Equity and Trust – Settlor, Testator, Trustee and Beneficiary
Case Scenario
Margaret owns several investment properties and shares worth £8 million. During her lifetime, she transfers the assets into a trust for the benefit of her children and grandchildren. She appoints her solicitor, James, and her sister, Olivia, to manage the trust assets.
The trust terms provide that income from the trust should be used to support the education and welfare of Margaret’s grandchildren until they reach the age of 25.
Several years later, Margaret dies leaving additional property under her will to the same trust.
The issue is identifying the legal roles of:

• settlor;
• testator;
• trustee;
• beneficiary.

Settlor
Definition
A settlor is a person who creates a trust during their lifetime by transferring property into the trust.
The settlor decides:

• the terms of the trust;
• who the beneficiaries are;
• who the trustees are;
• how the trust property should be managed.

Application to the Scenario
Margaret transferred her assets into the trust while alive.
Therefore:

• Margaret is the settlor.

Main Role of a Settlor
The settlor:

• creates the trust;
• contributes trust property;
• determines trust structure;
• sets out trustee powers and beneficiary rights.

Example
Sophia transfers:

• £1 million;
• shares;
• and property

into a trust for her children.
Sophia is the settlor because she established the trust.


Testator
Definition
A testator is a person who makes a valid will.
The term applies only after death-related arrangements under a will.


Application to the Scenario
Margaret later leaves additional property through her will.
In relation to the will:

• Margaret is also the testator.

Difference Between Settlor and Testator
Settlor
Creates a trust during lifetime (inter vivos trust).


Testator
Creates gifts or testamentary trusts through a will taking effect on death.


Example
Daniel creates a trust while alive.
Daniel is:

• settlor.

If Daniel later leaves property through his will:

• he is also testator.

A person may therefore be both.


Trustee
Definition
A trustee is a person appointed to hold and manage trust property for the benefit of beneficiaries.
Trustees owe fiduciary duties and must act:

• honestly;
• loyally;
• prudently;
• in beneficiaries’ best interests.

Application to the Scenario
James and Olivia were appointed to manage the trust assets.
Therefore:

• James and Olivia are trustees.

Main Responsibilities of Trustees
Trustees must:

• manage trust property;
• invest prudently;
• distribute assets properly;
• comply with trust terms;
• avoid conflicts of interest;
• avoid unauthorised profits.

Example
Emma is appointed trustee of a family trust containing rental properties.
She must:

• collect rent;
• maintain the properties;
• distribute income to beneficiaries.

Beneficiary
Definition
A beneficiary is a person entitled to benefit from the trust property.
Benefits may include:

• income;
• capital;
• use of trust assets;
• future interests.

Application to the Scenario
Margaret’s children and grandchildren receive benefits from the trust.
Therefore:

• they are beneficiaries.

Types of Beneficiaries
Beneficiaries may have:
Fixed Interests
Specific entitlement.
Example:

• right to 50% of trust income.

Discretionary Interests
Trustees decide:

• who benefits;
• when;
• and how much.

Example
A trust states trustees may distribute money among grandchildren “as they think fit.”
The grandchildren are discretionary beneficiaries.


Relationship Between the Roles
Settlor/Testator
Creates the trust.


Trustee
Manages the trust.


Beneficiary
Receives benefit from the trust.


Simple Structure
Step 1
Settlor transfers assets into trust.


Step 2
Trustees manage the assets.


Step 3
Beneficiaries receive benefits.


Practical Example With Figures
Sophia transfers:

• £2 million;
• rental property worth £5 million

into a trust for her children.


Roles
Sophia

• settlor.

Solicitors Managing the Trust

• trustees.

Sophia’s Children

• beneficiaries.

Testamentary Trust Example
Michael’s will states:
“£500,000 shall be held on trust for my grandchildren until age 21.”


Roles
Michael

• testator.

Executors/Trustees

• trustees.

Grandchildren

• beneficiaries.

Key SQE Principles
Settlor
Creates the trust during lifetime.


Testator
Creates arrangements through a will.


Trustee
Holds and manages trust property.


Beneficiary
Receives benefit under the trust.


Further Research
Statement 1
Further research should examine fiduciary duties owed by trustees to beneficiaries and the remedies available for breach of trust.


Statement 2
Further research should analyse the distinction between inter vivos trusts and testamentary trusts.


Statement 3
Further research should explore the different types of beneficiaries, including fixed, discretionary, vested, and contingent beneficiaries.


Statement 4
Further research should examine trustee powers of investment and duties under the Trustee Act 2000.


