Week 7: Powers and Trusts Quiz

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Questions and Answers

What is a primary difference between trusts and powers?

Trusts are always discretionary decisions, whereas powers are mandatory.

Powers require annual distributions to beneficiaries, whereas trusts do not.

Trusts require action from the trustee, whereas powers do not. (correct)

Powers create legal obligations for trustees, whereas trusts do not.

What is a consequence for a trustee who breaches their duties?

They automatically lose their position as trustee.

Trustees must redistribute all assets immediately.

Beneficiaries are not entitled to any compensation.

Beneficiaries can sue for breach of trust. (correct)

What defines a special power in fiduciary duties?

It requires the fiduciary to always act in the best interest of all beneficiaries.

It grants exclusive rights to control all trust assets.

It limits the class of beneficiaries to specific groups. (correct)

It allows the fiduciary to distribute assets without restrictions.

What is the primary duty of trustees under the Duty of Loyalty?

To prioritize the interests of beneficiaries over personal gain. Signup and view all the answers

In the practical example provided, what type of power does the trustee possess?

Special Power, limited only to children. Signup and view all the answers

What should trustees consider when managing trust property, according to the Duty to Invest?

The balance between risk and return. Signup and view all the answers

Which of the following illustrates a breach of the Duty of Impartiality?

Prioritizing the income needs of one beneficiary over another. Signup and view all the answers

What may result if a trustee fails to consider whether to exercise their power?

Judicial intervention may occur as a remedy. Signup and view all the answers

What is a requirement for a charitable trust regarding its public benefit?

It must benefit a significant portion of the public. Signup and view all the answers

Mixed charitable and non-charitable purposes in a trust have what effect?

They invalidate the trust. Signup and view all the answers

Which case is associated with the advancement of education as a charitable purpose?

Re Mariette (1915) Signup and view all the answers

What distinguishes a non-charitable purpose trust from a charitable trust?

Non-charitable trusts lack identifiable beneficiaries. Signup and view all the answers

What is the purpose of a freezing order in an equitable context?

To prevent asset dissipation. Signup and view all the answers

Which case illustrates compensation for trust fund deficiencies?

Magnus v Queensland National Bank (1888) Signup and view all the answers

What type of remedy is a constructive trust used for?

To recover misused property. Signup and view all the answers

Equitable compensation is applied in which circumstance?

When restitution is impractical. Signup and view all the answers

What can beneficiaries do if the trustee prioritizes income beneficiaries over capital growth?

Sue the trustee for breaching trust duties Signup and view all the answers

In which scenario can life tenants sue for loss of income?

If the trustee invests in speculative assets Signup and view all the answers

What type of remedy requires trustees to compensate for losses incurred by the trust?

Compensatory remedies Signup and view all the answers

What presumption arises when there's no evidence of intention to gift property?

Resulting trust Signup and view all the answers

In the case of Target Holdings v Redferns, what was emphasized regarding trustee responsibility?

Trustees are liable for mismanagement up to the time of judgment. Signup and view all the answers

What can beneficiaries claim if a trustee profits personally from the sale of trust property?

Compensation for trust's diminished value Signup and view all the answers

What is a key characteristic of a constructive trust?

Imposed by the court to prevent unjust enrichment Signup and view all the answers

In the scenario where a father pays for a house in his child's name, what must the child prove to rebut the presumed resulting trust?

