CHAPTERS 1-3 CREATION OF TRUSTS Flashcards
Certainty of intention?
Settlor must have used words that impose a duty on someone to act as a trustee, words must impose a duty on the trustee to hold property for someone else.
Paul v Constance – word ‘trust’ not needed, ‘money is as much yours as mine’ suffices.
Precatory words express a wish, hope or expectation, not create a trust, ie ‘trusting’ ‘hope’
Obligatory or mandatory wording must be used if the settlor is looking to create a trust.
If precatory wording used, person will be deemed to have made a gift.
Certainty of subject-matter
(a) the trust property must be described with certainty; and
(b) the settlor must define the beneficiaries’ interests with certainty.
Property must be identifiable + currently owned. Future property does not apply. List out individual items. ‘bulk’ or ‘some’ insufficient.
Re London Wine Co company did not separate or label each customer’s consignment of wine on trust. Intention there but no subject-matter certainty.
Hunter v Moss sufficient with same shares that were indistinguishable; you can create a trust over part of a collection of items, so long as the items in that collection are all identical, likely only for intangible property. Tangible ones MUST be separate to be specified.
The trust will fail if the beneficiaries’ shares or interests in the
If the settlor intended to create a trust with themselves as trustee, but there is no certainty of trust property, what happens?
No trust is created. The settlor will remain the outright owner.
What happens if the settlor transfers property to a third party and declares that that person shall be a
trustee over ‘some of it’ and that a gift is intended over the rest?
The third party will take the entire property absolutely, free from any trust.
If the settlor has appointed a trustee and intended to create a trust for the benefit of individuals but does not specify the interests that those individuals will take?
Trustee shall hold the trust fund for the benefit of the settlor under a ‘resulting trust’.
Hunter v Moss / London Wine Co?
Certainty of subject-matter sufficient with same shares that were indistinguishable; you can create a trust over part of a collection of items, so long as the items in that collection are all identical, likely only for intangible property. Tangible ones (ie wine) MUST be SEPARATE AND LABELLED to be specified.
Certainty of objects test for fixed interest trusts?
Complete list test (conceptual AND evidential certainty). Must be possible to draw up complete list for each + every beneficiary.
Conceptual certainty: is description of class CLEAR and OBJECTIVE? If language lacks precision, trust will fail. Re Barlow – ‘friends’ generally not objective.
Evidential certainty: do we have evidence to identify all beneficiaries that will benefit?
Certainty of objects for discretionary trusts?
Trustees do not necessary have to draw up list of possible beneficiaries. But need to insure right people are beneficiaries.
Given postulant + conceptual certainty test: can it be said with certainty whether any given postulant (individual) is or is not a member of class of objects? Conceptual certainty = has the settlor laid down sufficient criteria when describing the class so that it is clear what sort of person will qualify? If the language used to describe the class is unclear and lacks precision (ie the trustees cannot say with certainty what sort of person they are looking for), then the trust will fail.
Evidential certainty is not prerequisite, trust will not fail if difficult to prove.
Extra considerations for discretionary trusts only?
Administrative unworkability
Even if class of people clear, next test is administrative unworkability.
A discretionary trust will be administratively unworkable and invalid, if the class is so hopelessly wide as ‘not to form anything like a class’ - McPhail v Doulton + R v District Auditor - ‘any inhabitants’. Question of fact – much will depend on the size of the class compared to the size of the trust fund
Capriciousness
If absolutely no rational reason for the trust or absolutely no rational basis on which the trustees can exercise their discretion to distribute trust property (ie the terms of the trust require trustees to ‘consider only an accidental conglomeration of persons who have no discernible link with the settlor or any institution’; Re Manisty’s Settlement
What if there is no certainty of objects?
If there is no certainty of objects (or, in the case of a discretionary trust, the trust is administratively unworkable or capricious), then there will be a resulting trust in favour of the settlor.
Remoteness of vesting
For trusts created on or after 1 April 2010, the perpetuity period is 125 years. Unlikely these days that any trust will offend this rule.
