated and original shares andaccumulation "ere to be paid to the nephe" "hen he reached 2=# Gephe" moved to have the propertytransferred to him before he "as 2= (he "as getting married and "anted the money)#(u)*+et' As there "ere no contingent interests (there being no gifts over in the event that the nephe" didnot turn 2=% in other "ords% he had the full beneficial interest)% :ourt held that he "as entitled to have the

shares transferred#

B. Re4o#$t"o

A settlor may reserve the right to end a trust early

This does not represent 5overriding7 the e&press trust as the right to revoe must be e&pressly stated in

the trust

>&ercise of any right to revoe may be affected by O obligations the settlor has

Gote that a large reason for not including this right of revocation is the lielihood that income from the

trust "ill be treated as that of the settlor for ta& purposes as assets have not been fully divested

2. ARIATIONOFTRUSTS

-ariation of Trusts Act

,S ..0% c# Q#(ur"s)"#t"o o! #ourts to 4$r& trusts

#--() 'here any property is held on trusts arising under any "ill% settlement or other disposition% thentario :ourt (9eneral ivision) may% if it thins fit% by order approve on behalf of%

(a) any person having% directly or indirectly% an interest% "hether vested or contingent% under the trusts "hoby reason of infancy or other incapacity is incapable of assenting*(b) any person% "hether ascertained or not% "ho may become entitled% directly or indirectly% to an interestunder the trusts as being at a future date or on the happening of a future event a person of any specifieddescription or a member of any specified class of persons*(c) any person unborn* or(d) any person in respect of any interest of the person that may arise by reason of any discretionary po"er

given to anyone on the failure or determination of any e&isting interest that has not failed or determined%any arrangement% by "homsoever proposed and "hether or not there is any other person beneficiallyinterested "ho is capable of assenting thereto% varying or revoing all or any of the trusts or enlarging thepo"ers of the trustees of managing or administering any of the property subject to the trusts#

(2) The court shall not approve an arrangement on behalf of any person coming "ithin clause () (a)% (b) or(c) unless the carrying out thereof appears to be for the benefit of that person#

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'inell v. Schumacher 0state (..0)% @ , (2d) =;1 (:A)F$#ts' Testator4s "ill postponed division of capital until 2 years after the death of his grandson% "hich isestimated to be in 2010# :apital is to be divided among charity% issue of grandson (B) alive at division date#Intil then% income is paid in uneual shares to grandson and granddaughter and on her death her "ithoutissue (though she has no children and is beyond child-bearing age to the charity# >state is large# ne part ofit consists of a series of leases "hich generate ?;00%000 a year ("hich is e&pected to increase)# 3a" oftrusts and estates treats these revenues as capital% but ,evenue :anada ta&es them as income# As a result%the estate must retain these funds until division date% but must also pay capital gains ta& on them# Trustees%"ishing to minimi+e ta&es% devised a comple& deed or arrangement and see the approval of the :ourt tovary the trust accordingly#(u)*+et'

The primary concern of the court is "hether the proposed arrangement sufficiently benefits the remote

beneficiaries#

:ourt notes the possibility that at least t"o more grandchildren (of B) could be born before the

division date#

The central part of the deed is to distribute the revenues among the beneficiaries# The income

beneficiaries under the "ill "ould give up a small portion of their income entitlement under the "ill infavour of remoter issue "ho are not immediate beneficiaries under the "ill#


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The daughters see the funds in order to invest in a business

Hudge allo"s application# f the business prospers% so to "ill the potential beneficiaries (as they are the

as-of-yet unborn children of the testotor4s grandchildren)R$t"o'

n approving an application for variation the court does not have to be satisfied that each potential

beneficiary is bound to be better off than he "ould other"ise have been% but that the potential

beneficiary is maing a bargain "hich is a reasonable one a prudent adult "ould be prepared to mae The :ourt should approve if the benefit and detriment are balanced so that a reasonable adult "ould

approve

The 5benefit7 contemplated by the act is not confined to a financial benefit

Laramount in the consideration is the possibility of the unborn reali+ing a financial benefit# 'here the

lielihood is small% it is proper to give a very liberal interpretation to the term benefit#

:. CY7PRES

The cy-pres po"er is the inherent right of the court to alter charitable trusts# $ore common usage is to

fulfill the testator4s intention to do charity by redirecting the trust "hen the charity fails#

AMINISTRATION OF TRUSTS

1. INTROUCTION

Three sources for rules governing the administration of a trust!

o the trust instrument

o general la" of trusts

o applicable legislation

The primary duty of trustee is to follo" and carry out the terms of the trust as the trust instrument itself

may modify or displace general euitable rules or legislative reuirements

2. APPOINTMENT> RETIREMENTANREMOAOFTRUSTEES

A. A66o"t+et

i1 The Trust instrument The trust instrument "ill usually appoint the first trustee

Go person can be compelled to act as a trustee

Any appointee% even if they have given an advanced indication of "illingness% is free on the creation of

the trust to accept or disclaim an appointment

Acceptance can be e&press or implied

t may be necessary to appoint trustees during the lifetime of a trust# This can be dealt "ith by the trust

instrument and is also covered by the Trustee Act#

ii1 Statute

Subject to a contrary intention in the trust instrument% Trustee Act has a section conferring on specified

persons the po"er to appoint trustees in specified circumstances#

Trustee Act*+ $##-, c. '.2&

Appointment of New Trustees[Power of appointing new trustees4

&.//($) 3here a trustee dies or remains out of ntario for more than twelve months, or desires to bedischarged from all or any of the trusts or powers reposed in or conferred on the trustee, or refuses or isunfit to act therein, or is incapable of acting therein, or has been convicted of an indictable offence or isban%rupt or insolvent, the person nominated for the purpose of appointing new trustees by the instrument, ifany, creating the trust, or if there is no such person, or no such person able and willing to act, the survivingor continuing trustees or trustee for the time being, or the personal representatives of the last surviving or

/


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continuing trustee, may by writing appoint another person or other persons (whether or not being thepersons e"ercising the power) to be a trustee or trustees in the place of the trustee dying, remaining out ofntario, desiring to be discharged, refusing or being unfit or incapable.[urvivorship! (2) 5ntil the appointment of new trustees, the personal representatives or representative for the timebeing of a sole trustee, or where there were two or more trustees, of the last surviving or continuing trustee,are or is capable of e"ercising or performing any power or trust that was given to or capable of being

e"ercised by the sole or last surviving trustee.[Authority of surviving trustee to appoint successor by will!