That the father intended it as a gift Signup and view all the answers

Study Notes

Week 7: Powers, Trusts, and Fiduciary Duties

Trusts vs. Powers: Trusts involve legal obligations to act for the benefit of beneficiaries, while powers are discretionary. Breaching a trust allows beneficiaries to sue. Discretionary powers don't obligate action unless specified.
Trust Definition: Trustees are legally obligated to fulfil duties for beneficiaries' benefit. Examples include annual income distribution to specified beneficiaries.
Power Definition: Powers are discretionary; there's no obligation to act unless specified. An example includes a trustee allocating funds among beneficiaries.
Key Case: Re Hay's Settlement Trusts (1982): Trustees with fiduciary powers must consider whether to exercise the power and act within its scope while considering all parties. Failures can lead to judicial intervention.
Types of Fiduciary Powers: These involve discretion, impacting who/how the trustee can apply the funds or assets.
- General Power: Allows distribution to anyone, including the trustee themselves.
- Special Power: Limits distribution to a specific class (e.g., only children).
- Intermediate Power: Excludes some groups but allows discretion over others.
Practical Example: A will assigning a trustee power to distribute $10,000 annually to any child gives the trustee a special power limited to children. Mismanagement can lead to challenges.

Week 8: Trustee Duties

Duty to Invest: Trustees balance risk and return when managing trust property. Statutory basis is the Trustee Act 2000. Historical case Learoyd v Whitely (1886) criticizes trustees for speculative investments.
Duty of Loyalty: Trustees prioritize beneficiaries' interests above their personal gain. Boardman v Phipps (1967) highlights that profiting from trust information requires returns to the trust.
Duty of Impartiality: Trustees balance competing interests of beneficiaries (like life tenants vs. remaindermen). Nestlé v National Westminster Bank (1993) illustrates the importance of impartiality in prioritizing different beneficiary needs.

Week 9: Remedies for Breach of Trust

Compensatory Remedies: These compensate for trust losses or mismanagement. Target Holdings v Redferns (1996) focused on assessing losses at the time of the judgment, emphasizing trustee accountability.
Disgorgement of Gains: Trustees must return profits acquired through breaches. Murad v Al-Saraj (2005) shows presumed profit gains arising from breaches, requiring returns.

Week 10: Constructive and Resulting Trusts

Constructive Trusts: Courts impose these to address wrongdoing or prevent unjust enrichment. Gissing v Gissing (1971) demonstrates a constructive trust favoring a spouse contributing to a family home.
Resulting Trusts:
- Presumed: When no gifting intention is clear, assets may revert to the original owner under a trust that arises out of the circumstances. Dyer v Dyer (1788) is an example involving contributions to property purchases.
- Automatic: Property reverts to the settlor when a trust fails, illustrating a reversion to the property's grantor. Vandervell v IRC (1967) exemplifies the automatic return to the original party under a trust failure.
Practical Application Scenarios: A father paying for a child's house without explicit explanation exemplifies a resulting trust scenario where the presumption defaults to the original grantor.

Week 11: Charitable Trusts

Public Benefit: Charitable trusts must benefit a significant portion of the public, not private individuals. IRC v Baddeley (1955) supports this with context.
Exclusively Charitable Purpose: Mixed charitable/non-charitable purposes invalidate a trust. Chichester Diocesan Fund v Simpson (1944) illustrates this.

Week 12: Non-Charitable Purpose Trusts

General Rule: Non-charitable trusts are typically invalid due to lacking beneficiaries to enforce them.
Exceptions: Re Denley's Trusts (1969) shows that trusts benefiting identifiable individuals indirectly are valid.
Equitable Orders: These involve court actions to compel contractual fulfilment (Beswick v Beswick (1968)). Freezing orders prevent asset dissipation (Mareva Compania v International Bulkcarriers (1975)). Search orders allow investigating evidence (Anton Piller KG v Manufacturing Processes Ltd (1976)).
Personal Remedies (Against Trustees):
- Compensation for Loss: Reparation for trust fund deficiencies (Magnus v Queensland National Bank (1888)).
- Equitable Compensation: Applied when restitution is impractical (Swindle v Harrison (1997)).
Proprietary Remedies:
- Constructive Trusts: Imposed to recover misused property (Re Hallett's Estate (1880)).
- Equitable Lien: Creates a security interest over property (Re Diplock's Estate (1948)).

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Description

Test your understanding of powers, trusts, and fiduciary duties with this quiz. Learn about the differences between trusts and discretionary powers, obligations of trustees, and key legal cases that shape these concepts. Engage with questions that challenge your knowledge of fiduciary responsibilities.