Oral vs Documentary declaration of trust
Gill v Thind: documentary vs oral declaration. Key difference = key difference is that evidence of B’s SUBJECTIVE INTENTIONS and subsequent conduct are admissible for oral declaration but inadmissible for documentary declaration. Gist of words examined on whether on balance of probabilities, intention shown.
Documentary declaration – question of fact + law
If A asserts that B declared a trust in writing:
(1) A has to prove that B had signed the document. (Question of fact)
(2) A has to show that the document, properly interpreted, constituted a declaration of trust. (Question of law)
Oral declaration – question of fact + fact
If A asserts that B made an oral declaration of trust:
(1) A has to prove what B said. (Question of fact)
(2) A has to show that this demonstrated an intention to declare a trust. (Question of fact)
Declaration of trust over land?
S53 (1)(b) LPA 1925: declaration must be evidenced in writing signed by settlor. Unenforceable if not.
Declaration itself does not have to be in writing, but subsequently needs to be confirmed in writing. Letter sufficient. Signed written document does NOT have to be sent to beneficiary.
Material terms of trust (who trustee is, trust property, beneficiaries + interest) NECESSARY.
Hudson v Hathway:
- Email is written document.
- Typing of name = signature at end. Full name/prefixed by some or all initials/ just initials/just first name or nickname by which they are known.
- Email will be signed where the settlor has previously inserted a signature block into their email settings which is then applied to all outgoing mail, ie where the settlor has typed a common salutation above that signature block.
- mail address of the settlor, by itself, is not a signature. ‘From joe.bloggs@aol.co.uk’ is insufficient to comply with s 53(1)(b).
Transfer / constitution with land?
To transfer legal title to third party trustee, settlor must:
a) Execute a deed (LPA 1925 s 52) that must satisfy s1 LPMPA 1989, the document is stated to be a deed or is stated to be signed as a deed; and person making the deed signs document in the presence of a witness who also signs it. (where land is reg, Form TR1 used – satisfies above)
b) Give the executed deed either to trustee (who passes it on to LR) or directly to LR.
General method of constituting an express trust?
Settlor must (a) make a valid declaration of trust and
(c) put assets into the trust.
In general, there are two methods of constituting an express lifetime (or inter vivos) trust:
(a) the settlor appoints themselves trustee for the beneficiary by making a valid declaration
of trust.
Or
(b) the settlor appoints someone else to be the trustee by making a valid declaration of trust.
Transfer of legal title in company shares within CREST
Only applies to certain public quoted companies. But they can also opt for paperwork transfer outside CREST.
Shares in designated public quotes companies are recorded electronically + those shares can be transferred electronically + instantaneously.
Shares in CREST are generally managed by a stockbroker, so the settlor will need to instruct the stockbroker to make the necessary transfer.
Transferring shares outside CREST?
If private company shares are to be part of trust fund, in order to transfer legal title to a third party trustee, settlor must:
(a) execute a stock transfer form – usually the settlor will execute the stock transfer form set
out in Sch 1 of the Stock Transfer Act 1963; and
(b) give the executed stock transfer form and relevant share certificate either to the trustee (who will then pass it on to the relevant company) or send it to the company direct.
The company’s secretary will then register the trustee as the new shareholder (and therefore
the new legal owner) in the register of members.
Legal title is not transferred until all steps have been completed and the trustee is the new
registered shareholder.
Transferring money? Cash, electronically and via cheque?
(a) If the settlor hands over cash to a trustee, legal title to the cash passes upon delivery.
(b) If the settlor transfers money electronically from their bank account to the trustee’s, legal
title to the cash passes once the monies have arrived in the trustee’s bank account.
(c) If the settlor hands over a cheque to a trustee, legal title passes once the cheque has
cleared. If the settlor dies before then, the cheque can no longer be cashed.
Transfer of chattels?
Chattels are anything else that is tangible in nature, eg jewellery, furniture, paintings etc. Title
to chattels is passed by physical delivery of the asset to the trustee or by deed.
Every effort test
Where settlor did everything they could to transfer legal title – may be complete in equity.
Settlor must have passed point of no return, put property ‘beyond recall’; take all steps required, ie executing and sending out all documents. All that remains = act of a 3rd party.