1. +ub!ect to the terms of any instrument creating a trust, the sole trustee or the last surviving orcontinuing trustee appointed for the administration of the trust may appoint by will another person or otherpersons to be a trustee or trustees in the place of the sole or surviving or continuing trustee after his or herdeath.[Power of court to appoint new trustees!

.//($) 'he +uperior 6ourt of 7ustice may ma%e an order for the appointment of a new trustee or newtrustees, either in substitution for or in addition to any e"isting trustee or trustees, or although there is noe"isting trustee.["imitation of effect of order!

(2) An order under this section and any conse8uential vesting order or conveyance does not operate as adischarge from liability for the acts or omissions of the former or continuing trustees[#hat may be done!

. n the appointment of a new trustee for the whole or any part of trust property,

[increase in number!(a) the number of trustees may be increased and

[separate trustees for distinct trusts!(b) a separate set of trustees may be appointed for any part of the trust property held on trusts

distinct from those relating to any other part or parts of the trust property, even though no new trustees ortrustee are or is to be appointed for other parts of the trust property, and any e"isting trustee may beappointed or remain one of such separate set of trustees or, if only one trustee was originallyappointed, then one separate trustee may be so appointed for the first/mentioned part and[where not less than two to be appointed!

(c) it is not obligatory to appoint more than one new trustee where only one trustee was originallyappointed or to fill up the original number of trustees where more than two trustees were originallyappointed but, e"cept where only one trustee was originally appointed, a trustee shall not be dischargedunder section & from the trust unless there will be a trust corporation or at least two individuals as trusteesto perform the trust and [execution and performance of re$uisite deeds and acts!

(d) any assurance or thing re8uisite for vesting the trust property, or any part thereof, in theperson who is the trustee, or !ointly in the persons who are the trustees, shall be e"ecuted or done.[Powers of new trustee!

9. very new trustee so appointed, as well before as after all the trust property becomes by law or byassurance or otherwise vested in the trustee, has the same powers, authorities and discretions, and may inall respects act as if the trustee had been originally appointed a trustee by the instrument, if any, creating thetrust.[Application of Act!

. 'he provisions of this Act relative to the appointment of new trustees apply to the case of a personnominated trustee in a will but dying before the testator.

iii1 7udicial Appointment

:ourt have an inherent jurisdiction to appoint trustees and is also conferred on the court by statute

Section = of the Trustee Act (above) permits the :ourt to appointment a ne" trustee

In re Tempest (;//)R$t"o' n appointing trustees% the discretion of the court must not be e&ercised arbitrarily# The :ourt oughtto be guided by general rules and principles!

Should have regard to the "ishes of the settlor if such "ishes can be ascertained from the trust

instrument

:ourt "ill not appoint a person as trustee "ith a vie" to the interest of some of the persons interested

under the trust% in opposition either to the "ishes of the settlor of the beneficiaries (as the trustee musthold an even hand bet"een interests)


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'ill have regard to "hether the person4s appointment "ill promote or impede the e&ecution of the

trust

B. Ret"re+et $) "s#h$r*e

i1 on87udicial

Trust may provide for the retirementKdischarge of trustees# Subject to this% statute deals "ith

retirementKdischarge!


Retirement of Trustees2.//($) 3here there are more than two trustees, if one of them by deed declares a desire to be

discharged from the trust, and if the co/trustees and such other person, if any, as is empowered to appointtrustees, consent by deed to the discharge of the trustee, and to the vesting in the co/ trustees alone of thetrust property, then the trustee who desires to be discharged shall be deemed to have retired from the trust,

and is, by the deed, discharged therefrom under this Act without any new trustee being appointed.

(2) 'his section does not apply to e"ecutors or administrators.

ii1 7udicial

:ourts have inherent jurisdiction to permit a trustee to retire and to give a discharge#

Gote that trustees hold title as joint tenants and thus the right of survivorship operates upon the death

of one trustee

f a sole trustee dies% under Trustee Act?29:%@title vests inhis personal representative "ho may act as

trustee until ne" trustee appointed

C. Re+o4$l

i1 on87udicial Trust instrument may provide for removal of trustees in certain circumstances and may confer po"er

of removal on someone


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The main principle upon "hich jurisdiction to remove should be e&ercised is "here such a remedy is

reuired for the "elfare of the beneficiaries#

,emoval in cases of positive misconduct "here trustees have abused there po"ers% but not every

mistae or neglect of duty "ill induce courts to remove a trustee# The acts or omissions must be suchas to endanger the trust property or sho" a "ant of honesty or a "ant of proper capacity to e&ecute theduties or a "ant of reasonable fidelity#

ButseeArmittage v. ursebelo"

