Constitution of Trusts Flashcards
What is a constitution of lifetime trusts
Two steps are required to create a valid express trust:
a) the settlor must make a valid declaration of trust, and
b) the trust must be constituted.
Constitution requires that title to trust property is put into the hands of the trustee - property myst vest in the trustee- so that the trustee can manage that trust property going forward. If property is not vested in the trustee, the trust will not be valid.
There are two methods of creating an express lifetime 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.
Lifetime trusts that self-constitute
If the settlor declares themselves trustee, so long as the settlor has complied with the rules making of a valid declaration of trust, the settlor has done everything necessary to create the trust.
Prior to the declaration of trust, the settlor owned the relevant property absolutely- they held both the legal and equitable title to that property. Following the declaration of trust, the settlor becomes the trustee. The trustee must have legal title to the trust property, but the settlor-trustee already has legal title, so nothing further need take place.
Lifetime trusts that must be constituted
If the settlor appoints someone else as trustee, then the settlor must take steps to put legal title to the trust property into the hands of that other trustee.
If LAND is part of the trust fund, in order to transfer legal title to a third party trustee, the settlor must:
a) execute a deed, ie a document that satisfies s 1 of the Law of Property Act 1989:
(i) the document is stated to be a deed or is stated to be signed as a deed: and
(ii) the person making the deed signs the document in the presence of a witness who also signs it.
Where the land is registered, Form TR1 is used- this satisfies the above definition; and
b) give the executed deed either to the trustee (who will then pass it on to the Land Registry) or send it to the Land Registry direct.
The Land Registry will then register the trustee as the new legal owner. Legal title is not transferred until all steps have been completed and the trustee is the new registered proprietor of the land.
Legal title in company SHARES can be transferred either:
a) within the CREST system - this only applies to certain shares in public quoted companies by insctruction of the stockbroker; or
b) outside the CREST system paperwork is required. The owner of such shares will have a share certificate as evidence of their ownership, and that ownership is confirmed by the name of the owner being entered in the company’s register of members.
If private company shares are part of the trust fund, the settlor must:
a) execute a stock transfer form; 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 in the register of members.
Legal title to MONEY passes with delivery.
CHATTELS are anything else that is tangible in nature, eg jewelery, furniture, paintinhs etc. Title to chattels is passed by physical delivery of the asset to the trustee or by deed
Equity will not assist a volunteer
ie equity will not perfect an imperfect gift. A volunteer is someone who has not provided consideration for the transfer of property. Most beneficiaries do not pay the settlor to create a trust in their favour, Beneficiaries are therefore usually ‘volunteers’.
Exeptions:
1) The «every effort» test, where the settlor did everything they could to transfer legal title.
2) The rule in Strong v Bird, where the settlor did not get round to transferring legal title during their lifetime, but that same person to whom the settlor wanted to create a trust with someone else acting as trustee then appointed as their executor or administrator.
Constitution a trust where the settlor and a third party both act as trustee
The settlor must take steps to transfer legal title from their sole name into the joint names of the settlor and the other trustees.
