LAWS20059 Corporations and Business Structures Dr Peter Robinson CQUniversity, Brisbane Campus

Module 2 Trusts

Today’s Overview 1 2 3 The trust relationship Creation of a trust Types of trust 3

Today’s Overview (continued) Trustee’s liability / duties 4 Rights of the parties 5 Termination of a trust 6

The trust relationship Trust property Legal and equitable ownership separated Trustee (legal owner) has burdens Beneficiary (equitable owner) has benefits Equitable title also called beneficial title A trust is not a legal entity. The trustee has unlimited personal liability.

Creation of trust Intentional Constructive Express Implied Trust deed (inter vivos) or will (testamentary) Implied Constructive By order of court

The 3 required certainties Intention to create a trust Identity of trust property Identity of beneficiaries or charitable objects NOTE: The rule against perpetuities – Trusts cannot last forever.

Workshop Questions Questions 1 to 5

Types of trust We have already seen types of intentional (express or implied) and constructive trusts Trusts can be classified in another way: Fixed trusts and unit trusts Discretionary trusts

The trustee and outsiders – title As legal owner, the trustee’s name appears on title documents for the trust property. The trust itself is NOT a legal entity. The trustee is the relevant legal entity. If trust property is sold (or purchased), the trustee appears as vendor (or purchaser). The 3rd party mightn’t even know of the trust.

Liability to outsiders (3rd parties) As the legal owner (and entity), the trustee has unlimited personal liability to outsiders. The trustee will enter into the contracts. E.g. leases, insurances on the property The trustee is liable for the safety of the property – e.g. a shopping centre or factory. For this reason, the trustee will often be a limited liability company.

Workshop Questions Question 6 Question 7 Question 8 Question 9

Trustee’s fiduciary duties To act for the beneficiaries, not for self To avoid conflicts of interest To be impartial between beneficiaries To keep separate accounts To act personally (not delegate)

Trustee’s other duties To carry out the terms of the trust Terms laid down in trust deed or will Duties of care To exercise due care To invest These duties combine to require trustees to invest trust funds prudently.

Trustee’s powers and rights All powers of a legal owner Commercial and professional trustees can charge usual fees, otherwise need remuneration clause in deed or order of the court – Trusts Act 1973 (Qld.), s101. Indemnity out of trust funds Indemnity from beneficiaries of fixed trust Limited indemnity in discretionary trust

Beneficiaries’ rights To require trustee to comply with trust Adult beneficiaries may:- Terminate the trust Remove or appoint a trustee

Termination of trust Decision by adult beneficiaries Transfer or destruction of all trust property Terms of trust fully carried out Court order

Workshop Questions Questions 10 to 12

Conclusions A trust is a relationship between a trustee and beneficiaries in relation to trust property. The trustee bears the burdens of the trust property and acts as a fiduciary. The beneficiaries get the benefits, and no liability to outsiders.

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