Creating Express trust Flashcards
In the term “certainty of objects”, which ONE of the following most clearly describes the meaning of the word “objects”?
The trustees.
The reasons or motives behind the settlor/testator’s decision to create a trust.
The beneficiaries, or, in the case of a discretionary trust, the potential beneficiaries.
The chattels, or things, the settlor/testator is making into trust property
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Correct, well done. The answer is C. The term “objects” equates to the (already chosen) beneficiaries of a fixed trust and the (potentially chosen) beneficiaries of a discretionary trust.
Which ONE of the following instructions would be sufficient to create a trust?
In his will, the late Robert Carol provided:-
‘I give my art collection to George Carol, hoping that he will give a painting to each of my children.
‘I give my art collection to George Carol and express the wish that he will give a painting to each of my children.’
‘I give my art collection to George Carol, trusting that he will give a painting to each of my children.
‘I give my art collection to George Carol to distribute a painting to each of my children.’
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Correct, well done. The answer is D. A trust can be created even if the settlor does not use the word ‘trust’. Settlors have an intention to create a trust if they impose a duty on the trustee to deal with the property in a certain way. ‘To distribute’ imposes a duty on George to give a painting to each child. The other options contain precatory words which do not create trusts (Re Adams and the Kensington Vestry).
Which ONE of the following is MOST LIKELY to fail due to uncertain subject-matter?
£100,000 to be held on trust for my children equally.
£100,000 to be held on trust for my children
£100,000 to my trustees to hold on trust for such of my children and in such shares as my Trustees think fit.
A will gives trustees ‘the residue of my estate on trust to give my children the amounts which they deserve’
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Correct, well done. The answer is D. Here, the trust property is ‘residue’. This is what is left of the estate after debts and legacies have been paid and it is certain. However, the beneficiaries’ respective interests (‘the amounts which they deserve’) are uncertain and no discretion is given to the trustees. Therefore, D is likely to fail due to uncertainty of subject-matter. In A, the trust property is £100,000, which is certain, and there is a formula for working out the children’s beneficial interests (“equally”). In B, nothing is said about the size of each the child’s interest, but where property or money is held on trust for a group of people and nothing is said about their shares, they are assumed to share equally. C is a discretionary trust where the trustees decide on the extent of each beneficiary’s share.
Sami wants to transfer £10,000 to Taj to hold on trust for his son, Banjul.
Which ONE of the following is CORRECT to achieve this?
Sami signs a cheque in favour of Banjul and hands it to Taj
Sami signs a cheque in favour of Taj and hands it to Taj.
Sami signs a cheque in favour of Taj and hands it to Taj, telling him to hold it on trust for Banjul.
Sami writes a letter to Taj as follows: “Please hold this cheque for £10,000 on trust for Banjul”, but forgets to sign a cheque and so does not include one with the letter to Taj
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Correct, well done. The answer is C. To create a trust over personalty by transfer to trustee there are two stages. First, the intended trust property must be effectively transferred to the trustee. This was achieved in answers B and C, but not in answers A and D. Second, the trust must be declared i.e., the trustee must be instructed to hold on trust, and the trust property and beneficiary must be clear (the three certainties). Only in option C is there both the necessary transfer of trust property and the required declaration of trust.
At a family meeting, James makes an oral announcement, ‘From now on, I am holding all my shares in Delta Diggers Ltd on trust for Kimberley until she has her 21st birthday’. Kimberley is James’ nineteen- year-old daughter who is keen to get involved in the family company.
Which ONE of the following statements is CORRECT?
James has not created a valid trust because he has not transferred the trust property to the trustee by stock transfer form and registration of the trustee at the company.
James has not created a valid trust because he should have declared the trust in writing.
James has created a valid trust, but he can change his mind and reclaim the shares.
James has created a valid trust and it is too late for him to change his mind and reclaim the shares.
