Constitution of Trusts Flashcards
Two requirements for valid declaration of trust, which will result in the trust being constituted.
1) Make a valid declaration of trust;
2) Put assets into the trust.
can the settlor change their mind about a trust after it has been constituted?
No.
Can the settlor be the trustee?
Yes. here they do not need to take steps to transfer legal title in the trust property to another person, so along as there is a valid declaration of trust over the relevant assets, this is sufficient.
Give the methods of constituting an express lifetime trust.
1) Settlor appoints themselves trustee for beneficiaries through making valid declaration of trust;
2) Settlor appoints someone else to be trustee by making valid declaration of trust. Settlor must transfer legal title in trust property to the trustee in order to do this.
Give the rule when a settlor is creating a trust and appointing someone other than themself as the trustee.
They must take steps transfer legal title in the trust property to the trustee.
How does a settlor transfer legal title to a third party trustee in relation to land?
1) Execute a deed (LPA 1925 s52) (ie doc needs to state it is a deed and the deed needs to be witnessed). For registered land this will be done using a TR1 (which is a deed);
2) Give executed deed either to trustee (to pass on to land registry) or send it to the land registry directly.
3) Land registry will then register trustee as the new legal owner.
- Legal title is not transferred until all of the above steps have been completed.Trust is not constituted until all of the steps have been completed.
- (There must also be a declaration of trust in writing to fulfil the declaration requirement).
Give the two systems in which legal title of shares can be transferred.
1) Within the CREST system (public companies);
2) Outside the CREST system (private companies)
Explain how shares are transferred within the CREST system.
- Computerised transfer system.
- Shares in public companies are recorded electronically and those shares can be transferred electronically and instantly.
- No need for paper work (although CREST is voluntary so shareholders can still use the paper system).
- Shares in CREST usually managed by stock broker who they will instruct to make the transfer.
Explain the way shares are transferred outside the CREST system (ie private companies).
1) Execute STF;
2) Give executed STF and share certificate either to trustee (to then pass onto the company) or send it to the company direct.
3) Trustee will be aded into register of members.
All steps must be completed to constitute the trust over shares.
Explain how legal title to money is transferred to a trustee.
Title to money generally passes with delivery:
1) If settlor hands cash over to trustee, legal title to cash passes on delivery.
2) If settlor transfers money electrically from bank account to trustee’s, legal title to cash passes once money is received in trustee bank account;
3) If settlor hands okee a cheque to a trustee, legal title passes once the cheque has cleared. If settlor dies before then, cheque can no longer be cashed.
Explain how legal title to chattels passes to the trustee.
Legal title of the chattel passes on delivery of the asset to the trustee, or by deed.
Explain the every effort test (an execution to the rule that equity will not assist a volunteer).
- Applies where settlor did everything in their power to transfer legal title, even though it was not formally completed.
- In such situations equity may assist a volunteer.
- To benefit from the exception, settlor must have passed ‘the point of no return’ or put the property being transferred beyond recall.
- Effectively the settlor must have completed all steps they themselves were required to take, and all that remained was for the act of a third party to be completed.
What was the ruling from Pennington v Wayne and is it relevant?
It is not confirmed as binding precedent, but the court MAY regard a trust as constituted provided it was clear there was intention to constitute the trust AND it would be unconscionable to back out of creating a trust.
Explain the rule in Strong v Bird.
Settlor intended to constitute a trust and transfer legal title to a trustee. If that same person becomes the executor to their will (and as such then obtains legal title) this is sufficient to constitute a trust provided the following is satisfied:
1) Settlor intended to create an immediate trust with third party acting as trustee;
2) The trust was not immediately created due to failure to comply with relevant transfer rules;
3) Settlor’s intention continued up to their death;
4) Intended trustee acquired legal title to trust property by becoming settlor’s executor or administrator.
Which two ways will a trust be constituted where legal title has not been transferred?
1) Every Effort Test;
2) Strong v Bird Rule
Explain what happens where the settlor and an additional trustee are to be joint trustees, but the settlor does not transfer the property into their joint names.
Equity will most likely find that there is a valid trust. As such if the settlor dies, the executors of their estate will be obligated to put the relevant property into the name of the additional trustee, who will then carry out the terms of the trust for the benefit of the beneficiaries.
How is the declaration of trust element satisfied with respect to land?
The declaration of trust must be evidenced in writing.
