Constitution of Trusts

Question 1

Constitution of trust

Answer 1

Self-declaration

Transfer to others as trustee

Question 2

Constitution of trust definition

Answer 2

A trust is constituted when the legal title to the trust property is vested in the trustee(s)

Question 3

Cases for self-declaration

Answer 3

Jones v Lock
Richards v Delbridge
Paul v Constance

Question 4

Milroy v Lord

Answer 4

A shareholder wanted to transfer his shares, but did this by deed instead of filling out appropriate transfer forms.

The court held that there was no declaration of trust.

Turner LJ: ‘in order to render a voluntary settlement valid, the settlor must have done everything which… was necessary to be done to transfer the property’

Question 5

Choithram (T) International SA v Pagarani

Answer 5

X executed a trust deed which set up a charitable foundation.

He made an announcement saying that he’d transferred his wealth to the foundation, but died before executing the necessary documents to transfer legal title.

The courts held that this was sufficient to constitute the trust. X was one of the trustees of the foundation, so there was no need for transfer of legal title.

Also, his statement was taken to mean that he intended ton create a trust, not make an outright transfer.

Question 6

Formalities required for self-declarations of trust of land?

Answer 6

Declarations of trust would need to be made in writing - s. 53(1)(b) LPA 1925

Question 7

Formalities for transfer to others as trustees - land?

Answer 7

Deed of conveyance s 52(1) LPA 1925 + registration s 7 LRA 2002

Question 8

Richards v Delbridge

Answer 8

‘The settlor need not use the words ‘I declare myself a trustee’ but he must do something which is equivalent to it’

Question 9

Re Coxen

Answer 9

A self-declared trustee had fraudulently set up several trusts. He had evidenced his dealings in pencil on the back of certain documents.

These were too vague and didn’t amount to present intention.

‘In each case where a declaration of trust is relied on in the Court must be satisfied that a present irrevocable declaration of trust has been made’

Question 10

Pappadakis v Pappadakis

Answer 10

A man had begun filling out the necessary forms for the proceeds of his life insurance policy to be held on trust for his wife and kids.

However, he died before completing these.

Because he hadn’t actually gotten as far as to name trustees, the proceeds had to go to his estate.

Question 11

Paul v Constance

Answer 11

The words used were sufficient in this case to create a trust.

Question 12

Shah v Shah

Answer 12

Brother one declared in a letter that he was disposing of his shares to the other. The brothers had a feud. When brother two claimed the shares, brother one argued that this was a failed gift, as he had changed his mind and it wasn’t his intention to follow through with the transfer.

The court held that this was a declaration of trust.

Arden LJ: ‘there is no doubt that the donor manifested an intention that the letter should take effect… ‘as from today’… the donor used the words ‘i am holding’, not… ‘i am giving’, and the concept that he holds the shares for the donee until he loses that status on registration can only be given effect in law by the imposition of a trust’

Question 13

Formalities for transfer to others as trustee - shares?

Answer 13

Execute share transfer form + registration under Stock Transfer Act 1963, s 1

Question 14

Re Rose: the every effort rule

Answer 14

R had executed a deed transferring shares in a private company to trustees. She had made every effort to divest herself of ownership.

The court held that because she had made every effort to complete the documents, and because the reason the directors of the company had refused to register the transfer he had in fact transferred the shares.

Jenkins LJ: ‘The deceased had done all in his power to divest himself of and to transfer the transferees the whole of his right title and interest, legal and equitable in the shares in question’

Question 15

Mascall v Mascall

Answer 15

Father had given a completed transfer of land to his son, but then changed his mind.

The courts applied Re Rose and held that he had done everything he needed to, and the fact that it hadn’t gone through didn’t mean that the father hadn’t divested himself of the beneficial interest. Here, the Land Registry had completed the transfer.

Question 16

Re Fry

Answer 16

During war-time, there were sanctions in the UK that prevented shares and money being transferred in and out of British companies.

An American in the UK had filled out all the transfer forms required to make a transfer, and died.

This case differed from Re Rose, because the treasury might have refused the transfer. The every effort rule didn’t apply.

