IFSP Foundation Certificate in Trusts Law and Management

What is the historical origin of the trust in English law?

• ARoman law's fideicommissum, adopted into English law from Justinian's Institutes
• BCommon law courts creating a new form of land tenure after the Norman Conquest
• CThe Court of Chancery enforcing the medieval use against the feoffee to uses
• DThe law merchant, developed by merchant courts to enforce commercial deposits

Which case is the classic authority for the 'three certainties' needed to create an express private trust?

• ASaunders v Vautier
• BKnight v Knight
• CMilroy v Lord
• DArmitage v Nurse

A testator leaves property to his widow 'in full confidence that she will do what is right as to the disposal thereof between my children'. What is the likely effect of these words?

• AA discretionary trust arises in favour of the children
• BA resulting trust arises in favour of the testator's residuary estate
• CA constructive trust arises because the widow's conscience is bound by the testator's wish
• DThe widow takes the property absolutely, free of any trust

What does certainty of subject matter require of the trust property?

• AIt must be clearly identified or ascertainable when the trust is declared
• BIt must be valued by an independent valuer before it is transferred to the trustees
• CA gift of 'the bulk of my estate' is sufficient because the trustees can later decide whi…
• DIt must be capable of producing income for the beneficiaries

Under English law, which test for certainty of objects applies to a discretionary trust?

• AThe complete list test
• BThe balance of probabilities test
• CThe 'is or is not' (any given postulant) test
• DThe test of whether at least one person clearly falls within the class

What is meant by the 'constitution' of a trust?

• ARegistration of the trust with the tax authorities, which makes the trust enforceable
• BVesting of the trust property in the trustees, or the owner declaring himself trustee of…
• CSigning of a letter of wishes that records the terms on which the trustees hold the prope…
• DWritten acceptance of the trust by every adult beneficiary named in the deed

Which maxim of equity explains why an intended beneficiary who gave no consideration cannot force a settlor to complete an unfinished transfer into trust?

• AEquity looks on that as done which ought to be done
• BEquity acts in personam
• CHe who comes to equity must come with clean hands
• DEquity will not assist a volunteer

What is the main feature of a life interest trust?

• AThe trustees decide each year which of the named beneficiaries, if any, should receive th…
• BThe life tenant may draw on the capital as well as the income, as the life tenant chooses
• CThe life tenant receives the income for life; on death, the capital passes to the remaind…
• DThe life tenant's interest ends automatically if the life tenant becomes bankrupt

What is the usual legal status of a settlor's letter of wishes?

• ANon-binding guidance that the trustees may take into account when exercising their discre…
• BIt binds the trustees and overrides the terms of the trust deed wherever the two conflict
• CIt gives the beneficiaries a right to enforce the settlor's wishes against the trustees i…
• DIt must be executed as a deed before the trustees are allowed to take it into account

Which statement correctly distinguishes administrative powers from dispositive powers?

• AAdministrative powers are exercised by the protector, while dispositive powers are exerci…
• BAdministrative powers manage and invest the property; dispositive powers decide who recei…
• CAdministrative powers lapse on the settlor's death, while dispositive powers continue
• DAdministrative powers are fiduciary, while dispositive powers are purely personal to the…

What is the main role of a protector in a modern private trust?

• ATo hold legal title to the trust assets jointly with the trustee, as a second registered…
• BTo guarantee personally any debts the trustees incur in administering the trust
• CTo manage the trust's investment portfolio day to day in place of the trustees
• DTo act as a check on the trustees, e.g. by consenting to key decisions or removing truste…

Under the rule in Saunders v Vautier, when can beneficiaries call for the trust property and end the trust?

• AWhen the settlor who created the trust decides that it has now achieved its purpose
• BOnly after the trust has existed for at least 21 years and all beneficiaries are adults
• CWhen all the beneficiaries are adults of full capacity and together absolutely entitled
• DWhen beneficiaries holding a majority by value of the beneficial interest agree in writing

Which exception to Milroy v Lord treats a gift as complete in equity when the donor has done everything in his power to transfer the property?

• AThe rule in Re Rose
• BThe rule in Strong v Bird
• CDonatio mortis causa
• DThe presumption of advancement

What did the Court of Appeal decide in Pennington v Waine about incomplete gifts of shares?

