TSEM11000 - Glossary
A B C D E F G H I J L M N O P R S T U V W
The definitions of legal terms contained in this glossary do not generally apply in Scotland. Staff in HMRC Trusts Edinburgh will have access to alternative glossaries.
A
Abatement
Abatement is the proportional reduction of a legacy. It is necessary when an estate is insufficient to meet a legacy in full.
Absolute interest
Absolute interest is a full and complete interest in both income and capital. It can refer to the present or to the future when the interest vests.
Some old ‘rulings’ given by trust deed examiners in Claims Branch, Bootle, refer to ‘an absolute interest in income’. This means the beneficiary is entitled to income, but not to capital.
An ‘absolute interest in residue’ is statutorily defined in ITTOIA/S650(1)
Absolute title
A certificate of ownership of land grants an absolute title to land. The Land Registry issues the certificates.
There are other certificates, which are less conclusive.
- Qualified certificate this applies where there is an interest that affects the ownership.
- Possessory title. This applies where it is not clear if another interest exists.
It is possible to register most legal estates or legal interests in land. This saves the expense of search fees on the sale of the land.
‘Absolute title’ does not refer to all land ownership. It applies only to holders of a certificate of ownership.
Accumulation/discretionary trust
TSEM1112
Term used to describe a trust where income can either be accumulated or paid at discretion. Derived from rubic to S686 ICTA 1988 and heading of ITA/S479.
Accumulation and maintenance trust
TSEM1025
IHTA84/S71
Normally beneficiaries have an interest that is conditional on attaining a specific age not normally exceeding 25. But, by that age they must be certain of being entitled to the income arising. In other words, by that age they must have an interest in possession.
‘Accumulation and maintenance trust’ is an inheritance tax term. Section 71 Inheritance Tax Act 1984 has a description of the term.
Accumulation of income
TSEM1125
Trusts can require that all income be accumulated until a certain time. They are known as trusts to accumulate. No beneficiary has title to the income.
More normally trustees will have discretion to apply income for the maintenance, education or benefit of a beneficiary with a requirement that they accumulate income not so used.
This is more usual where a minor is involved but can apply to an adult beneficiary.
The law limits the period during which income may be accumulated.
Accumulated income becomes capital in the hands of the trustees.
Ademption
The word refers to the failure of a legacy. It applies where the subject matter of the legacy
- has ceased to exist at the testator’s death, or
- has altered, so that it no longer exists in the form described in the will.
A legacy that fails for either reason, is adeemed.
Administration
‘Administration’ refers to the duties of personal representatives of a deceased person. They
- bring together the assets of the deceased
- pay the deceased’s debts
- distribute the surplus estate to the beneficiaries.
Administration period
TSEM3240, TSEM6050, TSEM6100, TSEM6520
This is the period during which the personal representatives of a deceased are administering the estate. It starts the day following the date of death. It usually ceases when the personal representatives have ‘ascertained the residue of the estate’. Until then, the personal representatives cannot assent to the residuary beneficiary’s title.
Although the exact date is a matter of fact, it can be difficult to determine. Case law shows that agreeing the date can be controversial. The administration period can end before all the assets have passed out of the hands of the personal representatives. It can end when the personal representatives are ready to transfer the assets. They may continue to hold the assets as trustees, rather than personal representatives.
Administrator
TSEM6036, TSEM6039, TSEM6100, TSEM6520
An administrator is the person a court appoints to administer an estate. The estate may, for example be of a person who died without leaving a valid will. An administrator has no power until the court grants him letters of administration.
The female equivalent is an administratrix.
Administratrix (plural administratices)
An administratrix is the person a court appoints to administer an estate. The estate may, for example be of a person who died without leaving a valid will. An administratrix has no power until the court grants her letters of administration.
The male equivalent is an administrator.
Advancement
Advancement is an early payment of capital. There are three situations where this happens.
- Implied or presumptive trust. A father makes a payment, during his lifetime, to his child. The payment is presumed to be part of the capital to which the recipient will eventually be entitled.
- Section 32 Trustee Act 1925. Section 32 Trustee Act 1925 allows trustees of some trusts to make a payment to a beneficiary. The payment is made out of the trust capital.
- Payments authorised by the trust deed. A trust deed may authorise trustees to make advancements.
Affidavit
An affidavit is a statement made in writing, on oath, before a Commissioner of Oaths.
Personal representatives require an affidavit when establishing the amount of an estate, for inheritance tax purposes. They lodge it when applying for power to administer the estate.
Agnate
Agnate means relatives on the father’s side.
Alienate
‘Alienate’ means to convey away, or to dispose. It especially refers to the forfeiture of an interest.
Animus revocandi
‘Animus revocandi’ means ‘the intention of revoking’.
Annuity
TSEM3775 onwards
An annuity is a fixed sum payable at stated intervals. It continues for a number of years, or until a happening occurs. This is often the death of the person receiving the annuity (the annuitant).
An annuity can result from
- a will
- a settlement between the living (inter-vivos)
- a deed of covenant
- a life insurance policy.
An annuity can come from a particular source of income. It depends on the terms of the original document. If the annuity is from real estate it is a rent-charge. A purchaser of the property is responsible for meeting the rent-charge.
An annuity from a will is merely a pecuniary legacy payable by instalments. It usually runs from the date of death. The first instalment becomes payable at the end of the first year.
An annuitant may have the option to take a capital sum in lieu of an annuity. The option can be included in the original document. Or it may arise by a rule of law.
For capital gains tax purposes, an annuity is a life interest in specified circumstances (CG36304 onwards).
Appointment
A power of appointment is a power, rather than a duty, to
- decide who will receive a benefit, or
- invite someone to undertake duties (for example to be a trustee), or
- invite someone to exercise powers.
General power
This authorises the appointment of anybody. It can include the person exercising the power (the donee).
Limited power
The power is limited to specific persons.
Apportionment
Apportionment Act 1870
‘Apportionment’ means dividing income between interests. The split is based on the length of time that the income accrued. The Apportionment Act 1870 provides rules for splitting income. The rules apply to personal representatives and trustees. The will or the settlement deed can state that the terms of the Apportionment Act are not to apply.
Appropriation
Appropriation is applying a particular fund or asset to satisfy a debt, legacy or entitlement. Say, for example, a will includes a legacy. The executors may agree to transfer a specific asset instead.
Assent
Personal representatives assent to a legacy after satisfying themselves that
- the beneficiary is entitled to it
- the estate has sufficient funds to meet it
- the beneficiary is able to give a valid receipt.
Assent indicates they have found no reason to prevent the transfer of the legacy to the beneficiary. It establishes the beneficiary’s title. It also confirms the debt owed to the beneficiary. The beneficiary has become the owner, even if not immediately taking possession.
If the legacy is real property, personal representatives must give assent in writing. The assent then acts as a conveyance. Written assent is not essential if the legacy is an equitable interest in land. However it is better if all assents are written. This establishes the date the beneficiary became the owner.
After assent, beneficiaries can enforce their rights. Before assent, they can only enforce administration of the estate.
Assignment
TSEM1845
Assignment is the passing of rights by one person to another. The person passing the rights is the assignor. The recipient is the assignee.
The assignment of an interest in a trust must be in writing.
The transfer of the benefit of a lease is an assignment, not a sale of lease.
AT (Assessed Taxes)
‘Assessed Taxes’ is a guidance manual with information about assessed taxes and computer charges. It explains the responsibilities of the two Accounts Offices. These are at Cumbernauld and Shipley.