Re ,onsigilio Trusts &o.91 (.1) (:A)F$#ts' Three trustees removed and replaced by a Trust :o# on application by beneficiaries# ne "asremoved at his o"n reuest% another too no part in the proceedings and the third appeals#5$isunderstanding and bitterness7 had developed bet"een the trustees "hich made administration of thetrust difficult#(u)*+et' Appeal dismissed#R$t"o' $isconduct is not a necessary reuirement for the :ourt to remove trustees "here the continuedadministration "ith due regard to the beneficiaries has become impossible or improbable due to a situationarising bet"een the trustees#see alsoRe Blo$% belo")

:. UTIESANPO8ERSOFTRUSTEES istinction bet"een duties and po"ers!

o Trustees under a )ut&"hen they are o%liged to act

o Mave a 6o5er"hen they are given an authority to act% but are not compelled to do so#

n practice this distinction is problematic for t"o reasons!

o $ay be a combination of duty and po"er

>&ample! n a discretionary trust% there is a duty to distribute to beneficiaries but apo"er to select from among them#

'hile in the above the po"er is ancillary to the duty% there are situations "here thereis a 5mere7 po"er#


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TrustsFall 2002

:is%orne v. :is%orne (;)F$#ts' Testator left residue of estate for support of "ife during her lifetime# Trustees give 5uncontrollable7discretion and 5authority7 in determining amount of payments as 5as they deem fit7# 'ife sought increasein payments#(u)*+etR$t"o' Absent male fides% the discretion given to the trustees by the instrument is such that the:ourt "ill not uestion the "isdom of the e&ercise of that discretion taen by the trustees# The trustees aremerely acting according to the discretion given to them by the instrument#

'ox v. 'ox 0state (../)(:A) 3eave to appeal to S:: deniedCF$#ts'Testator appointed "ife as sole e&ecutri& of estate# She had =R life interest in residue "hile sonhad 2=R life interest and remainder of '4s interest if he survived her# ' had 2 po"ers to encroach oncapital% one in favour of son and the other in favour of his children# Son "as divorced and planned to marryagain# $other disapproved as ne" bride "as not He"ish# She made a ne" "ill disinheriting son and alsomade a series of encroachments on son4s share in favour of his children "ith the result that son4s share "astransferred to his children and he lost all interest# Son challenged encroachments#

(u)*+et'

The mother used her po"er to encroach specifically because she disapproved of son4s proposed

marriage#

The ' cannot e&ercise her discretion in a manner that violated public policy% such as on the basis of

religion% as a trust for this purpose "ould be void on public policy and by e&tension so is the e&erciseof a discretion under a trust e&ercised by such motivations void#

R$t"o'

Trustees must act in good faith and "ith impartiality as bet"een beneficiaries

'here a trustee is given discretion to act% the court should not interfere "ith his action uless!

() he has acted outside the bounds of the po"er conferred(2) it is clear that he "ould not have acted as he did

(a) had he not taen into account consideration "hich he should not have% or(b) had he not failed to tae into account considerations "hich he ought to have taen

into account#

f a settlor cannot dispose of property on certain grounds (grounds contrary to public policy etc#) then

the same restrictions and policy grounds prohibit a trustee from e&ercising discretion in a lie-manner

or on the basis of lie-grounds#

Re ;right (./)F$#ts' Trustees held shares# They agreed to sell them but could not agree on "hether they should accept aparticular offer# Application to court for directions#R$t"o'

Lo"ers and discretion of trustees "ith respect to sale% retention and investment conferred by

instrument can be divided into three categories!() "here these is an absolute trust to sell or converts to "hich is added a discretion to retain# n

such case the basic duty is to convert#(2) "here these is an absolute trust to retain to "hich is added a discretion to convert# n such

case the basic duty is to retain#(1) "here there is a po"er to sell or convert "ith an eual po"er to retain

'here po"ers come "ithin () or (1)% the :ourt should not intervene to force a sale at a priceconsidered too lo" by a majority of trustees

Trustees are protected from liability if they honestly and "ith due care e&ercise the discretion vested in

them

The responsibility for financial decisions of this ind is the trustees# They cannot a the :ourt for

guidance regarding "hether 5it is a good time to sell E or "hether the price is too lo"7# The role andauthority of the :ourt is to provide guidance "ith regard to legal matters arising from the discharge ofthe duties of a trustee and not to provide advice "ith regard to matters of a ind over "hich thediscretion and judgment of the trustees must govern#

20


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TrustsFall 2002

Trustees% absent a contrary intention in the trust instrument% must be unanimous in decisions regarding

the e&ecution of absolute or discretionary po"ers#

Re Blo$ (.) (M:)F$#ts' Testator created t"o trusts for son and daughter# Authori+ed trustees 5in their uncontrolleddiscretion7 to mae advances to the beneficiaries# The trustees of daughter4s trust "ere a Trust :o# and son#

aughter reuested advance% son agreed but Trust :o# did not% acting in reliance on a non-testamentarymemo prepared by the testator in "hich he e&plained ho" he "anted discretion e&ercised# Application tocourt to direct Trust :o# to mae advance#(u)*+et'

R$t"o'

The limitation of the jurisdiction of the :ourts to intervene in the e&ercise of discretion by a trustee to

situations of mala fides as held in :is%orne is limited to situations "here there is an actual e&ercise ofthe discretion* ho"ever% "here a trustee fails to e&ercise a po"er the :ourt4s jurisdiction is not solimited as other"ise the beneficiaries may be deprived of effective means of compelling trustees toturn their minds to the e&ercise of a particular po"er#

'here the level of dissention bet"een trustees has not reached the level contemplated inRe ,onsiglio

see aboveC% it is desirable that the :ourt have jurisdiction to intervene if necessary and settle thematter# The basis of this jurisdiction is again the failure to e&ercise a po"er#

Re Billes (.;1)R$t"o' The consideration for intervention is that as long as the trustees continue to fail to discharge theirduty the intention of the testator "ill be frustrated $ith the result that the %eneficiaries may suffer#

