Equity & Trusts - Practice Paper 1

The rules governing the constitution of trusts and the transfer of property are excessively formalistic and can produce unjust results. Discuss this statement with reference to the maxim that equity will not assist a volunteer and the exceptions that have developed to mitigate its harshness.

Victoria settles £500,000 on trust for her two daughters, Wendy and Xena, in equal shares. The trust deed authorises the trustee, Yusuf, to invest in quoted securities and land. Yusuf makes the following decisions: (i) he retains the entire fund in a bank deposit account earning minimal interest for two years because he is too busy with personal matters to consider investments; (ii) he then invests £250,000 in a buy-to-let property without obtaining professional advice; (iii) he invests the remaining £250,000 in a diversified portfolio of shares. The buy-to-let property decreases in value by £80,000 due to a market downturn. The share portfolio increases by £100,000. Wendy and Xena are dissatisfied and seek advice on Yusuf's liability.

Breach of trust liability is personal and compensatory in nature, yet the availability of proprietary remedies through tracing gives beneficiaries significant advantages over ordinary creditors. Critically assess whether the current remedial framework for breach of trust achieves an appropriate balance between the interests of beneficiaries, trustees, and third parties.

Andrew creates a trust by will, leaving £1 million "for the promotion and advancement of ethical veganism in the United Kingdom." The will also leaves £200,000 "for the purpose of maintaining my collection of rare orchids for as long as possible." Andrew's residuary estate is left to his daughter Bridget. The executors seek advice on whether either gift creates a valid trust and, if not, what happens to the funds.

Carol is trustee of a discretionary family trust with a fund of £2 million. The potential beneficiaries are Carol's nephews and nieces (currently five individuals). Carol exercises her discretion to appoint £500,000 to her nephew Derek. Derek is Carol's favourite and she made the appointment partly because Derek has agreed to give Carol £50,000 from the appointed sum. Carol also decides not to make any appointment to her niece Ella because of a personal disagreement. Ella has three young children who would benefit from a trust appointment. The other beneficiaries, Fred, Gina, and Harry, receive appointments proportionate to their needs. Advise Ella on any challenges she can bring against Carol's exercise of discretion.