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Correct, well done. The answer is D. The first step for you to take when answering a question on validity of a trust is to decide which of the three methods of creating the trust the settlor intended to use. Here, James wanted to declare himself a trustee in his lifetime. The statement made by James satisfies the requirements for a valid declaration (there is certainty of intention, subject-matter, and object as well as compliance with the beneficiary principle and the relevant rule on perpetuity). Lifetime trusts over personalty can be declared orally, so (B) is not correct. A transfer of the shares was not required because James, who will now be the trustee, already holds legal title to the shares, so (A) is not correct. Once a trust has been validly created, it is too late for the settlor to back out, so (C) is not correct.
Nathan wants to declare a trust over his holiday cottage “Seaview” in favour of his nephew Owen, aged 16.
Which TWO of the following will achieve this? (To obtain credit for this question you must identify BOTH correct statements.)
Nathan tells Owen, “I’m holding Seaview on trust for you”.
Nathan tells Owen, “I’m holding Seaview on trust for you” and a week later writes a letter to Owen confirming the conversation, signed “Uncle Nathan”
Nathan tells Owen’s father “I’m going to hold Seaview on trust for Owen”.
Nathan signs a memorandum, “From now on, I’m holding Seaview on trust for Owen”.
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Correct, well done. Both B and D achieve this. The correct formalities for a declaration of trust over land are stated in section 53 (1)(b) LPA 1925. The declaration of trust must be manifested and proved by some writing signed by the person creating the trust (here Nathan) and this signed writing must contain all the terms of the trust. It is sufficient for Nathan to sign as “Uncle Nathan”. The declaration may actually be in writing, as in answer D, or an oral declaration subsequently evidenced in writing, as in answer B.
Which ONE of the following clauses found in a will creates a valid trust?
I give my jewellery to Bridget Lloyd trusting that she will give my cousin, Patricia Powell, one of my rings
I give £10,000 to Bridget Lloyd hoping she will give some of the money to Patricia Powell.
I give £10,000 to Bridget Lloyd on trust to be divided equally between my closest friends
I give £10,000 to Bridget Lloyd to be divided equally between my employees.
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Correct, well done. The answer is D. To be valid, the trust must satisfy the three certainties of intention, subject matter, and objects. The testator has not used the word ‘trust’ but the phrase, ‘to be divided’, is sufficiently imperative to suggest certainty of intention. The subject matter is £10,000. The test for certainty of objects depends on the type of trust. This is a fixed trust. Therefore, the complete list test applies. In Re Baden’s Deed Trust No 2 it was held that the word, ‘employees’, was certain.
The attempted trusts in (A) and (B) lack certainty of intention. ‘Trusting’ and ‘hoping’ are precatory words which do not create trusts (Re Adams and the Kensington Vestry). In (B), there is also lack of certainty of subject-matter.
The objects are uncertain in (C) - it is a fixed trust and you could not draw up a complete list of ‘my closest friends’ because the description is conceptually uncertain.
Is this statement TRUE or FALSE?
If the directors of a company create trusts for their new customers and then the company goes into insolvent liquidation, the trusts will be void because they will be unlawful preferences of creditors.
True
False
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Correct, well done. The statement is false as it is not entirely accurate. If the company creates trusts for existing customers who are already owed money/goods by the company, then the company is preferring existing creditors, and this is likely to be unlawful. However, where the trust is created for money which customers will send in the future, there is no unlawful preference of creditors because these customers never become creditors; they are beneficiaries under a trust all along (Re Kayford).
In June 2021, Max decided he wanted to give an antique table he owned to his daughter Anna. He told her to collect it from his house. By August 2021, Anna had not yet collected the table,so he told another daughter, Becky, she could have it, saying, “Come and collect it this Saturday”. Becky never did collect the table. When he died in November 2021, Max’s estate, after paying debts he owedto his creditors at his death, was worth about £35,000 (including thetable, worth £5,000). In his will, dated April 2019, he appointed Anna as executor, and left everything to his third daughter, Cath.
As executor, Anna asks, “Who gets the table?!”