• AIt abolished the need for signed share transfer forms when shares are given to family mem…
• BIt confined the Re Rose principle to gifts of land, ending its use for company shares
• CIt held that a gift of shares is complete only when the donee first receives a dividend
• DIt held a gift complete in equity where it would be unconscionable for the donor to resile

Applying Diplock LJ's definition in Snook v London and West Riding Investments Ltd, when is a trust a sham?

• AWhen the trust deed was not registered with the tax authority within the required time
• BWhen settlor and trustee both intended the deed to create a false appearance of rights an…
• CWhen the beneficiaries were not told about the trust, or about its terms, at the time it…
• DWhen the settlor gave the trustees a letter of wishes and is also a discretionary benefic…

In A v A (2007), what did Munby J say about a trust that was genuine when created but was later administered as if the settlor still owned the assets?

• AIt becomes a sham from the date the trustees began following the settlor's instructions
• BIt becomes void, and the assets automatically revert to the settlor
• CIt cannot later become a sham; trustees who act on the settlor's dictation commit a breac…
• DIt becomes a sham only if the beneficiaries consent to the settlor's control

In an English protective trust, what brings the principal beneficiary's life interest to an end and replaces it with a discretionary trust?

• AThe trustees deciding, in their discretion, that the principal beneficiary no longer need…
• BThe death or resignation of the protector named in the trust instrument
• CA written request by the remaindermen once they have all reached full age
• DAn event, such as bankruptcy or an attempted assignment, that would deprive him of the in…

In Re Vandervell's Trusts (No 2), when did Megarry J say an automatic resulting trust arises?

• AWhere a father buys property in his child's name
• BWhere an express trust fails to dispose of the whole beneficial interest
• CWhere a fiduciary makes an unauthorised profit from his position
• DWhere a person voluntarily transfers property to a stranger and no intention to make a gi…

What is the main difference between a general power of appointment and a special power of appointment?

• AA general power can be exercised only by will, while a special power can be exercised onl…
• BA general power always imposes a duty to distribute, while a special power never does
• CA general power allows appointment to anyone, including the donee; a special power is lim…
• DA general power needs court approval each time it is used, while a special power does not

According to Re Hay's Settlement Trusts, what must a trustee holding a fiduciary power of appointment do?

• APeriodically consider whether to use it, survey the range of objects, and weigh each appo…
• BAppoint the whole fund equally among all the objects within a reasonable time
• CObtain the written consent of every object of the power before making any appointment
• DLeave the choice of appointees to the trust's investment manager, who knows the fund and…

Which case identified the 'irreducible core' of trustee obligations that an exemption clause cannot exclude?

• ABoardman v Phipps
• BKeech v Sandford
• CArmitage v Nurse
• DTarget Holdings Ltd v Redferns

What is a key practical difference between tracing at common law and tracing in equity?

• ACommon law tracing requires a fiduciary relationship, while equitable tracing does not
• BEquitable tracing applies only to land
• CCommon law tracing gives proprietary remedies, while equitable tracing gives only persona…
• DEquitable tracing can follow value into a mixed bank account, while common law tracing ge…

A trustee mixes trust money with his own money in one bank account and then withdraws and dissipates part of the balance. What does the rule in Re Hallett's Estate presume?

• AWithdrawals are applied first-in, first-out, so the trust money is treated as spent first
• BThe trustee is presumed to have spent his own money first
• CWithdrawals are shared rateably between the trustee and the trust
• DThe beneficiaries must prove which withdrawal used their money

How does Re Oatway qualify the presumption in Re Hallett's Estate?

• AThe beneficiaries can claim an investment bought from the mixed fund if the rest is later…
• BIt replaces Re Hallett with the rule in Clayton's Case whenever a trustee is in default
• CIt prevents beneficiaries from claiming any asset bought with money from a mixed account
• DIt limits the beneficiaries to a claim for interest on whatever cash balance remains

What is the 'beneficiary principle' stated in Morice v Bishop of Durham?

• ATrustees must pay at least half of the trust income to the beneficiaries in each financia…
• BBeneficiaries may direct the trustees' day-to-day investment decisions
• CA private trust may benefit only the settlor's descendants
• DA non-charitable trust must have someone in whose favour the court can decree performance

Which four heads of charity did Lord Macnaghten identify in Commissioners for Special Purposes of Income Tax v Pemsel?

