Formalities

Question 1

Formalities

Formalities and constitution

Introduction

Answer 1

This topic explores the formalities for declaration and constitution of trusts.
When we talk about “formalities” we mean the formal requirements (if any) for giving an arrangement legal effect. For example, is it necessary to put the arrangement into writing or use some other specific formal document such as a deed?
Because trusts involve both legal and equitable title, we need to consider the formalities (if any) in respect of both interests.

Question 2

Rights of legal owner

Answer 2

Before we start to look at formalities, let’s remind ourselves of the main ways in which legal owners can deal with their proprietary interests. Please note that we are focusing on gratuitous methods of dealing with assets. We are not concerned with transactions made for consideration. We are also focusing on the formalities for inter vivos transactions. This topic is not concerned with gifts or trusts created by will although we will briefly touch on wills at the end of the topic.
There are three broad things a full legal owner can do gratuitously with their property. They can:
(i) Make a gift,
(ii) Declare themselves to be a trustee; or
(iii) Transfer the property on trust.

Question 3

Gift

Answer 3

A gift is the most simple thing a full legal owner can do with their interest. It simply involves the transfer of full legal ownership from one person (the donor) to another (the donee).
When it comes to formalities, therefore, it is only necessary to consider the formalities for transferring legal title from the donor to the done.

Question 4

Self-declaration of trust

Answer 4

In contrast, a trust involves the creation of distinct legal and equitable interests in property. If we take a simple self declaration of trust, it involves the full legal owner creating a new equitable interest in the same property. So we start with legal title only and end with separate legal and equitable interests.
There is no change in legal ownership, but the settlor now holds the legal title in a new capacity i.e. as trustee. There is therefore no need to consider any formalities for dealing with the legal interest but it will be necessary to consider whether there are any formalities for creating the new equitable interest.

Question 5

Transfer on trust

Answer 5

The other way of creating a trust is a transfer on trust. This involves the settlor transferring legal title to a trustee, who then holds for a beneficiary.
This is more complicated than a self-declaration because it involves changes in both legal and equitable title. Therefore it is necessary to consider formalities both for creation of the equitable interest and the transfer of the legal interest.

Question 6

Formalities for declaration and constitution

Answer 6

It is important to understand when you need to consider the formalities rules for declaration of trusts, when you need to consider the rules for constitution of trusts and when you need to consider both.

Question 7

Formalities for declaration of trusts

Answer 7

When we talk about formalities for declaration of trusts, we mean the formal requirements (if any) for creating a completely new trust. You must therefore consider the issue of formalities whenever a trust is being created (whether it is a self-declaration of trust or a transfer on trust).
For completeness, this means that formalities should be considered if a sub-trust is being created although we do not focus on sub-trusts on this course.

Question 8

Other property

Answer 8

If the property is not land, there are no separate formalities for creation of the equitable interest. This is clear from the case of Paul v Constance. No specific formalities are required for the declaration of a trust of property other than land, meaning there is no requirement to use a particular method (such as writing) to create the equitable interest.

Question 9

Formalities for constitution of trusts

Answer 9

When we talk about formalities for constitution, we mean the formal requirements for transferring legal title to another person. This means that you need to consider the constitution rules when a legal owner intends to make either a gift or a transfer on trust. The constitution rules will always be relevant here, but will differ depending on the type of property. For example, the method you must use to transfer legal title to land is very different to the method needed to transfer legal title to a chattel.
The reason we don’t need to consider constitution when dealing with a self-declaration of trust is because legal title is not moving. Self-declarations of trust are therefore automatically constituted.
You may question why we are focusing on gifts here at all, given that this module is concerned with trusts. The reason is because there are circumstances in which equity will intervene and perfect an imperfect gift even though it has not been properly constituted. Sometimes this takes effect by way of a constructive trust. We consider these circumstances in detail later in this topic.

Question 10

A note on testamentary trusts

Answer 10

Although this topic does not focus on testamentary trusts, it is worth briefly mentioning them because you will come across a lot of trusts created via will.
The creation of a testamentary trust requires compliance with s 9 Wills Act 1837. This is not so much a specific formality requirement for the creation of a trust but rather a general requirement for any testamentary disposition. If the will does not comply with s 9, the will itself will be void, meaning that no gifts or trusts created in the will can take effect.

As long as the formalities in s 9 Wills Act 1837 have been complied with, the will is valid and the legal title to all property in the deceased’s estate will vest in their personal representatives (known as either executors or administrators). They then have an obligation to give effect to any valid gifts or trusts in the will.
If the personal representatives are named as trustees, they will then hold the relevant property in their capacity as trustee (once they have administered the estate and are ready to distribute property). If the will contains any gifts or trusts with a third party trustee, the personal representatives have an obligation to transfer legal title to those people.
You therefore do not need to worry about the formalities and constitution rules when analysing the provisions of a validly executed will.

Question 11

Formalities and constitution: Formalities for trusts of land

Trusts of land

Answer 11

This section explores the formalities for declaration of a trust of land set out in s 53(1)(b) LPA 1925.
Although it is generally possible for a settlor to declare a trust without complying with any specific formalities requirements (see e.g. Paul v Constance) there are specific rules applicable to the declaration of trusts of land.
Key case: Section 53(1)(b) LPA 1925
Section 53(1)(b) LPA 1925 provides that ‘a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will”.
We will now look in detail at the requirements of s53(1)(b) LPA 1925 and consider the effect of failing to comply with those requirements.

Question 12

Manifested and proved’

Answer 12

Section 53(1)(b) is an evidential requirement only. This means:
- The declaration and the writing need not be contemporaneous.
- The trust will be unenforceable unless and until s53(1)(b) is satisfied.

Question 13

‘Some writing’

Answer 13

There is no prescribed form for the written evidence. All that is needed is something in writing which provides evidence of:
• The settlor’s intention to create the trust; and
• The terms of the trust.

Question 14

‘Signed by some person who is able to declare such trust’

Answer 14

Although the signature will usually be that of the settlor, it is arguable that the trustee (being the legal owner) can also provide the written evidence. This point is not settled and it is preferable to seek directions from the court in situations where the trustee considers doing so. Documents signed by an agent do not satisfy the requirements of s53(1)(b).

Question 15

‘By will’

Answer 15

Section 53(1)(b) expressly provides for the possibility that a trust of land is created by will. As long as the will is validly executed ie complies with s 9 Wills Act 1837, this will be sufficient to satisfy s53(1)(b).

Question 16

Unenforceable trusts

Answer 16

As we have already seen, s53(1)(b) is an evidential requirement. Non-compliance renders the trust unenforceable rather than void. This is a crucial distinction: A trust exists from the moment it is declared but the beneficiary cannot enforce their rights unless and until s53(1)(b) is satisfied. Once the trust becomes enforceable the beneficiaries can enforce their rights in respect of the period between declaration and satisfaction of s53(1)(b).
Example: Oral declaration subsequently evidenced by signed writing
Consider a life interest trust of land which is orally declared in January but evidenced six months later, in June:
The life tenant is entitled to the income produced by the land between January and June. Once the trust becomes enforceable, the life tenant can sue to enforce this interest. The trustee can also be sued for any other breaches of trust between January and June.

