Chapter 3 Self-Test Questions

'Despite some suggestions otherwise, there is no requirement of property in order for there to be a trust. The existence of an obligation on a trustee is sufficient.'

True.

False.

Patrick gives £100 to Robin to hold on trust for Tina until her 18th birthday. On Tina's 18th birthday, Robin refuses to transfer the money to Tina. What can Patrick and Tina do to enforce the trust?
Select two answers.

Patrick has a right to enforce the trust as he was party to the initial bargain with Robin.

Patrick has no right to enforce the trust despite being party to the initial bargain with Robin.

Tina has a right to enforce the trust despite not being party to the initial bargain with Robin.

Tina has no right to enforce the trust because she was not party to the initial bargain with Robin

In which circumstances can a trustee benefit from the trust property? There may be more than one correct answer.

Trustees are not able to benefit from the trust property.

The trustee might also be a beneficiary under the trust.

Trustees are entitled to profit as long as they are not dishonest.

The trust instrument might provide circumstances in which the trustee is permitted to receive a benefit.

Why is a trustee bound to carry out the express trust as requested by the settlor?

Because the trustee is contractually bound by the contract between the settlor and the trustee.

Because it would be unconscionable for the trustee to fail to administer the property.

Because the trustee does not actually own the property in any meaningful sense.

Because the trustee could go to prison if they failed to administer the trust as required.

Terence gives his daughter, Ursula, an envelope thinking it contains £100 and instructions that Ursula is to hold the money on trust for Verity, her sister. The envelope did not contain the letter of instructions and so Ursula thinks the £100 was a gift to her and spends it. Has the attempt to create a trust been successful?

It does not matter that Ursula did not know about the intention to create a trust at the time. As long as Terence tells her at some point, her conscience is still bound, and she must hold £100 on trust for Verity.

Verity can bring a personal claim against Ursula for breach of trust.

Ursula's conscience is not bound because she was not aware of facts that might have affected her conscience.

Ursula's conscience is not bound because she is Terence's daughter and so it is not possible for an express trust to be recognized.

'A beneficiary's equitable proprietary interest binds the whole world.'

True.

False.

In the event of insolvency, the trust property will be available to whose creditors? There may be more than one correct answer.

The settlors' creditors.

The trustees' creditors.

The beneficiary's creditors.

No one's creditors.

'There can only be one beneficiary under a trust.'

True.

False.

Which of the following are functions of the trust? Select two answers.

To segregate assets.

To avoid tax.

To allow for perpetual property management.

To allow property to be held by a separate legal person.

'All property ownership can be divided into legal and equitable ownership. If A holds property outright, she holds both the legal and equitable interest. If she declares a trust in favour of B, she simply transfers the equitable interest to B.'

True.

False.

Following the creation of a trust, what happens to the settlor?

The settlor is automatically assumed to retain an equitable interest in the trust property.

The settlor drops out of the picture.

The settlor has no beneficial interest but retains a right to enforce the trust.

The settlor can seek the return of the legal title from the trustee at any time.

What does it mean when the trustee overreaches the beneficiary's equitable proprietary interest?

The trustee was unauthorized in selling the trust property and distinguished the beneficiary's equitable proprietary interest.

The trustee was unauthorized in selling the trust property and is personally liable for the value of the trust property to the beneficiary.

The trustee was authorized to sell the trust property and so the beneficiary loses the equitable proprietary interest in the property and has a personal claim against the trustee for the value of the property.

The trustee was authorized to sell the trust property and so the beneficiary loses the equitable proprietary interest in the property and an equivalent proprietary interest is created in the asset obtained in exchange.

'The "rights against rights" thesis and the "modified property rights" thesis achieve broadly the same result.'

True.

False.

What do the objects of a discretionary trust have?

A mere equity in the trust property.

Legal title of the trust property.

An equitable proprietary interest in the trust property.

No interest in the trust property.

A holds property on trust for B for life, but B's interest will be forfeited in the event of her bankruptcy. What type of trust is this?

A discretionary trust.

A testamentary trust.

A protective trust.

It is not a valid trust at all.

'Pension schemes can only be established by using the trust mechanism.'

True.

False.

Which of the following are classified as resulting trusts? There may be more than one correct answer.

Where employees in a company contribute a percentage of their salary to a fund which is held on trust for their benefit.

Where an express trust has failed, and the trustee holds the property on trust for the settlor.

Where someone receives property fraudulently and holds it on trust for the original owner.

Where someone makes a transfer for no consideration.

'Property in jurisdictions which do not recognize trusts cannot be the subject matter of a trust.'

True.

False.

How can we distinguish between a trust and an unsecured debt? There may be more than one correct answer.

It is not really possible to tell them apart, both entail personal rights in relation to property that one person owes to another.

It is possible to tell them apart, but it is difficult as both entail proprietary rights in relation to property that one person owes to another.

A creditor has a personal right to value whereas a beneficiary has an equitable proprietary right in property.

Trusts have a degree of personal liability, like creditor/debtor relationships, but also proprietary rights.

Britta takes her car to the garage for repairs. What is the relationship between Britta and the garage and what can Britta do if the garage sells her car to Simon?

Bailment—Britta can sue Simon for the tort of conversion.

Debt—the garage is personally liable to Britta for the value of the car.

Trust—Britta's equitable proprietary interest is defeated by Simon as he is a bona fide purchaser.

Contract—Britta can sue the garage for breach of contract.

'The essential difference between a trust relationship and an agency relationship is that trustees owe fiduciary duties whereas agents do not.'

True.

False.

'A beneficiary under a will has an equitable proprietary interest in suspense until the deceased's debts have been discharged.'

True.

False.

What is the difference between trusts and powers? Select two answers.

Trusts impose obligations which must be performed, whereas powers impose obligations which may be performed.

Trusts and powers are different words for the same thing—you can use 'trust', 'power', and 'trust power' interchangeably.

Trusts can be executed by the court, whereas powers cannot.

A power is part of a trust and enables the trustee to benefit from the trust property.

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