Equity and the Law of Trust Chapter 4 § 2 & 3

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Which of the following is true about a discretionary trust?

The beneficiaries have individual rights and are in competition with each other

What happens to a life interest if bankruptcy is the first determining event to happen?

The life interest will vest indefeasibly in the trustee in bankruptcy

What is the nature of the interest of a discretionary beneficiary?

They have individual rights and are in competition with each other

Where does the equitable interest lie in the case of discretionary trusts?

The equitable interest is in suspense until the trustees exercise their discretion

According to the text, which Act allows for the registration of certain equitable interests under the Land Charges Act 1972?

Land Charges Act 1972

In which case was the question one of the construction of Art 16(1) of the Brussels Convention?

Webb v Webb

According to the text, what type of action does an action for a declaration that a person holds immovable property as trustee and for an order requiring that person to execute such documents as should be required to vest the legal ownership in the plaintiff constitute?

Action in personam

What is the dividing line, according to the Advocate-General, between actions concerning a breach of fiduciary duty and actions over ownership?

The personal nature of the relations

According to the text, what is the difference between a 'determinable interest' and a 'grant upon a condition subsequent'?

A 'determinable interest' automatically ends when a certain event happens, while a 'grant upon a condition subsequent' can be terminated if a certain condition is fulfilled.

According to the text, what conditions have been held void for premature determination of the interest granted?

Conditions intended to secure the premature determination of the interest granted on alienation or bankruptcy.

According to the text, what is an important restriction on the validity of a determinable limitation?

A man cannot settle his own property on himself until his bankruptcy.

According to English law, the interest of a cestui que trust is best classified as:

A hybrid right

What is the main reason why the interest of a cestui que trust is considered a right in personam?

Because it is enforceable against everyone except the bona fide purchaser for value of a legal estate without notice

What is the 'realist' view of the nature of a cestui que trust's interest?

A right in rem

What is the compromise solution proposed by some modern writers regarding the classification of equitable interests?

Equitable interests are hybrid rights

According to the text, what happens if trustees do not exercise a merely permissive power within a reasonable time?

The power ceases to be exercisable and the trusts in default operate

According to the text, what happens if an object of a discretionary trust assigns his interest or becomes bankrupt?

The assignee or trustee in bankruptcy cannot demand payment of any part of the fund

According to the text, what happens if the trustees exercise their discretion in favor of a discretionary beneficiary by paying or delivering money or goods to him?

The title to the money or goods passes to the assignee or trustee in bankruptcy

According to the text, what happens if the trustees fail to execute a discretionary trust?

The trust fails and the court appoints new trustees

Under Section 33(1), income directed to be held on protective trusts is to be held on the following trusts, except:

Upon trust for the application thereof for the benefit of any person other than the principal beneficiary

What determines the interest of the principal beneficiary under Section 33?

The particular terms of the relevant clause in Section 33 or the express limitation

Which of the following events have been held to determine the interest of the principal beneficiary under Section 33?

A breach of trust by the trustee in paying part of the trust fund to the principal beneficiary at his own instigation

Can there be multiple protective trusts in favor of the same beneficiary under Section 33?

Yes, there can be multiple protective trusts in favor of the same beneficiary

Study Notes

Legal Distinctions in Determinable Interests and Discretionary Trusts

  • There is a legal distinction between a "determinable interest" and a "grant upon a condition subsequent" in property law.
  • A determinable interest automatically ends when a specified event occurs, while a grant upon a condition subsequent allows for the interest to be terminated if a condition is fulfilled.
  • Conditions intended to secure premature determination of a granted interest, such as alienation or bankruptcy, have been held to be void.
  • However, a determinable limitation, such as a grant of a life interest until alienation or bankruptcy, is valid.
  • A person cannot settle their own property on themselves until bankruptcy to defeat the claims of a trustee in bankruptcy.
  • Discretionary trusts can be exhaustive, where trustees have a discretion in distributing the income, or non-exhaustive, where trustees have a discretion in whether and to what extent income is distributed.
  • Under a discretionary trust, beneficiaries do not have concurrent interests or a group interest. They have individual rights and are in competition with each other.
  • The term "non-exhaustive discretionary trust" conceals two alternatives: a power of distribution coupled with a trust to dispose of the undistributed surplus, or a trust for distribution coupled with a power to withhold and accumulate a portion.
  • The nature of a discretionary beneficiary's interest is unquantifiable and limited. They have a right to be considered as a potential beneficiary and to have their interest protected by a court of equity.
  • The equitable interest in discretionary trusts is in suspense until the trustees exercise their discretion.
  • Objects of a discretionary trust may renounce their potential beneficiary rights, and if they assign their interest or become bankrupt, the assignee or trustee in bankruptcy cannot demand payment.
  • Trustees can expend the trust fund for the maintenance of a discretionary beneficiary, but if they pay the beneficiary after notice of an assignment or bankruptcy, they can be held liable to the assignee or trustee in bankruptcy.

Test your knowledge on Section 33(1) of the income tax law and its provisions regarding protective trusts and income payments. This quiz will assess your understanding of the trust period and the rights of the principal beneficiary.

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