Question 1

Identify whether a trust has been created in the following examples, and if so specify:(i) the type of trust; (ii) the trustee; (iii) the beneficiary; and, (iv) trust property.

(a)Fiona executed a will and named her brother Paul as her executor and trustee.Amongst the provisions in her will is the following provision:

"Clause 5:I give $12,000 to my executor and trustee to be invested and the net income therefrom to be paid half to my sister June and half to my brother Paul.Upon the death of either, the remaining trust property to be paid over to the survivor."

(b)Charles appointed Jim his Sydney agent to sell a number of Charles' paintings at a recent exhibition in Sydney, with Jim to receive a 10% commission.The sale raised $100,000 and Jim immediately segregated $90,000 of the proceeds into a new interest-bearing bank account under his own name.It is now 6 months later and the money is still in the segregated bank account and has accrued $4000 interest.Charles asked for the entire $94,000 from Jim but he is only willing to pay over $90,000 to Charles.

Question 2

In 2010, May-Oh settles a trust deed and executes a transfer of title document, transferring title to a block of units she owns to her great-grand-nephew, Tak-Wan.Tak-Wan is to act as trustee and the Deed provides that he should manage the block of flats as rental accommodation and that the net income from the units should be allocated, at the trustee's discretion, among May-Oh's grandchildren, until such grandchildren are all over the age of 21.The trust will then dissolve, the units sold, and the proceeds divided between the grandchildren in amounts to be determined by Tak-Wan.For his services, Tak-Wan is to receive $10,000 a year for the life of the trust.

Discuss the following situations:

(a)In 2011, May-Oh instructs Tak-Wan to pay all the net profits to one particular grandchild but Tak-Wan chooses to allocate the profits for that year equally between all the grandchildren.

(b)In 2014, Tak-Wan buys a $5,000 carpet for the common entry hallway of the units from Eastland Carpets.He is unsatisfied by the quality of the carpet and refuses to pay the bill.Who can Eastland Carpets sue for payment (and why or why not):the trust, Tak-Wan, May-Oh, the Grand-children, or all of the above? How might Eastland Carpets "reach" the trust assets to secure payment of their debts?

(c)Assume instead that, within the authority of the trust deed, Tak-Wan had established a new company, Property Investments Pty Ltd, (Property Investments) to act as trustee (a company with a capitalisation of $2 and no other assets to which it has both legal and equitable title), with Tak-Wan as the managing director and the principal shareholder.What additional obstacle would now lie in the way of Eastland Carpets?

(d)Assume all the facts in (c) and that the carpet was not placed in the hallway and instead was placed in Tak Wan's home, what additional issue does this new fact raise?

(e)Assume all the facts in (c) and also assume that the trust deed now has a clause that states that "the trustee has no right of indemnification against the trust property". What additional issue needs to be addressed given this added fact?

(f)Assume all the facts in (c) except that the trustee company bought a tractor instead of a carpet. The seller wants to seek compensation as it has not been paid.