Conclusion
A settlor creates a trust during lifetime, while a testator creates arrangements through a will taking effect on death. Trustees manage trust property and owe strict fiduciary duties, while beneficiaries are the persons entitled to receive benefits from the trust. These four roles form the foundation of trust law and determine how trust property is created, managed, and distributed.

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Equity and Trust – Variation of a Trust


Case Scenario


The Carter Family Trust was established by Edward Carter for the benefit of his children, grandchildren, and future descendants. The trust contains:

• investment portfolios worth £15 million;

• several rental properties;

• agricultural land.

The trust deed was drafted more than 30 years ago and now creates several practical and financial problems:

• the trust generates substantial inheritance tax liabilities;

• the trustee appointment procedure is outdated;

• the trustees lack modern investment powers;

• administrative provisions are difficult to operate efficiently;

• beneficiaries disagree about future management of the trust assets.

The adult beneficiaries want:

• more flexible distributions;

• updated administrative powers;

• replacement of the trustee appointment mechanism;

• restructuring of the trust for tax efficiency.

However:

• two beneficiaries are minors;

• one beneficiary is unborn but has future contingent interests under the trust.

The trustees and beneficiaries therefore apply to the court seeking variation of the trust.


Separately, one adult beneficiary argues that the trust should simply be terminated immediately and the trust assets divided among the beneficiaries.


The court must determine:

• whether the trust may be terminated;

• whether the trust may be varied;

• and whether the proposed changes should be approved.

⸻


Variation of a Trust


Definition


Variation of a trust means altering the terms of an existing trust.


This may involve:

• changing beneficial interests;

• altering trustee powers;

• updating administrative provisions;

• changing trustee appointment procedures;

• revoking provisions;

• or terminating the trust entirely.

⸻


Rule in Saunders v Vautier


Principle


If all beneficiaries are:

• adults;

• mentally competent;

• absolutely entitled to the trust property;

• and unanimously agree,

they may terminate the trust and require transfer of the trust assets.


This principle gives beneficiaries substantial control over trust property.


⸻


Application to the Scenario


One adult beneficiary wishes to terminate the trust immediately.


However, the rule in Saunders v Vautier cannot fully apply because:

• some beneficiaries are minors;

• one beneficiary is unborn;

• future contingent interests exist.

Not all beneficiaries can legally consent.


Therefore, the trust cannot simply be terminated through unanimous agreement.


⸻


Variation of Trusts Act 1958


Purpose


The Variation of Trusts Act 1958 allows courts to approve variations of trusts where not all beneficiaries are capable of consenting.


The Act extends the principle in Saunders v Vautier.


⸻


Court’s Powers


Under section 1 of the Act, the court may:

• vary trust provisions;

• revoke all or part of the trust;

• approve arrangements on behalf of protected beneficiaries;

• authorise changes affecting future interests.

The court may approve the variation:


“if it thinks fit.”


⸻


Beneficiaries Protected Under the Act


The Act protects:

• minors;

• unborn beneficiaries;

• contingent beneficiaries;

• persons lacking mental capacity.

⸻


Factors Considered by the Court


1. Competing Interests of Beneficiaries


The court balances the interests of all beneficiary groups.


This principle appears in Re Weston’s Settlements.


⸻


2. Moral and Social Benefits


The court may consider:

• family welfare;

• social advantages;

• moral considerations;

• practical benefits;

• as well as financial consequences.

This principle appears in Re Holt’s Settlement.


⸻


3. Settlor’s Intentions


The court will usually consider the settlor’s wishes but is not absolutely bound by them.


This principle appears in Goulding v James.


⸻


Administrative Variations


Administrative changes are often authorised under:

• section 57 Trustee Act 1925.

This commonly applies to:

• trustee appointment arrangements;

• management powers;

• administrative transactions.

⸻


Examples of Administrative Variation


In Bathurst v Bathurst, the court approved changes relating to appointment of trustees.


In Gelber v Sunderland Foundation, the court authorised:

• appointment of a sole trustee;

• payment of substantial sums to charity.

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Solving the Case Scenario


Issue 1 – Can the Beneficiaries Terminate the Trust?


No.


The rule in Saunders v Vautier does not fully apply because:

• not all beneficiaries are adults;

• unborn and contingent beneficiaries exist;

• unanimous legally effective consent cannot be obtained.

Therefore, private termination of the trust is unavailable.


⸻


Issue 2 – Can the Trust Be Varied?


Yes.