Attorn
The word ‘attorn’ means to turn oneself over to another. Under feudal law it meant transferring homage and allegiance from one lord to another. It now means accepting a new landlord in place of another. It also refers to entrusting business to another, as in power of attorney.
Authorised investments
Trustee Investment Act 1961
The Trustee Investment Act 1961details the types of investments in which trustees can invest. These are authorised investments.
The document creating a trust may over-rule the provisions of the Act. It can allow trustees to invest in other types of investments.
B
Bailment
Bailment is when an owner (a bailor) deposits a chattel with another person (a bailee). The bailee does not own the chattel. He merely has possession of it. This possession is subject to duties towards the owner.
This differs from a trust. A settlor creates a trust by passing over legal ownership to trustees.
Bankrupt
A bankrupt is an insolvent person who assigns his assets to a trustee. The trustee administers them for the benefit of the bankrupt’s creditors. The trustee distributes the assets to the creditors. The bankrupt receives any surplus assets. The trustee’s primary duty is to the creditors.
The appointment of the trustee follows a petition to the Bankruptcy Court. Either the bankrupt or the creditors can submit the petition.
Bare or simple trust
TSEM1030, TSEM3320, TSEM6272, TSEM6360 TSEM8520
The beneficiaries of a bare or simple trust have the right to take actual possession of trust property. Bare trustees hold the capital and income for the absolute benefit of the beneficiaries.
Beneficial interest
A beneficial interest entitles a person to the enjoyment or benefit of a property. The right is subject to the laws of equity.
This is different from a nominal or bare legal owner such as a trustee.
Beneficiary
A beneficiary is the person for whose benefit property is held. The person holding the property can be an administrator, executor or a trustee.
The beneficiary of a will could receive
- a legacy (general or specific)
- an annuity
- the residuary estate (either all or a share).
See also ‘Sole beneficiary’.
Benjamin order
A Benjamin order is an order of the court. It allows a personal representative to assume that a missing beneficiary is dead. The personal representative can distribute accordingly.
Bequeath
‘Bequeath’ means to give personal property by a will. In strictness the word does not apply to real property. A gift of real property is a devise.
Bequest
A bequest is a gift of personal property in a will. In strictness the word does not apply to real property. A gift of real property is a devise.
Blood
‘Blood’ is used to describe persons from a common ancestor.
Whole blood means from the same pair of ancestors.
Half-blood means from one ancestor.
Bona vacantia
An estate is bona vacantia if there is nobody entitled to claim it. This happens if
- the deceased did not leave a will, and
- nobody can claim the estate under the laws of intestacy.
The property vests in the Crown, the Duchy of Lancaster or the Duchy of Cornwall. It depends where it is situated.
Breach of trust
A breach of trust can happen if trustees
- do not follow the terms of the trust document, or
- take action not allowed by general law.
A trustee may not be liable if the breach is merely technical.
C
Caeterorum
The word ‘caeterorum’ literally means ‘of the remainder’. A grant caeterorum is a grant for the balance of an estate. This would follow a grant, for a specific part of the estate.
Capital
The capital of a trust or estate is its
- subject matter, or
- property, or
- corpus.
‘Caught’
A trust is “caught” if it falls within Section 660A ICTA 1988. The income of “caught” trusts is generally treated as that of the settlor for all tax purposes.
CD (Automated Collection of Schedule D Tax)
The Automated Collection of Schedule D Tax Manual is known as the CD Manual. It was introduced following the computerisation of tax collection.
Certainty
A trust must have three certainties. They are certainty of
- words (intent)
- subject (the property and beneficial interests)
- object (beneficiaries or benefiting causes).
Cestui que trust (plural cestuis que trust)
Cestui que trust is the person for whose benefit a trust is created. It is the person with an equitable interest in property that is in the legal ownership of trustees.
CG (Capital Gains Manual)
The CG Manual covers all aspects of capital gains.
Charitable trust
TSEM1520, TSEM6273
A charitable trust must be for at least one of the following purposes
- relief of poverty
- advancement of education
- advancement of religion
- other purposes beneficial to the community.
Trusts that are not to relieve poverty must benefit the community at large. Or they must benefit an important section of the community. They must not be for particular private individuals. They must not be for a particular class of private individuals
Chattels
Chattels are any tangible property, other than freehold land. There are two types, chattels personal and chattels real.
Chattels personal
Chattels personal are moveable personal property.
Chattels real
Chattels real include leaseholds. Chattels real are transferred by assignment.
Child
For the purposes of the Settlements legislation, ‘child’ includes
- a step-child
- an adopted child
- an illegitimate child.
Chose in action
Chose in action is intangible property - a right of action to obtain money. It is transferred by document.
It includes
|
|
|
|
|
|
|
|
|
|
|
Chose in possession
Chose in possession is any property that can be physically possessed. It is, transferred by assignment, or by manual delivery.
It includes
- clothes
- furniture
- personal effects
- cars
- stock-in-trade
- plant and machinery
- live and dead stock.
Clogging
Clogging is attaching conditions to a mortgage to discourage redemption.
Codicil
A testator can alter a will without scrapping it, by preparing a codicil. This is a separate document that alters or explains the original. The testator must sign it in the presence of two witnesses. They must then sign it in the presence of the testator. They do not have to be the same people who witnessed the original will.
Cognate
Cognate means relatives on the mother’s side.
Common law
Common law evolved, rather than being written. It is the part of English law derived from judicial decisions.
Completely constituted
A trust is completely constituted when its property finally and absolutely vests in the trustees. A declaration of intent to create a trust leaves a trust incomplete. It is only complete when the property vests in the trustees.
Trusts that arise under a will are completely constituted by the death of the testator. This applies even if they are executory trusts. These are trusts that need a further instrument to define the beneficial interests.
A beneficiary can enforce a trust once it is completely constituted.
Consideration
Consideration of blood
‘Consideration of blood’ refers to the natural love and affection felt for a relative. It can be a good consideration, but isn’t a valuable consideration. Every contract must be under seal, for it to be binding in the eyes of the law.
Valuable consideration
A valuable consideration is for money or money’s worth. Or it can be for something of value, like forbearing to sue, or for marriage. ‘Money’s worth’ is something valuable which is measurable in terms of money.
It is often difficult to decide whether a settlement is for valuable consideration. Refer to Trusts Technical before corresponding about the subject.
Constructive trust
A constructive trust is imposed by the rules of equity. It must satisfy the demands of justice and good conscience. For example, trustees may receive a profit or income from trust property. They hold it on a constructive trust, and apply it to the purposes of the principal trust.
Contingent interest
A contingent interest is dependent on an event, which is not certain to occur. For example, this could be the beneficiary reaching the age of thirty.
Co-ownership
Co-ownership is two or more persons owning the same property at the same time.
The two main forms of co-ownership are joint tenancy and tenancy in common.
Joint tenancy
Joint tenants have equal rights to possess the same property. They acquired it from the same source. When a joint tenant dies, the survivor takes his share. When only one person survives, he becomes entitled absolutely to the property.
Tenancy in common
Tenants in common are effectively co-owners of an undivided beneficial interest in land. This gives them possession of it. No individual tenant in common has exclusive possession of any part of the property. When a tenant in common dies, his successor becomes a tenant in common in his place. The interest does not pass to the other co-owners.
Coverture
Coverture is the status of being a wife under the authority or protection of her husband.