Ask what has happened to the transfer documents that the settlor must execute. If those
documents are still within the possession or control of the settlor, the settlor has not
satisfied the every effort test. If those documents are no longer within the possession
or the control of the settlor, the test has generally been satisfied.
Equity also may regard the trust as valid once the stage is reached when it would be
unconscionable (unfair) for the settlor to back out of creating a trust Pennington v Waine
Strong v Bird
If settlor wanted to create a trust with someone else acting as trustee, but did not get
round to transferring legal title during their lifetime, if that same person is then appointed as
their executor or administrator, the fact that that person has got legal title MAY BE sufficient to constitute the trust:
(a) the settlor intended to create an immediate trust with a third party acting as trustee;
(b) that trust was not immediately created due to a failure to comply with a relevant
transfer rule;
(c) the settlor’s intention continued up to their death (ie a subsequent will may negate); and
(d) the intended trustee acquired legal title to the trust property by becoming the settlor’s
executor or administrator.
Choithram v Pagani
- settlor Attempted to create lifetime trust of specific asset with self and 3rd party as trustees
- Done enough to validly declare self and 3rd party as trustees
- Has not done enough to transfer asset to self and 3rd party as trustees
Valid declaration makes it unconscionable for settlor to change his mind; has duty to complete transfer.
Vested interest?
If that beneficiary exists + does not have to satisfy any conditions imposed by the terms of the trust before becoming entitled to trust property – unconditional interest.
If beneficiary dies before the trust property is paid over to them, trust property will belong to the beneficiary’s estate, ie will pass under their will or intestacy.
Contingent interest?
Interest conditional upon the happening of some future event that may not happen, or if the beneficiary is not yet in existence (eg a trust for grandchildren and the settlor does not yet have any grandchildren but might in the future).
If a beneficiary dies before the happening of event, their interest will go back to the settlor unless the settlor has provided that the beneficial interest should pass to someone else.
A trust with a contingent interest is still a fixed interest trust, because the settlor has stipulated upfront who gets what (and when) and the trustees have no discretion when it comes to the distribution of trust property.
Saunders v Vautier?
The beneficiary under a bare trust (sole, adult beneficiary)
can direct the trustees to transfer trust property to the beneficiary - CANNOT IF CONTINGENT - WILL GO BACK ON RESULTING TRUST TO SETTLOR, IF DEAD, WILL OR INTESTACY - have to be in agreement with beneficiary of will/intestacy about bringing agreement to end and and price agreement.
A group of beneficiaries
can do the same, so long as they are between them absolutely entitled to the trust property, are all in existence, aged 18 years or over and in agreement.
What happens if beneficiaries under a contingency clause want to end the trust?
If contingency is 25 and none have reached even if 18+, cannot end the trust. if they all die before 25, will go back to settlor on resulting trust, will or intestacy if dead.
A man wanted to put his holiday cottage on trust for the benefit of his niece. He telephoned the niece’s parents to ask whether they would act as trustees, which they agreed to do. He wrote to them the following day to confirm the arrangements and to advise that he would take steps to transfer the cottage into their names.
The man died a week later. In the man’s office, his widow found the man’s will which he executed two years ago, and under which the man appointed his solicitor as executor and left everything to charity. The widow also found an original TR1 in respect of the holiday cottage which the man had executed two days before his death. The holiday cottage is still registered in the man’s name.
No, because the man did not make every effort to create a trust in favour of his niece.
To create a valid lifetime trust, the man needed to (i) declare a trust over the holiday cottage and confirm that declaration in signed writing, and (ii) transfer legal title in the holiday cottage to the niece’s parents. Whilst the man made a declaration of trust (and confirmed that declaration in signed writing), he did not transfer legal title in the holiday cottage prior to his death. Although the man executed a TR1 in respect of the holiday cottage, he did not put that TR1 ‘beyond recall’ (the original TR1 was still in his possession when he died). He has not therefore satisfied the every effort test, and equity cannot assist the niece in treating the intended trust as valid.
An executor has sought advice on who is entitled to a valuable collection of silver which had belonged to the testatrix.