The parties may apply under the Variation of Trusts Act 1958 because:

• protected beneficiaries are involved;

• court approval is necessary;

• the proposed variation affects beneficial and administrative interests.

⸻


Issue 3 – Would the Court Approve the Variation?


The court would likely examine:

• whether the variation benefits all classes of beneficiaries;

• tax efficiency;

• preservation of trust assets;

• practicality of administration;

• fairness between current and future beneficiaries;

• the settlor’s intentions.

⸻


Likely Outcome


The court would likely approve:

• modernisation of trustee powers;

• improved administrative provisions;

• revised trustee appointment procedures;

• tax-efficient restructuring benefiting the trust generally.

However, the court would carefully scrutinise any proposal reducing the interests of minors or unborn beneficiaries.


⸻


Key SQE Principles


Variation of trusts may occur through:


Beneficiary Agreement


Using the rule in Saunders v Vautier where:

• all beneficiaries are adults;

• absolutely entitled;

• mentally competent;

• and unanimous.

⸻


Court Approval


Using the Variation of Trusts Act 1958 where:

• minors or unborn beneficiaries exist;

• consent cannot fully be obtained;

• court supervision is necessary.

The court balances:

• financial interests;

• social and moral considerations;

• administrative practicality;

• beneficiary protection;

• settlor intentions.

⸻


Conclusion


Variation of trusts allows trusts to adapt to changing legal, financial, and family circumstances. Competent adult beneficiaries who are absolutely entitled may terminate trusts under the rule in Saunders v Vautier. However, where minors, unborn, or contingent beneficiaries exist, court approval under the Variation of Trusts Act 1958 becomes necessary. Courts exercise broad discretion and balance financial, practical, moral, and family considerations to ensure that proposed variations operate fairly for all beneficiaries and preserve effective trust administration.

SQE – Equity and Trust – Rescission
Case Scenario
The trustees of the Morgan Family Trust transfer valuable trust assets into a newly created discretionary trust after receiving professional tax advice. The advisers assure the trustees that the arrangement will avoid a substantial inheritance tax liability.
Several years later, the trustees discover that the advice was incorrect. Instead of avoiding tax, the transaction created a very large and unexpected tax charge which significantly reduced the value of the trust fund.
The beneficiaries argue that the trustees entered the transaction based on a serious mistake and apply to court seeking rescission of the transaction.
Separately, one trustee improperly transfers trust property to a third party in breach of trust. The beneficiaries seek to reverse the transfer and restore the property to the trust.
The issue is whether rescission is available.


Rescission
Definition
Rescission is an equitable remedy that sets aside or reverses a transaction.
The aim is to restore the parties to the position they occupied before the transaction occurred.
The transaction is effectively “unwound.”


Purpose of Rescission
Rescission is used where a transaction has occurred in circumstances that are:

• unconscionable;
• fundamentally mistaken;
• induced by wrongdoing;
• morally improper;
• legally defective.

Rescission in Trust Law
In trust law, rescission may be used where:

• trust property was improperly transferred;
• trustees acted under serious mistake;
• fiduciary duties were breached;
• unconscionable conduct occurred.

The court may reverse the transaction and restore trust property.


Practical Application
Improper Transfer of Trust Assets
Suppose trustees improperly transfer trust property out of the trust.
The court may rescind the transaction and order the asset returned.
This can sometimes occur even where the property has passed into the hands of a third party, although third-party rights may complicate recovery.


Mistake as a Ground for Rescission
A major ground for rescission is serious mistake.
However, not every mistake is sufficient.
The mistake must be fundamental or sufficiently serious.


Pitt v Holt
Facts
Trustees established a discretionary trust after receiving incorrect tax advice.
The arrangement unintentionally triggered significant tax consequences.
The trustees sought rescission.


Supreme Court Decision
The Supreme Court allowed rescission because the trustees acted under a sufficiently serious mistake.
Lord Walker explained that the mistake must relate to:

• the legal nature or character of the transaction; or
• an essential matter of fact or law fundamental to the transaction.

The mistake must also be:
“of sufficient gravity.”


Meaning of “Sufficient Gravity”
The mistake must be so serious that it would be unfair or unconscionable to leave the transaction standing.
Minor misunderstandings are not enough.


Examples of Serious Mistakes
Possible grounds include:

• major tax consequences;
• misunderstanding ownership rights;
• misunderstanding legal effect of a trust;
• incorrect assumptions fundamental to the transaction.

Difference Between Rescission and Damages
Rescission
Cancels the transaction itself.
Focuses on reversing the arrangement.


