Constitution of a Trust

Question 1

What are the three certainties?

Answer 1

Intention, subject matter and objects.

Question 2

What kind of intention is needed to create a trust?

Answer 2

Imperative wording demonstrating an intention to create a legally binding obligation, rather than precatory language merely indicating moral or family obligations.

Question 3

What is the test of certainty re subject matter?

Answer 3

Both the trust property and the beneficial entitlement must be clearly defined and identifiable with respect to objective criteria

Question 4

What is the difference between fungible and non-fungible goods re the test of certainty of subject matter?

Answer 4

Where the trust property is fungible, it is not necessary that the specific property subject to the trust must be capable of identification and specific segregation.

Question 5

Difference between fixed and discretionary trusts for certainty of objects?

Answer 5

1. Fixed trust - need both conceptual and evidential certainty (complete list).
2. Discretionary trust - need only conceptual certainty (is or is not).

Question 6

What is the impact of “administrative unworkability”?

Answer 6

Where a trust for conceptual and evidential uncertainty nevertheless fails because it is unworkable - e.g. where the class of objects is too large

Question 7

When is a power invalid?

Answer 7

If it cannot be said with certainty whether any individual is or is not a member of the class. Okay if it is impossible to ascertain EVERY member of the class.

Question 8

Who has the burden of proving membership of a class of objects?

Answer 8

The person claiming to be a member

Question 9

What happens if trust fails for want of certainty?

Answer 9

Becomes a gift to the trustee

Question 10

What happens if a trust fails for uncertainty of subject matter?

Answer 10

The trust is void; i.e., beneficial title remains with the settlor since no valid conveyance.

Question 11

What happens if a trust fails for uncertainty of objects?

Answer 11

Trustee holds on resulting trust for the settlor.

Question 12

Difference between inter vivos and testamentary trusts re formalities?

Answer 12

Inter vivos - informal unless other specific formalities apply (e.g. trusts of land)
Testamentary - must be in writing, signed by testator and attested to by two witnesses (S.9 Wills Act)

Question 13

Effect of oral declaration of trust over land?

Answer 13

Trust is unenforceable, but will be valid if evidence in writing post-declaration (backdated to date of declaration)

Question 14

Necessary formalities for disposition of a pre-existing interest? Effects of non-compliance?

Answer 14

Must be in writing signed by the disponent or an agent with authority to do so. Disposition will be VOID.

Question 15

2 exceptions to the requirement for signed writing for disposition of a pre-existing equitable interest (Vandervell 1; and Neville v Wilson)?

Answer 15

Where the beneficiary can collapse the trust under Saunders v Vautier and transfer the trust property directly - then an oral instruction to transfer the title to a third party will still be valid.
Where the beneficiary contracts to assign an equitable interest - provided this complies with Walsh v Lonsdale, there will be a constructive trust in favour of the transferee, falling within S.53(2).

Question 16

What is the difference between declaration and constitution?

Answer 16

Declaration = declaration of beneficial interest, which splits the legal and beneficial ownership.
Constitution = properly vesting legal title in the trustee,. An improperly constituted trust will be void and unenforceable, for equity will not perfect an imperfect gift.

Question 17

Three ways to constitute a trust?

Answer 17

1. Transfer of legal title

2. Self-declaration of trust (no constitution since legal title does not move)

Question 18

If the donor intended an absolute gift, but failed to effectively transfer the property, what happens?

Answer 18

No gift and no trust.

Question 19

If the settlor intends to create a trust by transfer, but fails to vest the legal estate in the
trustees, what happens?

Answer 19

No trust.

Question 20

Formality for constitution of trust over land?

Answer 20

Must be by deed (S.52(1) LPA 1925) - (i) deed by name; (ii) writing; (iii) signed; (iv) witnessed; (v) delivered; and (vi) registered

Question 21

Formality for constitution of trust over shares (3 steps)?

Answer 21

S.1 Stock Transfer Act -

1. Sign stock transfer form
2. Send form to Companies Registrar with the relevant share certificates
3. Registration of transferee as new shareholder (then title transfers)

Question 22

Formality for constitution of trust over chattels (2 steps)?

Answer 22

1. Deed of gift or

2. Actual delivery + intention to transfer

Question 23

Formality for constitution of trust over an equitable interest?

