What are the requirements for an express private trust?
1) Three certainties (Knight v Knight)
2) Capacity to create a trust (i.e. over 18 and not have mental capacity issues)
3) The beneficiary principle
4) Must comply with the perpetuity rules
5) Comply with the Formalities
6) Must be validly constituted (constitution).
What is certainty of intention?
- Certainty of Intention: - It must be certain that a settlor intended to create a trust and subject the trust property to trust obligations
The word ‘trust’ does not have to exist in the declaration of trust. Equity looks to intent, not form. This can be seen in. Paul v Constance [1977] where an intention to create a trust can also be inferred from the conduct of the donor.
Precatory words MAY render a trust to fail. Since the case of Lambe v Eames (1871), the courts have generally made a distinction between the use of precatory and imperative words as precatory words may not indicate the intention for a trust to be created.
If there is no intention to create a trust (or power), the donee will take the property absolutely, as a gift (Lassence v Tierney (1849)).
What is the effect of a lack of certainty of intention?
If there is no intention to create a trust (or power), the donee will take the property absolutely, as a gift (Lassence v Tierney (1849)).
What is certainty of subject matter?
There are two elements to certainty of subject matter:
- it must be clear what property is held on trust; and
- the beneficial interests must be clear.
Shares are an exception to this.
Palmer v Simmonds (1854) - “the bulk of my estate” was held to be uncertain.
ϖ Boyce v Boyce (1849) — testator left 3 houses to W, instructing her to give to Maria whichever one Maria chose and to give the other 2 houses to Charlotte. Maria died before choosing. Held: the trust in favour of Charlotte failed for uncertainty as Maria made no choice.
Re London Wine Co Shippers Ltd [1986] — the company went into receivership. Its customers had purchased wine but left it in the company’s possession for storage and assumed they could recover their wine and that it was not part of the insolvent company’s assets. Held: the customers are not legal owners of any wine since the company did not allocate any particular cases of wine to any particular customers and did not ensure that it had on hand sufficient quantities to meet all the customers’ purchases should they all have demanded delivery all at once
Hunter v Moss [1994] Here the subject matter is an intangible property. A trust was effectively declared although there was no isolation of the 50 shares. Dillon LJ distinguished Re London Wine Co on the basis that, unlike cases of wine or other tangible property, these shares were indistinguishable from one another. Therefore, no segregation was required as holding any 50 of the 950 shares on trust would achieve the same thing.
ϖ Re Goldcorp Exchange Ltd [1995] — Similar to London Wine. Goldcorp agreed to give purchasers gold when they asked for it. Goldcorp became insolvent. Lord Mustill Held: while sympathising with the customers, a right in property cannot exist in the air, hovering over an undifferentiated mass of property. It can only exist in relation to property which is specifically ascertained (identified)
Explain certainty of objects.
- The historical test for certainty objects for trusts, whether fixed or discretionary, was the complete list test: for a trust to be valid, one has to draw up a complete list of the objects - IRC v Broadway Cottages Trust [1955]
This, however, has changed with McPhail.
FIXED TRUSTS: The approach is still the complete list test. It must be possible to draw up a list of everyone in the “class” intended to benefit. Thus, the class must be both conceptually certain and evidentiary certain. The authority for this is IRC v Broadway Cottages Trust [1955].
DISCRETIONARY TRUSTS: For discretionary trusts, the test for certainty of objects is the ‘is or is not test’(aka the individual ascertainability)
McPhail v Doulton [1971] — Re Baden’s Deed Trust (No.1) Held (3:2): the ‘is or is not’ test in Re Gulbenkian’s ST is the test for certainty of objects for discretionary trusts.
Lord Wilberforce: the test is “can it be said with certainty that any given individual is or is not a member of the class?”
Re Baden’s Deed Trust (No.2) — the trust was for, amongst others, employees and their ‘dependents’ and ‘relatives’.Held: there is no conceptual uncertainty with the term ‘relative’. The clause is valid. There is certainty of object.