Schipper v. :uaranty Trust ,o. of ,anada (.;.) (:A)F$#ts' Testator created trust "ith life interest for ' "ith 5so much thereof as remains7 to son and then tohis children# '% son and Trust :o# "ere trustees# 'ill gave trustees a discretion to encroach on capital forthe 5general "elfare% benefit% comfort and enjoyment7 of '# ' "anted to do so (as did son)% but Trust :o#refused on the basis that it "anted to preserve the capital for the benefit of future unborn beneficiaries#(u)*+et' Testator4s primary intention "as to provide for '# Trust :o# failed to properly e&ercisediscretion by () prioriti+ing future beneficiaries despite clear indication in instrument that ' "as priority*(2) by having undue concern for interest of remote unborn "hose interest 5"as speculative to say the least7*and (1) by having no regard to the unanimous consent of all living residual beneficiaries#R$t"o' 'hile the court "ill generally refuse to intervene "ith the 5uncontrolled7 discretion of a trustee"here they are acting %ona fide% the court is entitled to do so "here the trustee is attempting to e&ercisediscretion to achieve a purpose not intended under the terms of the trust#

=. 3ENERAUTIESOFTRUSTEES

A. ut& o! C$re

i1 :eneral #rinciples


Relief of trustees committing technical breach of trust&. ($) ;f in any proceeding affecting a trustee or trust property it appears to the court that a trustee, or

that any person who may be held to be fiduciarily responsible as a trustee, is or may be personally liable forany breach of trust whenever the transaction alleged or found to be a breach of trust occurred, but has actedhonestly and reasonably, and ought fairly to be e"cused for the breach of trust, and for omitting to obtain thedirections of the court in the matter in which the trustee committed the breach, the court may relieve thetrustee either wholly or partly from personal liability for the same

'ales v. ,anada #ermanent .C (S::)F$#ts' Testator left residue to trustees to pay income to "ife for life "ith remainder to children# Trustees"ere "ife and Trust :o# 'ill imposed a trust for sale of the residue and its investment "ith a po"er topostpone the sale and conversion# Lart of residue "as shares for "hich there "as a limited maret# Trustees

2


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TrustsFall 2002

sold half and e&changed other half for different shares# The value of the ne" shares fell sharply andeventually became "orthless# :hildren suing Trust :o# for breach of trust#(u)*+et' Trust :o# breached duty by failing to consider the relative merits and dangers of retaining ordisposing the shares# A prudent person "ould have no"n to sell the shares but the Trust :o# 5sat idly by7"hile the shares dropped in value and never attempted to sell them# 'hile ' "as also guilty of breach ofduty% the court found that "hile she tried her best to eep informed regarding the trust property% the Trust:o# failed to eep her informed of critical information# She "as therefore relieved of liability under the


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Speight v. :aunt(;;1)R$t"o'

Trustees are not bound to personally transact all business covered by their duties as trustees# They may

delegate "hen a person acting "ith reasonable care and prudence "ould normally do so given thenature of the transactionKbusiness#

t follo"s that trustees are not liable in situations "here duties are properly delegated and ("ithout anyother misconduct on the part of the trustees)% a loss taes place through the fraud or neglect of theindividual(s) to "hom they delegated#

Mo"ever% if and "hen a trustee imprudently or unreasonable delegates ("hen there is no 5moral

necessity from the usage of manind7) they are liable for losses that result from the fraud ornegligence#

Note' ele*$t"o o! )"s#ret"o$r& $uthor"t&

"c+ellan #ropertis v. Ro%erge (S::)! 9eneral rule that trustees must personally undertae those tas

that reuire e&ercise of discretion is subject to certain e&ceptions# f in the circumstances it "ould beprudent for a person in the ordinary course of business to delegate those duties% a trustee may do so#

>ven "here a trustee may delegate% they must act prudently# The trustee must!

() select the agent

(2) agent must be employed "ith their area of e&pertise(1) agent4s activities must be supervised "ith reasonable care

Re ;ilsonF$#ts' Trust :o# managed trust consisting of t"o properties# Lroperty A made profit% but property < lostmoney# Trust :o# used profit to cover loss and as a result no money "as ever paid to beneficiaries# Anagent of the company turned do"n an offer for property


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TrustsFall 2002

They ignored "ife4s reuest for variation of investment "hich "ould afford her a much enhanced

income (>vidence that they could easily and "ithout ris have increased interest by /R)#

The evidence seemed to suggest that the shares "ere retained rather than converted because for 5some

unspecified reason7 this "as in the interest of the remainder person ("ho "as also the settlor)# TheTrust :o# acted under the assumption that the shares "ere not to be sold% though the :ourt notes thatthere "as nothing in the trust instrument that suggested this limitation#

'ith regard to the deference the Trust :o# had sho"n to the opinions of the remainder person% it isimpossible to restore confidence in them "ith respect to the future administration of the trust and they"ere therefore removed as trustees#

Re Smith.C (:A)(u)*+et' Appeal dismissed# The trust gave the po"er to sell and convert# The Trust :o# did not considerits respective obligations to the life tenant and remainder and e&ercise its discretion not to sell# There "asno evidence that the trustees considered ho" they should carry out these obligations at all#

ii1 Trusts for Sale

Lroblem re impartiality arise in the case of trusts for sale 6 "here the trustees are under a duty to sell

assets (so far as not in authori+ed investments) and invest the proceeds of the sale in authori+edinvestments

f a trust for sale e&ists% life tenant is entitled to net income from authori+ed investments Trustees should sell and invest as instructed but the time may not be opportune to sell hence many

trusts give trustees the authority to retain#

Note' The Rule "Howe v. Lord Dartmouth

f the court finds either an e&press or implied duty to convert then the rule in2o$e v. +ord Dartmouth

applies#

The rule states that! 5'here residuary personalty is settled on death for the benefit of person "ho are

to enjoy it in succession% the duty of the trustee is to convert all such parts of it as are of a "asting orfuture or reversionary nature% or consist of unauthori+ed securities% into property of a permanent andincome bearing character7

