Creation and Requirements of Express Trusts Flashcards
what are the 3 methods of creating an express trust?
(1) self-declaration of trust: settlor is trustee and retains legal title, new equitable title is created for beneficiary
(2) transfer on trust for third party: settlor transfers legal title to a third party trustee, new equitable title for a third party beneficiary
(3) transfer on trust for settlor: settlor transfers legal title to trustee to hold on trust for settlor as beneficiary
what are the 3 certainties to create a valid and enforceable express trust?
(1) certainty of intention
(2) certainty of subject matter (trust property + beneficial entitlement)
(3) certainty of objects (beneficiaries)
a trust will fail if one is not present
what is certainty of intention? how is this determined?
the settlor must have an intention to impose or assume a duty characteristic of a trust (i.e., duty to hold property or apply it for someone else’s benefit)
this is determined objectively by looking at the facts and circumstances:
- spoken words or conduct
- segregating assets and paying funds into a separate earmarked account (but this is not conclusive)
- use of the word ‘trust’ in written documents (but this is not conclusive)
- substantive rights and duties of parties showing a trust relationship
settlor does not need to know what a trust it to have intended to create one
what is certainty of subject matter? (2 requirements)
requires certainty as to:
(1) what property is subject to the terms of the trust (‘identifying the trust property requirement’)
and
(2) what is the beneficiary’s interest and entitlement in the trust property (‘beneficial entitlement requirement’)
if a trust is created out of a ‘bulk of x item’, is its subject matter sufficiently certain?
no - it will fail because the trust property is not sufficiently identified
if a trust is created out of ‘the net assets of company x’, is the subject matter sufficiently certain?
no - it will fail because the trust property is not sufficiently identified
is a trust created out of a fractional interest of a larger mass sufficiently certain for subject matter?
(e.g., trust of 20% of my estate)
yes - fractional interest of a wider mass is sufficiently certain and valid
regardless of nature of property
can a trust be sufficiently certain for subject matter if it is created over a specified number of items out of a larger mass?
e.g., trust of 3 of my x items - without specifying exactly which 3 items
depends on type of asset
valid = only if objects are intangible and fungible (eg, shares)
invalid = any tangible property - fungible or non-fungible (eg, diamonds, wine bottles, gold bars, cash, …)
how will the beneficial entitlement requirement be satisfied for fixed interest trusts in order to have certainty of subject matter?
there must be a pre-determined way to ascertain the nature and extent of what each beneficiary is entitled to
otherwise, the trust will fail for uncertainty of subject matter
how will the beneficial entitlement requirement be satisfied for discretionary trusts in order to have certainty of subject matter?
the mechanism for determining beneficial entitlement is the trustee exercising their discretion
this is sufficiently certain to satisfy this requirement
is a power of appointment enough to satisfy the beneficial entitlement requirement?
power of appointment = settlor gives a third party the power to decide what property goes to what beneficiary - but the donee of the power can choose not to exercise it
this is sufficient to satisfy the beneficial entitlement requirement and to have certainty of subject matter
But there must be a back-up clause in case the donee does not exercise it - e.g., donee dies before selecting or chooses not to so trustees will have default powers
what is the test to determine whether a fixed trust has certainty of objects?
test = the complete list test - beneficiaries must be expressly identifiable by name
this requires:
(1) conceptual certainty = refers to the precision of language used by the settlor to define the class of persons whom they intend to benefit to draw up a complete list (e.g., trust to my favourite daughter - not precise)
(2) evidential certainty = refers to the extent to which evidence in a particular case enables trustees to identify the objects to draw up a complete list
will a trust fail if there is uncertainty as to one beneficiary but not to another?
e.g., a trust to my wife for life, remainder to ‘my favourite daughter’
no - the trust will only fail in part
(the fixed trust in the example requires conceptual certainty to satisfy the complete list test for certainty of objects - but the settlor did not use precise enough language to define the daughter)
what is the test to determine whether objects of a discretionary trust has certainty of objects?
test = is/is not test - trustees must say with certainty whether any given individual is or is not a member of the class of beneficiaries
requires conceptual certainty = the class must be clearly and precisely defined (e.g., employees, siblings, children - but not ‘best friends’ or ‘relatives’)
can accommodate some evidential uncertainty = it is for the claimant to prove to the trustees’ satisfaction that they are in the class (e.g., employee pay slips, birth certificate, etc.)
what is administrative unworkability?
where the class of objects is too wide (e.g., all residents of London), the trust will fail for uncertainty of objects