Which ONE of the following is CORRECT?
Anna
Becky
Cath
Max’s creditors
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Correct, well done. The answer is C, Cath. It cannot be D, his creditors, because Max died with enough to satisfy them, his estate still being worth £35,000 after all the debts has been paid. It is not B, Becky because Max intended to make a lifetime gift to her of a chattel, which requires delivery. There might have been a perfected gift to her had there been delivery, but this did not occur as she never took possession of the table. There is a possible perfect lifetime gift to A, Anna. As with Becky there was no immediately perfect gift because of the lack of delivery. However, the rule in Strong v Bird can save transfers in similar circumstances. An immediate lifetime gift must have been intended, the intention must continue until death, and the intended donee must become the donor’s personal representative. While the intended gift was immediate and Anna has been appointed executor in Max’s will, the attempted subsequent gift to Becky indicates a change of mind, negating the original attempted gift to Anna. The result is that the table passes to Cath under the will.
Seatco Ltd has gone into liquidation. It holds many customer pre-payments and will now be unable to fulfil their orders.
In which ONE of the following cases is there likely to be a trust for customers?
Customer Green sent Seatco £2,000 with a covering letter saying that it was to purchase a black leather “Sofia” sofa.
Seatco has spent Customer Green’s £2,000 on overheads. It has three black Sofia sofas in its warehouse.
Customer Green stated that the £2,000 was not to be at the general disposal of Seatco but was to be held separately until the sofa was delivered to Green.
Seatco opened a bank account containing £30,000 and called it the “Loyal Customers’ Protection Fund.
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Correct, well done. The answer is C. In C the customer has indicated that the money is to remain in the customer’s beneficial ownership until the goods are delivered and this suggests a trust. In A, there is simply a contract to buy the goods. In B, there is no trust of the money because it has been dissipated. There is no trust of a sofa because there is uncertainty of subject-matter. Which of the three sofas is the subject of the trust? In D, any attempted trust could be void as a preference or due to uncertainty of objects.
Under the terms of a valid will, a woman appointed her son to hold her residuary estate on trust ‘for such promising young tennis players living in Wales and in such shares as [my son] thinks fit’. The woman was a past Chair of a tennis club and grew up in Cardiff. Her residuary estate was made up of money held in various UK bank accounts.
The woman’s son asks a solicitor whether this trust is valid. The son wants to carry out the woman’s wishes as much as possible and has already put together a list of people who he thinks should benefit from the trust.
Is the trust valid?
Yes, because the son has identified people he thinks would benefit from it.
Yes, because it is not capricious.
Yes, because it is contained in a valid will.
No, because there is insufficient certainty of subject-matter.
No, because there is insufficient certainty of objects.
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Well done, Option E is correct. The trust is not valid because it lacks certainty of objects. The trust is discretionary and therefore must comply with the given postulant test. This requires that the description of the class of objects be conceptually certain. That is not the case here. For instance, it is unclear what is meant by ‘promising’ and ‘young’ (e.g., does the latter mean people under the age of 16, 18, 21 years or some other age?) The trust therefore fails.
Option A is wrong. Just because the son thinks he knows who might benefit under a trust does not mean that the trust is valid. If the son chooses incorrectly, he will be in breach of trust.
Option B is wrong. Whilst it correctly identifies that the trust is not capricious (there is a discernible link between the woman and the class she wants to benefit), this does not make the trust valid. If the trust is uncertain (as here), the fact that it is not capricious will not save it.
Option C is wrong. Whilst it correctly identifies that the trust is contained in a valid will, this does not make the trust valid. The declaration of trust must satisfy the three certainties (which it does not).
Option D is wrong because a trust over a residuary estate has certain subject-matter. The residuary estate can be calculated with certainty – it is whatever is left over once all debts, taxes and specific legacies have been met. This is not why the trust fails.
Last month, a woman wrote to a banker as follows, ‘You will hold my house in Edale for my nephew, who shall become entitled to the house when he reaches the age of 25 years’. The woman executed a TR1 in favour of the banker.
