Session 1_DN

Which of the following best defines a trust?

•  A legal arrangement where one person holds property for the benefit of another.

• A legal arrangement where one person holds property for their own benefit

• A legal arrangement where one person transfers property to another for management

• A legal arrangement where one person borrows property

Which of the following statements best describes the distinction between a beneficiary and a trustee in terms of ownership within a trust?

• The beneficiary holds the legal title to the trust property, while the trustee has the right to benefit from the trust assets.

• The trustee holds the legal title to the trust property and is responsible for managing it, while the beneficiary has the right to benefit from the trust assets.

• Both the beneficiary and the trustee hold equal ownership rights to the trust property and share responsibilities equally.

• The trustee and the beneficiary both manage the trust property together and share the benefits equally.

Sharon transfers the legal title of a valuable painting to her friend Terry, instructing him merely to hold it until her designated heir, Malcom, reaches adulthood. However, Sharon retains the right to have the painting returned to her at any time and continues to enjoy its benefits, including displaying it in her home. Does this demonstrate the required split of title to create a trust?

• Yes

• No

Answer explanation

Sharon still maintains both control and benefit of the painting. She maintains the ability to reclaim the painting at any time and continues using it, the essential split between legal title (held by Terry) and beneficial title (enjoyed by Malcom) is not fully established. Terry is merely a custodian of bailee, not a trustee in the legal sense.

Jordan wants to ensure that his niece Emily will have the financial means to pay for her university tuition. To achieve this, he tells his friend Alex: “I’m going to give you $50,000 so you can hold it for Emily and use it to pay her tuition fees when the time comes.” Jordan instructs Alex to open a new bank account solely for the funds, and then transfers the $50,000 into that account. He explicitly reiterates that the funds are “for Emily’s benefit.” Does this arrangement demonstrate the required split of title to create a trust?

• Yes

• No

Answer explanation

The defining feature of a trust is this division between legal title and beneficial interest. Jordan’s actions satisfy this requirement by ensuring that Alex (the trustee) has legal control of the property while Emily (the beneficiary) retains the right to benefit from it (in this case, paying her tuition when needed).

Zepinics entered into a residential building contract with Chateau Constructions for renovation work on their property in Turramurra, NSW. The contract included the following clause: "In consideration of the contractor undertaking the works, the owner acknowledges that the contractor shall have a beneficial entitlement in the proceeds of sale or other realisation of the property, to the extent of any unpaid amounts due under this agreement, arising upon completion of the contracted works or advancement of funds."." What is the nature of the arrangement between the parties?

• A trust

• An agency arrangement

• A bailment

• An equitable charge

Answer explanation

• Chateau Constructions (Aust) Ltd v. Zepinic [No 5] [2010] NSWSC 265.

• The clause implies a proprietary interest in the property tied to unpaid obligations, which is characteristic of an equitable charge.

Linda inherits a valuable painting from her great-grandmother. She decides to lend the painting to her friend Sam, who owns an art gallery, so that it can be displayed for a limited period. Linda and Sam agree that Sam will return the painting to Linda after one year. What is the legal nature of the arrangement between Linda and Sam regarding the painting?

• An express trust arrangement

• A bailment

• An agency arrangement

• An equitable charge

Emma wanted her grandchild, Lily, to have a secure start to her education. She gave $50,000 to Max, with the understanding that Max would manage this sum by investing it wisely and ensuring that Lily receives the money when she turns 18. Max agreed to take charge of the funds, and Emma provided a written document outlining her wishes regarding the handling and future disbursement of the money to Lily. What is the legal nature of the arrangement between Emma and Max?

• An express trust arrangement

• A bailment

• An agency arrangement

• An equitable charge

Ron comes home from a work trip with a cheque of $900, which was made out to him. His son John complains that he never bought him a Christmas gift, so Ron shows John the cheque and says "this cheque is for you” and places the cheque in John’s hand. Ron dies shortly thereafter before endorsing the cheque over to John or completing any formal steps to transfer ownership. Was there certainty of intention to create a trust in favour of John for the cheque?

• Yes

• No

Answer explanation

Jones v Lock (1865) 1 Ch App 25. This was an imperfect gift.

Peter and Rose were in a romantic relationship. During the course of their relationship Peter purchased a yacht, registered in his sole name, on which he and Rose would live in. He repeatedly tells Rose that the yacht is ‘for both of us’ or refers to it as “our yatch”. Their relationship finally breaks down. Was there certainty of intention to create a trust over the yacht in favour of Rose?

• Yes

• No

Answer explanation

Rowe v Prance [1999] 2 FLR 787

 In his will, Mr. Gardiner left his house to his son, Ivor, "subject to my said son paying the sum of £1,000 within 2 years from my death to my other son, Albert." The money was not paid at the end of the 2 years. Was there certainty of intention to create a trust over the house in favour of Albert?

• Yes

• No

Answer explanation

This is a condition precedent. Re Gardiner [1971] 2 NSWLR 494.