Trusts law in AUS

  • Category:
    Law
  • Document type:
    Research Paper
  • Level:
    Undergraduate
  • Page:
    4
  • Words:
    2450

11Insert Surname

Lecturer

Trust Law

Trust Law

Question 1

Express Charitable Trust Purposes

. In a situation where the settler transfers property to a trust to hide it from creditors, the trust will be considered invalid. Courts also find a trust that go against public policy generally unenforceable. For example, a trust that encourages people to divorce or restrain from marriage is considered invalid.3. For example a trust formed to defraud creditors is considered a sham and is therefore impermissible2. In many cases, trusts are formed to safeguard property and cater for the welfare of a beneficiary or group of beneficiaries1A trust may not be created for purposes that are “illegal or contrary to public policy”

. In fact, the trust is aligned with public policy towards preservation of traditional culture, and provision of funding for education.6In this case, Dora and Billy are planning to establish a trust that encourages the learning and practicing of old indigenous and aboriginal cultural practices. The trust will also finance the education of bright aboriginal individuals to give back to the community that form part of NNB’s environment. Clearly, the two purposes of establishing a charitable trust are proper and thus Dora and Billy would be permitted to establish a trust. The trust is valid as its purpose is not illegal and is not contrary to public policy. 5at 583, the purposes of establishing charitable trusts were set out as follows: relief of poverty, advancement of religion and education and for any other purpose that benefits the communityCommissioner for Special Purposes of Income Tax v Pemsel [1891] AC 531 . In 4 at 222, an express charitable trust is set up for benefit of the communityAttorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209According to

Question 2

Contract Relationships versus Trust Relationships

A contract relationship is quite distinct from trust relationship in many aspects. A contract is deliberate, voluntary and gives rise to binding legal responsibilities. Unlike a trust, a contract can exist without being written down. Contracts also require the members to enter into the relationship willingly7. In contrast, the beneficiaries of a trust are sometimes drawn into a trust regardless of their will. A contract is based on offer and acceptance and some kind of consideration. For example a DJ can enter into an oral contract to provide entertainment during the clients Birthday party. The DJ receives payment as consideration for the services provided. In contrast, the beneficiaries of a trustee do not need to enter into a legally binding relationship. In fact, only the trustee has a legal obligation to the beneficiaries of the trust.A good example of a trust is where a parent entrusts his property to a bank for management, but specifies that the income from the investment will be paid to his/her children. In Contract, parties act as equals and are expected to gain fair benefit when the contract is executed. On the other hand, the trustee acts as an agent or employee of the beneficiaries in a trust8. The trustee is supposed to undertake all activities of the trust in the interest of the beneficiary. If one party in a contract took such precedence over the others, the contract may be set aside for being inequitable9.

In many cases, a contract is a short-time undertaking where two parties work temporarily together to complete a given task10. In contrast, a trust may involve holding property on behalf of the beneficiary for years or even for decades11. However, it should be noted that a trust does not create a separate legal entity like a corporation. In essence, both the contract and trust give rise to relationships between two parties. However, the nature of this relationship differs greatly. Trusts are recognized by equity courts while contract is well appreciated by English common law courts12.

Contracts give rise to a duty for each contract party to execute their part of the contract. In contrast, Trusts give rise to fiduciary duty to the trustee to protect their property and use for the benefit of the beneficiary. The beneficiary of trusty has no duty to the trustee and only awaits the beneficiaries to be received from the trust.

Question 3

Establishing a Trust

Creation of an Express Trust

While there are no formal requirements to be fulfilled in the creation of an express charitable trust, a number of principles have to be adhered to. A trust comes into being by transfer of property to the trustee by a settler, for the benefit of charity or beneficiaries13. It can also be established by a declaration of trust by the settler. In such a declaration, the settlor asserts that he is holding property for the benefit of the beneficiaries.

However, as set out in Clay v Clay (2001) CLR 410 at [42], an express trust can only be valid and enforceable when the three certainties of intention are present14. The three certainties of intention that must be present were reaffirmed in Pascoe v Boensch (2008) 250 ALR 24 at [20] as follows15:

  1. Certainty of intention;

  2. Certainty of subject matter;

  3. Certainty of objects:

Certainty of Intention

For a trust to be valid, the settlor must show intention to create a trust for the benefit of either a person or a charity16. The intention must be stated in a way that it is clear that a trustee is charged with the responsibility of holding property for the benefit of other parties. Re Robertson (1975) 10 SASR 189 asserted that a clear intention to form a trust must be apparent at the time of constructing the trust instrument17. Thus, Dora and Billy must show clear intent that they intend to form a trust for the benefit of the society near their business.