The woman died two weeks ago. In her will (executed five years ago), she appointed the banker to be her executor. Everything in the will was left to the woman’s daughter. When going through the woman’s belongings, the banker found the TR1 in the hall sideboard in the woman’s home. The Land Registry have confirmed that the woman was still the registered proprietor of the house in Edale when she died.
Is the house held on trust for the nephew?
Yes, because the woman executed a valid TR1 to transfer legal title to the banker.
Yes, because the woman made every effort to transfer legal title to the banker.
Yes, because the fact that the banker is the woman’s executor in this case constitutes the trust.
No, because the daughter is the sole beneficiary under the woman’s will.
No, because the woman failed to transfer legal title in the house to the banker while she was alive.
Feedback
Well done, Option C is correct. The woman tried to create a valid lifetime trust with the banker as the trustee. This would usually require the woman to transfer legal title in the house to the banker while she was alive. However, as an exception to the rule that ‘equity will not assist a volunteer’, equity can constitute this trust using the rule in Strong v Bird. This is because the woman intended to create an immediate trust; that trust was not immediately created due to a failure to comply with a relevant transfer rule; there is nothing to suggest that the woman’s intention did not continue up to her death; and the banker acquired legal title to the trust property by becoming the woman’s executor.
Option A is wrong. The mere execution of a TR1 is not sufficient by itself to transfer legal title in land.
Option B is wrong. In order to satisfy the every effort test, the woman would have had to put relevant documents beyond recall, i.e., she would have had to send the TR1 to either the banker or the Land Registry. She did neither.
Options D and E correctly set out what the general position should be given that the woman failed to transfer legal title to the house during her lifetime. However, given that the nephew can rely on the rule in Strong v Bird to constitute the trust in his favour, neither statement represents the best advice on the facts.
During his lifetime, an accountant wrote a letter to a teacher, in which he said, ‘I have decided to give you my holiday home in Bowness-on-Windermere. I would like you to think of giving this home to your daughter when she reaches the age of 18 years’.
The daughter is now aged 18 years. She has found a copy of the letter and she says that she is entitled to the home in Bowness-on-Windermere. The teacher fell out with his daughter two years ago. The teacher does not want to transfer the home to his daughter.
Must the teacher transfer the home to his daughter?
Yes, because there was a trust over the home in the daughter’s favour and, having reached the age of 18 years, the daughter is now entitled to the home.
Yes, because the accountant has identified the home and the daughter with sufficient certainty.
Yes, because the accountant created an express trust in favour of the daughter and that trust was manifested and proved in signed writing.
No, because what the accountant said in this letter did not amount to a trust in favour of the daughter as there was insufficient certainty of intention.
No, because the daughter is too young to hold legal title in land.
Feedback
Well done, Option D is correct. What the accountant says is not sufficient to give rise to a trust, i.e., there is no certainty of intention. He used precatory wording – ‘I would like you to …’. There is no binding obligation on the teacher to give the home to his daughter. When the accountant transferred the home to the teacher, the teacher became the absolute owner of the home.
Option A is wrong. As the accountant’s letter did not declare a trust over the home, the age of the daughter is irrelevant.
Option B is wrong. Whilst the accountant did identify the home and the daughter with sufficient certainty, a declaration of trust needs to comply with all three certainties and, in this case, there is no certainty of intention. The daughter therefore has no interest in the home.
Option C is wrong. The accountant’s letter did not declare a trust over the home (for the reasons set out above).
Option E is wrong. A person aged 18 years or over can hold a legal estate in land.
During a telephone conversation with a friend, a manager asked the friend whether she would look after her flat in Nottingham and transfer that flat to her friend’s son when he turned 25 years of age. The son is currently aged 15 years. The friend agreed.
The manager then wrote to a solicitor who was looking after the manager’s affairs. The manager advised the solicitor that, going forward, the friend would ‘hold my flat in Nottingham on trust’.
