Trusts are incredibly useful legal devices which are typically used to
- Ensure property is enjoyed by individuals in succession
- Provide for beneficiaries whose identity may not yet be known.
Trusts can be broadly categorised into
- Inter vivos (during the lifetime) trusts and
- Will trusts.
The focus of this piece will be on will trusts.
What is a Trust?
A trust is an equitable obligation, binding a person (who is called a trustee) to deal with the property over which he has control (which is called trust property) either for the benefit of persons (who are called beneficiaries) of whom he himself may be one, and any one of whom may enforce the obligation, or for a charitable purpose…, or for some other purpose permitted by law..(Source: Underhill)
The 3 Certainties
In order for a trust to be legally constituted it must have 3 certainties:
- The subject matter of the trust must be certain (this imposes 2 obligations: the trust property must be certain and the interest to be taken by the beneficiaries must be certain)
- The objects (beneficiaries) must be certain
- The words used by the testator must have been imperative to show his (her) intention to create an obligation.
No particular form of words is required to create a valid trust but words like “wish”, “hope”, “desire” may cause a trust to fail as they are not sufficiently imperative.
If any of these certainties are “uncertain” or unclear, the trust will almost certainly fail.
Other Trust Requirements
Where the trust property is land/real property, the trust must be evidenced in writing.
If the trust is a will trust, the will must be valid and comply with the Succession Act, 1965.
There are also categories of trust which are void because they are contrary to public policy and further trusts which are voidable by the Courts on the grounds of fraud, mistake, undue influence, duress, misrepresentation.
Different Types of Trust
Before going on to look at will trusts in more detail it is worthwhile to take a brief look at some different types of trust:
- Trusts which arise by operation of law
These types of trust are either resulting or implied trusts-where the law presumes that the owner of property intended that it should be held in trust-or constructive trusts-where the Courts will impose a trust to satisfy the demands of justice in particular circumstances eg where a person in a fiduciary position makes a personal profit.
2. Statutory Trusts
The Family Law Act, 1995 and Family Law (Divorce) Act, 1996 allows Courts to order that property held by one spouse should be placed in settlement/trust for the other spouse and/or children.
- Charitable Trusts
- Trusts Created for Purposes
- Discretionary Trusts
A discretionary trust is one which is set up to gives the trust property to trustees with the power to the trustees to give the property as they see fit to members of a particular class of person.
3. Trusts for Sale
This occurs where trustees are given property on trust with the power to sell it or postpone a sale as they see fit.
4. Protective Trusts
This type of trust is usually for the benefit of family members and will have a restriction or condition attached eg “the income to Mick for life while he keeps out of betting shops.”
5. Revocable Trusts
A trust cannot generally be revoked but an exception is a trust for paying the settlor’s debts. This type of trust cannot be used to defeat the settlor’s creditors though.
The Parties to a Trust
There are usually 3 parties to a trust or settlement:
- The testator/settlor (if the trust is created by a will he/she is referred to as the testator)
- The trustee(s)
- The beneficiaries.
A trust which takes effect on death is a will trust.
A settlor/testator can himself be a trustee and/or beneficiary and creates the trust by deed, will, or by act. (However if he is a testator he clearly cannot be a beneficiary or trustee!)
The trustees are the legal owners of trust property and carry out the terms of the trust. The trustees have legal title to the property while the beneficiaries have equitable title.
Anyone who is not under a handicap can be appointed a trustee, including a beneficiary (but a conflict of interest may clearly arise).
Trust property is held by the trustees as joint tenants with the right of survivorship arising on the death of a trustee. A completely constituted trust is one where a trust has been validly declared and the title to trust property has been transferred to the trustees.
You can have as many or as few trustees as you wish but the more trustees the more difficult it might be to manage the trust’s affairs.
Generally it is a good idea to have at least 2 trustees although one can perform all necessary duties.
Trustees are appointed by the settlor/testator in the first instance. Trustees can also be appointed by the original trustees, those who have statutory powers, and beneficiaries in some circumstances.
In a will trust the trustees and executors will usually be the same persons.
If trustees named in a will are unable to act or have disclaimed or if the settlor failed to appoint trustees then the Courts have the power to appoint trustees.
Both the Trustee Act, 1893 and the Succession Act provide for the appointment of trustees as circumstances dictate eg the predeceasing of the settlor by a trustee.
Trustees of a Minor/Infant Trust-Under Age Children
If a child inherits from a will, and there is no receipt clause in the will, or on intestacy there is nobody in whom the LPR (legal personal representative) can vest the asset or obtain a receipt.