Conceptual certainty has been described as ‘linguistic or semantic certainty’ – in other words, a class of beneficiaries will be conceptually certain when the description enables the group to be defined clearly
It is important to distinguish ‘conceptual uncertainty’ from ‘evidential uncertainty’. Conceptual certainty relates to the certainty of the class; evidential certainty relates to the issue of whether or not an individual can be found or proven to be a member of the class. If a class is conceptually uncertain, the trust will be void, but evidential uncertainty will not defeat a trust
The rules:
1) Evidential uncertainty does not invalidate a discretionary trust since if a person is not proved to be within a class then he is outside it
2) Ascertainability problems do not invalidate a discretionary trust because they are valid reasons for trustees deciding not to exercise their discretions, and the court may distribute the assets on the basis that the beneficiary is dead
3) If a discretionary trust is not conceptually certain (is or is not), then the trust will be invalidated.
4) If a discretionary trust is not conceptually certain, it cannot be administratively workable. Sometimes a trust can be conceptually certain but still administratively unworkable (e.g. everyone in the world except X) R v District Auditor, ex p West Yorkshire Metropolitan County Council [1986] --- a trust with as many as two and a half million potential beneficiaries is, in my judgment, quite simply unworkable. Although there is no capriciousness, the size of the class was at work to invalidate the trust.
How can you resolve uncertainty?
- Evidential uncertainty: can be resolved by the court in the last resort or, if provided, the trustees or the trustee’s widow etc.
- Apparent conceptual uncertainty: the court may impose a restrictive interpretation of the concept (Re Steel)
- Actual conceptual uncertainty: if a person acting as an expert is given power to resolve the matter, then the conceptual uncertainty may be resolved
- Re Tuck’s ST [1977] — A baronet created a trust for future baronets who were married to a wife ‘of Jewish blood’ and who ‘continues to worship according to the Jewish faith’. If in doubt, ‘the decision of the Chief Rabbi in London of either the Portuguese or Anglo German Community… shall be conclusive’. It was contended that the Jewish faith and blood were too uncertain.
Held: the trust was valid.Lord Denning (dicta alone): a third person unconnected to the parties may be appointed as an expert to adjudicate whether a given person will or will not fall into the class of the beneficiaries!
ϖ Re Coxen[1948] — ‘to persons whom my trustee consider to be my old friends’.
Held: Jenkins J: “if the testator had insufficiently defined the state of affairs on which the trustee were to form their opinion, he would not have saved the condition from invalidity on the ground of uncertainty merely by making their opinion the criterion, although the declaration by the trustees of this or that opinion would be an event about which in itself there could be no uncertainty.
What is a testamentary trust and an inter vivos trust? What is the difference?
INTER VIVOS TRUST - Also known as a ‘lifetime’ trust. A trust is said to be inter vivos if it is effective within the lifetime of the settlor. The person setting up an inter vivos trust is called a ‘settlor’.
TESTAMENTARY TRUST - Any trust which comes into effect upon the death of the person setting up the trust is said to be ‘testamentary’. The person setting up such a trust is called a ‘testator’ (if male) and a ‘testatrix’ (if female).
- Testamentary trust (made by a will) is: 1) intended to take effect on death 2) revocable during life 3) only effective upon death
- Inter vivos trust: : 1) takes effect during life, not death: contingent remainders take effect upon the creation of the trust. Nomination of beneficiary of death/pension benefit is also not a testamentary disposition, as it takes effect as a contract
What are the rules of constitution for an inter-vivos trust? what
to constitute an inter-vivos trust, the settlor can either use one of two methods
METHOD A: Declaration of self as trustee
METHOD B - Transfer property to trustee
f
1. Declaration of self as trustee
o Where the settlor intends to make herself the sole trustee of the property, it is enough that she makes a valid declaration of trust since there is no need to transfer the legal title to another person.
o But, the two ways of constituting a trust – declaration and transfer – cannot be meshed together so that if neither is quite effective, but both are almost satisfied the court will not find the trust to be constituted.