Cum div
‘Cum div’ means ‘with the dividend’.
When valuing an estate, stocks are included at the Stock Exchange quoted price. If this is a ‘cum div.’ price, it will include the next dividend payment. The Apportionment Act 1870 instructs personal representatives to apportion the dividend on a day-to- day basis.
It is important to get the apportionment correct. One beneficiary may have title to capital and another to income.
Cum testamento annexo
‘Cum testamento annexo’ means ‘with the will annexed’. It applies where a testator has made a valid will, but there is no executor acting. This can happen if
- the testator did not name an executor, or
- the person named cannot, or will not, act.
Custodian trustee
A custodian trustee has custody and care of trust property. The property is vested in him. He does not have management of the property. This usually occurs under the rules of the Public Trustee Act 1906.
Cutting timber trees
The cutting of timber trees is within the doctrine of waste.
The kind of trees regarded as timber varies around the country. Usually it is oak, ash and elm at least 20 years old.
‘Waste’ imposes restrictions on the occupant of land. The occupant cannot use it as he pleases. There are three kinds of waste, equitable, permissive and voluntary.
Cy-pres
‘Cy-pres’ literally means ‘near to’. The doctrine is in the Charities Act 1960. A settlor or testator may express a general intention, and how to carry it out. It may not be possible to do this. The court can authorise the creation of a charitable trust. This would operate as near as possible to the original intention. The court can also use this principle to ensure that a gift to a specific charity does not fail simply because the charity has gone out of existence. They would chose another charity with similar objectives to receive the money
D
Deed
A deed is a written document recording a legal transaction. It must be signed and delivered. Often there will be stamp duty due on the deed. The law cannot enforce the deed until that stamp duty is paid.
Deed of arrangement
A deed of arrangement is a written document that assigns a debtor’s assets. It often appoints a trustee to safeguard the creditor’s interests. It assigns the assets for the benefit of the creditors.
Deeds of family arrangement
These are effected to alter the basis on which a deceased’s estate is to be distributed. They are sometimes called deeds of variation.
Delegation
Delegation is the act of delegating duties. Normally a trustee is not allowed to delegate. The settlor has entrusted the trustee to personally do his duty.
There are a few statutory exceptions to this primary rule. These allow a trustee to employ agents and advisers. In some circumstances, a trustee may give a power of attorney.
Demise
Demise means to grant a lease of land or other property.
Demonstrative legacy
A demonstrative legacy specifically refers to the source from which it is to be paid. This could be ‘£500 from my building society account’.
The executor must assent to the legacy, before the legatee gets it.
Determinable interest
‘Determinable interest’ applies to a life interest that ends following an action by the beneficiary. The beneficiary may, for example, assign his interest.
The original trust document sometimes anticipates such an action. It may provide that a discretionary trust shall then come into existence.
Devastavit
‘Devastavit’ literally means ‘he has wasted’. It refers to when a personal representative wastes assets, or misapplies them.
Devise
To devise is to give real property. A devise is a gift of real property.
Discretionary interest
The beneficiary’s right to income is at the discretion of the trustees. The trustees must exercise their power fairly.
No beneficiary has a right to the income arising. (None has an interest in possession).
Discretionary trust
Trustees of a discretionary trust have the power to decide how to apply the trust income. They may also be able to select the persons or objects to benefit. They must exercise their powers fairly.
Disposition
A disposition is a bestowal. It can be by will, deed or orally.
The word has a wider meaning than grant or assignment. It would include a beneficiary putting his beneficial interest into trust for someone else.
Donatio mortis causa (plural donationes mortis causa)
A ‘gift on account of death’ (donatio mortis causa) is a gift of personal property. It is given by of a donor who is expecting to die. It is effective only if the donor dies. It automatically lapses if the donor recovers. The donor can changes his mind, and revoke the gift. It is neither a gift between the living (inter-vivos) nor a legacy.
It applies to personal property only- never to real property.
E
Easement
Easement is a right that an owner of land enjoys. The right is over other land that he does not own. It might, for example, be a right of way over adjoining land, to get to his own.
Emblements
Emblements are natural products of the soil that result from husbandry. They would include corn and cultivated fruit. They would not include wild fruits.
Entail
Entail is to settle landed estates on a specific line of heirs. This ensures that the immediate possessor may not dispose of the estate.
It is possible to convert to fee simple (effectively absolute ownership). The change is known as barring or breaking the entail.
It is not possible to create an entailed interest following the commencement of the Trusts of Land and Appointment of Trustees Act 1996 (Schedule 1, Paragraph 5).
Equitable
Equitable means in accordance with the rules of equity.
The other two sources of English law are common law and statute law.
Equitable interest
An equitable interest entitles a person to the enjoyment or benefit of a property. The right is subject to the laws of equity.
This contrasts to a nominal or bare legal owner such as a trustee.
Equitable waste
A life-tenant who commits wanton destruction is liable in equity. This is the doctrine of equitable waste.
‘Waste’ imposes restrictions on the occupant of land. The occupant cannot use it as he pleases.
There are three kinds of waste, equitable, permissive and voluntary.
Equitable waste applies even if the settlement permits other forms of waste. The settlement must specifically exclude equitable waste, for it not to apply.
A tenant-in-tail has a life interest in an entailed estate. He is liable for equitable waste. He is unimpeachable for other waste.
Equity
Rules of equity
Equity was originally a body of rules and principles that the Lord Chancellor applied in his own courts. As equity evolved, it modified the impact of common law, to achieve natural justice. In recent times English law is increasingly contained in Acts of Parliament. This is known as statute law. Legislation can alter both common law and equity. The Courts administer all three forms of the law.
Equity
Equity usually means an equitable interest in property. It can mean a procedural right that is ancillary to some right of property. This could, for example, be an expectancy under a will or intestacy. Or it may be a right to obtain a remedy through the rules of equity.
Equity of a company
The equity of a company is the net value of its assets. This is the amount split between the shareholders, on realisation of the assets. The ordinary shares in a company are often called equities.
ESC (Extra-statutory concession)
An extra-statutory concession is a relaxation of the strict letter of the law. It gives the taxpayer a tax reduction that would not otherwise be due. We do not give a concession if there is an attempt to use it for tax avoidance.
Estate
‘Estate’ is a person’s total possessions. It includes goods, money and property of every kind. In particular, ‘estate’ refers to the possessions that a deceased person leaves.
Estoppel
Estoppel is a rule of evidence. It is a conclusive statement that cannot be denied by the party it affects. For example, Dave bases his action on a statement that Roger supplied. Dave’s action adversely affects Roger. Roger must regard his statement as the truth. He cannot argue otherwise.
Ex div
‘Ex div’ means ‘without the dividend’.
When valuing an estate, stocks are included at the Stock Exchange quoted price. If this is an ‘ex div.’ price, it will exclude the next dividend payment. The Apportionment Act 1870 instructs personal representatives to apportion the dividend on a day-to- day basis.
It is important to get the apportionment correct. One beneficiary may have title to capital and another to income.
Executed trust
An executed trust includes full details of the settlor’s intentions. The trustees know exactly what to do. They need no other instrument to establish the trust. The intentions may be in a will, deed or similar document.
Executor (female executrix female plural executrices)
An executor is a personal representative of a deceased person.
If there is a valid will, it names the executors. Naming executors in a will is merely an invitation to act. There is no obligation. If they accept, the executors are committed to the full duties of the office. These can be onerous.