Damages or Compensation
Leaves the transaction intact but awards money for losses.


Difference Between Rescission and Restitution
Rescission
Sets aside the transaction.


Restitution
Returns benefits or property after rescission or unjust enrichment.
Restitution often follows rescission because once the transaction is cancelled, property or money must usually be returned.


Bars to Rescission
Rescission may be refused where:

• restoration is impossible;
• third-party rights intervene;
• excessive delay occurs;
• the transaction has already been affirmed.

Practical Solution to the Scenario
Incorrect Tax Advice
The trustees relied on fundamentally mistaken professional advice.
The tax consequences were central to the transaction.
The court would likely consider the mistake sufficiently serious under Pitt v Holt.
The transaction may therefore be rescinded.


Improper Transfer of Trust Property
Where trust assets were transferred improperly, the court may reverse the transfer and restore the property to the trust.
This protects beneficiaries from losses caused by breach of trust.


Key SQE Principles
Rescission:

• is an equitable remedy;
• reverses transactions;
• restores parties to their original position;
• commonly arises in cases involving mistake, unconscionability, or breach of fiduciary duty.

A serious mistake may justify rescission if it is fundamental to the transaction.


Further Research
Important Cases
Pitt v Holt
Important for:

• rescission for mistake;
• seriousness of mistake;
• tax consequences and trusts.

Car & Universal Finance Co Ltd v Caldwell
Important for rescission and fraudulent transactions.


Leaf v International Galleries
Important for bars to rescission and lapse of time.


Conclusion
Rescission is an equitable remedy allowing courts to reverse transactions where they were entered into under serious mistake, unconscionable conduct, or breach of fiduciary duty. In trust law, rescission is especially important where trustees improperly transfer assets or act based on fundamentally mistaken assumptions. The remedy aims to restore fairness by unwinding defective transactions and returning parties to their original positions.

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Equity and Trust – Restitution in Contract Law and Trust Law
What Is Restitution?
Restitution is a remedy designed to:
restore benefits or property unfairly received by another person.
The purpose is to prevent unjust enrichment.
The court asks:
“Has someone received a benefit they should not fairly keep?”
If yes, the benefit may need to be returned.


Restitution in Contract Law
When Is It Applicable?
Restitution commonly applies where:

• a contract is rescinded;
• a contract is void;
• a contract fails completely;
• money was paid by mistake;
• there is total failure of consideration.

Contract Law Example With Figures
Scenario
Sophia contracts with Elite Kitchens Ltd to install a luxury kitchen for £80,000.
Sophia pays the full amount in advance.
Before any work begins:

• the company goes into liquidation;
• no kitchen is supplied;
• no materials are delivered.

Legal Position
Sophia received nothing in return for her payment.
There has been a:
total failure of consideration.


Restitutionary Remedy
The court may order restitution requiring Elite Kitchens Ltd (or its insolvency estate) to repay:
£80,000
because the company was unjustly enriched by retaining payment without providing performance.


Why Restitution Applies
The purpose is not compensation for loss.
Instead, the court focuses on:

• reversing unjust enrichment;
• restoring Sophia’s money.

Another Contract Example – Rescission
Scenario
Daniel buys a business for:
£500,000
The seller fraudulently misrepresents the business profits.
Daniel later rescinds the contract.


Restitutionary Consequences
Because the contract is rescinded:

• Daniel returns the business;
• the seller returns the £500,000 purchase price.

The parties are restored to their pre-contract positions.


Restitution in Trust Law
When Is It Applicable?
In trust law, restitution commonly applies where:

• trust property was wrongly transferred;
• trustees improperly received benefits;
• fiduciaries made unauthorised gains;
• trust assets can be restored.

The aim is to restore trust property to the beneficiaries or trust fund.


Trust Law Example With Figures
Scenario
Emma is trustee of the Carter Trust.
The trust contains:
£300,000
Emma improperly transfers:
£120,000
from the trust into her personal bank account and uses it to buy shares.
The shares later increase in value to:
£200,000


Legal Position
Emma improperly benefited from trust property.
The beneficiaries may seek restitutionary remedies.


Restitutionary Recovery
The court may require Emma to restore:

• the shares worth £200,000;
  or
• the sale proceeds if sold.

The beneficiaries are not limited to recovering only the original £120,000.


Why?
Because the profits were generated using trust assets.
Equity prevents trustees from retaining unauthorised gains.


Another Trust Example – Wrongful Transfer
Scenario
A trustee wrongly transfers trust money of:
£250,000
to a third party.
The third party still possesses the money and knew about the breach of trust.