Answer 23

Must comply with S.53(1)(c) LPA 1925 - signed writing at the time of the disposition, by the disponent

Question 24

Formality for constitution of a trust over a chose in action?

Answer 24

Transfer must comply with S.136 LPA 1925 - in signed writing with written notice to the debtor

Question 25

Exception in Re Rose to the rule that equity will not perfect an imperfect gift?

Answer 25

Where the transferor has used the correct form of transfer and has done everything in his power to perfect the transfer such that the remaining steps are beyond his control (i.e. gift must be irrevocable)

Question 26

Apply Re Rose to registered land?

Answer 26

Once all executed documents are stamped and handed to transferee, the gift is complete in equity even before registration

Question 27

Exception in Strong v Bird to the rule that equity will not perfect an imperfect gift?

Answer 27

(i) when the donor intends to make a gift during his lifetime
(ii) but fails to vest the legal title in the donee, the gift may still be perfected if
(iii) legal title fortuitously becomes vested in the donee because he becomes executor of the deceased donor’s estate,
(iv) provided that the donor had a continuing intention to make the gift up until his death.

Question 28

When will proprietary estoppel give effect to an imperfect gift?

Answer 28

Where there has been a sufficiently clear and unequivocal representation, relied upon to the detriment of the representee, so that it would be unconscionable to go back on the representation

Question 29

Four requirements for the donatio mortis causa exception to apply?

Answer 29

1. Gift is made on contemplation of death which the donor believes to be imminent
2. Gift conditional upon death and
3. Actual or constructive (e.g. handing over title documents) to the donee,
4. then the death of the donor is sufficient to perfect title PROVIDED delivery is sufficient to transfer title.

Question 30

What is a covenant to settle and when is it enforceable?

Answer 30

A promise to create a trust before the trust is constituted - enforceable if supported by consideration and therefore a binding contract

Question 31

Define secret trust

Answer 31

A trust in which some or all of the terms are not apparent on the face of the will

Question 32

Distinguish full and half secret trusts

Answer 32

Full trust - appears on the face of the instrument to be an outright gift
Half-secret trust - appears as a trust with unnamed beneficiaries

Question 33

Two theories as to the enforcement of secret trusts? Which one prevails?

Answer 33

Fraud - equity will not allow a statute to be used as an instrument of fraud (i.e., S.9 of the Wills Act)

Dehors the will - the trust is established outside the will

Will theory prevails.

Question 34

4 requirements for an enforceable secret trust?

Answer 34

1. Intention to create a trust (and the other two certainties too)
2. Communication of the trust to the trustee
3. Acceptance of the trust by the trustee
4. Reliance by the testator upon the acceptance

Question 35

What happens where the testator intends to create a fully secret trust but

(i) fails to communicate this to the trustee or
(ii) communicates the trust’s existence but not its terms?

Answer 35

(i) absolute gift to the intended trustee

(ii) resulting trust to the estate of the deceased

Question 36

When must the intention to create a trust be communicated to the trustee for

(i) fully secret trusts; or
(ii) half secret trusts?

Answer 36

(i) Any time before death (including after signing the will)
(ii) before or at the same time as the execution of the will,, and the terms must be consistent with the will. Future communication = failed trust

Question 37

What must be communicated for a valid secret trust (3 things)?

Answer 37

1. Existence of the trust
2. Terms of the trust - including beneficiaries
3. Property which is subject to the trust

Question 38

Is there valid communication if the terms of a secret trust are given in a sealed envelope to be opened after death?

Answer 38

Only if the trustee (i) is aware the letter contains the terms; and (ii) accepts on that basis

Question 39

What is the key question where communication of a secret trust is communicated to only one of several trustees?

Answer 39

Depends on whether they hold as JTs (in which case they are all bound provided communication is made before the will) or TiCs (in which case those who did not receive the communication take their proportion as a gift)

Question 40

Two ways a secret trustee can accept the trust? When must he accept?

Answer 40

(i) can be express or implied by silence or acquiescence

(ii) FST - must accept before death; (ii) HST - must accept before or at the same time as execution of the will

Question 41

Most common way testator relies upon the secret trustee’s acceptance of the trust?

Answer 41

By leaving the trustee property in their will or by not leaving the will at all, when the trustee is the next of kin

Question 42

Can (i) a secret trustee or (ii) secret beneficiary witness a will creating a secret trust?