If an executor declines the appointment (or is unable to act), the will may name an alternative executor. If it doesn’t, the courts appoint a personal representative (known as an administrator). The administrator obeys the terms of the will.
Executor de son tort
The phrase means ‘of his own wrong’. It applies to any person who acts like an executor
- even though he does not have the authority, or
- although the will is invalid. or
- before receiving a grant of letters of administration.
The person must obey the strict code that applies to executors. This includes not making a profit from the estate.
Executory trust
Executory trusts need a further instrument to define the beneficial interests. Despite this, they are valid. The property is already vested in the trustees.
Expectancy
Expectancy is an equitable interest that is not yet in possession. The interest will entitle a person to the enjoyment or benefit of property.
It is possible to raise money by assigning some expectancies. This could, for example, be an interest under the will of a living person.
Express trust
TSEM6262
An express trust is created by a declaration. This may be in a settlement between the living (inter-vivos) or in a will. It can be a private trust or a charitable trust.
F
FA (Finance Act)
FA is short for Finance Act.
Fee simple
Fee simple is the legal estate or interest in freehold land. It is the nearest anyone can get to absolute ownership of land. It is free from any limitations. Fee is one of the two estates in land that are legal estates. The other is a lease for a term of years absolute.
Fee tail
Fee tail is an entailed estate that may descend only to a certain class of heirs. Originally it applied only to an estate in land. Now it applies also to personal property (personalty).
It is possible to convert fee tail to fee simple (effectively absolute ownership). The change is known as barring or breaking the entail.
It is not possible to create an entailed interest following the commencement of the Trusts of Land and Appointment of Trustees Act 1996 (Schedule 1, Paragraph 5).
Fiduciary
Fiduciary is a relationship where one person must exercise rights and powers for the benefit of others. This exercise of rights and powers must be in good faith. He acts as a trustee.
He must not profit from his position, unless provisions expressly allow this.
Foreign trust
TSEM1100
A foreign trust is governed by the laws of a country outside the United Kingdom.
On the other hand it is possible for a trust to be non-resident even if it is governed by the laws of say England and Wales. HMRC Trusts & Estates Nottingham deal with all foreign and non-resident trusts.
Freehold
‘Freehold’ refers to property on which there is no rent payable. It is free of duty except to the monarch.
G
General legacy
A general legacy is not confined to one particular thing. It is often money, although ‘the £100 in a tin box under my bed’ would be a specific legacy.
The executor must assent to the legacy, before the legatee gets it.
Gift inter-vivos (between the living)
A gift inter-vivos is one the donor makes during his lifetime.
When the donor dies the gift does not form part of his estate. However for capital transfer tax purposes, it may be added to the value of his estate. It depends on the time between the gift and the death.
H
Heir
An heir is the person who succeeds to property and title when the holder dies.
Hotchpot
Hotchpot is a mixture of property. The value of all property is brought together to secure an equable division amongst beneficiaries. It includes sums that beneficiaries have already received. This ensures that no beneficiary has an unfair advantage over others.
It can apply where
- a settlement deeds has a clause to this effect
- there is a partial intestacy
- there has been an advancement under Section 32 Trustee Act 1925.
I
Immoveables
Immoveables is land as opposed to moveable property. It includes leaseholds and land on trust for sale.
Impeachment for waste
Impeachment for waste means liability for damages. It applies when a life tenant reduces the value of settled property.
It is not applicable if the settlement deed allows the life tenant to commit acts of wastage. Some deeds may even provide for wanton destruction.
Implied trust (presumptive trust)
A person’s actions may show or imply that a trust results. For example, a wife may buy a house, and convey it to her husband. He is presumed to hold the property on trust for the wife.
Other legal presumptions can defeat an implied trust. For example, a father may buy an item in the name of his child. A father (but not a mother) is expected to make provisions for children. Unless there is evidence to the contrary, the purchase would be regarded as for the benefit of the child. There would be no implied trust in favour of the father.
Not all implied or presumptive trusts are bare or simple trusts, although they often are.
Incompletely constituted
An incompletely constituted trust does not have property vested in the trustees. There has been just a declared intention to create a trust.
Inter-vivos
Inter-vivos means between living persons.
Interest
A person’s interest in an item includes rights titles advantages duties and liabilities.
There are five legal interests in land. These are
- easements
- rent charges
- charges by way of legal mortgage
- statutory charges on land
- certain rights of entry.
An interest in land is different from an estate in land.
Interest in possession
TSEM1105
There is no statutory definition of ‘interest in possession’.
A Board’s Press Notice dated 12 February 1976 indicates that an interest in possession
‘exists where the person having the interest has the immediate entitlement (subject to any prior claims by the trustees for expenses or other outgoings properly payable out of income) to any income produced ….. as the income arises …..’.
Intermediate income
Intermediate income arises from the capital of a bestowal, until the beneficiary receives the capital. The term applies to wills, and to settlements between the living (inter-vivos).
The terms of the instrument determine whether the beneficiary receives the intermediate income.
Usually, the following carry intermediate income
- specific gifts under a will
- a gift of residue
- a future or contingent legacy, if the testator is the parent, or acting as the parent, of the beneficiary.
Intestate
An intestate is a person who dies without
- leaving a valid will, or
- disposing of all his property in a valid will.
J
Joint tenants
Joint tenants have equal rights to possess the same property. They acquired it from the same source. When a joint tenant dies, the survivor takes his share. When only one person survives, he becomes entitled absolutely to the property.
Trustees are always joint tenants.
Joint tenants are different from tenants in common.
Judicial trustee
The courts have the discretion to appoint a judicial trustee. The appointment follows an application by a settlor, trustee or beneficiary.
L
Lapse
Lapse is the failure of a legacy or gift of real property. It results from the legatee’s death during the testator’s lifetime.
It does not apply if the legatee is an issue of the testator with offspring living at the testator’s death. In that event, the money falls into the legatee’s residuary estate. The testator can provide otherwise in the will.
A will may provide for a legacy to a person or his personal representative. If so, the legacy does not lapse.
Lease for a term of years absolute
A lease for a term of years absolute has a fixed and certain minimum duration. Normally it must be granted by a deed. The exception is a rack rent for three years or less.
It is one of the two estates in land that are legal estates. The other is fee (simple or life).
Legacy
A legacy is strictly a gift of personal property in a will. The word is often used loosely to include real property. The correct word for a gift of real property is devise. The executor must assent to a legacy before the legatee gets it.
There are three types of legacy
- Specific legacy
The gift is a definite thing that is clearly identified. It may, for example, be ‘my horse Ringmaster’.
- General legacy
The legacy is not confined to one particular thing. It is often money, although ‘the £100 in a tin box under my bed’ would be a specific legacy.
- Demonstrative legacy
The legacy specifically refers to the source from which it is to be paid. This could be ‘£500 from my building society account’.
Legal estate
The Law of Property Act 1925 allows only two kinds of legal estate. They are
- Fee simple
Fee simple is the nearest anyone can get to absolute ownership of land. It is free from any limitations.
- Lease for a term of years absolute
The lease has a fixed and certain minimum duration. Normally it must be granted by a deed. The exception is a rack rent for three years or less.
All other estates are equitable estates under a trust.
Legal interest
Legal interest is a right in property that is governed by statute and common law. The law of equity does not affect it.
Legatee
A legatee is the person to whom a legacy has been bequeathed. For capital gains tax purposes, there is a definition in TCGA92/S64 (2). There are instructions at CG31100.