Question 17

Exceptions to s53(1)(b) LPA 1925

Answer 17

The formalities rules in s 53(1)(b) LPA only apply to the creation of express trusts. There is an exception in s 53(2) for resulting, constructive and statutory trusts. This means that there are cases where trusts of land can arise in the absence of written evidence.
Statutory trusts are not considered in this module. Resulting and constructive trusts are covered in further detail in later topics but in order to understand the following discussion on failure of formalities, it is helpful to briefly consider what we mean by resulting and constructive trusts:
• An automatic resulting trust arises when legal title has been transferred to an intended trustee, but the trust fails for some reason (such as certainty of objects).
• A presumed resulting trust arises when legal title is gratuitously transferred but there is no evidence that it was intended to be a gift.
• A constructive trust arises in circumstances where it would be unconscionable for the legal owner of property

Question 18

Failure of formalities

Answer 18

We have considered the effect of time passing between declaration of the trust and satisfaction of s53(1)(b) LPA 1925, but what if those formalities are never satisfied? As a basic rule, the answer is that the trust will simply not become enforceable. This gives the settlor an opportunity to change their mind about parting with beneficial ownership of the property.
In cases involving a gratuitous self-declaration of trust over land the settlor can simply choose not to create the signed, written evidence of the existence of the trust. In the absence of any facts rendering it unconscionable for the settlor to deny the existence of the trust (such as a proprietary estoppel claim) the beneficiary will not be able to assert any interest in the land.
If the settlor changes their mind about a gratuitous transfer on trust, and makes no attempt to constitute it, the trust will not only be unenforceable for non-compliance with s53(1)(b) but also void for lack of constitution. Again, this is subject to any additional circumstances which may make it unconscionable for the settlor to deny the existence of the trust.
The position is more complicated in cases where there has been a legal transfer of the land but no evidence satisfying s53(1)(b) LPA 1925. In such circumstances, can the intended trustee rely on non-compliance with s53(1)(b) to deny the existence of the trust?
There is a series of cases dealing with this point, each of which involves the conclusion that equity will not allow a statute to be used as an instrument of fraud. Each of the following three cases adopts a different approach:
Rochefoucauld v Boustead [1897] 1 Ch 196: The court enforced the intended express trust despite the lack of formalities
Bannister v Bannister [1948] 2 All ER 133: The court imposed a constructive trust over the land (which is exempt from s53(1)(b) by virtue of s53(2) LPA 1925)
Hodgson v Marks [1971] Ch 892: The court recognised a resulting trust over the land (which is also covered by s53(2) LPA 1925)

Question 19

Failure of formalities: Key cases

Answer 19

Key case: Rochefoucauld v Boustead [1897] 1 Ch 196
This case predates the LPA 1925 but remains relevant as it dealt with the question of whether a trust could be enforced despite non-compliance with the precursor to the LPA 1925 (the Statute of Frauds 1677).
To understand the case it is also important to be aware that the mortgage in this case operated differently to modern day mortgages of land (which only involve a charge over the land). The mortgage in Rochefoucauld involved the mortgagee acquiring legal title to the land, with an obligation to reconvey the land once the mortgage was repaid.
Facts: The claimant mortgaged land, which the mortgagee then sold to the defendant on the basis of an oral agreement that the defendant would hold it on trust for the claimant (subject to the claimant repaying the loan to the defendant). The defendant sold the land for a profit but then became bankrupt. The claimant sought to recover the profit.
Held: The defendant could not rely on the lack of writing to deny the existence of the trust as this would be using the Statute of Frauds 1677 as an instrument of fraud. The court therefore enforced the trust on the basis of the evidence of the oral declaration, allowing the claimant to recover the defendant’s profit.

Question 20

Key case: Bannister v Bannister [1948] 2 All ER 133

Answer 20

Facts: The defendant sold a cottage to the claimant on the faith of an oral agreement that the claimant would hold it on trust for her, and allow her to continue living there rent free, for the rest of her life. The parties subsequently quarrelled and the claimant tried to evict the defendant.
The claimant argued that the defendant could not rely on the oral agreement because it did not comply with s 53(1)(b) 1925.
Held: The court rejected this argument and concluded that the claimant held the cottage on constructive trust for the defendant. To hold otherwise would be to allow the defendant to use the statute as an instrument of fraud.
The fraud which brings the principle into play arises as soon as the absolute character of the conveyance is set up for the purpose of defeating the beneficial interest, and that is the fraud to cover which […] the Law of Property Act 1925 cannot be called in aid in cases in which no written evidence of the real bargain is available.
(Scott LJ)

Question 21

Key case: Hodgson v Marks [1971] Ch 892

Answer 21

Facts: An elderly widow transferred her house into the name of her lodger on the basis of an oral understanding that the lodger would hold the house on trust for the widow, with the living arrangements remaining the same.
The lodger then sold the house to a third party purchaser, who sought to evict the widow. During the course of the sale negotiations, the purchaser visited the house on one occasion. He saw the widow but did not query who she was or what interest she had in the house.
Held: The land was held on a resulting trust for the widow. It was analysed as an automatic resulting trust on the basis that the express trust had failed. This is not very satisfactory given that s53(1)(b) renders trusts unenforceable rather than void. It could (and arguably should) have been analysed as a presumed resulting trust as she had not intended a gift to the lodger but there was a technical reason why this argument was not made.
Although the purchaser did not have knowledge of the trust the widow was in actual occupation. She had an overriding interest and the purchaser therefore acquired the land subject to the trust.

Question 22

Failure of formalities: Three party situation

Answer 22

The cases considered above involved a transfer on trust where the settlor was also the intended beneficiary. The position is more complicated in circumstances involving a transfer of land to a trustee for a third party beneficiary. What happens in such cases if there is no written evidence satisfying s53(1)(b) LPA 1925?
Of course, this may only be a temporary issue, in which case the position is as described above (ie the trust exists but is unenforceable unless and until s53(1)(b) is satisfied).
But what happens if either:
(i) the trustee seeks to deny the existence of the trust and keep the property for themselves?
(ii) the settlor seeks to deny the existence of the trust and requests the return of the property?

Question 23

Three party situation: Trustee denies trust

Answer 23

Example: Trustee relies on non-compliance with s53(1)(b)
Anmol transfers land to Brianna, orally requesting that Brianna holds the land on trust for Claudette. The land is duly registered in Brianna’s name at the land registry. Anmol dies several days later, without having provided written evidence of the declaration of trust.
Brianna wishes to know whether she can keep the property for herself.
Brianna is clearly intended to be a trustee so cannot keep the property for herself. To do so would be to use s53(1)(b) LPA 1925 as an instrument of fraud.
Claudette may seek to enforce the trust against Brianna (analysing it as either an express trust as in Rochefoucauld or a constructive trust as in Bannister) but Anmol’s estate may argue that this is not possible and claim that Brianna holds the land on a resulting trust (as in Hodgson v Marks). It is therefore advisable for Brianna to seek directions from the court as to the beneficial ownership of the land.

Question 24

Three party situation: settlor denies trust

Answer 24

Example: Settlor relies on non-compliance with s53(1)(b)
Anmol transfers land to Brianna, orally requesting that Brianna holds the land on trust for Claudette. The land is duly registered in Brianna’s name at the land registry. Anmol does not provide written evidence of the trust. Several weeks later, Anmol has an argument with Claudette and asks Brianna to reconvey the land to him.
What should Brianna do in this situation?
Anmol cannot revoke the trust but Claudette cannot enforce it. If Brianna continues to hold the property on trust for Claudette she risks Anmol claiming that the property is held on a resulting trust. If she transfers the property back to Anmol, she risks Claudette asserting that the property is being held for her on a constructive trust.
Brianna could attempt to provide the signed written evidence satisfying s53(1)(b) but, given the potential for Anmol to dispute this, it would be preferable to seek directions from the court as to the enforceability of the trust. This would ensure that Brianna does not do something which results in liability to either party for breach of trust.

