2. Express Trusts: Constitution of Trusts

Question 1

What must occur for a trust to be ‘constituted’

Answer 1

The settlor has:
(1) Made a valid declaration of trust
(2) put assets into the trust

Question 2

Two methods for constituting an express lifetime trust:

Answer 2

(1) Settlor appoints themselves as trustee w valid declaration
(2) settlor appoints someone to be a trustee with a valid declaration - and transfers legal title of the property to them

Question 3

How to constitute a trust where in the settlor is the trustee?

Answer 3

So long as valid declaration has been made, the trust is treated as constituted because the settlor (as trustee) already holds the legal title to the property

Question 4

How does a settlor validly transfer land to a trustee?

Answer 4

(a) execute a DEED (stated to be a deed or is stated to be signed as a deed)
- Deed-maker signs it infront of witness who also signs
- REGISTERED LAND: Form TR1 is used (satisfies the above)
(b) give executed deed to trustee (to send to Land Registry) OR send to Land Registry
(c) land registry registers trustee as new owner

Question 5

How does a settlor validly transfer company shares to a trustee?

Answer 5

(1) within CREST system - certain shares in public quoted companies
(2) outside CREST system - all other shares (esp private companies)

Question 6

DEF: CREST

Answer 6

• Computerised share transfer system
• shares can be transferred electronically without paperwork
• managed by stockbroker (settlor would need to instruct stockbroker)

Question 7

How are shares transferred outside of the CREST system

Answer 7

(1) settlor executes stock transfer form
(2) give form and relevant share certificate to trustee (to send to the company) or directly to the company
(3) company secretary registers trustee as new owner in register of members

Question 8

How does a settlor validly transfer money to trustees to be held on trust?

Answer 8

• Money passes with delivery
  i. physical delivery of cash
  ii. electronic bank transfer (once it arrives in account)
  iii. cheque (legal title passes once cheque is cleared)

Question 9

What happens if a settlor writes a cheque to a trustee for monies to be held on trust, but dies before the cheque clears?

Answer 9

The cheque can no longer be cashed

Question 10

How does a settlor validly transfer chattels to trustees to be held on trust?

Answer 10

Either physical delivery or by deed

Question 11

Meaning of ‘equity will not assist a volunteer’

Answer 11

It follows that the transfer rules cannot be ‘bent’ or overlooked in order to constitute a trust. If
the settlor has not properly followed the transfer rules relevant to the property that was going to be held on trust, there will be no trust – equity cannot help, because equity will not assist a volunteer (the beneficiary)

Question 12

Exceptions to ‘equity will not assist a volunteer’

Answer 12

(1) every effort test
(2) the rule in Strong v Bird

Question 13

DEF: The ‘every effort’ test

Answer 13

• settlor has ‘passed the point of no return’ in transferring property (beyond recall)
• taking all steps required of them
• waiting for third party to complete transfer (ie. registering trustee as new owner of shares)

Question 14

How to transfer property to trustees when the settlor AND a third party are trustees:

Answer 14

Settlor must transfer property from sole-name to the joint names of the trustees (taking same steps as above)

Question 15

Settlor + Third Party are trustees: Transfer does not take place and settlor dies

Answer 15

Trust will be valid in equity - trustee (settlor) was duty bound to transfer the property (unconscionable for them to revoke)

Question 16

Settlor fallen short of ‘every effort’ test when constituting trust (does not transfer property to a co-trustee): what options are there to enforce the trust?

Answer 16

• May still be a trust as it would be unconscionable for the settlor to back out
• this is the case where the settlor is a trustee with a third party

Question 17

Relevance of timing to the rule in Strong v Bird

Answer 17

Strong v Bird only applies where the trust is immediate (not those meant only to take effect in the future)

Question 18

Steps for establishing the rule in Strong v Bird to constitute an otherwise invalid trust

Answer 18

1. settlor declares a trust, intending it to begin immediately, with a third party trustee
2. trust was not immediately created due to a failure to comply with a relevant transfer rule
3. settlor’s intention continued up until their death
4. intended trustee acquired legal title to the trust property by becoming the settlor’s executor or administrator