Chapter 2: Express Private Trusts Flashcards
Does a trust need to be in writing?
No, a trust can arise from written or spoken words or by conduct
What are the three certainties?
The requirements for a valid express private trust
- Certainty of intention
- Certainty of subject matter - (property to be included in trust)
- Certainty of objects - (the beneficiaries)
Who is the settlor?
The person who creates a trust
How does a settlor demonstrate certainty of intention?
The settlor must show by written or spoken words or conduct that they intend to subject the trustee to a binding obligation
No particulars words necessary
Can there be certainty of intention if the settlor did not own the property which they intended to include in the trust?
No, the settlor must’ve manifested the intention to create the trust whilst they owned the property
Can there be intention for the trust to take place in the future?
No, the intention must be for the trust to take effect immediately
What is precatory language?
- Words such as “hope”, “desire” and “wish”.
- Do not create a trust as they do not demonstrate intention to impose binding obligation on trustee.
Can informal words or actions show intention?
Yes, phrases such as “this money is as much your money as it is mine” and joint withdrawals from a back account for joint use may give rise to a trust
What happens if there is uncertainty as to intention?
- The trust is void for uncertainty of intention
- The property passes as an outright gift to the person who would’ve been the trustee
Can subjective phrases create a trust?
- No
- Phrases such as “most of my estate” are not sufficiently certain to create a trust.
Can a trust for a fractional share be sufficiently certain?
- A trust for fractional shares can be sufficient.
- If the item is for tangible property e.g. 20 bottles of wine from warehouse, the trust will fail unless trust assets have been segregated. This is because there is no specification as to which wine bottles.
An interest placed in trust must presently exist. True or false?
- True.
- A future interest may be held in trust e.g. House deeded to Abigail for life and then to Benjamin. Whilst Abagail is alive, Benjamin only has a future interest. This is a vested future interest and can be trust property.
- However, an interest not yet in existence cannot be held in trust. Therefore, property to be inherited cannot be included. This is because there is an expectancy and the person may not give the gift.
Beneficial entitlement must be certain, what does this mean?
It must be clear how much of the property left on trust that the beneficiary will receive
If an objective phrase such as “reasonable income” is used, will this be sufficiently certain?
Yes
What happens if the subject matter is uncertain?
- The trust is void
- The property reverts to the settlor
How can beneficiaries under a trust be identified?
By their names or reference to a concept which defines the class of beneficiaries e.g. “my nephews and nieces”
When a concept is used, it must be capable of objective determination. True or false?
True
How is certainty of objects established in fixed trusts?
- The complete list test
- The beneficiaries must be named or described sufficiently to enable the trustee to draw up a complete list of beneficiaries
Under the complete list test (certainty of objects), do beneficiaries need to be in existence at the date of the trust?
- No
- Beneficiaries merely need to be ascertainable at the time their interests come into enjoyment
- E.g. “for my son for life with the remainder to his children living at his death” - the settlor’s son may have more children after the trust is created.
If in a fixed trust, the fund is to be divided equally between a group of people described and not named, will this be valid?
- Yes, but the description must be capable of objective determination
- A gift to “my kindest friends in equal shares” would be insufficient
If a beneficiary is known to exists but cannot be traced, will this cause the fixed trust to fail?
No, but the trustees should seek direction from the Court regarding the funds they are holding for a beneficiary who cannot be located
How is certainty of objects established in discretionary trusts?
The given postulant test is applied to determine whether any given person falls into the description of a class described in the trust
Under the given postulant test, is it necessary for the whole range of potential beneficiaries to be ascertainable?
No, so long as the description of the class is clear enough to enable the Court to decide whether a person is indeed a “given postulant”
What is the given postulant test?
Whether it can be said with certainty that any given individual is or is not part of the class
Would a trust for “my former colleagues” in equal shares be conceptually certain?
Yes, if it is possible to obtain records confirming how many former employees that there were.
What is administrative unworkability?
- If the objects are too wide to form a class, the trust will fail. Also known as capriciousness
- E.g. a trust for “all of West Yorkshire”- This is because West Yorkshire is inhabited by over 2.5m
What is capriciousness?
When a discretionary trust fails because it is administratively unworkable.
I.e. class is too wide. E.g. trust for all of West Yorkshire.
What happens if a trust is void for uncertainty of objects?
A resulting trust is presumed in favour of the settlor or the settlor’s successors.
Does a beneficiary of a trust need to be human?
Yes, a trust requires an ascertainable human beneficiary. The exception to this is honorary or charitable trusts.
Who enforces charitable trusts?
The Attorney General on behalf of the public
If a trustee dies, refuses to accept appointment or resigns, will the trust fail?
- No, not if the trust has already been established.
- In such scenarios, the Court will simply appoint a successor unless it is clear that the settlor intended the trust would only operate if a particular trustee served (in practice, this is rare).
Who can be a trustee?
- Anyone who has capacity to acquire and hold property for their own benefit
- Minors cannot be trustees
Can a settlor appoint themselves as trustee?
Yes
What is the minimum / maximum number of trustees?
- No minimum number, but there must be at least 2 trustees if trust of land.
- Trust of land cannot have more than 4 trustees.
What are the perpetuity rules?