,ule 5reuires a trustee to deal even handedly bet"een life interest and remainderman by converting

"asting or unproductive assets and investing the proceeds of conversion# This enables all interest to be

protected and the assets preserved so that the benefits provided in the "ill may pass in succession tothe respective beneficiaries7 (+ottman v. Stanford)

Gote that the rule!

o applies only to testamentary trusts created (residual is settled upon death)

o only applies to personal property (not real property)

o applies to the residue "here there are successive interests (3ife interest follo"ed by a

remainder)o ,ule does not apply if "ill sho"s a contrary intention

o n these circumstances there is a duty to convert and failure to do so "ill be found a breach of

trusto property of a 5"asting nature7 (eg vehicles% furniture% boats) must be sold

o 5unauthori+ed7 property refers to those unauthori+ed by either the trust instrument or statute

+ottman v. Stanford.;0C (S::)R$t"o' The rule in2o$e v. +ord Dartmouth should not be e&panded to cover real property#

. ut& o! o&$lt&

Trustee must act solely in the interests of the trust% taing into account only those matter properly

relevant to the e&ercise of their po"ers and duties#

f follo"s that trustees must disregard their o"n interest and the interests of others not party to the trust

2@


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. SOMESPECIFICUTIESOFTRUSTEES

A. ut& to Pro4")e I!or+$t"o

i1 :eneral #rinciples

9eneral rule% the beneficiaries may% on reasonable notice% reuire trustees trustee to produce for their

inspection any trust documents they "ish to see

This right may be e&ercised by all beneficiaries% including those "ith contingent interests Trustee are under no obligation to provide info if it is not reuested "ith one e&ception! "hen a minor

beneficiary reaches the age of majority trustees must inform them of their interest and its nature#

Some unsettled aspects of the la" are!

o 'hat is a trust document8 (seeRe +ondonderrys Settlements)

o $ust trustees disclose documents that record reasons for maing discretionary decisions8 (see

Re +ondonderrys Settlements)o s a clause in trust instrument prohibiting the disclosure of info the beneficiaries valid8 (see

7ones v. Shipping 'ederation of B,)

Re +ondonderrys Settlements./=CR$t"o'

'hile trustee e&ercising a discretionary po"er are not reuired to disclose the reasons for reaching

their decisions% if they do give reasons% their soundness can be considered by the :ourt# 'hile the category of 5trust documents7 cannot be completely defined% they do have these

characteristics in common!o they are documents in the possession of the trustees as trustee

o they contain information about the trust "hich the beneficiary is entitled to no"

o beneficiary has a proprietary interest in the documents and hence are entitled to see them#

o ho5e4er> if any parts of a document contain info the beneficiary is not entitled to no"% such

parts are not truly trust documents#

t is true that normally a beneficiary has a right to inspect trust documents* ho"ever% documents "hich

record a trustee4s reason for e&ercising a discretionary po"er are protected just as are the trustee4s o"ndeliberation on a discretionary matter#

ii1 Accounts

n accordance "ith general rule% beneficiaries can reuest to inspect accounts and can mae copies (at

their o"n e&pense)

Trustees should therefore maintain a record of the financial affair of the trust

Sandford v. #orter (;;.)F$#ts'


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TrustsFall 2002

R$t"o' A clause in a trust document "hich limits "hich beneficiaries may bring action against the trusteesis void on public policy and illegal as purporting to oust the jurisdiction of the courts#

B. I4est+ets

i1 #ermitted Investments

a# Trust nstrument ! common to include clauses e&pressly conferring po"ers of investment#b# Statute ! 'hile at one time most jurisdictions had a list of legal authori+ed investments% most

jurisdictions (including G) have replaced this "ith =prudent investor> regimesunder "hichthey are not confined to specified investments but may investment in any investment "hich aprudent investor might#


Investments 29. ($) ;n investing trust property, a trustee must e"ercise the care, s%ill, diligence and

!udgment that a prudent investor would e"ercise in ma%ing investments.Authorized investments

(2) A trustee may invest trust property in any form of property in which a prudent investormight invest.

Note' Pru)et "4estor 4. Pru)et trustee

A 5prudent trustee7 may invest in any ind of property% 5but in doing so must e&ercise the judgment

and care that a man of prudence% discretion and intelligence "ould e&ercise as the trustee of theproperty of others7 Ge"


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*+ $##-, c. '.2&27.(&) Any rule of law that prohibits a trustee from delegating powers or duties does not prevent the trusteefrom investing in mutual funds, pooled funds or segregated funds under variable insurance contracts, andsections 29.$ and 29.2 do not apply to the purchase of such funds.

(1) ;f trust property is held by co/trustees and one of the co/trustees is a trust corporation as defined inthe


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'hile a trustee can delegate to some degree he must e&ercise due care in selecting a competent

manager% acting "ithin the terms of the trust% and revie"ing the manager4s performance closely toensure the trust portfolio is adeuately administered

. REMUNERATIONANINEMNITYOFTRUSTEES

A. Re+uer$t"o 9eneral euitable rule is that trustees not entitled to be paid for services#

:ourt has inherent jurisdiction to a"ard remuneration

espite this% most trustees "ho see it receive it as () most trust instruments contain remuneration

clauses and (2) court have statutory authority to mae allo"ance for remuneration#


$.//($) A trustee, guardian or personal representative is entitled to such fair and reasonable allowancefor the care, pains and trouble, and the time e"pended in and about the estate, as may be allowed by a

!udge of the +uperior 6ourt of 7ustice.(2) 'he amount of such compensation may be settled although the estate is not before the court in an

action.(&) 'he !udge, in passing the accounts of a trustee or of a personal representative or guardian, may from

time to time allow a fair and reasonable allowance for care, pains and trouble, and time e"pended in orabout the estate.