Question 25

Summary in relation to formalities for trusts of land

Answer 25

• A declaration of trust over land must satisfy the requirements of s53(1)(b) LPA 1925. • Section 53(1)(b) is an evidential requirement only. The trust will be valid but unenforceable unless and until it is ‘manifested and proved’ in signed writing. • Resulting and constructive trusts do not need to comply with s 53(1)(b) (by virtue of s53(2) LPA 1925). • The court will not allow s53(1)(b) LPA 1925 to be used as an instrument of fraud. This means that, in cases of transfer on trust, a trust will be enforced regardless of lack of formalities if it would be fraudulent to deny the beneficiary’s interest. • This may involve enforcement of the express trust despite lack of formalities (as in Rochefoucauld v Boustead) or by recognition of a resulting or constructive trust (as in Hodgson v Marks and Bannister v Bannister respectively). • If a trustee receives land to hold on a trust which has not been evidenced in writing, and the settlor is unable or unwilling to provide this evidence, it would be prudent for the trustee to seek directions from the court as to their obligations. The trustee cannot keep the land for themselves as it is clear they are intended to hold it as a trustee.

Question 26

Constitution of trusts Constitution of trusts and the rule in Milroy v Lord

Answer 26

Constitution refers to the transfer of legal title from one party to another. As we have already seen: • A transfer on trust requires the legal title in the property to be vested in the trustees. This is known as ‘constituting’ the trust. • Transfer of legal title is also required for a gift to be made from a donor to a donee. • A self declaration of trust does not require any movement of the legal title as legal title to the property is already vested in the settlor. This means that the trust is automatically constituted when the trust is declared.

Question 27

Testamentary gifts and trusts

Answer 27

As discussed above, the personal representatives of estates receive legal title to the entire estate and are then responsible for distributing the property in accordance with the will. This may include transferring legal title to the donee of a gift or the trustee of a trust (in which case, they will need to follow the methods discussed below to ensure legal title is properly transferred). In this module, we focus only on the constitution of inter vivos gifts and trusts.

Question 28

Transferring legal title

Answer 28

In order to constitute a gift or trust, legal title must be transferred using the correct method. The formalities for transferring legal title will vary according to the nature of the property in question. Some common types of property are considered below: Registered land transfers must be made by deed under s52(1)(LPA) 1925 and registered with the Land Registry under s27 LRA 2002. Legal title passes on registration of the new owner at the Land Registry. Shares in a private company are transferred by the transferor signing a stock transfer form and sending it to the company. (It is also common for the company to require the share certificate or an indemnity in respect of the transferor’s ownership as part of this process.) Legal title passes when the transferee is registered in the company’s internal register of members. Choses in action (eg debts and money in a bank account) are transferred by written transfer and notice in writing to the debtor or to the bank (see s 136 LPA 1925). Legal title passes once notice has been received. Chattels (including physical cash) may be transferred either: • By deed of gift; or • By delivery of the chattel with evidence of the transferor’s intention to transfer (Re Cole [1964] CH 175) • Cheques (and other bill of exchange) in favour of the transferor may be transferred to a third party (ie someone other than the names payee) by the transferor endorsing the cheque by signing their name on the back according to the Bills of Exchange Act 1882. See eg Jones v Lock (1865) LR1 CH App 25.

Question 29

Effect of constitution

Answer 29

The effect of constitution is that the disposition is irrevocable. Once a trust is constituted the settlor ceases to have any beneficial or legal interest in the trust property (providing all other requirements for creating the beneficiary’s interest have also been satisfied). The trustee has legal title and holds it on trust for the beneficiary. The same is true of gifts. Once the donee acquires legal title, the donor has no rights in the property and cannot ask for it to be returned. Trust example Jamal asks Paul to hold some shares on trust for Sian. Jamal transfers legal title to Paul. Once Paul is registered as the shareholder, the trust is completely constituted and Jamal cannot revoke it. Gift example Ariana receives a watch from Tarek as a gift. Later they argue and Tarek tells Ariana to give it back. The gift was perfected on delivery. Tarek can’t change his mind so Ariana can keep the watch.

Question 30

The rule that equity will not assist a volunteer

Answer 30

If trust property is not vested in the trustees the trust is incompletely constituted and is therefore void. In the case of a gift, if legal title has not passed to the donee the gift is imperfect and the donor can change their mind. Usually no consideration is given in the creation of a trust and so the beneficiary of a trust and the recipient of a gift are both volunteers. Equity will not assist a volunteer by compelling the settlor/donor to transfer legal title to the trustee/donee. This is an example of the equitable maxim, ‘equity will not assist a volunteer’. The leading case on constitution is Milroy v Lord (1862) 31 LJ Ch 798. This case established the principle that ‘equity will not perfect an imperfect gift’ or treat a failed gift as a self-declaration of trust.

Question 31

The rule that equity will not assist a volunteer

Answer 31

Key case: Milroy v Lord (1862) 31 LJ Ch 798 Facts: The settlor intended to transfer shares to Lord to be held on trust for the claimants. The settlor completed a voluntary deed but did not comply with the correct method for the transfer of legal title in the shares to Lord as trustee. In order to transfer legal title to the shares and properly constitute the trust, it was necessary to complete the appropriate transfer form and send it to the company registrar who would then register the new owner. Instead, the settlor simply handed the share certificates to Lord (i.e. the intended trustee). The settlor died several years later and there was a dispute as to the ownership of the shares. Held: The trust was not constituted, despite the settlor’s intention to create one, as legal title to the shares had not vested in Lord. The settlor had not completed the process of transferring legal title and equity would not treat him as if he had.

Question 32

The rule that equity will not assist a volunteer cont’d

Answer 32

Turner LJ in the Court of Appeal noted three methods of transferring property: 1. An outright gift; 2. A transfer on trust; and 3. A self declaration of trust. He made clear that the transferor must do ‘everything necessary’ to effect the intended disposition by following the correct method for transferring legal title. If they fail to do so, equity will not perfect the disposition or treat the transferor as having used one of the other methods. If a donor intends to make a gift but fails to transfer legal title, they will not be treated as having made a self-declaration of trust. The transferor did not intend to take on the obligations of trusteeship and should not be treated as having done so. Similarly, if a settlor fails to constitute a transfer on trust, they will not be interpreted as holding the trust property for the intended beneficiary. They did not intend to take on this obligation and will not be treated as having done so. Milroy v Lord examples Imperfect trust example Jamal asks Paul to hold some shares on trust for Sian. Jamal forgets to complete the stock transfer form and so Paul is not registered as the shareholder. Jamal dies and leaves the shares to Dhan as a gift in his will. The trust is void because it was imperfectly constituted. Dhan will receive the shares under the will. Imperfect gift example Tarek says he is going to send Ariana a watch as a gift. Later they argue and Tarek tells Ariana he won’t be sending the watch. Whilst Tarek intended to make a gift of a chattel, he did not deliver it and so legal title has not transferred to Ariana. Tarek can change his mind. Ariana has no rights over the watch.