Answer 42

Arguably yes. While S.15 Wills Act provides that a witness cannot benefit from the will: (i) the trustee does not benefit since he is a trustee; (ii) the beneficiary is in any case a beneficiary dehors the will, so S.15 arguably does not apply

Question 43

What if the secret trustee disclaims the legacy?

Answer 43

Will not defeat a HST, and probably not a FST either (see Re Maddock for the contrary, v obiter dicta in Blackwell v Blackwell). Equity will not allow a trust to fail for want of a trustee.

Question 44

What formalities apply to a secret trust of land (2 complications)?

Answer 44

May have to comply with S.53(1)(b) requirement of evidenced in signed writing - but Ottaway v Norman says different. Also argument that secret trusts are constructive trusts (based on fraud theory) and therefore S.53(2) will exempt secret trusts from the signed writing requirement - see Kasperbauer.

Question 45

Why do private purpose trusts general fail? 3 exceptions?

Answer 45

Because no certainty of objects and therefore no beneficiaries capable of enforcing the trust against the trustees.
Exceptions in Re Endacott -
1. Erection and maintenance of monuments and graves
2. Saying of private masses
3. Upkeep of particular animals

Question 46

Time limit on private purpose trust?

Answer 46

21 years, and must be stated on the face of the trust - to avoid falling afoul of the rule against perpetuities

Question 47

One way of getting around the rule against perpetuities for private purpose trusts?

Answer 47

Nominate a life-in-being (a human life) - 21-year time limit begins upon the death of the nominated person

Question 48

Three ways to construe an apparent attempt to create a purpose trust, to give it legal effect?

Answer 48

1. An absolute gift with the purpose being the motive for the gift; or
2. As a charitable purpose trust - i..e (i) charitable object; (ii) exclusively charitable; (iii) sufficient public benefit
3. Re Denley trust - (i) benefit of (does NOT mean beneficial title to) known or ascertainable individuals; (ii) purpose benefits that whole class and is not too vague; (iii) perpetuity rule not infringed

Question 49

Define an unincorporated association

Answer 49

Two or more persons bound together for a common, non-business purpose by identifiable rules regarding rights, duties, funding, and membership

Question 50

Six ways to construe a trust for a UA?

Answer 50

1. Immediate outright gift for present members
2. Immediate gift subject to contract (i.e., subject to the UA rules)
3. Trust for present and future members
4. Purpose trust (which will fail)
5. Re Denley purpose trust
6. Mandate theory - treasurer has a mandate (i.e. agency mandate) to expend assets in a particular way

Question 51

Two requirements for immediate gift subject to contract construction for UA?

Answer 51

1. Settlor intended a gift not a trust

2. Members must have control over spending the assets or have the right to dissolve the UA and divide the assets

Question 52

What is the rule against remoteness of vesting? What is the problem for UAs?

Answer 52

A future interest is void unless it is
certain that the interest will not vest (i.e. go to a beneficiary) after 125 years.
This can be problematic for UAs, because new members could join and thus acquire an interest after
125 years. The trust instrument would have to expressly close the trust to new members, or a “wait and see” approach could be taken - if the UA still exists in 125 years, new members will be cut off from benefiting

Question 53

When will a trust for research be charitable?

Answer 53

A trust for research will be a charitable trust for the advancement of education if

1. Research intended to inform rather than persuade
2. Useful
3. Disseminated to others

Question 54

Which charitable purposes are still valid even if the beneficiaries have a personal nexus to the settlor? Which 2 are not?

Answer 54

Prevention of poverty. Advancement of education and religion are not.

Question 55

What are the three political prohibitions on a charitable purpose?

Answer 55

1. Furthering interests of a political party
2. Attempting to effect political/legal change
3. Attempting to influence government

Question 56

What is the cy-pres doctrine and what is its purpose?

Answer 56

Permits applying the property to a new purpose, which should be as close as possible to the original purpose

Allows the wishes of a donor to charity to be carried out even if the original purpose of the gift has failed (no longer exists, illegal, no remaining trustees)

Question 57

Can the cy-pres doctrine apply there there is no charity which is close to the original specified purpose?

Answer 57

Yes - can apply for charitable purposes generally if

1. Original donor cannot be found or
2. Disclaimed his right to have property returned