(1) 3here a barrister or solicitor is a trustee, guardian or personal representative, and has renderednecessary professional services to the estate, regard may be had in ma%ing the allowance to suchcircumstance, and the allowance shall be increased by such amount as may be considered fair andreasonable in respect of such services.

() 0othing in this section applies where the allowance is f i"ed by the instrument creating the trust.

Re Atkinson 0state.=2C (:A)F$#ts! Appeal regarding amount paid to e&ecutor of estate# Appellants challenge fee as grossly e&cessive#(u)*+et! Fee reduced#R$t"o!

n determining fee of trustee the guiding principle of the Trustee Act is that the amount be 5fair and

reasonable7#

This may sometimes be accomplished as percentages but they should be applied only as a rough guide

to assist in the computation of reasonable and fair compensation#

epending on the particular estate% the 5care% pains and trouble and time7 e&pended may be

disproportionate to the actual si+e of the estate

+aing 0state v. 2ines(..;) (:A)F$#ts' >&ecutor of estate brought application seeing approval of his accounts and compensation# nclaiming compensation% he relied on 5tariff guidelines7 (percentage) in use for calculating compensation#R$t"o'

n calculating 5fair and reasonable7 amount the :ourt should consider five factors!

() magnitude of trust(2) care and responsibility arising therefrom

(1) time occupied in performing duties(@) sill and ability displayed(=) success "hich has attended its administration

Lractice has developed to a"ard compensation based on 2#=R against capital receipts% capital

disbursements% revenue receipts and revenue disbursements along "ith a management fee of 2K= of Rper annum on the gross value of the estate# (5tariff guidelines7)

Metho) o! #$l#ul$t"*'The :ourt should

() first test the compensation claim using the 5percentages7 approach*(2) then cross-chec against the 5five-factor7 approach#

2;


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(1) consider if an e&tra allo"ance should be made for management based on specialcircumstances

Together this should allo" the judge to come up "ith fair and reasonable amount though it is not

intended to be a scientific approach

B. I)e+"!"#$t"o

Trustees may not "ish to be paid but may "ish to be indemnified in respect to e&penses incurred incarrying out their duties

They can see indemnity from t"o sources! the beneficiaries directly or the trust#

n euity% trustees are entitled to recover from the trust all e&penses reasonably incurred in the

administration of the trust and s#11 of Trustee Actis a provision to the same effect#

Stringham v. Du%ois..1C (Alta# :A)R$t"o'

A sole adult beneficiary absolutely entitled may be reuired to personally indemnify the trustee unless

there is some good reason to the contrary

The :ourt "ill not enforce an action brought by an individual "hich "ill indirectly have the effects of

enforcing the revenue (ta&) la"s of a foreign country#

TRUSTS ARISIN3 FROM OPERATION OF A8

CONSTRUCTIE TRUSTS

1. INTROUCTION

:onstructive trust arise independently of the e&press or implied "ishes of the parties% "henever euity

and good conscience reuire the imposition of a trust

Arises to prevent unjust enrichment from a person4s position of more generally from maing apersonal profit "hile being in a conflict of interest% generally in breach of fiduciary duty#

There are no formal reuirements (e in "riting etc#) for a constructive trust as this "ould undermine

the essence of the :T idea

A. A)4$t$*e o! the Costru#t"4e Trust

$ain advantage is that it is a proprietary remedy and therefore may give priority over unsecured

creditors and in the case of institutional :Ts even "here the trust property has passed into the hands ofthird parties% unless they are %ona fidepurchasers of legal estate "ithout notice#

2. INSTITUTIONACT ORREMEIACT

A. E*l"sh> Austr$l"$ $) US $66ro$#hes

>nglish Approach n IO% institutional :T seen as analogous to the e&press trust even though it is neither grounded in the

actual intentions of the parties not intended to deal "ith a continuing relationship#

orkont6ilas v. Soulos is the traditional IO approach and involves!

() :T imposed to prevent or remedy a breach of fiduciary duties*(2) trusts imposed to prevent criminals from benefiting from their crimes of those guilty of

euitable fraud from benefiting from that fraud* or(1) trusts imposed to prevent third parties from maing unconscionable benefit from dealing "ith

trust property

2.


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:T seen in terms of creating relationships by "hich third parties can be bound unless they are


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F$#ts' "as a public defender "ho "as convicted of taing bribes in breach of duty to Mong Oong gov4tand the :ro"n# 9ov4t sought declaration of :T against 1 properties held in Ge" Jealand "hich couldonly have been derived from the bribes#(u)"#"$l H"stor&' 9ov4t declaration denied in :ourt of Appeal based on principle that the relationship of afiduciary "ho received a bribe and his principal "as one of debtorKcreditor as the principal had noproprietary interest in the bribe or property representing it# 9ov4t appealed to L:#(u)*+et'

R$t"o'

'hen a bribe is accepted in money or property% this money or property becomes the property of the

recipient fiduciary in la"* ho"ever% euity insists that it is unconscionable for a fiduciary to obtain andretain a benefit in breach of duty#

The breaching fiduciary must pay and account for the bribe to the person to "hom the duty "as o"ed#

They become a debtor in euity* further%

f the bribe consist of property "hich increases in value or money "hich is invested% the breaching

fiduciary "ill receive a benefit from his breach unless he is accountable not only for the originalamount or value but also for its increase#

5>uity considers done that "hich ought to be done7 therefore as soon as the bribe "as received% it