• ARelief of poverty, advancement of education, advancement of religion, and other purposes…
• BAdvancement of health, amateur sport, environmental protection, and relief of disaster vi…
• CAnimal welfare, social housing, community recreation, and advancement of the arts and cul…
• DScientific research, public infrastructure, legal aid, and maintenance of places of worsh…

Why does a trust company keep a separate, complete file for each trust it administers?

• ATo show proper administration and keep each trust's assets and records separate and ident…
• BSo that the tax returns of several unrelated trusts can be combined into a single annual…
• CTo make sure beneficiaries cannot see any information about the trust or its investments
• DSo that one file can serve all trusts with the same settlor, reducing know-your-client wo…

A professional trustee is replacing a retiring trustee of an existing trust. Which approach is most appropriate on taking over?

• ARely on the retiring trustee's assurance that all was in order, since an incoming trustee…
• BSell the existing investments so that the new trustee starts with a cash fund of its own…
• CApply to court to have the trust re-established in the new trustee's name before acting
• DCarry out due diligence, review the documents, accounts and assets, and act on any past b…

Under general English principles, what test of mental capacity applies to a settlor making a lifetime gift into trust?

• AThe Banks v Goodfellow test for making a will, whatever the size of the gift
• BUnderstanding the nature and effect of the gift, to a degree that rises with the gift's s…
• CA certificate from a registered medical practitioner, without which the settlement is aut…
• DThe standard for entering a contract for value, whatever the size of the gift

In a typical trust deed, what is the role of the recitals?

• AThey contain the operative declaration of the trusts on which the property is held
• BThey set out the trustees' administrative powers, such as the powers of investment and de…
• CThey set out background facts, such as the settlor's wishes, but do not create the trusts
• DThey choose the governing law and the courts with jurisdiction over the trust

According to Chapman v Chapman, in which situations could the English court use its inherent jurisdiction to alter the beneficial terms of a trust?

• AWhenever the adult beneficiaries and the settlor agree that a change would save tax
• BWhenever the trust's investment return falls below a reasonable level for several consecu…
• COnly where the settlor has died without descendants and the beneficiaries all agree
• DOnly in narrow cases: conversion, emergency (salvage), maintenance, and genuine compromise

Why should trustees of a discretionary trust keep contemporaneous written minutes of their distribution decisions?

• ASo that the minutes can be filed on a public register open to the trust's creditors
• BTo show that they properly considered the matter and exercised their own discretion
• CBecause any decision that is not minuted is automatically void and must be retaken
• DSo that beneficiaries can overturn decisions without going to court

Under the English common law rule against perpetuities, within what period did a future interest have to vest?

• AA fixed period of 80 years from the date of the settlement
• BA period of 125 years from the date the trust came into existence
• CA life or lives in being at the creation of the interest, plus 21 years
• D21 years from the settlor's death, regardless of any other lives

In Royal Brunei Airlines v Tan, what did the Privy Council hold is required for a third party to be liable for dishonestly assisting a breach of trust?

• AThat the third party was a regulated professional fiduciary
• BThat the third party personally received trust property and kept it for his own benefit
• CThat the trustee who committed the breach was also dishonest
• DThat he acted dishonestly, judged objectively in light of what he actually knew

In BCCI (Overseas) Ltd v Akindele, what test did the Court of Appeal adopt for personal liability in knowing receipt?

• AProof of dishonesty beyond reasonable doubt
• BWhether the recipient's knowledge made it unconscionable to retain the benefit
• CStrict liability for anyone who receives property traced from a breach of trust
• DWhether the recipient was a party to the original trust deed

A donor signs share transfer forms in favour of intended trustees but gives them to his own agent, with instructions to register the transfer, and dies before the agent acts. Why does the attempted settlement fail?

• AThe donor never put the transfer beyond his own control, so equity will not perfect the g…
• BThe donor's death automatically revokes all lifetime gifts of shares that are not yet reg…
• CThe intended trustees had not yet signed a written acceptance of the trust
• DShares in a private company can be transferred only by a notarial deed of transfer

How did the UK Supreme Court in Pitt v Holt restate the so-called rule in Hastings-Bass?

