Constitution of a Trust Flashcards
What are the three certainties?
Intention, subject matter and objects.
What kind of intention is needed to create a trust?
Imperative wording demonstrating an intention to create a legally binding obligation, rather than precatory language merely indicating moral or family obligations.
What is the test of certainty re subject matter?
Both the trust property and the beneficial entitlement must be clearly defined and identifiable with respect to objective criteria
What is the difference between fungible and non-fungible goods re the test of certainty of subject matter?
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.
Difference between fixed and discretionary trusts for certainty of objects?
- Fixed trust - need both conceptual and evidential certainty (complete list).
- Discretionary trust - need only conceptual certainty (is or is not).
What is the impact of “administrative unworkability”?
Where a trust for conceptual and evidential uncertainty nevertheless fails because it is unworkable - e.g. where the class of objects is too large
When is a power invalid?
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.
Who has the burden of proving membership of a class of objects?
The person claiming to be a member
What happens if trust fails for want of certainty?
Becomes a gift to the trustee
What happens if a trust fails for uncertainty of subject matter?
The trust is void; i.e., beneficial title remains with the settlor since no valid conveyance.
What happens if a trust fails for uncertainty of objects?
Trustee holds on resulting trust for the settlor.
Difference between inter vivos and testamentary trusts re formalities?
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)
Effect of oral declaration of trust over land?
Trust is unenforceable, but will be valid if evidence in writing post-declaration (backdated to date of declaration)
Necessary formalities for disposition of a pre-existing interest? Effects of non-compliance?
Must be in writing signed by the disponent or an agent with authority to do so. Disposition will be VOID.
2 exceptions to the requirement for signed writing for disposition of a pre-existing equitable interest (Vandervell 1; and Neville v Wilson)?
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).
What is the difference between declaration and constitution?
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.
Three ways to constitute a trust?
- Transfer of legal title
2. Self-declaration of trust (no constitution since legal title does not move)
If the donor intended an absolute gift, but failed to effectively transfer the property, what happens?
No gift and no trust.
If the settlor intends to create a trust by transfer, but fails to vest the legal estate in the
trustees, what happens?
No trust.
Formality for constitution of trust over land?
Must be by deed (S.52(1) LPA 1925) - (i) deed by name; (ii) writing; (iii) signed; (iv) witnessed; (v) delivered; and (vi) registered
Formality for constitution of trust over shares (3 steps)?
S.1 Stock Transfer Act -
- Sign stock transfer form
- Send form to Companies Registrar with the relevant share certificates
- Registration of transferee as new shareholder (then title transfers)
Formality for constitution of trust over chattels (2 steps)?
- Deed of gift or
2. Actual delivery + intention to transfer
Formality for constitution of trust over an equitable interest?
Must comply with S.53(1)(c) LPA 1925 - signed writing at the time of the disposition, by the disponent
Formality for constitution of a trust over a chose in action?
Transfer must comply with S.136 LPA 1925 - in signed writing with written notice to the debtor
Exception in Re Rose to the rule that equity will not perfect an imperfect gift?
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)
Apply Re Rose to registered land?
Once all executed documents are stamped and handed to transferee, the gift is complete in equity even before registration
Exception in Strong v Bird to the rule that equity will not perfect an imperfect gift?
(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.
When will proprietary estoppel give effect to an imperfect gift?
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
Four requirements for the donatio mortis causa exception to apply?
- Gift is made on contemplation of death which the donor believes to be imminent
- Gift conditional upon death and
- Actual or constructive (e.g. handing over title documents) to the donee,
- then the death of the donor is sufficient to perfect title PROVIDED delivery is sufficient to transfer title.
What is a covenant to settle and when is it enforceable?
A promise to create a trust before the trust is constituted - enforceable if supported by consideration and therefore a binding contract
Define secret trust
A trust in which some or all of the terms are not apparent on the face of the will
Distinguish full and half secret trusts
Full trust - appears on the face of the instrument to be an outright gift
Half-secret trust - appears as a trust with unnamed beneficiaries
Two theories as to the enforcement of secret trusts? Which one prevails?
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.
4 requirements for an enforceable secret trust?
- Intention to create a trust (and the other two certainties too)
- Communication of the trust to the trustee
- Acceptance of the trust by the trustee
- Reliance by the testator upon the acceptance
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?
(i) absolute gift to the intended trustee
(ii) resulting trust to the estate of the deceased
When must the intention to create a trust be communicated to the trustee for
(i) fully secret trusts; or
(ii) half secret trusts?
(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
What must be communicated for a valid secret trust (3 things)?
- Existence of the trust
- Terms of the trust - including beneficiaries
- Property which is subject to the trust
Is there valid communication if the terms of a secret trust are given in a sealed envelope to be opened after death?
Only if the trustee (i) is aware the letter contains the terms; and (ii) accepts on that basis
What is the key question where communication of a secret trust is communicated to only one of several trustees?
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)
Two ways a secret trustee can accept the trust? When must he accept?
(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
Most common way testator relies upon the secret trustee’s acceptance of the trust?
By leaving the trustee property in their will or by not leaving the will at all, when the trustee is the next of kin
Can (i) a secret trustee or (ii) secret beneficiary witness a will creating a secret trust?
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
What if the secret trustee disclaims the legacy?
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.
What formalities apply to a secret trust of land (2 complications)?
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.
Why do private purpose trusts general fail? 3 exceptions?
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
Time limit on private purpose trust?
21 years, and must be stated on the face of the trust - to avoid falling afoul of the rule against perpetuities
One way of getting around the rule against perpetuities for private purpose trusts?
Nominate a life-in-being (a human life) - 21-year time limit begins upon the death of the nominated person
Three ways to construe an apparent attempt to create a purpose trust, to give it legal effect?
- An absolute gift with the purpose being the motive for the gift; or
- As a charitable purpose trust - i..e (i) charitable object; (ii) exclusively charitable; (iii) sufficient public benefit
- 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
Define an unincorporated association
Two or more persons bound together for a common, non-business purpose by identifiable rules regarding rights, duties, funding, and membership
Six ways to construe a trust for a UA?
- Immediate outright gift for present members
- Immediate gift subject to contract (i.e., subject to the UA rules)
- Trust for present and future members
- Purpose trust (which will fail)
- Re Denley purpose trust
- Mandate theory - treasurer has a mandate (i.e. agency mandate) to expend assets in a particular way
Two requirements for immediate gift subject to contract construction for UA?
- 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
What is the rule against remoteness of vesting? What is the problem for UAs?
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
When will a trust for research be charitable?
A trust for research will be a charitable trust for the advancement of education if
- Research intended to inform rather than persuade
- Useful
- Disseminated to others
Which charitable purposes are still valid even if the beneficiaries have a personal nexus to the settlor? Which 2 are not?
Prevention of poverty. Advancement of education and religion are not.
What are the three political prohibitions on a charitable purpose?
- Furthering interests of a political party
- Attempting to effect political/legal change
- Attempting to influence government
What is the cy-pres doctrine and what is its purpose?
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)
Can the cy-pres doctrine apply there there is no charity which is close to the original specified purpose?
Yes - can apply for charitable purposes generally if
- Original donor cannot be found or
- Disclaimed his right to have property returned