"as held on :T for the persons to "hom a duty "as o"ed

>uity therefore can provide t"o remedies! the first as debtorKcreditor and the second as :T# f :T

"ere not employed% the breaching fiduciary "ould be allo"ed to retain the increase in value "hicheuity "ill not allo" as it is to benefit from breach#

ii1 ,ompany Directors

f a director () maes an unauthori+ed personal profit 5by reason and only by reason7 of their position

as director% or (2) place themselves in a position of conflict of interest% they may be made to disgorgetheir unauthori+ed or improper profits#

Regal &2astings1 +td. v. :ulliver .@2C (M3)F$#ts' ,egal# o"ned a cinema and sought to acuire t"o more cinemas in order to sell the resulting group

at an enhanced price# The cinemas "ere to be bought by a subsidiary company# The landlord "as preparedto lease the cinemas but only if the rent "as personally guaranteed by directors or if the paid-up capital ofthe subsidiary "as ?=000# ,egal planned to hold shares of subsidiary but could only afford ?2000 anddirectors un"illing to give guarantee for the rest# irectors arranged to tae ?2000 "orth of shares and thecompany4s la"yer too the remaining ?1000# They subseuently sold the shares in the subsidiary and madea profit of ?2#=Kshare# The ne" o"ners of ,egal and subsidiary sought to recover this profit from directorsand la"yer on the basis that they "ere in a fiduciary relationship to"ard the company and therefore unableto mae a profit at its e&pense#(u)*+et'

The directors "ere in a fiduciary relationship to ,egal# They obtained the shares by reason and only by

reason of their relationship "ith ,egal#

The fact that ,egal could not purchase the shares due to lac of funds does not mean that the directors

are not still accountable#

R$t"o' The rule of euity insisting that those "ho mae a profit from their fiduciary position account for this

profit does not reuire that there be fraud or absence of %ona fides% or even if the profit gained shouldrightly have gone to the person4s to "hom a duty is o"ed% or if he "as acting for the benefit of theperson or if the person has in fact been damaged or benefited by his action#

The general rule is that no one under a fiduciary obligation can entered into engagements in "hich he

has% or potentially could have% a personal interest conflicting "ith the interests of those to "hom heo"es a duty# f he holds any property so acuired as trustee% he is bound to account for it to his cestui(ue trust#

1


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iii1 Information as Trust #roperty ;hen Received %y a 'iduciary Acting as Such

Boardman v. #hipps ./C (M3)F$#ts' Trustees of a "ill "ere! senile "ido"% daughter and $r# Fo& (professional trustee)# The trustprovided for distribution of residue (;%000 shares in a private company "hich had a total of 10%000 shares)among 1 sons ( "as dead) and daughter#


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'hile there is a dilemma "hen city "ants to act in a "ay that is a public advantage but "ill also

enhance the value in "hich :ouncil members have a direct or indirect interest% this dilemma can beavoided if members declare their interest and refrain from voting#

"sset'

Gotes rules governing the conduct of a person in a fiduciary relationship!

() $ember of city council is an agent or trustee accountable to the municipality and accordingly

his duties are fiduciary(2) Go one under a fiduciary duty may enter into a transaction in "hich his personal interests are

or may be in conflict(1) t is irrelevant if the person to "hom a duty is o"ed did or did not suffer any injury(@) t is irrelevant if the trustee acted in good faith(=) Any gain or advantage arising out of such transaction must be accounted for#

v1 The -alue of the Traditional Trust 0ven ;here o 'inancial +oss to the #laintiff 2as

3ccurred

orkont6ilas v. Soulos (..) (S::)F$#ts' L "anted to purchase property and consulted % a real estate broer# recommended a propertyand L bid on it# "ner counter-offered but L rejected it# "ner then indicated to that he "ould accept

L4s offer but did not tell L this and instead purchased the property in his "ife4s name and told L thato"ner had decided not to sell property# L found out and brought an action against # L sought a :T overthe property claiming that it had a special value to him because his ban "as a tenant in the property and hebelieved this "ould give him status in the community#(u)*+et' "as under euitable obligation to L in relation to the property# Failure to pass on information"as in breach of that duty# allo"ed his interests to conflict "ith those of his client# The assets resulteddirectly from his activities# 'hile "as not enriched (property had decreased in value) there is amplereason to apply :T! L "ants property for non-monetary reason and :T "ould return parties to the positionthey "ould have been in had the breach not occurred# Also% :T is reuired to ensure that those in a positionof trust remain faithful to their duty#R$t"o'

:T can be a remedial measure for clearly established loss for unjust enrichment# :T arises "hen there

the is an enrichment and corresponding loss#

Inderpinning for unjust enrichment is 5good conscience7 "hich lies at the heart of euitable

jurisdiction#

But $lso%

:T may be applied absent any established loss to condemn "rongful act and maintain relationship of

trust follo"ing the >nglish approach to :T "hich continues to apply in :dn# :ourts

The absence of a 5classic7 fiduciary relationship does not preclude finding a :T# The "rongful nature

of the act may be sufficient to constitute breach of a trust-lie duty#

n order to impose a :T four conditions should generally be satisfied !