♣ An intention to give will not be construed as an intention to declare oneself to be a trustee.
♣ “Equity will not assist a volunteer – Milroy v Lord (1862)
CASE - JONES V LOCK (1865)
and T Choithram International SA Pagarani [2001] WLR 1
- Transfer of trust property to the trustee
Legal interests:
o Method of transfer of legal title varies depending on the property
♣ Legal estate in unregistered land – must be transferred by deed
♣ Legal estate in registered land – by registration
♣ Stocks and shares – appropriate form of transfer + registration of title in the share register
♣ Chattels – by deed of gift or by intention to give along with a delivery of possession (thus you can do this formally or informally)
o Worth emphasising that a failed attempt to transfer title will not be interpreted as a declaration of trust as seen in Milroy v Lord (1862).
Milroy v Lord (1860) – The settlor executed a voluntary deed, purporting to transfer 50 shares to Mr Lord to be held on trust for the claimants, and later handed to him the share certificates. The shares could only be transferred by registration of the transferee in the books of the bank and this was done.
Held: that no trust of the shares has been created in favour of the claimants. Turner LJ said that there is no equity to perfect an imperfect gift. In order to render a voluntary settlement valid, he needs to do everything required, thus, by transferring the property.
DISPOSITION OF EQUITABLE INTERESTS:
o The settlor can transfer equitable title to the trustee.
o This would create a sub-trust.
o To transfer a subsisting equitable interest, it must comply with section 53(1)(c) of the Law of Property Act 1925 – must be made in writing
o Numerous ways which this can be done. Only look into them if its relevant.
When is a trust constituted?
A trust is constituted when the legal title to the trust property is vested in the trustee(s).
(Always begin by stating whether the trust has been constituted or not)
What is the purpose of formalities in the creation of trusts?
1) Cautionary measure: property rights are valuable rights which should not be dealt with in a casual way, just in case the transferor did not give serious thought about its legal consequences
2) Evidential purpose against fraud: documentary evidence makes fraud more difficult on the presumption that forging is harder than lying.
3) Evidential purpose against administrative problems: problems may arise when oral transactions are complicated and have to be remembered and recorded. It also secures the location of the equitable interest.
Explain the formalities of the creation of an inter vivos trust for personal property. Case?
o The basic rule is that a settlor can create a trust by manifesting an intention to create it - Paul v Constance [1977]
o So long as there is an intention, personal property will not require any formality. So, for trusts of personalty, such as money, shares, and chattels, writing is not required; an oral declaration of the trust is sufficient.
How does a trust of property arise?
The basis for all trusts is conscience
- Understanding that you hold legal title without being intended to benefit from it is what makes a legal title holder a “trustee” rather than “outright owner”
- Trusts will normally arise because creating a trust is what an owner of property wants to happen
- A key tenet of the law relating to “express trusts”: A trust will only arise where it is clear that a trust is intended (That means, the result of what lawyers call a trust is intended, not that the settlor must know the jargon)
(plenary)
Explain the formalities of the creation of a trust of in land?
ii) LAND:
o Declarations of trusts of land or of interests in land must be proved by writing that is signed by the person declaring the trust or agent (Law of Property Act 1925, s. 53(1)(b).)
o This applies to express trusts only, not resulting, implied or constructive trusts.
o If express trusts of land are not proved by signed writing, the trust is unenforceable rather than void.
♣ In other words, the trust is valid, but it cannot be enforced by the beneficiary. So, if the trustees wish to be bound by the trust, they can be, but they cannot be compelled to fulfil their trust obligations if they do not wish to do so.
Creating a trust: What are the requirements?
- Capacity to create a trust. Anyone over the age of 18, unless suffering from mental capacity can create an express trust.
- The 3 certainties must be present.
- The necessary formalities must be observed.
- The trust must either be completely constituted or supported by valuable consideration.