However section 57 of the Succession Act, 1965 comes to the rescue:
|57.—(1) Where an infant is entitled to any share in the estate of a deceased person and there are no trustees of such share able and willing to act, the personal representatives of the deceased may appoint a trust corporation or any two or more persons (who may include the personal representatives or any of them or a trust corporation) to be trustees of such share for the infant and may execute such assurance or take such other action as may be necessary for vesting the share in the trustee so appointed. In default of appointment the personal representatives shall be trustees for the purposes of this section.|
|(2) On such appointment the personal representatives, as such, shall be discharged from all further liability in respect of the property vested in the trustees so appointed.|
This means that where minors inherit and no trustees have been appointed the LPR (legal personal representative) can appoint trustees for the purposes of section 57 and a trip to Court can be avoided. If the LPR does not appoint trustees he/she shall be a trustee for the purposes of this section of the Succession Act, 1965.
However it should be noted that this only applies to the share of a minor. Anybody else who is a beneficiary and is under a disability and cannot give a receipt to the legal personal representative will necessitate a trip to Court.
The powers of trustees appointed under section 57 of the Succession Act are set out in section 58 of the Act.
Section 58 also provides for a situation where a minor inherits land on intestacy ie there is no will:
Section 58 (2) Where an infant becomes entitled to any estate or interest in land on intestacy and consequently there is no instrument under which the estate or interest of the infant arises or is acquired, that estate or interest shall be deemed to be the subject of a settlement for the purposes of the Settled Land Acts, 1882 to 1890, and the persons who are trustees under section 57 shall be deemed to be the trustees of that settlement.
Duties and Powers of Trustees
Trustees have both statutory and non statutory powers and duties. Non statutory powers will be granted by the trust deed itself.
Powers and duties usually given to trustees include
- The power and duty to collect and preserve the assets
- The power to invest
- The duty not to make a profit from the trust eg to buy trust property
- To be impartial between beneficiaries
- To account for and distribute the assets and keep proper accounts.
Trustees’ statutory powers derive from
- The Settled Land Acts 1882-90
- The Succession Act 1965
- The Land and Conveyancing Law Reform Act, 2009
- The Trustees Act, 1893.
Additional non statutory powers should be given to trustees such as, depending on the circumstances,
- the power of sale
- the power to invest
- the power to run a business
- the power to lend money and borrow money
- the power to delegate
- the power to insure property
- the power to advance capital
- the power to pay professional fees
- the power to compromise action in claims.
A trustee who is appointed does not have to act-he can disclaim from the outset- but in a will trust if a person is appointed as executor and trustee and accepts the executorship he will be presumed to have accepted the trusteeship.
Once he accepts the job he cannot disclaim. He can retire however according to the terms of the trust.
A trustee can be removed from office either in accordance with the terms of the trust or if all the beneficiaries agree.
Differences Between Legal Personal Representatives and Trustees
An LPR (legal personal representative) can be appointed by will or by Court.
A trustee can be appointed by the settlor/testator, by Court, or by existing trustees.
Only one LPR is required; it is recommended that at least 2 trustees be appointed as 2 are necessary to give receipts for capital monies under the Settled Land Acts.
Receipts for land: one LPR is all that is required (unless it is for settled land) but all trustees must join in getting valid receipts.
An LPR cannot retire but a trustee can.
The powers of personal representatives and trustees are different; LPRs have wide powers deriving from common law, statute and the will.
Trustees derive their powers from statute and the will or trust deed.
If a personal representative dies before the administration of the estate a de bonis non grant is necessary; if a trustee dies his personal representative can take his place until a new trustee is appointed in his place.
Beneficiaries of a Trust
Beneficiaries are those for whom trust property is being held.
However the legal interests of those beneficiaries can vary greatly eg a life interest, an interest for a certain period, an interest subject to a condition etc.
Powers of Beneficiaries of a Trust
Beneficiaries of a trust can act collectively to terminate the trust. A beneficiary can also disclaim or sell his interest.
Some Common Misconceptions about Trusts
As a trust is not a legal entity per se it cannot hold assets or enter contracts or carry out any other legal formalities. Trust property is owned by the trustee(s) and it is the trustee(s) that has legal capacity.
A trust therefore cannot be bound by a legal contract and any contracts entered into by a trust are not legally enforceable.
If you wish to set up a will trust for your loved ones please do not hesitate to contact Terry Gorry.