The collection was on loan to a local museum at the time of the testatrix’s death. A month prior to the testatrix’s death she had written to the executor saying that when the collection was returned by the museum she intended that the executor would hold the collection on trust for the testatrix’s niece.
The testatrix’s will leaves her entire estate to a local charity.
Yes, because the collection was still owned by the testatrix at the time of her death and therefore formed part of her estate
The rule in Strong v Bird does not apply as the trust was not immediate; it was only to take effect in the future (when the loan ends). Ownership of the collection therefore remained with the testatrix, and it formed part of her estate on death.
Last month, a man telephoned an ex-colleague to say, “You shall hold my shares in Holtam Limited for those employees currently working in the company’s accounts department, given that they stood by me when I first contracted cancer”. Following the call, the man executed a stock transfer form over his shares and sent this to his ex-colleague together with his share certificate. The ex-colleague forgot to tell the man during the call that she was about to take her children on a long holiday, so was not around when the documents arrived at her house.
Last week, the man died. In his will, he appointed a solicitor as his executor and left his estate to the ex-colleague. The ex-colleague came home from her holiday to find the documents relating to Holtam Limited on her doormat.
No, because the man satisfied the every effort test and the shares are therefore held on trust.
The man appears to have wanted to create a lifetime fixed interest trust. The declaration of trust must therefore satisfy the complete list test, which requires both evidential and conceptual certainty. Assuming that the company can identify all the employees currently working in its accounts department, the declaration is certain. An ‘employee’ is a sufficiently certain concept (the additional wording – “given that they stood by me when I first contracted cancer” – is not intended to describe the type of people who can benefit, but merely provides motivation for the creation of the trust). Option D therefore is wrong.
The trust is also constituted by reason of the every effort test. The man executed all the documents that were required and put all documents beyond recall by sending them to the ex-colleague. He had done everything he could to transfer legal title to the shares while he was alive. As a result, Option C is wrong.
A pharmacist is the beneficiary of a settlement created by her uncle, which contained the following provision:
‘On trust for my mother for life thereafter for my niece provided that she has married or attained the age of 25 years.’
The settlor died three years ago, leaving a valid will. The mother has just died. The pharmacist is 23 years old and not married.
No, the trust assets will go back to the settlor because the pharmacist’s interest is absolute, contingent and in possession
pharmacist’s interest is contingent upon her either marrying or reaching the age of 25 years. If she dies before 25 or marrying, she has not fulfilled the contingency; the trust assets will revert to the settlor’s estate and pass under the terms of his will.
the pharmacist’s interest is not limited (she is entitled to both interest and capital once she reaches the age of 25 or marries).
A woman created a trust “to hold for my husband for life, then to such of my children who attain the age of 25 in equal shares”.
The husband is still alive, and the woman has three children, a son currently aged 26 and two daughters aged 21 and 16 respectively.
The husband and son have vested interests, the daughters have contingent interests.
A trust deed contains the following clause:
“The Trustees shall hold the Trust Fund on trust for my sister for life, remainder to such of her two daughters living at her death”.
One daughter is aged 19 years; the other daughter is aged 12 years.
The sister has an interest in possession of the income; the elder daughter has a vested but postponed interest in capital; the younger daughter has a contingent interest in capital.
In a validly executed will, a man created a trust on the following terms:
“For my wife for life, remainder to my children.”
The man has just died. His widow is still alive. His daughter is aged 13 and his son is aged 25.
Both the children have vested beneficial interests.
A man died and was survived by his son and granddaughter who is aged 19 years. Under the terms of his will, the man created a trust fund of her residuary estate in the following terms:
‘to be held on trust for my son for life, remainder to my granddaughter if she attains the age of 21 years but otherwise to the MS Society (a registered charity)
The son is discussing the possibility of bringing the trust to an end with the trustees.
Whose agreement is required to bring the trust to an end now?
The son, granddaughter and the MS Society.
The granddaughter’s remainder interest is contingent on her reaching the age of 21 years. If she were to die before reaching that age, the remainder interest would pass to the MS Society. As at today’s date, therefore, the son, granddaughter and the MS Society are, between them, absolutely entitled to the trust fund. All three must therefore agree to bring the trust to an end under the rule in Saunders v Vautier.
