function of a trust
function of a trust
The crucial quality of a trust is a means of separating management and the right to benefit of property. Thus, a trust is a means for creating a separation of management and benefit to property. Contrastingly, Absolute ownership involves both these elements an absolute owner enjoys control and benefit.
General Principle: The creation of a trust can allow for the legal ownership and equitable benefit to be divided.
Vandervell v IRC [1967] 2 AC 291
Facts: Mr Vandervall was a rich businessman who wanted to save paying tax and attempted to create tax avoiding schemes. In 1958 Mr Vandervell instructed his trustees to transfer some shares they held for him to the Royal College of Surgeons (“RCofS”) which was a charity. With an option in the transfer he could buy back the shares in the future for £5000. In 1961 the RCS had received more than £150,000 in dividends from the shares and Vandervell’s trustees exercised the option to repurchase. The Inland Revenue claimed tax from Vandervell on the basis that he had not disposed of his interest in the shares for the period 1958 – 1961 because there was no writing. Ratio: The House of Lords found that the option had created an automatic resulting trust for Vandervall and that therefore he retained an interest in the shares and had to pay tax on them. The RCofS could not have been taxed because it is a charity and was exempt from that taxation. House of Lords also stated obiter that where the legal and the equitable interest are intended to be transferred together there is no need for a separate written disposition of the equitable interest. Application: Although the tax avoidance scheme failed and Vandervall was made to pay tax on the shares of the company, the case demonstrates the attempted splitting of ownership and benefit.
General Principle: There are four fundamental propositions that well illustrate the law of Trusts.
Westdeutsche Landesbank Girozentrale v Islington BC [1996] AC 669, HL
Facts: The case was in regard of an interest rate swap, a transaction where one party agreed to pay the other over a certain period interest at a fixed rate on a notional capital sum. The other party agreed to pay over the same period interest at a market rate on the same notional sum. Few years earlier the House of Lords held interest rate swap agreements void in the light of the Local Government Act 1972. The argument between the parties arose when the Claimant sued the Council in order to recover £1,145,525 (including compound interest). The Council accepted to pay the money back under the void contract, but only including simple interest. The issue for the court was whether an equitable proprietary claim was available to the Westdeutsche bank in the present case. Ratio: Lord Browne-Wilkinson listed four leading principles of trust law which are: (i) Equity operates on the conscience of the owner of the legal interest; (ii) A person cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience; (iii) There must be identifiable trust property; and (iv) Once a trust is established, a beneficiary has a proprietary interest in the trust property, enforceable in equity against any subsequent holder of the property other than a purchaser for value of the legal interest without notice. Application: The House of Lords held that there was no resulting trust so that the Council could only recover its money with simple interests since there was only a claim for recovery in common law.
LAW BOOKS
Law Tutor offers the most complete and up-to-date legal education publications on the market. Use the legal textbooks from the Core Series, which were compiled by legal Tutor, a lawyer who has worked as both a law professor and a barrister. Because they offer example answers, the books in our Q&A Series will help you prepare for examinations more easily.