Question 33

The rule that equity will not assist a volunteer

Answer 33

Key case: Jones v Lock (1865) LR 1 Ch App 25 Facts: A father returned from a business trip without a gift for his baby. He produced a cheque for £900 payable to himself and putting it into his son’s hands said: ‘I give this to baby; it is for himself’. He put the cheque in a safe saying it was put away for his son. He died shortly afterwards. As he had not endorsed the cheque, legal title to it had not transferred to the son. Held: The court rejected the argument that he had declared himself a trustee of the cheque. It was clear that he had intended an absolute gift which entails giving away all benefit to, control of and obligation for the property. He had not intended to retain control of the property and therefore assume the onerous obligations of a trustee. The rule that equity will not assist a volunteer Key case: Richards v Delbridge (1874) LR 18 Eq 11 Facts: A grandfather wanted to assign a lease to his grandson who was a child at the time. He endorsed the lease with a memorandum stating: ‘This deed and all thereto belonging I give to Edward from this time forth.’ He later died.​ Endorsement on the lease was ineffective to assign the lease. It was necessary to use a separate deed. The gift had therefore not been validly constituted. Held: As in Jones v Lock, the grandfather had intended to make an outright gift and so, applying the rule in Milroy v Lord this could not be treated as a self declaration of trust. The gift to the grandson therefore failed.

Question 34

Relationship with certainty of intention

Answer 34

Constitution is intrinsically linked with certainty of intention. If legal title to property has not been transferred to a trustee (for a transfer on trust) or to a donee (for a gift), the court needs strong evidence that the owner intended to declare themselves a trustee. The court must be satisfied that the owner intended to take on the onerous obligation of trusteeship and divest themselves of beneficial ownership. For contrast, you may wish to compare the outcome of Jones v Lock and Richard v Delbridge with Paul v Constance [1977] 1 WLR 527. In this case, an effective declaration of trust was found despite the fact that Mr Constance was seemingly unaware of what a trust was.

Question 35

Summary in relation to constitution

Answer 35

✓ In order to create an express trust, it is necessary for the trust to be constituted. ✓ Constitution occurs when legal title is transferred from one party to another. ✓ To constitute an inter vivos transfer on trust, legal title must transfer from the settlor to the trustee. ✓ To constitute an inter vivos gift, legal title must transfer from the donor to the donee. ✓ A self declaration of trust is automatically constituted when the trust is declared. ✓ Gifts and trusts contained in a will are constituted via the will. ✓ The method for transferring legal title will depend on the nature of the property in question. ✓ If legal title is not transferred correctly then the disposition will fail. Under Milroy v Lord equity will not assist a volunteer, perfect an imperfect gift or treat a failed gift as a self declaration of trust.

Question 36

Exceptions to the rule in Milroy v Lord

Answer 36

We have seen that the effect of the rule in Milroy v Lord is that if legal title has not been vested in the intended recipient the disposition will fail. There are four possible lines of exception to this rule: 1. Principle in Re Rose. 2. The unconscionable principle 3. Fortuitous vesting. 4. Donationes mortis causa. This element is to consider the circumstances in which these exceptions apply.

Question 37

Re Rose line of exceptions

Answer 37

Following Milroy v Lord the general rule is that equity will not perfect an imperfect gift. This means that a disposition will fail unless legal title has been vested in the intended recipient. According to Turner LJ the owner must do ‘everything necessary to be done’. This has subsequently been interpreted to mean that the transferor must do everything within their own power to transfer legal title. As such, even if the transfer of legal title has not occurred equity may regard the transfer of the equitable interest in the property as complete. In Re Rose [1952] Ch 499 the Court of Appeal held that a transfer of shares was effective in equity once the transferor had done “everything in his power” to vest the shares in the transferees. But at what point has an owner done everything within their power?

Question 38

In Re Rose [1952] Ch 499

Answer 38

Facts: Two transfers of shares were executed by Mr Rose on 30 March 1943, one by gift to his wife and the other to trustees to be held on trust for his wife and son. The transfers needed to have been effected before 10 April 1943 if estate duty was to be avoided on Mr Rose’s death in 1947. The transfers and share certificates were delivered to the company registrar but were not registered until 30 June 1943. Legal title to the shares did not therefore pass until 30 June 1943 and so after the key date of 10 April 1943. ISSUE: Could equity intervene and hold that the equitable title had passed to the transferees prior to 10 April 1943 to avoid the payment of estate duty? Held: The Court of Appeal held that no estate duty was payable. The transfers were effective in equity when Mr Rose had delivered the correct transfer documentation to the company registrar on 30 March 1943, before the crucial date of 10 April 1943. In Re Rose [1952] Ch 499 cont’d This case established that Mr Rose held the legal title on constructive trust for the recipients (pending registration of legal title). At this point, the intended transferees had the equitable interest. They were found to hold the equitable interest because: 1. The correct method of transfer had been used 2. The transferor had done everything within his own power to effect the transfer (when he sent the documentation to the Company registrar) 3. The documentation ended up in the hands of the person capable of effecting the legal transfer (in this case, the company’s Registrar)

Question 39

Extension of Re Rose

Answer 39

Key case: Mascall v Mascall [1985] 50 P & CR 119 In Mascall v Mascall [1985] 50 P & CR 119 the Re Rose principle was applied by the Court of Appeal to the gift of registered land from a father to his son. The father handed the son the signed transfer deed and land certificate, which was sent by the son’s solicitors to the Stamp Office. The father and son quarrelled and the father wanted to revoke the gift. The transfer had not yet been registered and so legal title had not yet passed to the son. Applying Re Rose: 1. The correct method of transfer had been used (a signed transfer deed). 2. The father had not done everything within his power to effect the transfer because he had not sent the transfer deed and land certificate to the Land Registry. Was giving them to the son enough? 3. The documentation had therefore not ended up in the hands of the person capable of effecting the transfer. Extension of Re Rose cont’d Held: The Court of Appeal held that the gift was complete in equity and so could not be revoked by the father. The fact that the documents had not yet been sent to the Land Registry did not prevent the gift being complete in equity. By sending the documents to his son, the father had given the intended transferee everything he needed to complete the transfer for himself. The son could go on and have the property registered in his name. This case is important because it extended the Re Rose principle to registered land. It also established that is not necessary for the transferor to send the documents to the person capable of completing the transfer. If the correct method of transfer has been used, the transfer will be irrevocable if the transferor puts the matter beyond their own control. By giving the documentation to the son, the father had put the matter beyond his own control and the gift was therefore irrevocable.

Question 40

Putting matters beyond control of transferor

Answer 40

It can be seen that by using Re Rose and Mascall v Mascall together, a transfer is irrevocable if the matter is put beyond the control of a transferor. In contrast, if the transferor had sent the documents to their own agent, such as their solicitor or their accountant, that would not be sufficient as agency is revocable. Key case: Re Fry [1948] Ch 312​ Re Fry [1948] Ch 312 offers an example of a situation where the matter was within the control of the transferor. The transfer of shares required consent from the Treasury because the transferor was domiciled abroad. This was not obtained before the transferor’s death and so the transferor was ineffective. Key Case: Zeital v Kaye [2010] EWCA Civ 159​ A further example can be found ​in Zeital v Kaye [2010] ECWA Civ 159. Here the owner of an absolute equitable interest in a shareholding had not done everything in his power to transfer his interest when he handed over the stock transfer form signed by the registered shareholder but not the share certificate.