Which of the following statements best describes why the trust is not enforceable?
The trust is not enforceable because during the telephone conversation with the friend, the manager never used the word ‘trust’.
The trust is not enforceable because there is no certainty of subject-matter.
The trust is not enforceable because the manager cannot delay the son’s entitlement to the flat beyond the age of 18 years.
The trust is not enforceable because the manager must have written to the friend to record that the flat would be transferred to the son.
The trust is not enforceable because the manager has not set out all the material terms of the trust when writing to the solicitor.
Feedback
Well done, Option E is correct. The manager is attempting to create a trust over land. She must therefore comply with the requirements of s 53(1)(b) of the LPA 1925, namely that the declaration of trust must be evidenced in signed writing. The letter to the solicitor does not satisfy this formality, as it does not record the material terms of the trust. For instance, it does not identify who is the beneficiary under the trust and when his interest will vest. The trust therefore is unenforceable.
Option A is wrong. Just because the manager did not use the word ‘trust’ when speaking to the friend does not make the trust unenforceable. It is clear from the wording she used that a trust was intended. The friend had to look after the flat and then distribute it to someone else. This describes the classic role of a trustee.
Option B is wrong. Assuming that the manager has only one flat in Nottingham (and there is nothing to suggest that this is not the case), then there will be sufficient certainty of subject-matter. Objectively speaking, we know what property will be held under trust.
Option C is wrong. The manager can delay the son’s entitlement to the flat, so long as she does not offend the rule against remoteness of vesting. Given that the son’s interest will vest after 10 years, this is not an issue.
Option D is wrong. Whilst s 53(1)(b) of the LPA 1925 requires that the manager record the material terms of the trust in signed writing, she does not need to send that written record to the friend (although clearly such a course of action would be prudent). Had the letter to the solicitor set out all the material terms of the trust, that would have been sufficient.
An artist writes a letter to her brother saying, ‘The two of us shall be trustees over the sum of money in my savings account for your daughter until such time as your daughter marries or turns 30 years of age (whichever is the earliest), when it will become hers’. The daughter is aged 21 years.
The artist dies two weeks later. The artist had taken no steps before her death to put the money into a joint bank account in the names of herself and her brother. In her will, the artist named the daughter as the executrix of her estate.
Which of the following statements best describes why the money in the savings account belongs beneficially to the daughter?
The money belongs beneficially to the daughter because the letter is a valid declaration of trust and it would be unconscionable for the trust not to take effect.
The money belongs beneficially to the daughter because the letter comprises a deed of transfer of that money to the brother, which constitutes the trust.
The money belongs beneficially to the daughter because the letter demonstrates that the woman made every effort to constitute the trust
The money belongs beneficially to the daughter because of the rule in Strong v Bird.
The money belongs beneficially to the daughter because the trust had already self-constituted prior to the artist’s death
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Well done, Option A is correct. The artist intended to create a trust with herself and her brother as trustees. Ordinarily, the artist in this situation would have had to take whatever steps were required to put the legal title to the money into the joint names of herself and her brother. However, having made a valid declaration of trust, it would have been unconscionable for the artist to back out of constituting the trust. As a result, the trust is valid in equity and the money belongs beneficially to the daughter.
Option B is wrong. The letter is not a deed (as it will not have been witnessed by a third party) and is not sufficient to constitute the trust.
Option C is wrong. The letter is not sufficient to satisfy the every effort test. The artist needed to take steps to open a joint account in the name of herself and her brother and transfer the money from her savings account into that joint account. The every effort test generally only applies in cases where land or company shares are being transferred.
Option D is wrong. The fact that the daughter is appointed to be the executrix is irrelevant to the operation of the rule in Strong v Bird. In order to constitute a trust using this rule, it is the trustee who must be appointed the executor/executrix, not the beneficiary.
Option E is wrong. The only trusts which self-constitute are those where the settlor appoints only themselves to be the trustee. This is not that kind of trust