Question 17

Pennington v Waine

Answer 17

A donor had executed a transfer form transferring shares in a private company to her nephew, but she hadn’t delivered it to him. It had gone to the auditor of the company instead.

The court held that the gift was completed. It wasn’t necessary for the form to be delivered to the nephew, and it would have been unconscionable for the auntie to have changed her mind at that point.

Haley and McMurty comment that this is an ‘unhelpful and questionable decision (that) flies in the face of well-established authority’

Question 18

Zeital v Kaye

Answer 18

The deceased was a beneficiary of a trust of two shares. He intended in his lifetime to pass these shares to his wife, S. He handed two transfer forms to his wife, one with her name on and the other without.

He also hadn’t provided her with the share certificates. S could only establish a beneficial interest if her husband had done all in his power to affect the transfer.

Given that the husband only had equitable rather than legal title to the shares, any transfer would have to satisfy section 53(1)(c) LPA 1925 (requires documentation signed by the donor).

The deceased hadn’t done this, so therefore hadn’t done everything he could to make the transfer. Therefore, the claim failed.

Question 19

Formalities for equitable interests?

Answer 19

Need writing s 53(1)(c) LPA 1925

Question 20

Equity will not assist a volunteer. True or False.

Answer 20

True

Question 21

Who is a volunteer?

Answer 21

A volunteer is someone who hasn’t provided consideration

Question 22

Indirect Constitution of a Trust - what case?

Answer 22

Re Ralli’s Will Trust

Question 23

Re Ralli

Answer 23

The trustee was also the executor under the will of the settlor/ testator and the trust was geld ti be constituted. This was because a trust can be constituted if the trust property reaches the intended trustee in an indirect way, and one which wasn’t intended by the settlor.

Question 24

Three ways in which equity may assist a volunteer

Answer 24

1. The rule in Strong v Bird
2. Donatio mortis causa (DMC)
3. Estoppel

Question 25

Strong v Bird

Answer 25

This case concerns perfecting an imperfect gift. X had borrowed £1100 from his stepmother but had not repaid £900 of it. Her will appointed him as her executor.

The stepson was released of his debt.

This is because where there is an intention to make an immediate gift, or to release a debt, and that intention continues until the death of the donor, then the appointment of the donnee as executor perfects the gift/ releases the debt.

Question 26

Re Stewart

Answer 26

This case establishes that imperfect gifts can still be perfected

Question 27

Re James

Answer 27

This extended the rule in Strong v Bird to situations where the donor dies intestate and the donee is appointed administrator

Question 28

Re Gonin

Answer 28

This case criticised Re James for turning the rule into ‘something in the nature of a lottery’ Penner: ‘The rule in S v B creates an unanticipated lottery’

Question 29

Conditions for Strong v Bird to apply

Answer 29

1. The donor must intend to make an inter vivos gift
2. The donoor must intend to make an immediate gift (Re Freeland)
3. Property must exist at the time of gift and be especially identified (i.e. can’t be a sum of money)
4. The intention to make gift must continue until the death of the donor
5. The donee must be appointed executor/ administrator

Living
Immediate
Specific
Intention
Appointment

Question 30

Re Freeland

Answer 30

This case relates to the second requirement of S v B: donor must intend to make an immediate gift. In this case, a promise to give a car at a future date was outside the rule.

Question 31

Donatio mortis causa (DMC) - Deathbed Gifts

Answer 31

This is a conditional, lifetime gift made by the donor in contemplation of death. It doesn’t take effect until the donor dies.

The effect of a DMC is that pending the death of the donor, the property is held on a constructive trust for the donee.

Question 32

Conditions of DMC:

Answer 32

1. The gift or donation must have been made in contemplation, though not necessarily in expectation, of death.
2. The gift must be made so that the property is to revert to the donor if the death does not occur (ie: it is conditional on the death of the donor)
3. The donor needed to have delivered the gift to the donee.

Contemplation
Revert
Delivery

Question 33

Re Beaumont

Answer 33

This case concerned whether or not a cheque which hadn’t been cashed by the time the donor died was a valid DMC

The court held that it wasn’t, because the drawing of the cheque by the deceased didn’t amount to a delivery as is required to give the done a right to the cheque which is to become absolute in the donor’s death.