Remedy
The court may order restitution requiring return of the £250,000 to the trust.
This restores the trust fund.


Difference Between Restitution and Compensation
Restitution
Focuses on:
the defendant’s gain.
Question:
“What benefit was unjustly received?”


Compensation or Damages
Focuses on:
the claimant’s loss.
Question:
“What loss did the claimant suffer?”


Key Difference Between Contract and Trust Restitution
Contract Law
Usually concerns:

• reversing failed transactions;
• repayment of money;
• unjust enrichment after contract failure.

Trust Law
Usually concerns:

• restoring trust property;
• reversing fiduciary wrongdoing;
• recovering profits from misuse of trust assets.

Practical Comparison
Contract Example
Sophia pays:
£80,000
No work done.
Restitution:
£80,000 repayment.


Trust Example
Emma misuses:
£120,000
Investment grows to:
£200,000
Restitution:
entire £200,000 investment value may be recoverable.


When Restitution Is Most Commonly Used
Contract Law

• rescission;
• failed contracts;
• mistaken payments;
• void contracts;
• unjust enrichment.

Trust Law

• breach of trust;
• tracing claims;
• unauthorised profits;
• fiduciary misconduct;
• recovery of trust assets.

Important Cases for Further Research
Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd
Important for restitution and total failure of consideration.


Pitt v Holt
Important for rescission and restoration of trust property.


Foskett v McKeown
Important for tracing and proprietary recovery of trust assets.


Conclusion
Restitution is a remedy designed to reverse unjust enrichment by restoring money, property, or benefits improperly received.
In contract law, restitution usually arises after failed or rescinded contracts.
In trust law, restitution commonly restores trust property and strips fiduciaries of unauthorised gains, often allowing beneficiaries to recover profits generated from trust assets.

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​KembaraXtra – Legal Terms – Official Search


An official search is a formal search conducted in land registration or land charges records to discover registered interests or encumbrances affecting property.


Searches may be carried out against the Local Land Charges Register, the *Land Charges Department, or the *Land Registry depending on whether the land is registered or unregistered.


A certificate is issued showing any entries revealed by the search. In some situations, purchasers are protected if the search certificate fails to disclose an encumbrance that should have appeared.


For registered land, an official search also creates a priority period during which the purchaser’s application for registration takes precedence over later competing interests entered on the register.


Official searches are essential in *conveyancing because they help purchasers identify legal burdens, protect priority, and reduce risks associated with acquiring property.

KembaraXtra – Legal Terms – Nuncupative Will
A nuncupative will is an oral declaration expressing how a person wishes property to be distributed after death.
Under English law, oral wills are generally ineffective unless they fall within special exceptions.
The main exceptions are *privileged wills, which may apply to certain military personnel or sailors, and *donatio mortis causa, which concerns gifts made in contemplation of death.
Outside these limited situations, a valid will normally must comply with formal written requirements.

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KembaraXtra – Legal Terms – Oath of Allegiance
An oath of allegiance is a formal promise of loyalty and faithfulness to the Crown.
It is taken by members of both Houses of Parliament at the start of a new Parliament, by certain Crown officers upon appointment, and by persons acquiring British nationality through registration or naturalization.
The oath symbolizes allegiance to the constitutional authority of the state.

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​KembaraXtra – Legal Terms – Oath


An oath is a formal declaration in which a person swears that a statement is true or that a promise will be faithfully carried out, traditionally by calling upon God as a witness.


Oaths are required in many legal situations, particularly when giving evidence in court or swearing an *affidavit.


A common witness oath is: “I swear by Almighty God that the evidence which I shall give shall be the truth, the whole truth and nothing but the truth.”


Individuals who object to taking religious oaths, whether because of religious beliefs or because they have none, may instead make an *affirmation.

KembaraXtra – Legal Terms – Obiter Dictum
Obiter dictum, meaning “a remark in passing,” refers to comments made by a judge that are not essential to the decision in a case.
Such statements do not form part of the *ratio decidendi and therefore are not legally binding as precedent.
However, obiter dicta may still carry persuasive value and can be cited in later cases as guidance or influential reasoning.

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​KembaraXtra – Legal Terms – Nunc Pro Tunc


Nunc pro tunc, meaning “now instead of then,” refers to a judgment or order that is treated as taking legal effect from an earlier date.


Although judgments usually take effect from the day they are made, courts may in special circumstances direct that the order operate retrospectively.


This device is commonly used to correct procedural issues or to reflect what should legally have occurred at an earlier time.