• AAny exercise of a trustee discretion that produces an unexpected tax charge is automatica…
• BTrustees are strictly liable for any mistake in the professional advice they receive
• CA decision is voidable under the rule only if the trustees breached their duty to conside…
• DBeneficiaries can set aside any discretionary distribution within six years without showi…

The object of a discretionary trust asks the court to order the trustee to disclose trust accounts. Following Schmidt v Rosewood Trust Ltd, on what basis will the court decide?

• AAs an absolute proprietary right that attaches to every beneficial interest in the trust,…
• BAs part of the court's inherent supervisory jurisdiction over trusts, exercised in its di…
• CAs a statutory right that is available only to charities and their regulators
• DAs a contractual right available only to beneficiaries who gave consideration

What is a 'fraud on a power' in the sense applied in Cloutte v Storey?

• AForging the settlor's signature on an amendment to the trust deed
• BFailing to file tax returns for a company that is wholly owned by the trust
• CAppointing capital to a registered charity where the power allows appointments to anyone…
• DExercising a limited power for a purpose foreign to the one for which it was given

What is the difference between a trustee properly delegating a task and improperly abdicating its discretion?

• ATrustees may employ agents for administrative and investment tasks but must supervise the…
• BTrustees must hand all dispositive decisions to an independent bank
• CDelegating administrative tasks needs the unanimous consent of the beneficiaries, while d…
• DAny appointment of an agent is unlawful unless the court approves it

What is the defining role of an international financial centre (IFC)?

• AServing mainly as a domestic retail banking market for local residents
• BOperating outside international transparency and anti-money laundering standards
• CProviding legal, regulatory and professional infrastructure for cross-border financial se…
• DRestricting company incorporation and share ownership to citizens of the host state

Why are international trusts often used in cross-border estate planning?

• AThey let the settlor keep full legal ownership, with the trustee acting only after the se…
• BThey let assets in several countries pass under the trust's terms, avoiding probate in ea…
• CThey guarantee that no forced heirship claim against the settlor's estate can succeed any…
• DThey remove all tax liabilities in every country with which the family has a connection

What is meant by 'forced heirship' (called the reserved portion, or legitim, in Malta)?

• AA court procedure that forces a reluctant heir to accept an inheritance that is burdened…
• BA tax charged by the State on inheritances whose value exceeds a statutory threshold
• CA rule that the eldest son inherits the family business and the family home
• DA succession rule reserving part of an estate for close relatives, limiting freedom to di…

A trader incorporates his business and keeps almost all the shares. Which principle from Salomon v A Salomon and Co Ltd governs the company's position?

• ADirectors are personally liable for all of a private company's trading debts and losses
• BA company cannot contract unless all its members sign
• CA company is a legal person separate from its shareholders and directors
• DShareholders must hold equal shares and share management equally

What is the fundamental difference between a shareholder and a director of a limited company?

• AShareholders run the day-to-day business, while directors only attend the annual general…
• BShareholders own the shares in the company, while directors are appointed to manage the c…
• CDirectors own the company's assets, while shareholders have no financial interest
• DShareholders must be licensed fiduciaries, while directors need no qualifications

Which of these is a standard service offered by corporate service providers in international financial centres?

• AProviding a registered office, a company secretary, and nominee shareholders or directors
• BActing as the statutory auditor of the client company's annual financial statements and t…
• CTaking deposits from the public and lending them on as a licensed bank
• DGiving regulated investment advice to the client company's individual shareholders

Under the Maltese Companies Act (Cap. 386), what must exist for a company to be validly constituted?

• AArticles of association, which are compulsory, while the memorandum is optional
• BA public deed published by a notary and registered in the Public Registry
• CAn opening statement of financial position audited by a certified public accountant
• DA memorandum subscribed by at least two persons (or the single member) and a certificate…

In IRC v Willoughby, how did Lord Nolan distinguish tax mitigation from tax avoidance?

• AMitigation is legal, while avoidance always involves fraud, concealment or false statemen…
• BMitigation is available only to onshore taxpayers, while avoidance involves offshore stru…
• CMitigation uses a relief and bears its intended economic cost; avoidance cuts tax without…
• DMitigation requires advance clearance from the tax authority, while avoidance does not