- The trust must not infringe the rules relating to perpetuity, inalienability and accumulation.
- The trust must not be intended to defraud creditors or otherwise be contrary to public policy.
What are the two ways of constituting an express trust?
2 ways of constituting an express trust inter vivos:
- Declaration: where S=T
- Transfer: where S is not T - transfer specific property to trustees for them to hold on trust.
What are the formalities for testementary trust?
o Trusts of land declared by will must be evidenced by signed writing as per Law of Property Act 1925, s. 53(1)(b).
o Trusts of other property declared by a will do not have any specific formality requirements, but any testamentary trust must comply with the formality requirements under the Wills Act 1837 regardless of the nature of the property: if the will is not valid, then, generally, the trust will not be valid either.
s.9 of the wills act 1837 provides that the trust cannot be valid unless it:
- is in writing
- signed by the testator or agent
- also signed or attested to by 2 or more witnesses
These formalities are imposed to reduce the chances of mistake, fraud, and ill-considered and hasty dispositions of property by a will.
➔ Paul v Constance, 1977: here, there was no formal embodiment of trust being created (no document). Also no evidence of terms of trust - merely relied on oral evidence. Still, sufficed to show intention to create trust.
What is the beneficary principle? What is the policy underlying this requirement? Key cases?
Requirement for a beneficiary capable of enforcing the trustees’ performance of their duties under the trust. KEY CASE: Morice v Bishop of Durham
- The policy underlying this requirement is that:
- The consciences of the trustees can only be controlled if there are beneficiaries who can bring the trustees to court when they have failed to perform their obligations.
- Thus, there must be a beneficiary to enforce the trustee’s duties under the trust.
- Additionally, a beneficiary acquires proprietary right in the trust property.
- It is this right which gives the beneficiary the locus standi to petition the court if the trustees fail to perform their duties.
- Important to distinct between ‘people’ and ‘purpose’ trusts.
- A people trust is a trust whose intention is to benefit identifiable people as beneficiaries as opposed to achieving some abstract purpose. If it’s a people trust – it satisfies the beneficiary principle. If it’s a purpose trust, without identifiable beneficiaries, it does not satisfy it.
- KEY CASES IN THE IDENTIFICATION BETWEEN PURPOSE AND PEOPLE TRUSTS:
o Leahy v Attorney-General for NSW [1959] – a gift in favour of an order of nuns was held void as a purpose trust.
♣ Question was whether this trust “for such order of nuns” was an abstract purpose for the benefit of the order of nuns or whether it construed to be a people trust for the benefit of the individual nuns.
♣ Decided that the bequest was for a non-charitable purpose trust, intended on its literal interpretation, for the abstract purposes of the order rather than for the benefit of any individual beneficiaries.
o Re Denley [1969] (more modern approach) – a sports ground was left for the recreational purposes of a company’s employees. The trust provided that the land ‘be maintained and used as and for the purpose of a recreation or sports ground for the benefit of the employees of a company and secondarily for the benefit of such other persons as the trustees may allow to use the same”
♣ Issue considered whether the transfer was void as a purpose trust for the maintenance of a sports ground, or as a valid people trust in favour of the employees of the company
♣ Lord Goff J: Held the trust valid because a trust in favour of the employees of a company was very similar to an ordinary discretionary trust.
♣ Held to be a people trust in that it fell within the validating ‘wait and see’ provisions of the perpetuities and accumulations act 1964.
o The strict approach in Leahy is said to be confined to abstract purposes where no human would take a direct benefit.
- In short, the beneficiary principle will be deemed to be satisfied in circumstances where there are identifiable beneficiaries who will take some benefit, if it is only indirect.
- The beneficiary principle ties in with the principle in Saunders v Vautier, which demonstrates that each beneficiary has an equitable proprietary right in the trust property.
What is the basis for all trusts?