Question 41

Test yourself on Re Rose

Answer 41

Activity 1: Re Rose Narinder wishes to transfer shares to Sergei to hold on trust for Karim. Narinder completes the stock transfer form and gives this to Sergei with the share certificate. Sergei is not yet registered as the shareholder. Narinder dies and leaves the shares to Muhammed as a gift in his will. Narinder’s personal representatives are unsure whether to transfer the shares to Sergei or to Muhammed. Required: Who has beneficial entitlement to the shares? Solution: The basic rule in Milroy v Lord is that the trust is void because it was imperfectly constituted. Following Re Rose, if Narinder did everything in her power to transfer the shares to Sergei, the transfer will be complete in equity. Whilst she has used the correct method of transfer, the documents have not ended up in the hands of the person capable of effecting the transfer (the Company Registrar). However, by giving Sergei the stock transfer form and share certificate, Narinder has given him the means to effect the transfer of the legal title. Therefore, following Mascall v Mascall, Narinder (and consequently her personal representatives) holds the shares on a constructive trust for Sergei pending the transfer of legal title, who in turn holds that equitable interest on trust for Karim. Held: The court perfected the gift (by the imposition of a constructive trust), holding that it would have been unconscionable for Ada to have resiled from the gift. Arden LJ said that, although there could be no comprehensive list of factors that make it ‘unconscionable’ for a donor to change their mind, it was relevant that: • Ada made the gift of her own free will • She told Harold about the gift and signed the transfer form which she gave to Mr Pennington to secure registration • Mr Pennington told Harold he need take no further action • Harold agreed to be director, which he could not do without holding a share • Ada had countersigned the form of consent for Harold’s directorship

Question 42

Scope of Pennington v waine

Answer 42

The initial judicial response to the unconscionable principle was to try to contain it, and it was suggested that the principle could only be applied where the facts were materially similar to the facts in Pennington v Waine: Zeital v Kaye [2010] EWCA Civ 159; Curtis v Pulbrook [2011] EWHC 167 (Ch). However, more recent decisions have abandoned this restrictive approach and have given the principle a broad scope of operation. The most striking example is Khan v Mahmood [2021] EWHC 597 (Ch).

Question 43

The unconscionable principle: Pennington v Waine

Answer 43

In Pennington v Waine [2002] EWCA Civ 227, the Court of Appeal reviewed the authorities concerning the perfection of imperfect gifts and, on the basis of that review, concluded that equity can perfect an imperfect gift whenever it would be unconscionable for the donor to resile from it. Facts: In Pennington, the transfer documents for the transfer of 400 shares from Ada Crampton to her nephew, Harold, remained with her agent (the company auditor), Pennington. But Ada, who was a director and shareholder of the company, took the following steps to make the gift to Harold: • She signed a stock transfer form and gave it to Pennington (her agent) who put it on file. • She told Harold she wanted him to be a director of the company (he could only do this if he held at least one share). • She and Harold signed a form of consent for him to act as director and he took on the benefits and burdens of directorship. • Her agent, Pennington, told Harold he need take no further action.

Question 44

The unconscionable principle: Khan v Mahmood

Answer 44

Key case: Khan v Mahmood [2021] EWHC 597 (Ch). Facts: In Khan v Mahmood, a nephew (M) and uncle (K) were joint registered proprietors of a house, which they held on trust for themselves in equal shares. In 2007, M instructed a solicitor to complete a TR1 form transferring legal title to the house to K. The form was defective (because it did not include K as a transferor) and it was never actually submitted to the Land Registry. However, on the strength of the form, which M had shown to K, K believed that the house was solely his, legally and beneficially. K did not rely on that belief. In 2016, M and K quarrelled, and M brought an action in which he claimed (unsuccessfully) that the house was held on trust for himself and K in equal shares. Held: Marcus Smith J applied the unconscionable principle and held that the house was held on trust solely for K. He accepted that reliance is a relevant factor when applying the unconscionable principle, but he rejected the argument that reliance is a necessary factor. Accordingly, the fact that K had not relied on his belief, that he was the sole beneficial owner of the house, was not a bar to the application of the principle. Marcus Smith J emphasised that the unconscionable principle focuses more on the conduct of the donor, whereas reliance focuses more on the conduct of the donee.

Question 45

The unconscionable principle: Khan v Mahmood cont’d

Answer 45

Marcus Smith J considered that the following factors made it unconscionable for M to resile from the gift: • K believed that the house was solely his. • M intended to transfer his interest in the house to K, he instructed a solicitor to affect the transfer, and he executed the (defective) TR1 form. • M intended to divest himself of his interest in the house because he believed this would enable him to better defend criminal charges for benefits fraud. The relevant fraud was his failure to disclose his interest in the house in his application for benefits. • M did not abandon his ‘moral’ claim against K for payment for his interest, but he was content to leave that claim to be subsequently resolved informally within the family. • During 2007 to 2012, M represented to third parties that he did not have a beneficial interest in the house. On the occasion of each representation, M was attempting to secure some advantage to himself. In this sense, his attempt to divest himself of his interest in the house in 2007 was not altogether altruistic: ‘he was acting decisively in his own interests.’

Question 46

Fortuitous Vesting (the rule in Strong v Bird)

Answer 46

In some cases a failure to perfect the intended recipient’s title may be cured if they obtain legal title through another route. This exception is called fortuitous vesting because legal title vests in the recipient in another capacity. This will usually occur because the intended recipient of a gift is also the personal representative of the transferor’s estate. On the transferor’s death, legal title to all their property will transfer to their personal representative to administer their estate. If their personal representative was also the intended recipient of an imperfect gift, this gift may be perfected on the death of transferor. Example: Perfection of imperfect gift by fortuitous vesting Diane intends to give Ciara an antique sword but Diane dies before this is delivered to Ciara and so legal title has not transferred to her. Ciara is named as executor in Diane’s will. Ciara will obtain legal title to the antique sword as executor. The gift to Ciara will be perfected via fortuitous vesting because Ciara has obtained legal title in her capacity as executor.

Question 47

Fortuitous vesting: the rule in Strong v Bird

Answer 47

Key case: Strong v Bird (1874) LR 18 Eq 315 Fortuitous vesting is commonly known as the rule in Strong v Bird (1874) LR 18 Eq 315. Whilst this case established the rule which is commonly applied to gifts, the case was actually about forgiving a debt. Facts: Bird had borrowed money from his step-mother. He had agreed to repay her by instalments. He paid two instalments but she then orally agreed to forgive the debt. An oral release of debt is ineffective at law and so on her death Bird still owed her estate the money. On her death, Bird was appointed executor of her estate. Held: The debt was released at common law by Bird's appointment as executor because, as the legal owner of the estate, he was both creditor and debtor. But this did not prevent equity from enforcing the debt. However, Jessel MR held that equity would not enforce the debt if the creditor appointed the debtor as their executor and had manifested an unchanged intention during their lifetime to forgive the debt.

Question 48

Extension of the rule in Strong v Bird

Answer 48

Re Stewart [1908] 2 Ch 251 extended the principle in Strong v Bird to perfect imperfect gifts. This case also confirmed that Strong v Bird will apply even if the intended recipient is one of several executors. The following conditions must be met in order for the rule in Strong v Bird to apply: 1. There must be an intention to make an immediate gift (Re Freeland) 2. The intention must continue until the donor’s death (Re Gonin) 3. The intended donee becomes an executor (or one of the executors) of the donor’s estate (Re Stewart)

Question 49

An immediate gift

Answer 49

In Re Freeland, the Court of Appeal made it plain that the donor must have the intention to make an immediate gift. Facts: The claimant, Mrs Jackson, claimed that Mrs Freeland had given her a Hillman motor car. As the car was not in running order, Mrs Freeland agreed to give it to Mrs Jackson when it was back on the road. Several months later, Mrs Freeland wrote to her saying that she had lent the car to another friend (Mrs Rodgers) for a few months but that she was not going back on her word to let Mrs Jackson have it. Mrs Freeland died having appointed Mrs Rodgers and Mrs Jackson as her executors. Held: Lord Evershed MR said there must be ‘an intention of giving, as distinct from an intention to give […]’. The fact that the car had been lent indicated a future intention to give, after it had been put in running order and recovered from Mrs Rodgers. There was no intention to make an immediate gift to Mrs Jackson. It follows that the gift must also relate to existing, not future (or after acquired) property.