() must have been under an euitable obligation in relation to he activities given rise to theassets in his hands

(2) Assets must be sho"n to have resulted from deemed or actual agency activities in breach ofeuitable obligations to L

(1) L must sho" a legitimate reason for seeing a proprietary remedy% either personal or related to

the need to ensure that others lie remain faithful to their duties and*(@) There must be no factors "hich "ould render imposition of :T unjust in all the circumstances

of the case (e interests of intervening creditors must be protected)

. Costru#t"4e Trusts Outs")e the Est$,l"she) F")u#"$r& Cotet

i1 The ,ommercial ,ontext

+ac "inerals v. International ,orona Resources (.;.) (S::)

11


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F$#ts' 3A: entered into negotiations "ith :orona regarding development of gold field o"ned by :orona#n course of negotiation% :orona reveal confidential information "ith a vie" to 3A: either buying :oronaor joining in a joint venture# This info suggested that property adjacent to :orona property "as lielydesireable# :orona attempted to acuire this property% by 3A: outbid them# :orona alleged that property"as held by 3A: on :T for them% or% alternatively a right to damages because the purchase of the propertyby 3A: "as motivated by the confidential information#Issues'

() s a fiduciary relationship reuired to found a :T remedy8(2) 'as there an obligation of confidence and a breach thereof by 3A:8(1) s the appropriate remedy a proprietary remedy% accounting for profits% or damage8(u)*+ets'

Several long judgments!() Inanimous that 3A: misused confidential info entrust to it by :orona(2) Sopina and 3amer ($cntyre concurring) held that parties not in fiduciary relationship# Sopina 6

misuse of confidential into not sufficient to establish fiduciary relationship(1) 3a Forest and 'ilson (dissenting) held that there "as a fiduciary relationship(@) :ourt held that the appropriate remedy (Sopina and $cntyre dissenting) "as imposition of :T#

So6"$ (.

R$t"o'

'iduciary Duty) Afiduciary duty should not be found "here parties are acting in a commercial

transaction at arm4s length# O remedies suffice#

The general characteristic of a relationship in "hich fiduciary obligations have been imposed are !

() The fiduciary has scope for the e&ercise of some discretion or po"er(2) Fiduciary can unilaterally e&ercise that po"er or discretion so as to affect the beneficiary4s

legal or practical interests(1)


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The combination of these factors (trust and confidence% industry practice% vulnerability) support the

finding of a fiduciary relationship#

Remedies for breach of fiduciary obligation and breach of trust are eually available to each#

A claim for breach of confidence "ill only be made out "hen it is sho"n that the confidee has misused

the info to the detriment of the confidor (and therefore differs from fiduciary la" "hich does notreuire harm to be established)#

'here it is established that one party (3A:) has been enriched by the acuisition of an asset (property)that "ould have% but for the actions of that party been acuired by the other party (:orona) and if heacuisition amounts to a breach of duty of confidence% then :T is one available remedy#

The measure of restitutionary recovery is the gain the defendant made at the plaintiff4s e&pense

9iven the difficulty in calculating damages (estimates range from ?00 million to #= billion) and the

fact that the property had yet to be fully e&plored (and therefore there could be more gold then no"nat the present) :T is an appropriate remedy#

Pol"#&' The essence of the imposition of a fiduciary obligation is the promotion and preservation of

desired social behaviour and institutions# 3ie"ise "ith the protection of confidences# G the modern"orld e&change on info is both necessary and e&pected# The 5institution of bargaining in good faith7 is"orthy of legal protection in those circumstances "here the protection accords "ith the e&pectations ofthe parties#

IMPIE> SECRET AN RESUTIN3 TRUSTS

1. IMPIETRUSTS

Some difficulty in distinguishing bet"een constructive% resulting and implied trusts

'hile it might have been thought that an implied trust turned on actual (but implied) intention of the

parties is+loyds Bank v. :issingthe Mouse of 3ords held that unless there "as some detrimentalreliance by a spouse based on the parties common but un"ritten intention that a non-o"ing party"ould acuire an interest in property% no interest is favour of the non-o"ing party "ould arise

ne area "here implied trusts are relevant is the trust that arises bet"een the O for purchase of

property and its completionKconveyance% "here the O is specifically enforceable# 'hile such trusts aresupported by consideration% their content is based on the implied e&pectations of the vendor andpurchaser#

mplied trusts also arise in the case of mutual "ills# 'here mutual "ills are prepared and the second todie alters his or her "ill contrary to the agreed on terms of the mutual "ill% euity steps in to remedythe situation of the prejudiced beneficiaries and to enforce the "ishes of the first to die# Arguably thisis either a constructive trust situation or an implied trust situation#

Re ,leaver.;CF$#ts' :ouple prepared mutual "ills in "hich property "as divided among their children e&cept onedaughter4s share "as later reduced to a life interest (by both spouses)# After death of M% ' prepared 1 more"ills! consistent "ith the mutual "ill and 2 others in "hich she increased the daughter4s share# therchildren contested "ill#Issue! :an the beneficiaries under the mutual "ill claim estate held on trust of first "ill and not last "ill8R$t"o'

$utual "ills are part of a larger category in "hich euity "ill intervene to impose a constructive trust#

The principle is that a court of euity "ill not permit a person to "hom property is transferred by "ayof gift% but on faith of an agreement or clear understanding that it is to be dealt "ith in a particular "ayfor the benefit of a third party% to deal "ith that property inconsistently "ith that agreement ofunderstanding#

The agreement or understanding must be such as to impose on the donee a legally binding obligation to

"ith the property in a particular "ay and that the t"o other certainties (subject matter N object) mustalso be satisfied#

1=


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2. SECRETTRUSTS

9enerally t"o cases to be considered!

The se#ret trustarises "here!() According to the terms of the "ill a person appears to be given a complete beneficial interest in

property

(2) but this disguises the fact that only the legal interest in property is intended to pass to the recipient%"ho is actually intended to act as trustee on trusts that have been disclosed to him or herThe reuirements for establishing a secret trust are!() There must be a definite intentto create a trust and not a mere moral obligation seeRe Sno$den%

belo"C(2) There must be communicationof the trust to the devisee or legateein thetestators lifetime(1) evisee or legatee must consent to it (either e&pressly or by actions that he no"s must give the

testator

Documents

Trusts Haigh f02 1