- The basis for all trusts is conscience. Understanding that you hold legal title without being intended to benefit from it is what makes a legal title holder a “trustee” rather than “outright owner”. Trusts will normally arise because creating a trust is what an owner of property wants to happen
o The key case on this is Westdeutsche Landesbank Girozentrale v Islington LBC [1996]
What is the perpetuity rule?
- Property must be vested in individuals within a recognized period of time, and, if it might not vest within that time, any interest in that property might be void.
- The purpose of this rule is to prevent wealth being locked away indefinitely, otherwise the rich will be in a position to control their assets for many generations
- The law on perpetuities has been reformed again by the Perpetuities and Accumulations Act 2009. which has introduced a single perpetuity period of 125 years Perpetuities and Accumulations Act 2009, s. 5(1).
- Section 5(1) applies even if the trust instrument specifies a different period – s5(2)
- The statutory perpetuity period does not, however, apply to purpose trusts. No perpetuity rule applies to charitable purpose trusts, since such trusts are, by definition, for the benefit of the public and so there is a public interest in such trusts potentially lasting forever.
- As such, the distinction between people and purpose trusts is significant.
What is the consequence of the failure to comply with formalities in land?
Where a trust of land is declared orally, the statutory formalities will not have been satisfied and so the trust will not be enforceable by the intended beneficiary.
However, equity can sometimes intervene if a party relies on statutory requirements to perpetrate a fraud on the settlor or beneficiary.
Leading case on this is: Rochefoucauld v Boustead (1897), where C had insufficient funds to pay a mortgage. Her friend D, orally agreed to buy her estates in Ceylon to cover the mortgages and to hot in on trust for her subject to her paying off the purchase price. D then mortgaged the titles to the estate to secure his own borrowings, denying that he had bought the titles as trustee for C.
HELD: Equity will not allow a statute to be used as an instrument of fraud. The principle of the decision is that, in the case of fraud, oral evidence is admissible to establish the trust, in spite of the statute.
What is the consequence of the failure to comply with formalities for a will?
Failure to comply with these formalities will lead to a failure to create a valid will or will trusts and therefore the testator will die intestate (voiceless).
Various mechanisms have, however, been developed by Equity to ensure that the strict formality rules for wills do not necessarily frustrate the testator’s intent.
i.e. The ‘doctrine of incorporation by reference: informal documents can be incorporated into a will if they are expressly identified by the will and if they existed when the will was executed.
What is the exception to the rule “that equity will not assist a volunteer” or “that there is no equity to perfect an imperfect gift”.
There are two ways where equity can intervene to make a transfer effective:
i) The “rule in Re-Rose” - Where the donor has done everything in his power to transfer title
ii) The “rule in Pennington v Waine” - Where it would be unconsciousable for the donor to deny the gift,
What is the rule that re rose established? What trust is created?
Where the settlor has done everything to transfer the title then the gift will be effective
Re Rose [1952] –It was held that if the donor has done everything necessary for her to do to make the gift, then equity will consider an equitable interest in the relevant property to have passed automatically, even if the donee is a volunteer. This principle is an exception to the rule that equity will not assist a volunteer.
- This departs from Re Fry[1946] where the donor had done everything in his power to transfer the shares, but the consent was conditional upon the Treasury, a third party. It was said the gift was incomplete and there is no equity to perfect an imperfect gift.
- Question is what sort of trust is created by Re Rose? Cannot be an express trust since the intention was for it to be a gift, so it lacked certainty of intention.
o Suggested that it is a: constructive trust – once the donor has done all that he can to complete the gift, it would be unconsciousable for him to deny the gift, so a constructive trust arises by operation of law.
o This approach would be consistent with the approach taken by the High Court of Australia in Corin v Patton [1990]
What is the rule established in pennington v waine?
A gift can be enforced where it would be unconsciousable for the donor to deny the gift
Pennington v Waine [2002]
o This decision extends the Re Rose principle. It can be said that the intention of the court in Pennington was to give effect to a gift and because the courts of equity should not strike down gifts too eagerly, the Rose principle should be extended to protect this gift.