Letters of administration
Letters of administration are an administrator’s authority to realise the estate of a deceased. The High Court issues them under its seal.
The court issues them if the deceased did not leave a valid will. In strictness the assets pass immediately to the President of the Family Division of the High Court. The court then appoints an administrator.
Sometimes a named executor declines to accept the appointment. Or he may be unable to act. The will may name an alternative executor. If it doesn’t, the courts appoint an administrator to carry out the terms of the will. The grant would be ‘letters of administration with will annexed (cum testamento annexo)’.
Naming an executor in a will is merely an invitation to act. There is no obligation to accept.
Life estate
A life estate is strictly a life interest in respect of real property. The life tenant is usually known as the tenant for life.
For management purposes, the tenant for life can request that the trustees vest the legal estate in him. He can grant leases or sell the land. He is restricted by the doctrine of waste. This imposes restrictions on how the tenant for life can use the land
He is a beneficiary entitled to the benefits arising from the land. But he is also a trustee with the legal ownership of land. He owes duty to those with succeeding interests. If he sells land, the proceeds must go to the trustees of the settlement. They do not go to the tenant for life.
Life interest
TSEM1110, TSEM6203
The beneficiary (life tenant) has an interest in the income arising for a period of time. This often ends with the life tenant’s death. But it can be for some other period.
For the purposes of Chapter 6 Part 5 ITTOIA, it is a limited interest, not absolute.
The term has a specific meaning for capital gains tax purposes. Details are at CG36351 onwards.
Liferent
Liferent is the Scottish equivalent of a life interest.
Limited interest
A limited interest is less then full or absolute. For example, a life interest (TSEM6203) is limited. It confers only a right to income (normally for the period of the beneficiary’s lifetime) and no right to capital.
A ‘limited interest in residue’ is statutorily defined in ITTOIA/S650(2).
M
Marriage as a valuable consideration
A settlement for marriage as a valuable consideration is made
- before, and in contemplation, of marriage, or
- after marriage, but because of an agreement before the marriage.
A settlement made after marriage, with no earlier agreement, is voluntary. If it remains incompletely constituted it is not binding. The only people able to enforce the settlement are
- the husband
- the wife
- issue of the marriage.
It is often difficult to decide whether a settlement is for a valuable consideration. Refer to Trusts Technical before corresponding about the subject.
Marshalling
Marshalling is the process of deciding the priority of claims against an estate. Statute defines the order, but the will can modify this.
Sometimes there are insufficient funds to meet the claims of all creditors and legatees. It is necessary to decide if any should be met in full, and what to do about the others.
Mining
A tenant-for-life may grant mining leases. He has to pay some of the rent to the trustees of the settlement. The proportion depends on whether he is impeachable for waste.
‘Waste’ imposes restrictions on the occupant of land. The occupant cannot use it as he pleases. There are three kinds of waste, equitable, permissive and voluntary.
Minor
‘Minor’ means under the age of 18. The rules are contained in the Family Law Reform Act 1969
For the purposes of the Settlements legislation, ‘minor child’ includes
- a step-child
- an adopted child
- an illegitimate child.
For the purpose of Section 5 of the Trusts (Scotland) Act 1961 ’minor’ means a person under the age of 21.
Mixed trust
TSEM1115, TSEM3525
Beneficiaries have a discretionary interest (TSEM1035) in some of the trust income. One or more of them has an interest in possession in the rest. The trust may be part accumulation and maintenance.
Mutual wills
Mutual wills are where two people agree to leave each other an interest in their respective estates. When one of them dies, the will of the survivor is irrevocable. He holds his own property on an implied trust. He must honour the original agreement.
N
Nominal settlement
TSEM1505
A nominal settlement is one where the total amount settled (cash or assets) is worth less than £1,000.
Non-discretionary trust
TSEM1105
A non discretionary trust is one where all the beneficiaries have an interest in possession.
O
Overreaching
Overreaching is the transfer of an equitable interest in land. The transfer is to capital derived from the sale of the land.
P
Pecuniary legacy
A pecuniary legacy is
- a legacy of money, or
- a general legacy expressed in terms of money.
Sometimes a legacy is payable in the future. Income (intermediate income) can arise on the capital until then. The wording of the will often shows whether the future legacy carries the income.
Per capita
‘Per capita’ means ‘by the heads’. All beneficiaries inherit an equal amount.
Per stirpes
‘Per stirpes’ means ‘by the stems’ or ‘through the stocks’. Say, for example, Bob dies before his father. When Bob’s father dies, Bob’s children get Bob’s share of his father’s estate. The share comes to them per stirpes. They split this share equally amongst themselves.
Permissive waste
Permissive waste applies to life tenants who allow land to deteriorate for want of attention. A settlement must specifically impose the restriction of permissive waste for it to apply.
‘Waste’ imposes restrictions on the occupant of land. The occupant cannot use it as he pleases. There are three kinds of waste, equitable, permissive and voluntary.
A tenant-in-tail has a life interest in an entailed estate. He cannot be liable for permissive waste.
Perpetuities
Under common law, the rule against perpetuities provides that no interest in property is valid unless it becomes fixed, if at all, within a specified perpetuity period. The current perpetuity period is:
- A prescribed statutory period of 125 years (the Perpetuities and Accumulations Act 2009).
For trusts established prior to the 2009 Act there was an optional statutory period of:-
- Up to 80 years, or
- the common law period.
The common law period is the lifetime of the last to die of certain individuals alive when the interest is created (known as ‘lives in being’ or ‘measuring lives’) plus 21 years (the Perpetuities and Accumulations Act 1964).
If future interests are not certain to vest within the applicable statutory period, the trust would be invalid from the start. Because of the harshness of this perpetuity rule, S7 of the 2009 Act (and previously S3(1) of the 1964 Act) provides for a ‘wait and see’ rule. Under that rule the courts ‘ wait and see’ if the interest does in fact vest within the perpetuity period. If it does vest within the appropriate perpetuity period then the interest is valid, Refer any problems about perpetuities to Trusts Technical .
Personal representative
A personal representative is an executor or administrator of a deceased person. He is the legal owner of the deceased’s estate. An executor’s authority is a grant of probate. An administrator’s authority is a grant of letters of administration.
A personal representative must exercise the same degree of care as a trustee. He must adhere to the Trustee Act 1925. Despite this, there are clear differences between administration periods and trusts.
The basic function of personal representatives is to distribute assets. In contrast, trustees have an underlying duty to hold onto property.
Personal representatives are treated as a single and continuing body of persons. There is no tax consequence if there is a change in the individuals acting.
Personalty
Personalty (chattels personal) is any property, other than real property, passing on death.
For inheritance tax purposes only, personalty includes chattels real.
Plene administravit
‘Plene administravit’ means ‘he has fully administered’. It is a defence that personal representatives use. It rebuts creditors’ claims submitted after the administration period has ended.
Power
Power is an authority vested in a person to deal with, or dispose of property that is not his own. It is usually equitable, but may be legal.
A power is discretionary. This differs from a trust, which is imperative. A trust instrument may give powers to trustees. The difference is not always obvious.
Power of appointment
A power of appointment is a power, rather than a duty, to
- decide who will receive a benefit, or
- invite someone to undertake duties (for example to be a trustee), or
- invite someone to exercise powers.
General power
This authorises the appointment of anybody. It can include the person exercising the power (the donee).
Limited power
The power is limited to specific persons.