Certainty of subject matter

This principle of express trust is concerned with the property to be held by the trustee on behalf of the beneficiaries. The trust property must be clearly identifiable for the trust to succeed. The property must be real or personal, and should be transferred to the trust for the trust to be valid and enforceable. Therefore, it would not be enough for Billy and Dora to announce and intention to create a trust, they must also transfer property to the trust to make it valid.

Certainty of Objects

According to Perpertual Trustee Co Ltd v John Fairfax & Sons Pty Ltd (1959) 76 Wn (NSW) 226, the benefit of a trust must be certain18. However, as set out in Kinsela v Caldwell (1975) 132 CLR 458, it is not a requirement to identify the actual beneficiaries in advance19. Billy and Dora’s trust has identified the local indigenous community and the community’s young people seeking education as the main beneficiaries of the trust they hope to set up. It is not necessary for the couple to identify the actual beneficiaries of the trust for the objects of the trust to be certain.

Question 4

Who are the beneficiaries of the Trust

. The assets in a trust may include real estate, cash, bonds, antiques and art. The assets have to be transferred from the settler’sownership to the trust. The trustee is often compensated for his role as the manager of the trust. The settlors in this case will be Billy and Dora as they will provide the assets that will be used to set-up the trust. Beneficiaries of the trust receive returns from investment or property from the trust.21. In this case, the aboriginal community located near NNB beverages is the beneficiaries of the trust to be set up by Dora and Billy. According to the case, the trust will help in preserving aboriginal culture and will also establish a scholarship scheme that will enable young people from indigenous communities to attend school and pursue higher education studies. A trust is defined as a private arrangement where the trustee takes ownership of some type of asset and manages it for the benefit of the beneficiary or beneficiaries20The beneficiaries of a trustee are the persons who receive benefit as a result of the commercial activities of the trust

Question 4

?Can NNB set up a trust

. NNB intended charitable trust is for the preservation and promotion of traditional culture in the local area where the company operates. NNB also intends to use the trust to pay for the higher education of local youths. However, section 11 of the Act prevents the formation of trusts that engage or promote unlawful activities. The section also restricts the formation of trust engaged in politics or for the purpose of opposing a political party or candidate for a political party. In this case, the purpose of NNB’s charity is obvious and none of the disqualify reasons apply to their ability to establish a trust.22 sets out the valid the purposes that a charitable trust should be set up for. The advancement of culture and education are obvious purposes for setting up charitable trusts under the actAustralian Charities and Not-for-profit Commission Act 2012 (cth)There are a number of restrictions that can prevent NNB from forming a charitable trust as intended by Billy and Dora. Section 12 (1) of the

. The Wyatts had used their home as security for their loan, and as the subject matter for a trust whose beneficiaries were their children. The court held that the trust had been created to deceive Midland, and thus it was held to be sham. NNB might be sued by Vincenzo for breach of contract and in case they lose they may be required to pay damages to Vincenzo. NNB may be prevented from creating a trust, if the trust will affect their ability to pay damages arising out of the liability for the breach of their contract with Vincenzo.26, Mr. and Mrs. Wyatt sought to protect their home from attachment for a loan they had borrowed from Midlands by executing a trust over their homeMidlands Banks Plc V Wyatt Law R 697. In 25. According to Matthew Conaglen, a trust is a sham, if it is created for the purpose of protecting the assets of the settler from the claims of the creditor or from claims in contract and tort24(NSW) makes the transfer of property with the intention of deceiving creditors voidable and in the case of a trust this is a disqualifying reasonConveyancing Act 1919 . Section 37(A) of the 23The law also restricts the transfer of property or assets with the intention of deceiving creditors or escaping liability for tort or breach of contract

Question 5

Can Dora and Billy be appointed as Trustees?