Question 50

Continuing intention

Answer 50

Key case: Re Gonin [1979] Ch 16 Facts: A mother intended to pass her house to her daughter but incorrectly developed the belief that she could not transfer the house to her. She therefore wrote a cheque for £33,000 in favour of her daughter in lieu of transferring the house. The mother died without a will (intestate). The daughter was appointed administrator of the mother’s estate and attempted to claim the house under the rule in Strong v Bird. Held: Strong v Bird requires a continuing intention to give which remains unchanged until the death of the donor. By writing the cheque, the mother had changed her intention and so there was no continuing intention to give the house.

Question 51

Extension to administrators

Answer 51

If a person dies without making a will, they are said to die intestate. On their death, an administrator is appointed by the court in order to administer their estate. In contrast, a person who makes a will can appoint executors to administer their estate. In Re James [1935] Ch 449 the rule in Strong v Bird was held to apply where the donee was appointed administrator. This therefore extends the principle of fortuitous vesting to include personal representatives appointed independently of the donor, which some commentators consider unjustifiable. Walton J doubted that Strong v Bird applied to an administrator in obiter comments made in Re Gonin. He argued that in these circumstances the donor has no responsibility for making the donee administrator so Strong v Bird should not apply. These comments were obiter because the court had found no continuing intention to give the property to the claimant in any event. However, at present, Re James remains good law.

Question 52

Donationes Mortis Causa

Answer 52

A gift made in contemplation of death (traditionally known as a ‘donatio mortis causa’ or ‘deathbed gift’) is the final ‘exception’ to Milroy v Lord. As a hybrid between a lifetime gift and a testamentary gift it does not fully comply with the rules for either. It is often referred to as an exception to the rule in Milroy v Lord although it could be argued that it is not a true exception to the rule but rather an anomalous category of disposition. A donatio mortis causa is an anomalous type of gift. There are strict conditions for its application.

Question 53

Conditions for valid DMC

Answer 53

Cain v Moon [1896] 2 QB 283 sets out the following requirements: a) The gift is made in contemplation (though not necessarily expectation) of death from an identifiable cause which the donor believes to be imminent (King v Dubrey [2015] EWCA) b) The gift is conditional on death (i.e. it is not intended to be fully effective until then and can be revoked before death) c) There is delivery of the property; the donor must part with ‘dominion’ (control) of the property by handing it or something which represents title to the donee (Sen v Headley [1991] Ch 425), Rahman v Hassan [2024] EWHC 1290 (Ch).

Question 54

In contemplation of death

Answer 54

Key case: King v Dubrey [2015] EWCA It was argued that an elderly women had made a deathbed gift of her home to her nephew 4-6 months before she died. She also attempted to gift the home to him in a number of invalidly executed wills. The Court of Appeal held that she had no reason to anticipate dying immediately. The gift had not been made in contemplation of death. Moreover, the fact that she had made subsequent wills was inconsistent with the idea that she had already disposed of her property. In contemplation of death: Examples Compare the following examples: Example: General testamentary intention insufficient to support DMC Nico promises Elena his vintage Porsche when he dies. The next day Nico dies in a car accident. There is no DMC. Nico has no reason to anticipate dying and the gift isn’t conditional on his death, nor has the car been delivered. Example: DMC of a car Nico is racing one of his cars in a rally the next day. He gives his vintage Porsche to Elena saying, “if I die tomorrow, the Porsche is all yours.” This is a DMC. Nico is anticipating his death and delivers the car to Elena. His words (“if I die”) make the gift conditional. Elena can only keep the car if Nico dies.

Question 55

Delivery and passing of dominion

Answer 55

In the case of a chattel, delivery (with intention) is sufficient to pass title to the donee and they will be entitled to keep the property after the donor’s death. However, for other types of property (such as land, shares or bank accounts) more must be done to transfer title. A valid DMC does not require full transfer of legal title provided the donor parts with control (‘dominion’) of the property. If all requirements of a valid DMC are present the donee may request that the donor’s personal representatives then complete the transfer legal title to them. Key case: Sen v Headley [1991] Ch 425 Facts: A man dying from terminal cancer told his friend that his house was hers, giving her the keys to a steel box which contained the title deeds to the house. Held: The Court of Appeal held that there was a valid DMC of the house by constructive delivery of the title deeds via the keys to the steel box. The fact that she had keys to the house would not alone be enough as this represents a right of access rather than ownership. Key case: Rahman v Hassan [2024] EWHC 1290 (Ch) Facts: The deceased (M) was unwell and did not expect to live long. On 15th October 2020 he showed and explained to R various documents relating to his bank accounts, the Land Registry certificate for his home and the leases for two flats, saying that he would die soon and would be living all those assets to R. On 20th October, M gave all the documents to R. R died on 23rd October. The defendants were beneficiaries under M’s 2015 will. Held: M had made valid gifts in contemplation of death of his bank accounts, his house and two flats to R. The handing over of the land certificate with the relevant donative intent demonstrated the intention to make the gift. The constructive trust imposed by the law in the case of a donatio mortis causa meant that non-compliance with the relevant legal transfer of the land was no bar to the validity of the gift.

Question 56

Summary in relation to constitution

Answer 56

• Exceptions have developed to mitigate the harshness of the rule in Milroy v Lord. • Re Rose applies if (1) the correct method of transfer is used (2) the transferor has done everything in their power to effect the transfer and (3) the documentation ends up in the hands of the person/organisation capable of effecting the transfer. • Mascall v Mascall extends the Re Rose principle to registered land and says that the second limb of Re Rose is not necessary if the transferor has ‘put the matter beyond their control’ as this would make a transfer irrevocable. • If Re Rose or Mascall v Mascall apply the donor will hold the property on a constructive trust for the intended donee. • Pennington v Waine appears to create an exception permitting perfection in cases where it would be ‘unconscionable’ to resile from the transfer. Summary in relation to constitution • Fortuitous vesting is also known as the rule in Strong v Bird and it operates where a gift is made to a donee who subsequently obtains legal title to it by becoming the donor’s personal representative. • In order for the rule in Strong v Bird to operate there must be a continuing intention to make an immediate gift to the intended donee who becomes the executor/one of the executors under the donor’s will. • Donationes mortis causa are recognised in exceptional circumstances where a donor anticipates dying and wants to make a gift but does not have time to make a valid will. • A valid donatio mortis causa will be recognised where the donor is contemplating their imminent death, expresses the intention that the gift is conditional on their death and parts with dominion of the property.

Question 57

Consolidation

Answer 57

To consolidate the material in this chapter, we will consider the key issues to look out for when analysing a fact pattern involving a legal owner of property who has attempted to do something with that property.

Question 58

Issue spotting

Answer 58

It is always useful to start by trying to ascertain the person’s intention: Do they intend a gift, a self-declaration of trust or a transfer on trust? Once you have ascertained the intention, move on to consider whether there are any formalities required to effect that intention. As we have already seen, if it’s a gift, it is simply necessary to transfer legal title to the donee. If it is a self-declaration of trust, it is only necessary to consider the formalities for declaring that trust. If it is a transfer on trust, you will need to consider both the formalities for declaring the trust and the formalities for constituting the trust.