- Perpetuity rules ensure no trust lasts forever
- Two rules
- Remoteness of vesting
- Rule against inalienability
What is the remoteness of vesting rule?
- Gift must vest within perpetuity period of 125 years
- Does not apply to private purpose trusts
- Applies to charities
EXCEPTION - A charitable trust that provides income to one charity and then passes to another charity does not have to last 125 years or less
What is the inalienability rule?
- Applies to private purpose trusts only
- A private purpose non charitable purpose trust (such as a trust to care for a pet) is limited to a life in being plus 21 years
If a non charitable purpose trust does not include a time period, what is the period assumed to be?
Life in being plus 21 years
How can an inter vivos trust be created?
- Person declares themselves as trustee
- Person transfers property to another with the declaration that they are to hold the property as trustee
Once a settlor has declared themselves as trustee, can they retract the trust?
No. Once the declaration has been made, the settlor is legally bound and cannot retract
What are the formal requirements for transferring property?
- The settlor must provide written evidence of the declaration of trust which they have signed
- The settlor must then execute a transfer deed which must be registered at HMLR
What are the formal requirements for transferring shares?
The donor must sign a stock transfer form which must be registered with the company
What are the formal requirements for transferring chattels?
The owner must have the intention to transfer chattels and must deliver them to the recipient
What are the formal requirements for transferring legal title to a bank account?
The owner must provide signed, written notice to the bank
What does it mean if a gift is ‘incompletely constituted’?
A gift will be incompletely constituted until legal title has transferred from the donor to the recipient in accordance with formalities
What is the meaning of the maxim equity will not assist a volunteer?
If an intending settlor declares that a third party is to hold property as a trustee, but does not make the necessary transfer, the trust will fail
What are the four exceptions to the maxim equity will not assist a volunteer?
- Every effort test
- Donatio Mortis Causa (gift by reason of death)
- Fortuitous vesting - the rule in Strong v Bird
- Proprietary estoppel
What is the every effort test?
- If the donor has done everything required of them to transfer the property and put the property outside their control
- If the donor has completed the transfer to the trustee and the trustee has not yet registered the transfer with HMLR or a company as required, the trust will not fail
What is a gift mortis causa (by reason of death) and when will a gift mortis causa be enforceable?
A gift made in contemplation of immediate death. Such a trust will be enforceable if:
- Property delivered to donee while in contemplation of imminent or impending death;
- The gift was made with the intention property will be given to the donee if the donor dies and will be returned if the donor survives
- Donor dies
Donor must believe that their death was imminent. A mere possibility of death is insufficient.
What is the rule in Strong v Bird? (Fortuitous vesting)
If the intending donor dies before the transfer is complete and the intended trustee becomes the settlor’s personal representative, the transfer is complete and the trust is enforceable.
If a settlor asked a person to hold property on trust without it being completely constituted and then goes on to make a will with a contrary intention, which will prevail?
The will prevails as it is an action which is inconsistent with giving the gift under the trust
What is the effect of proprietary estoppel and the exception to ‘equity will not assist a volunteer’?
If a gift has not been executed with proper formality and the trustee can prove that they reasonably relied upon it to their detriment on an assurance from the settlor, the gift will be considered complete.
With testamentary trusts, is it necessary for property to be transferred before the settlor’s death?
No
What is a secret trust?
A gift which looks to be an outright gift to a nominated person
Will a secret trust be enforceable if the communication describing the trust was not made until after the will was executed?
Yes
What is a half secret trust?
A trust which mentions that a trust exists, but keeps the identity of the beneficiary secret
E.g. A gift to Frederic on trust for purposes which I have communicated to him
When will the intended beneficiary of a secret trust be able to enforce the terms of the trust?
- If the intended beneficiary can prove the terms of the trust by clear and convincing evidence
- The terms of the trust can be communicated before or after the will is executed
If the legatee / trustee expressly refuses to accept a secret trust, is the trust still enforceable?
- If the trustee expressly refused to accept, there is no trust
- If the trustee merely failed to respond, acceptance is implied
When will the intended beneficiary of a half secret trust be able to enforce the terms of the trust?
The beneficiary can enforce the half secret trust provided that:
1. Identity was communicated to the trustee at or before the time of making the will and
2. Language of the will is consistent with the communication
What is a vested interest?
An interest with no conditions no attached to it
What is a contingent interest?
An interest with conditions attached to it e.g. the attainment of a particular age
What is a limited interest?
If the interest given to the beneficiary does not include the right to receive the capital of the trust fund
What is an absolute interest?
An interest given to the beneficiary which includes the right to receive the capital of the trust fund
What is a discretionary trust?
A trust under which the trustees may choose how to distribute the trust property, usually among members of an identifiable class
Can a member of a class insist that trustees exercise the trust in their favour?
No, but they do have the right to see the trust
What is a mixed trust?
A trust containing fixed and discretionary elements
What is the rule in Saunders v Vautier?
Beneficiaries of a trust can terminate the trust if:
- All beneficiaries are adults at the time of termination and of sound mind.
- All beneficiaries agree
- All beneficiaries have an absolute interest
N.B. Minor beneficiaries cannot consent to use of this rule
Why may the rule in Saunders v Vautier be used?
If the beneficiaries agree that they want the trust property outright