Precatory words
Precatory words are words of entreaty that a settlor uses. Often it is a testator. They imply an intention to create a trust. They create an express trust if they satisfy three certainties. They are certainty of
- words (intent)
- subject (the property and beneficial interests)
- object (beneficiaries or benefiting causes).
Presumption of advancement
‘Presumption of advancement’ means an owed duty is apparently discharged earlier than necessary. The duty may be legal or moral. For example, it could be a father’s duty to provide for his child. It is often when a father supplies money to buy property in the name of his child.
The action may fully or partially discharge the duty.
Presumptive trust (implied trust)
A person’s actions may show or imply that a trust results. For example, a wife may buy a house, and convey it to her husband. He is presumed to hold the property on trust for the wife.
Other legal presumptions can defeat a presumptive trust. For example, a father may buy an item in the name of his child. A father (but not a mother) is expected to make provisions for children. Unless there is evidence to the contrary, the purchase would be regarded as for the benefit of the child. There would be no presumptive trust in favour of the father.
Presumptive or implied trusts are bare or simple trusts. This means beneficiaries have the right to take actual possession of the trust property.
Probate
‘Probate’ is the proving of a will before a probate court.
The court issues a document that comprises the grant. This bears the seal of the court, and authorises the executor to act. It authenticates the copy of the will. It is often known as the probate. In strictness it is the probate act.
Profit-a-prendre
‘Profit-a-prendre’ is the right to take certain items from the land of another. These are
- part of the soil itself (for example gravel)
- part of the produce of the soil (for example pasture for cattle).
Property
‘Property’ means anything tangible or intangible, which can be owned. Ownership can pass to another owner. Effectively this means any assets. ‘Property’ is not just real property, or interests in land or buildings.
Protection, Court of
The Court of Protection is an office of the Supreme Court. It was formerly called the Management and Administration Department. It is under the jurisdiction of a judge of the Chancery Division.
Protective trust
A trust document may contain provisions to stop a beneficiary from prejudicing his right to the income of the trust. Prejudicial actions could include surrendering or assigning the interest, or becoming bankrupt.
The safeguard provides for the interest to cease. Instead, the trustees have discretion to apply income to a class of beneficiaries including the original beneficiary. They usually do this by applying Section 33 Trustee Act 1925.
It converts a non-discretionary trust into a discretionary trust.
Public Trustee
The Public Trustee is an official appointed by an Act of Parliament. The Public Trustee
- administers, and safeguards, certain small estates
- must act as trustee for most people who request.
R
Rack rent
A rack rent is a high or extortionate rent.
Realty (real property)
Realty is freehold, or real, property.
The word ‘real’ means property that could be the subject of a ‘real’ action in the courts. It does not mean the opposite of imaginary. It is derived from the fact that a ‘real’ action was the only way a plaintiff could recover a ‘thing’ (a ‘res’). This kind of action applied only to certain rights in land. The best known of these is normally called freehold property. It is more correctly described as fee simple.
In strict feudal theory, the property was held of the Crown, and was not absolutely owned.
It is transferred by conveyance.
A freehold is personal property. Capital Taxes Office still use this classification.
Receipt
Receipt is the act of receiving.
Remainder
Remainder is the right to real estate that has vested absolutely. It vests because no other interests remain.
The word is often applied, incorrectly, to personal property.
Remainderman
A remainderman is entitled to what is left when all limited interests cease.
Another name for remainderman is reversioner. This is especially so if the remainderman is also the settlor.
Res
‘Res’ means ‘thing’. That which could be recovered by a ‘real’ action in common law. The action applied only to certain rights in land. The best known of these is normally called freehold property. It is more correctly described as fee simple.
Residuary beneficiary
A residuary beneficiary has an interest in the residue of an estate. A right to income only, is a limited interest. A right to capital and income when the residue is ascertained, is an absolute interest. The right may not necessarily be immediate.
Residuary devisee
A residuary devisee takes the real property left in a will. This is after payment of debts, duties and legacies charged on the property.
Residuary legatee
A residuary legatee takes the property, other than real property, left by a deceased. This is after payment of debts, duties and legacies, other than those on property.
The name is often applied, incorrectly, to the person taking the whole residue, including real property.
Residue of estate
The residue of an estate is the balance of a deceased’s estate after all debts and duties. If there was a valid will, it is after specific bequests and devises.
The personal representatives prepare a statement of account showing what has come in, and what is payable out. They then calculate the amount of ‘residue’. This account is known as the ‘ascertainment of residue’.
Normally the date of ascertainment of residue will be the end of the administration period. Refer to Trusts Technical any doubts or difficulties about when an administration period ends.
Resulting trust
The interests of trust beneficiaries will eventually cease. The settlor should have provided for other interests. If he did not, the beneficial interest returns (results) to the settlor. This is an implied trust. If trustees continue to hold a legal interest, the beneficiary becomes a bare trustee.
Reversion
Reversion is the future return of property to the owner. This could happen when a lease runs out, or a life-tenant dies. The term particularly refers to the return of land.
Reversionary interest
A reversionary interest is a deferred right to property.
S
Secret trust
A will sometimes transfers legal ownership, without specifying that the property is to be held in trust. We refer to this kind of arrangement as ‘a secret trust’. Send all such cases to Trusts Technical.
Trusts Technical will accept the arrangement only if certain conditions are met. Before death the testator must have given the trustees details of the trust. The trustees must have accepted the resultant obligations.
Half-secret trust
A half-secret trust is similar. The will appoints trustees and specifies the property, without giving other instructions. The testator must have:
- instructed the trustees, or
- written instructions for later transmission to the trustees
when he made out the will, or before that date.
Again, refer all such cases to Trusts Technical.
Settle
‘Settle’ means to make a settlement. This is a series of interests in property. They are for different persons in succession.
If the property includes land, the settlement normally must be in writing.
Settled land
Settled land is subject to a strict settlement. This means that a disposition has created a series of interests in the land. The first of these interests is limited but vested. It is a life-tenancy (normally known as a life interest). The beneficiary is a tenant-for life.
The last interest is the remainderman. This is absolute and vested. It comes into possession when the prior interests are exhausted.
Tenant-for-life
The tenant-for-life has a dual capacity. The legal estate in the land is vested in him. This is as trustee for all the beneficiaries. (This does not make him a trustee of the settlement). But he is also a beneficiary. This entitles him to the benefits from the land.
He has the power to
- sell
- lease
- deal with the land as a full owner.
He must exercise these rights and powers in good faith. He has to act for the benefit of others.
The trustees of the settlement are protectors of all the beneficiaries. This includes the tenant-for-life. They have an obligation to carry out the terms of the settlement.
Trust for sale
The trust document may put land into a trust for sale. The land is not settled land. The trustees of the settlement are the legal owners of the land. The beneficiary cannot require the trustees to transfer the legal estate in the land. The trustees can delegate to the tenant, powers to manage the estate. These cannot include the power to sell.
The Trusts of Land and Appointment of Trustees Act 1996 abolished the dual system of trusts for sale and strict settlements. It replaced them with an entirely new single system following which no new strict settlements can be made.
Settled property
TCGA92/S68
There is a definition of settled property, for capital gains tax purposes, at TCGA92/S68 (CG33230). This reads:
‘In this Act, unless the context otherwise requires, `settled property’ means any property held in trust other than property to which section 60 applies’.
Section 60 deals with nominees and bare or simple trusts.