Question 59

Formalities for declaration of an inter vivos trust

Answer 59

The key question is whether the subject matter of the trust is land. If so, you must consider whether the requirements of s53(1)(b) LPA 1925 have been satisfied, Where the subject matter of the trust is any other type of property it is possible to create a trust in writing, orally or by conduct.

Question 60

Failure of formalities

Answer 60

If s 53(1)(b) has been satisfied, the trust will be enforceable. If it has not been satisfied, the trust will be unenforceable. If it is a self-declaration of trust it will simply have no effect. If it is a transfer on trust which has not been validly constituted, it will also have no effect. If legal title has been transferred to the intended trustee but there is no written evidence satisfying s 53(1)(b) you will need to consider whether a resulting or constructive trust has arisen instead.

Question 61

Formalities for constitution of an inter vivos trust

Answer 61

Now let’s remind ourselves of the circumstances in which we also need to consider the constitution rules. If the intention is a gift, the gift will not take effect until legal title has been transferred from the donor to the donee. Similarly, if the intention is a transfer on trust, it is necessary to transfer legal title to the intended trustee or trustees. This is known as constituting the trust. A self-declaration of trust is automatically constituted because legal title stays with the settlor but in their new capacity as trustee. Similarly, if a settlor demonstrates an intention to become one of a number of trustees, there is no need to transfer legal title into the names of all of the trustees in order to constitute the trust. It is sufficient that legal title is in the name of one of the trustees, which it will be because the settlor already has legal title. Once a trustee has legal title to property, they hold it on the terms of the trust and will be under an obligation to ensure it is transferred into the joint names of themselves and their co-trustees.

Question 62

Formalities for constitution of an inter vivos trust

Answer 62

Land Gift -Legal title must be transferred to done. Self-declaration of trust -requires compliance with s.53(1)(b) LPA 1925. Transfer of trust -requires compliance with s.53(1)(b) LPA 1925 and must be constituted by transferring legal title to trustee. Personal property Gift -Legal title must be transferred to done. Self-declaration of trust- no formalities. Transfer on trust- must be constituted by transferring legal title to trustee. Formalities for constitution of an inter vivos trust The legal formalities for constituting a gift or trust will depend on the particular type of property. Some property, such as land, requires registration for legal title to be properly transferred whereas personal property such as chattels can be transferred more informally.

Question 63

Lack of constitution

Answer 63

If the gift or trust is not property constituted, as a basic rule it will be void unless you can identify a relevant exception to the rule in Milroy v Lord. a) If the transferor has tried to transfer legal title in their lifetime, the most obvious exception to start with is Re Rose. Consider whether the transferor has used the correct transfer method. Have they done everything in their control to effect the transfer or, alternatively, have they put matter beyond their own control? If so, equity will impose a constructive trust for the transferee. b) If this exception does not apply, Pennington v Waine appears to create an exception permitting perfection in cases where it would be ‘unconscionable’ to resile from the transfer. c) If this exception does not work, and the transferor has died, check whether the transferee has been appointed as executor or administrator of the transferor’s estate. If so, does the exception from Strong v Bird apply? This requires an intention to create an immediate gift which continues up to the death. When the transferee obtains legal title in their capacity as executor or administrator, this will perfect the transaction. d) Alternatively, could the donor’s intention be a donatio mortis causa rather than a lifetime gift? This principle is often confused with Strong v Bird but unlike in Strong, you are not looking for an intention to make an immediate gift. The intention must be for the gift to be conditional upon the donor’s death. They must contemplate dying of a specific cause and, as a result, indicate an intention to make a gift if they die. It is also necessary to transfer the property or something representing ownership of the property for a valid donatio mortis causa. If the conditions are satisfied, and the donor dies, legal title transfers on their death. If they survive, the gift does not take effect because the condition has not been satisfied.

Question 64

Resulting trusts Introduction

Answer 64

Resulting trusts are so named because property is held on trust for the person who transferred it or contributed to its acquisition. The equitable interest ‘results’ back to the transferor or contributor. Conventionally, they arise in three situations: a) Where a transfer on trust wholly or partially fails but the property has been transferred to the trustee b) Where a person gratuitously transfers property to another person c) Where a person pays all or part of the purchase price for an asset The trust in (a) is called an ‘automatic’ resulting trust. The trusts in (b) and (c) are called ‘presumed’ resulting trusts.

Question 65

Automatic resulting trusts

Answer 65

Automatic resulting trusts arise where there has been some sort of failure in the creation of a transfer on trust. They are effectively a default position which returns the beneficial interest to the settlor, giving them Saunders v Vautier rights and thus the ability to collapse the trust and either retain the property or re-attempt the intended express trust. For example, resulting trusts will arise for A in each of the following circumstances: 1. A transfers property to B intending B to hold it on trust but fails to properly identify the intended beneficiaries. The trust fails for uncertainty of objects. 2. A transfers property to B intending B to hold it on trust for C and D but fails to specify their beneficial entitlements. The trust fails for uncertainty of subject matter. 3. A transfers property to B intending B to hold it for a non-charitable purpose which does not fall within a recognised exception to the beneficiary principle. The trust fails for non-compliance with the beneficiary principle.

Question 66

Automatic resulting trusts

Answer 66

It is important to note that not all failed attempts to create an express trust will produce a resulting trust. In particular, if the trust fails due to lack of constitution (i.e. legal title has not passed to the trustee) there is nothing to result back to the settlor. They still have the property. Even if a trust has been validly created, it may still fail subsequently. For example: 1. A private express trust has run for the full 125-year statutory perpetuity period and some of the trust property has still not vested in a beneficiary. There is no gift-over. 2. The purpose of a non-charitable trust can no longer be carried out (e.g. the trust is for a pet that has died) but there are funds remaining and no gift-over. In both cases, the property is held on a resulting trust for the settlor’s estate. It is also important to note a problem with one of the three certainties does not necessarily mean there will be a resulting trust: • A self-declaration of trust which fails for uncertainty of objects or subject matter will simply have no effect. The settlor remains the full legal owner of the property. • Similarly, a testamentary trust which fails for uncertainty of objects or subject matter will be void. The property will form part of the testator’s residue. • If property is left to an individual in a will, and it is concluded that there is insufficient certainty as to whether they are intended to be a trustee, the effect of the provision will be a straightforward gift to that individual. The position is more complicated if the legal owner of property transfers that property to a third party during their lifetime and it is concluded that there is no intention to create an express trust. If there is evidence that the transferor intended a gift, then that is the effect of the transfer. If there is no such evidence, it is likely that there will be a resulting trust but it will be properly categorised as a presumed resulting trust.

Question 67

Presumed resulting trusts Gratuitous transfer resulting trusts

Answer 67

Presumed resulting trusts arise in situations where a transfer is gratuitous and there is no evidence that the transferor intended the recipient to receive the property as a gift. They arise by way of a presumption that the transferor intended to create a trust. The presumption can be rebutted by evidence that the transferor’s actual intention is inconsistent with the creation of a trust. Consider a scenario where A transfers the legal title of an asset to B: a) If B provides consideration for the transfer, there is no presumption of resulting trust. The transaction is a sale. b) If B provides no consideration, there is a presumption of resulting trust. But if there is evidence that A intends to make a gift to B, the presumption will be easily rebutted and B will become the full legal owner of the property. c) If B provides no consideration and can adduce no evidence that A intended to make a gift, B will hold the asset on a resulting trust for A.