Section 7 of the Trustees Act 1962 (WA) asserts that a person can be appointed a trustee27:

  1. If they are not dead;

  2. If they are not a minor

  3. If they are unfit to act as trustees;

  4. If they are incapable of acting as trustees;

  5. If they have not sought to be discharged from the position of trustee;

  6. If the trustee is a corporation that has ceased operating, or has been dissolved.

It is common for the settlers of trust to also become the trustees of the trust they have created
There is no reason to prevent Billy and Dora from being appointed the trustees of the trust they intend to form. Both Billy and Dora are not minor or unfit to act as the trustees. For a person to be appointed the trustees of a particular company there must have attained legal age. In this case, both Dora and Billy are above the age of 18. In addition, the scenario does not indicate that Billy or Dora are incapable or unfit to act as trustees of the new trust they will establish. 28. Often, the settlors in charitable trust become trustees as they would like to guide the trust in delivering the benefits of the trust to the community. In this case, Billy and Dora want their trust to be involved in the preservation and renewal of indigenous cultures and to assist youths from the local indigenous community pursue higher education. Dora and Billy can assist in the realization of these trust goals by acting as the trustees. It would be unwise to appoint another trustee as he/she may not divert from the objectives of the trust

Bibliography

  1. Articles/Books/Reports

Heydon, J.D., Leeming, M.J, ‘Jacob’ Law of Trusts in Australia’ (Lexxis Butterworth, 7th edition, 2006)

Matthew Conaglen, ‘Sham Trusts’, (2008) 67 Cambridge Law Journal 176

Heydon, J.D., Leeming, M.J, and Turner, G.P., ‘ Meagher, Gummow and Lehane’s Equity: doctrines and remedies’ (Lexxis Butterworth, 7th edition, 2015)

New South Wales Fair Trading, Establishing a Charity, accessed 8 April 2016,http://www.fairtrading.nsw.gov.au/ftw/Cooperatives_and_associations/Charitable_fundraising/Starting_a_charity.page

Treitel GH. The law of contract. (Sweet & Maxwell, 2003).

Turner, C.F., and Trone, F, ‘Australian Commercial Law’, (Lawbook, 2014)

Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209

Clay v Clay (2001) CLR 410

Commissioner for Special Purposes of Income Tax v Pemsel [1891] AC 531

DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) 40 AIR 1, 35

Kinsela v Caldwell (1975) 132 CLR 458

Pascoe v Boensch (2008) 250 ALR 24

Perpertual Trustee Co Ltd v John Fairfax & Sons Pty Ltd (1959) 76 Wn (NSW) 226

Re Robertson (1975) 10 SASR 189

Midlands Banks Plc V Wyatt (1995) Law R 697

  1. Legislation

Conveyancing Act 1919 (NSW), s. 11

Trustees Act 1962 (WA)

1 Heydon, J.D., Leeming, M.J, ‘Jacob’ Law of Trusts in Australia’ (Lexxis Butterworth, 7th edition, 2006)

2Charitable Act 1962(WA) section 18

3 Heydon, J.D., Leeming, M.J, and Turner, G.P., ‘ Meagher, Gummow and Lehane’s Equity: doctrines and remedies’ (Lexxis Butterworth, 7th edition, 2015)

4Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209

5Commissioner for Special Purposes of Income Tax v Pemsel [1891] AC 531

7 Treitel GH. The law of contract. (Sweet & Maxwell, 2003).

8 See Heydon and Leeming, above, n 1

9 See Treitel, above, n 4

11 See Heydon and Leeming, above, n 1

13 Turner, C.F., and Trone, F, ‘Australian Commercial Law’, (Lawbook, 2014)

14Clay v Clay (2001) CLR 410 at [42],

15Pascoe v Boensch (2008) 250 ALR 24 at [20]

16 See, Turner and Trone, above n 13

17Re Robertson (1975) 10 SASR 189

18Perpertual Trustee Co Ltd v John Fairfax & Sons Pty Ltd (1959) 76 Wn (NSW) 226

19 Kinsela v Caldwell (1975) 132 CLR 458

20 See Heydon, Leeming, and Turner, above, n 2

22
Conveyancing Act 1919 (NSW), s. 12

23
See Heydon, Leeming, and Turner, above, n 2

24
Conveyancing Act 1919 (NSW), s. 11

25 Matthew Conaglen, ‘Sham Trusts’, (2008) 67 Cambridge Law Journal 176

26
Midlands Banks Plc V Wyatt (1995) Law R 697

27
Trustees Act 1962 (WA)

28 See, Turner and Trone, above n 15