Settlement
TSEM1015, TSEM4100 onwards
General definition
A settlement is an arrangement that gives a series of equitable interests in property in succession. It is a means of creating an interest in property for beneficiaries, without giving them the legal interest. The arrangement can be by a settlement inter-vivos, or by a will.
The person creating the interest is the settlor (in Scotland the truster). He may be a beneficiary. When making the trust, he may retain the legal interest. Or he may pass the legal interest to trustees, to hold the property in trust for the beneficiaries. He may name himself as a trustee.
A settlement may be a gift (voluntary settlement) or for valuable consideration.
Chapter 5 Part 5 ITTOIA
Chapter 5 Part 5 ITTOIA has the anti-avoidance provisions. They apply to all settlements, other than those set up by a will. For these purposes, the word settlement has a very wide meaning. It includes:
- disposition
- trust
- covenant
- agreement
- arrangement
- transfer of assets
Settlor
A settlor is a person who settles property. This can be by a settlement between the living (inter-vivos) or in a will. A settlor in a will is usually called a testator.
The settlor can appoint himself as a trustee. But he cannot do what he likes with the property. As a trustee he holds the assets in a fiduciary capacity. This means he must exercise rights and powers in good faith for the benefit of beneficiaries.
Trust property does not pass to the settlor’s personal representatives when he dies.
Chapter 5 Part 5 ITTOIA
Chapter 5 Part 5 ITTOIA has the anti-avoidance provisions. They apply to all settlements, other than those set up by a will. For these purposes, the word settlor has a wide meaning. According to Section 620 ITTOIA.
A person is treated for the purposes of this Chapter as having made a settlement if the person
- has made or entered into the settlement directly or indirectly,
- has provided funds directly or indirectly for the purpose of the settlement,
- has undertaken to provide funds directly or indirectly for the purpose of the settlement, or
- has made a reciprocal arrangement with another person for the other person to make or enter into the settlement.
Simple trust
TSEM1030, TSEM3320, TSEM6272, TSEM6360 TSEM8520
The beneficiary of a simple trust has the right to take actual possession of the trust property. Trustees of simple trusts are ‘names’ or ‘dummies’ for the true owner. They are often known as nominees, especially if the assets are shares in a limited company.
Simple trusts are also known as bare trusts.
Socage
Socage is a feudal tenure of land. It involves payment of rent or other non-military service to a superior.
Sole beneficiary
A sole beneficiary is entitled to all the trust income available for distribution.
This does not include a beneficiary entitled to
- the residue of available trust income after a payment (for example an annuity)
- the residue of available trust income after complying with provisions to accumulate trust income
- an annuity; even if it is the only available trust income.
Specific bequest
A specific bequest is a particular gift in a will, other than a gift of land. A gift of land is a devise.
Specific legacy
A specific legacy is the gift of a definite thing that is clearly identified. It may, for example, be ‘my horse Ringmaster’.
The executor must assent to the legacy, before the legatee gets it.
Statutory legacy
A statutory legacy is the sum a surviving spouse receives when there is no will. The amount depends on whether there are surviving children. There is interest from the date of death.
Statutory trust
The rules of intestacy provide for assets to be held in a statutory trust. Most commonly, it occurs where the assets exceed a fixed sum (set by statute), and the deceased left a widow and issue.
The widow is entitled to the fixed sum. Half of the excess is held on a statutory trust. The widow receives the income of this trust. After her death the assets are held for the issue. The other half share is held on another statutory trust for the issue.
Under the statutory trust, each child receives a share of the assets on reaching the age of majority or on marriage if that is earlier.
If a child dies before becoming entitled to a share, that share passes to the child’s issue.
Sui juris
Sui juris is the state of a person who is fully competent to deal with his own affairs. It is someone who is not incapacitated, either mentally or by being under age.
T
Tacking
Tacking is attaching a further mortgage to an earlier loan. There are conditions that must be met before tacking can take effect. These are in Section 94 Law of Property Act 1925.
Tail
Tail is a limited ownership of land. It is an estate that may descend only to a certain class of heirs.
It is not possible to create an entailed interest following the commencement of the Trusts of Land and Appointment of Trustees Act 1996 (Schedule 1, Paragraph 5).
Tenant
A tenant has an interest in land that entitles him to occupy it. The interest may be present or future.
A freeholder is a tenant in fee simple. It is the nearest anyone can get to absolute ownership of land. It is free from any limitations.
Tenant-for-life
A tenant-for-life has a life interest in an estate. The term particularly applies to an interest in settled land.
Tenant-in-tail
A tenant-in-tail has a life interest in an entailed estate. Entail is to settle landed estates on a specific line of heirs. This ensures that the immediate possessor may not dispose of the estate.
It is not possible to create an entailed interest following the commencement of the Trusts of Land and Appointment of Trustees Act 1996 (Schedule 1, Paragraph 5).
Tenants in common
Tenants in common are effectively co-owners of an undivided beneficial interest in land. This gives them possession of it. No individual tenant in common has exclusive possession of any part of the property. When a tenant in common dies, his successor becomes a tenant in common in his place. The interest does not pass to the other co-owners.
Tenancy in common usually refers to land. It can also refer to moveable property.
Tenants in common are different from joint tenants.
Tenure
Tenure is the terms and conditions under which land is held. It refers to the manner of possession- normally fee simple or life-estate. The word does not mean the same as ‘tenancy’.
Under the feudal system there were various tenures. These included military and spiritual. The one that survives is socage. This is tenure by a certain and determinate service.
Term of years absolute
A lease for term of years absolute has a fixed and certain minimum duration. Normally it must be granted by a deed. The exception is a rack rent for three years or less.
It is one of the two estates in land that are legal estates. The other is fee (simple or life).
Testamentary expenses
Testamentary expenses are the expenses incurred in proving a will. They include
- the expense of any action that is necessary
- inheritance tax on the personal estate
- the cost of administration and sales.
They do not include costs properly allocable to the period after the executor has given assent.
Testator (female testatrix female plural testatrices)
A testator is a person who makes a will.
Testatrix (plural testatrices / male testator)
A testatrix is a female who makes a will.
Trust
TSEM1010
There is no legal definition of ‘trust’. The following three definitions approach the subject from different viewpoints.
A working definition
A trust is an obligation binding a person (a ‘trustee’) to deal with property in a particular way for the benefit of another person or class of persons (of which he himself may be a member) whose interests are protected by the equitable jurisdiction of the courts (in Scotland by the nobile officium of the Court of Sessions).
A simple definition from a legal viewpoint
A trust is a disposition of property to a person (trustee) or persons jointly (trustees) in whom the legal title then vests in the confidence that the benefits will be applied to the advantage of one or more other persons (beneficiaries) or some other object permitted by law.
A more complex definition
A trust… is the relationship which arises wherever a person called the trustee is compelled in Equity to hold property, whether real or personal and whether by legal or equitable title, for the benefit of some persons (of whom he may be one…) or for some object permitted by law in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiaries or other objects of the trust (Law of Trusts, 9th edition - Professor Keeton).
Settlement
The word ‘settlement’ can have a different meaning.
Trust corporation
A trust corporation is a corporation set up in the United Kingdom to manage trusts. It must be based in the UK. It does not include a non-resident corporation or company.
Trust corporations include
- The Public Trustee
- banks and insurance companies authorised to act as trustees by the court
- certain other official bodies.
