2741 W3L3 Own Notes.docx - 2741 W3L3 Notes Business...

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2741 W3L3 Notes Business Structures (Part 2) Trusts, Associations and Companies: Read: Ch 3-4 Australian Corporate Law (5th ed, 2016) What is a trust? • An equitable obligation, binding (give control to) a trustee to a trust property for the benefit of beneficiaries of whom may enforce the obligation (can be more than 1 beneficiaries) Australian Corporate Law (5 th ed, 2016) at pp 61-68 Trust is not a legal person Kelly v Mina [2014 ] o Neither party [ex-partners in accounting practice] had a correct understanding of the legal nature of a trust, despite their academic and professional qualifications, despite the accountancy practice was conducted by the trustee of a unit trust. o Private trust is a relationship comprising various rights and obligations, personal and proprietary, between trustee, beneficiaries and trust property. o The incorrect but prevalent notion that a trust is a legal person was reflected throughout the trial. Legal nature of trust-consequences • A trust is not a legal entity ; • It cannot be a party to a contract - trustee contracts as principal in his or her personal capacity; • Thus, a trustee is personally liable, as are his/her assets, under the contract (unless the contract otherwise provides): Octavo Investments Pty Ltd v Knight [1979] • Unless the contract otherwise provides, creditors of the trustee are entitled to be subrogated to the trustee's right of indemnity against the trust assets: Octavo . Features of Trusts:
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• Formalities (settlor; trustee; the beneficiary; trust property) • Control/management (by trustee) • Liability (personal liability by trustee) • Property (owned by trustee) • Taxation (if trust income is fully distributed, beneficiaries pay tax) • Duration (rule against perpetuities) Essential elements: Fixed Trust 1. Settlor — person who creates the trust by donating or transferring property to the trust. It’s not uncommon for creator to form a trust with a nominal amount of money (for example, $50) as trust property. Thereafter, settlor no longer has control over the trust property – legally belongs to the trustee. o Note: a trust can be created in many ways. When trusts are created unintentionally (such as constructive trusts imposed by the court as a result, for example for breach of partner’s or director’s fiduciary duty), the need for a settlor does not arise. 2. Trust property — any type of property may be received by the trust, such as money, land, shares or intellectual property (for example, patent). 3. A trustee — person who is the legal owner and controller of the trust property. Trustee, who is usually appointed in the trust deed, manages the trust on behalf of the beneficiaries and is held accountable-subject to fiduciary duties. 4. A beneficiary — person who benefits from the fiduciary relationship between the trustee and themselves.
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