Question 68

Purchase money resulting trusts

Answer 68

Another situation in which a presumed resulting trust will arise is where, rather than transferring an asset to someone else, a person pays all or part of the purchase price for an asset. Where the person pays the full purchase price, the analysis is very similar to the previous scenarios. For example, A purchases shares and has them registered in B’s name. As with the previous examples, B will hold the shares on resulting trust for A unless it can be shown that this was not A’s intention because, for example, B provided consideration or A demonstrated an intention to make a gift to B. The analysis is more complicated in situations where the purchase price for an asset is provided by more than one person. There are two broad situations to consider here: a) A and B both contribute towards the purchase price of an asset but B becomes the sole legal owner. b) A and B both contribute towards the purchase price of an asset. A contributes more than B but they become joint legal owners of the asset. Again, in the absence of evidence to the contrary, a presumed resulting trust will determine A and B’s respective equitable interests. Regardless of how legal title is held, A and B will be treated as having equitable interests which reflect their respective contributions to the purchase price. This scenario commonly arises in situations involving joint ownership of land. In order to understand the following examples, it is important to be aware that legal title to land can only be held (i) by a sole legal owner or (ii) by up to four legal owners as joint tenants. This means that the legal ownership of the land may not reflect the intended beneficial ownership. Joint legal owners will therefore often hold the land on trust for themselves, with their equitable interests reflecting the true beneficial ownership of the land. It is preferable to declare an express trust over the land which makes the beneficial entitlement clear. In the absence of an express trust, an implied trust may arise to determine the equitable ownership of the land. It is important to note that presumed resulting trusts are not used to determine beneficial entitlement to land acquired jointly as a family home. Such cases involve the use of common intention constructive trusts, which are considered in the topic on family homes. The following examples consider the purchase of land as an investment: Example: Sole legal ownership A and B each contribute half of the purchase price for land and B is registered as the sole legal owner. There is no evidence A intends a gift to B. No express trust is declared. B holds the land on trust for A and B as tenants in common in equal shares. Example: Joint legal ownership A contributes 70% and B contributes 30% of the purchase price. They are registered as joint legal owners. They do not discuss how the property should be shared and no express trust is declared. A and B hold the land as legal joint tenants on trust for A and B as equitable tenants in common. A has a 70% equitable share and B has a 30% equitable share.

Question 69

Presumption of advancement

Answer 69

There are some situations in which the presumption of resulting trust does not arise because the relationship between the transferor and the transferee gives rise to the ‘presumption of advancement’ (meaning a presumption that the transfer was intended as a gift). The following transfers of property will give rise to the presumption of advancement: 1. From husband to wife (including a transfer made during their engagement, prior to marriage): This presumption is very limited. There is no such presumption where a transfer is made by a wife to a husband or from fiancée to fiancé. It is unclear whether the presumption applies between same-sex spouses or opposite-sex civil partners. 2. From parent to child: The presumption clearly applies when a transfer is made from a father to a child. This includes an adult child (although the presumption can be more easily rebutted in such cases). It is less clear whether the presumption applies when the transfer is made by a mother. 3. From a person in ‘loco parentis’ to a minor child: The presumption also applies in cases where a person who has taken on financial responsibility for a child. Unlike the presumption applicable when the transfer is from father to child, this presumption typically only applies while the child remains a minor. The presumption of advancement is very outdated and provision was made for its abolition in s 199(1) Equality Act 2010. However, this section has still not been brought into force. The following examples demonstrate how the presumption of advancement interacts with the presumption of resulting trust: Example: Transfer from father to son A father transfers £1,000 into his son’s bank account. There is no evidence as to why the father did this. The presumption of advancement applies meaning that the father is presumed to have made a gift to his son. The father will need to rebut the presumption with contrary evidence (eg evidence that the money was intended to be a loan or held on an express trust for the father). Example: Transfer from son to father A son transfers £1,000 into his father’s bank account. There is no evidence as to why the son did this. The presumption of resulting trust applies, meaning the father holds the £1,000 on a presumed resulting trust for the son. The father will only be able to displace the presumption, and establish beneficial ownership of the £1,000, if he can provide evidence displacing the presumption of resulting trust (eg evidence that it was intended to be a gift or the repayment of a loan).

Question 70

Summary in relation to resulting trusts

Answer 70

• Resulting trusts give rise to a beneficial interest in favour of the transferor of property or a contributor to its acquisition. • Automatic resulting trusts are default trusts which arise when property is vested in an intended trustee but the trust fails, either from the outset or subsequently. • Common reasons for an automatic resulting trust to arise include uncertainty of subject matter, uncertainty of objects, non-compliance with the beneficiary principle or a surplus fund remaining at the end of the trust period. • A presumption of resulting trust arises where a person either transfers property to another person or contributes towards the acquisition of an asset which is transferred to another person. The presumption can be rebutted by evidence of the transferor or contributor’s actual intention. • Where A transfers an asset to (or purchases an asset for) B, B will hold that asset on resulting trust for A unless there is evidence that this was not A’s intention. • If A and B contribute towards the purchase price of an asset, regardless of how legal title is held, they will each gain an equitable interest that reflects their respective contributions unless there is evidence of a contrary intention.

Question 71

• Creation of trusts

Answer 71

• Before we look at resulting trusts, let’s remind ourselves of the different ways in which trusts can be created. • Although there are many different ways of categorising trusts (and there are overlaps between the categories), very broadly there are two distinct ways in which trusts can be created. They can either be created expressly (i.e. intentionally) or they can arise by operation of law. • Express trusts are created intentionally. They can be contrasted with trusts which arise by operation of law. We can see from the diagram that there are three key types of trust arising by operation of law; resulting, constructive and statutory trusts. Very broadly, constructive trusts arise to correct some sort of unfairness whereas statutory trusts are, as you might expect, imposed by statute. • In this video, we are looking at the third type of trusts arising by operation of law; resulting trusts. • Resulting trusts arise in response to very specific circumstances and can be seen very much as a default mechanism for dealing with situations where the legal owner of property is not the true beneficial owner. We can see from this slide that resulting trusts can be sub-divided into two distinct categories; automatic and presumed resulting trusts. In the remainder of this video we will remind ourselves of the circumstances in which each type of resulting trust will arise.

Question 72

• Automatic and presumed resulting trusts

Answer 72

• The automatic resulting trust is very much a default mechanism which typically arises when an intended trust has failed but the legal title has already been transferred to the trustee. Such trusts may arise when a trust fails from the outset, for example because there has been a problem with certainty of objects. Or when a trust fails subsequently, for example a private purpose trust where the purpose can no longer be carried out but there is a surplus fund remaining. In these cases, a resulting trust arises, effectively giving beneficial ownership back to the settlor. • A presumed resulting trust arises when the legal owner transfers legal title to someone else for no consideration, but there is no evidence that there was a gift or trust intended. In such cases, equity presumes that the transferor intended the transferee to hold the property on trust for them. Similarly, a presumed resulting trust can arise in cases where people contribute to the acquisition of an asset which is owned legally by someone else. This used to be a common way of dealing with disputes relating to family homes but following the landmark case of Stack v Dowden it is clear that this mechanism is too inflexible and unsophisticated to deal with such cases. Presumed resulting trusts still have a place to play in cases involving acquisition of land for investment purposes, but not where it is purchased as a family home

Question 73

s 53(1)(b) and s 53(2) Law of Property Act 1925

Answer 73

53.— Instruments required to be in writing. (1) Subject to the provisions hereinafter contained with respect to the creation of interests in land by parol— (a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law; (b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will; (c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will. (2) This section does not affect the creation or operation of resulting, implied or constructive trusts.