Trust for sale
A ‘trust for sale’ requires the trustee to sell the trust property. This does not mean the trustees are obliged to sell immediately. Usually they have the power to sell, and also the discretion to postpone sale. They can defer the sale for as long as they think fit. Without the discretion to postpone, they must sell as soon as they can. They must re-invest the proceeds for the benefit of the beneficiary.
The rules of intestacy can provide for assets to be held in a statutory trust. These are always trusts for sale, with power to postpone sale.
Land carrying a life interest
A trust for sale may include land that carries a life interest. The legal estate vests in the trustees, not the person with the life interest. The trustee has all the powers of a tenant-for-life.
Personal representatives
Personal representatives administer a trust for sale. Their duties are to realise the estate, and dispose of it. They exercise the power to pay the debts and meet the pecuniary legacies.
Trust instrument
A trust instrument
- declares the beneficial interest that a settlor creates by settling property
- appoints the trustees
- details any powers the trustees are to have.
‘Settlor’ includes a testator.
Settlements between the living (inter-vivos)
The trust instrument is a deed of settlement or disposition.
Will trust
The trust instrument is a will.
Settled land
Settled land requires a further document, - a vesting instrument. For a settlement between the living, this is a vesting deed. A will trust requires a vesting assent from the personal representatives.
Trust management expenses
Trust management expenses (TMEs) are the expenses that trustees incur in the course of their duties as trustees. In trust law, these expenses can be charged to trust income or capital. To be allowable for tax purposes, such expenses must be properly chargeable to income (as opposed to capital).
TSEM8000+ gives guidance.
Trust to accumulate
Trusts can require that all income be accumulated until a certain time. They are known as trusts to accumulate. No beneficiary has title to the income.
More normally trustees will have discretion to apply income for the maintenance, education or benefit of a beneficiary with a requirement that they accumulate income not so used.
This is more usual where a minor is involved but can apply to an adult beneficiary.
The law limits the period during which income may be accumulated.
Accumulated income becomes capital in the hands of the trustees. They may be able to pay it as if it were income but it remains capital.
Trustee
A trustee holds property on trust for another. He is entrusted with the administration of the trust.
There is no agreed short but comprehensive definition of a trustee. One definition of a trustee’s duties is
‘an equitable obligation binding him to deal with property over which he has control (the trust property) for the benefit of persons (of whom he may himself be one) any one of whom may enforce the obligations’.
U
Unit trust
A unit trust is an investment scheme set up by a deed. It enables investors to spread their risks among a range of investments. A unit trust is more correctly described as a unit scheme.
TCGA92/S99 (2) requires that, for capital gains tax purposes, a unit trust is treated as if it were a company.
V
Valuable consideration
A valuable consideration is for money or money’s worth. Or it can be for something of value, like forbearing to sue, or for marriage. ‘Money’s worth’ is something valuable which is measurable in terms of money.
It is often difficult to decide whether a settlement is for valuable consideration. Refer to Trusts Technical before corresponding about the subject.
Vest
When an item vests, it becomes a right. It is not dependent on a happening that might not occur (a contingency).
Vested
‘Vested’ means fixed. It is not dependent on a happening that might not occur (a contingency).
Vested interest
A vested interest is a right that exists at present. It is not necessarily in possession. But it will become so in the future.
Vesting assent
Personal representatives give vesting assent, to convey legal ownership of property. The property will be
- the subject of a bequest, or
- devised to a tenant-for-life of settled property.
The vesting assent must:
- describe the property
- declare in whom the legal interest is to vest
- detail any additional powers conferred on trustees.
Vesting deed
A vesting deed conveys legal ownership of trust property to a tenant-for-life. If it refers to an interest in land, it must be separate from the trust instrument.
It must
- describe the property
- declare in whom the legal interest is to vest
- detail any additional powers that the trust instrument confers on the trustees.
Voluntary conveyance
A voluntary conveyance is not for valuable consideration. Valuable consideration refers to money or money’s worth. Or it can be for something of value, like forbearing to sue, or for marriage. ‘Money’s worth’ is something valuable which is measurable in terms of money.
It is often difficult to decide whether a settlement is for valuable consideration. Refer to Trusts technical, before corresponding about the subject.
Voluntary settlement
A voluntary settlement is made without valuable consideration. The settlor must do everything necessary to transfer the property. It must go to trustees, or he must declare he holds it as trustee. The trust must be binding. It is only then that the settlement is valid and effectual.
Valuable consideration is something for money or money’s worth. Or it can be for something of value, like forbearing to sue, or for marriage. ‘Money’s worth’ is something valuable which is measurable in terms of money.
It is often difficult to decide whether a settlement is for valuable consideration. Refer to Trusts Technical, before corresponding about the subject.
Voluntary waste
Voluntary waste is a positive act that alters land to its detriment. It takes away value from the land. The occupier is liable in damages if he commits it. The damages are to the remaindermen or the reversioner. He is impeachable for waste.
The settlement can permit acts of voluntary waste. If so, the occupier is unimpeachable for it.
‘Waste’ imposes restrictions on the occupant of land. The occupant cannot use it as he pleases. There are three kinds of waste, equitable, permissive and voluntary.
Volunteer
A volunteer does not give valuable consideration for an interest in property. The owner of the property has bestowed the interest on the volunteer.
Valuable consideration is something for money or money’s worth. Or it can be for something of value, like forbearing to sue, or for marriage. ‘Money’s worth’ is something valuable which is measurable in terms of money.
It is often difficult to decide whether a settlement is for valuable consideration. Refer to Trusts Technical, before corresponding about the subject.
Occasionally a trust is incompletely constituted. It does not have property vested in the trustees. There has been just a declared intention to create a trust. A volunteer cannot enforce the trust.
W
Waste
‘Waste’ imposes restrictions on the occupant of land. The occupant cannot use it as he pleases. There are three kinds of waste, equitable, permissive and voluntary.
- Equitable waste
A life-tenant who commits wanton destruction is liable in equity. This applies even if the settlement permits other forms of waste. The settlement must specifically exclude equitable waste, for it not to apply.
A tenant-in-tail has a life interest in an entailed estate. He is liable for equitable waste. He is unimpeachable for other waste.
- Permissive waste
Permissive waste is allowing land to deteriorate for want of attention. A settlement must specifically impose this restriction for it to apply.
A tenant-in-tail has a life interest in an entailed estate. He cannot be liable for permissive waste.
- Voluntary waste
Voluntary waste is a positive act that alters land to its detriment. It takes away value from the land. The occupier is liable in damages if he commits it. The damages are to the remaindermen or the reversioner. He is impeachable for waste.
The settlement can permit acts of voluntary waste. If so, the occupier is unimpeachable for it.
Cutting timber trees
The cutting of timber trees is waste. The kind of trees regarded as timber varies around the country. Usually it is oak, ash and elm at least 20 years old.
Mining
A tenant-for-life may grant mining leases. He has to pay some of the rent to the trustees of the settlement. The proportion depends on whether he is impeachable for waste.
Will
A will reflects the wishes of the person making it (a testator). It explains how to dispose of his possessions (estate). The testator must acknowledge, in the document, that it is his will. He has to sign it in the presence of two witnesses. The witnesses have then to sign the document in his presence, and normally in the presence of each other. The document (often called the last will and testament) has to follow the correct format.
A testator can alter a will without scrapping it, by preparing a codicil. This is a separate document that alters or explains the original. The testator must sign it in the presence of two witnesses. They must then sign it in the presence of the testator. They do not have to be the same people who witnessed the original will.
If a will creates trusts, they are not effective until the testator’s death.