Question 34

Cain v Moon

Answer 34

The deceased was very ill and was cared for by the defendant.

The deceased decided to give a deposit note to the defendant.

The defendant kept the note and the deceased was aware of this.

When the deceased was about to die, he/she told the defendant that everything was to go to her.

The deceased’s relatives argued that there hadn’t been delivery.

The court held that there was. The fact that the defendant had the deposit for safekeeping was enough. Because the word ‘gift’ was used, this was sufficient to show intention to deliver.

Question 35

Quote from Cosnahan v Grice

Answer 35

‘Without any imputation a fraudulent contrivance, it is so easy to mistake the meaning of a person languishing in a mortal illness, and, by a slight change of words, to convert their expressions of intended benefit into an actual gift of property, that no case of this description ought to prevail, unless it is supported by evidence of the clearest and most unequivocal character.

Question 36

Re Craven’s Estate

Answer 36

This case established that contemplation of death must be ‘within the near future’

Question 37

Wilkes v Arlington

Answer 37

In this case, the deceased had cancer, expected to die from cancer, but instead died of pneumonia.

This didn’t alter the fact that the gift was valid - it was enough that death was contemplated.

Question 38

Gardner v Parker

Answer 38

The donor gave the donee a bond two days before his death.

It was held that circumstances (rather than express words) were sufficient to show contemplation of death.

Question 39

DMC Rule 1: The gift or donation must have been made in contemplation, though not necessarily in expectation, of death - cases

Answer 39

Re Craven’s Estate
Wilkes v Arlington
Gardner v Parker
Re Kirkley

Question 40

Re Kirkley

Answer 40

The donor concerned was ill and feeble, but not dying.

This was insufficient to show contemplation of death.

Question 41

Sen v Hedley

Answer 41

Question: can land be the subject of a DMC?

The deceased was terminally ill.

D said to the claimant (who was a very close friend): ‘the house is yours. You have the keys. They are in your bag. The deeds are in a steel box.’

It was held that this was valid and that there can be a valid DMC of land.

Question 42

Tate v Hilbert

Answer 42

A gift is ‘revocable until that event occurs (death) and ineffective if it does not’

Question 43

DMC Requirement 2: The gift is conditional upon the death of the donor - cases

Answer 43

Sen v Hedley

Tate v Hilbert

Question 44

What proprietary interests can be transferred during constitution of trusts?

Answer 44

a) Legal title to tangible property
b) Transfer of legal title to land
c) Transfer of legal title to shares
d) Debts
e) Copyrights

Question 45

a) Legal title to tangible property

Answer 45

E.g. cars, paintings, this can also be done by execution of deed or gift

Question 46

b) Transfer of legal title to land

Answer 46

This requires a deed, s 52(1) LPA 1925 + registration, ss 29, 30 LRA 2002

Question 47

c) legal title to shares

Answer 47

This can be done electronically (Stock Transfer Act 1963, s 1; Companies Act 2006, ss 770-72) share transfer form and the transferee being entered as the new owner on the company’s records

Question 48

d) Debts

Answer 48

Transferred by writing followed by a notice to the debtor s 136 LPA 1925

Question 49

e) Copyrights

Answer 49

Require signed writing, Copyright, Designs and Patents Act 1988, s 90 (3)

Question 50

Reminder: can a trust be created for future property?

Answer 50

No

Question 51

When is a promise to create a trust binding?

Answer 51

a) When the promise is made in a deed (also known as a covenant)
b) Where there is consideration

Question 52

If consideration was given, what can the the donee recover?

Answer 52

Damages and/or specific performance

Question 53

The Contracts (Rights of Third Parties) Act 1999

Answer 53

This states that:

Where A and B enter into a contract which passes a benefit onto C, C can enforce the contract

C can do this even though C hasn’t provided consideration and isn’t a party to the deed

This is the case unless A and B intended that C shouldn’t be able to enforce the contract

Question 54

Re Brooks’ Settlement Trusts

Answer 54

A (mother) set up a trust in favour of B (her son). B set up a trust (with the same trustee) in favour of C (his family).

The question was, when A transferred assets to her trust, was this to automatically go to C?

The court held no.
Justice Farewell clarified that it is only the settlor who can constitute a trust.