Creation of a trust

Question 1

What is the difference between legal title and equitable title in relation to a trust?

Answer 1

A full legal owner does not have equitable title because they do not need it. They have the full legal and beneficial interest in the property. In a transfer on trust, legal title is transferred to a third party trustee, and a new equitable interest is created for a beneficiary.

Question 1

What are the different categories of trusts?

Answer 1

Trusts can be categorized as express, resulting, or constructive. Express trusts are intentionally created, while resulting and constructive trusts arise by operation of law.

Question 2

How is an express trust different from resulting and constructive trusts?

Answer 2

An express trust is deliberately created, while resulting and constructive trusts arise by operation of law and are imposed by the courts.

Question 3

What are trusts created by operation of law?

Answer 3

Trusts created by operation of law are not intentionally created but instead are a response to particular circumstances which the law considers should give rise to a trust. There are three broad categories of trusts arising by operation of law: resulting trusts, constructive trusts, and statutory trusts.

Question 4

Who can be a beneficiary in a trust?

Answer 4

The beneficiary in a trust can either be a third party or the settlor.

Question 5

What are the requirements for creating an express trust?

Answer 5

To create a valid express trust, it is necessary to comply with the three certainties: certainty of intention, certainty of subject matter, and certainty of objects. Additionally, there may be further formalities depending on whether there is a self-declaration or a transfer on trust.

Question 6

How can a settlor create an express trust?

Answer 6

A settlor can create an express trust through a self-declaration of trust or a transfer on trust. In a self-declaration of trust, the settlor manifests an intention to hold one of their assets on trust for the beneficiary. In a transfer on trust, the settlor transfers property to a third party trustee with the intention that the trustee holds the property on trust for the beneficiary.

Question 7

What are the two types of resulting trusts?

Answer 7

Resulting trusts can be further subdivided into two key categories: automatic resulting trusts and presumed resulting trusts.

Question 8

What happens in a self-declaration of trust?

Answer 8

In a self-declaration of trust, the settlor remains the legal owner of the asset but is divested of their beneficial interest in it. The settlor becomes the trustee, holding legal title in a new capacity, while a new equitable interest is created for the beneficiary.

Question 9

How do automatic resulting trusts and presumed resulting trusts differ?

Answer 9

Automatic resulting trusts are default trusts that arise when a transfer on trust fails, either wholly or partly. Presumed resulting trusts arise when a person makes a gratuitous transfer of property to a third party, and equity raises a presumption that the property should be held on trust for the transferor.

Question 10

What happens in a transfer on trust?

Answer 10

In a transfer on trust, the settlor transfers property to a third party trustee with the intention that the trustee holds the property on trust for the beneficiary. The trustee becomes the legal owner of the property, and a new equitable interest is created for the beneficiary, who becomes the equitable and beneficial owner.

Question 11

What is the purpose of automatic resulting trusts?

Answer 11

Automatic resulting trusts ensure that the property returns to its original owner when it is otherwise unclear what should happen to it. They are a default trust that does not respond to the actual intention of the settlor.

Question 12

Under what circumstances do presumed resulting trusts arise?

Answer 12

Presumed resulting trusts arise when a person transfers their property to someone else, and equity presumes that they intended for the recipient to hold it on trust for them. This presumption can be rebutted by evidence that the transferor did not intend the property to be held on trust for them.

Question 13

What are the different ways to categorize trusts?

Answer 13

Trusts can be categorized as lifetime or testamentary, fixed or discretionary. Lifetime trusts can be both fixed or discretionary, as can testamentary trusts. It is important to note that not all categories are mutually exclusive, and there can be overlap between different categories.

Question 14

How does a self-declaration of trust differ from a transfer on trust?

Answer 14

In a self-declaration of trust, the settlor remains the legal owner of the asset and becomes the trustee, while in a transfer on trust, the settlor transfers legal title to a third party trustee. Additionally, in a self-declaration of trust, a new equitable interest is created for the beneficiary, whereas in a transfer on trust, the trustee becomes the legal owner and a new equitable interest is created for the beneficiary.

Question 15

What is the purpose of constructive trusts?

Answer 15

Constructive trusts are imposed to correct unconscionability. They are more complex and varied in nature compared to resulting trusts.

Question 16

What are institutional constructive trusts?

Answer 16

Institutional constructive trusts are the orthodox form of constructive trust. They are automatically imposed in response to a trigger event that affects the conscience of a legal owner, preventing them from denying the beneficial interest of another person.

Question 17

What is the role of the settlor in a self-declaration of trust?

Answer 17

In a self-declaration of trust, the settlor manifests an intention to hold one of their assets on trust for the beneficiary. The settlor remains the legal owner of the asset but is divested of their beneficial interest in it.

Question 18

What are some examples of trigger events for institutional constructive trusts?

Answer 18

Some examples of trigger events for institutional constructive trusts include trusts imposed to prevent fraud, trusts imposed to perfect an imperfect gift or trust, trusts imposed to compel parties to perform a specifically-enforceable contract, and trusts imposed over profits made in breach of fiduciary duty.

Question 19

When are constructive trusts awarded as a remedy?

Answer 19

Constructive trusts can be awarded by a court as a remedy following misapplication of property in which the claimant can establish an equitable proprietary interest, or property representing the traceable proceeds of a breach of trust or fiduciary duty. This type of constructive trust is not imposed automatically but is the result of a claimant asserting their rights in the property and seeking to claim beneficial ownership of the property or a share of the property.

Question 20

What are the exceptions to the beneficiary principle in trusts?

Answer 20

Charitable trusts, which have charitable purposes as their objects and are in the public benefit, are exceptions to the beneficiary principle. There are also narrower exceptions known as non-charitable purpose trusts or private purpose trusts.

Question 21

What are common intention constructive trusts?

Answer 21

Common intention constructive trusts are used to resolve disputes as to beneficial ownership of land where there is no express trust declared over the property. They typically arise in cases where the land is occupied by unmarried couples as a family home or when both individuals are registered as legal owners of the land but there is a dispute about their shares in the land.

Question 22

How does equity determine the equitable interests in common intention constructive trusts?

Answer 22

In common intention constructive trusts, the court assesses the common intention of the parties to determine their respective equitable interests in the land. This is done when there is no express trust declared over the property.

Question 23

What is the purpose of the Trusts Registration Service (TRS) in relation to trusts?

Answer 23

The Trusts Registration Service (TRS) is an online service operated by HMRC. It is used for the registration of express trusts that have incurred a tax liability in a given year. The trustees are responsible for registration and keeping the information held by the TRS up to date.

Question 24

A company transfers possession of its goods, but not its title to them, to a man. The company and the man agree that the man will try to sell the goods on behalf of the company and that he will return to the company any goods that he is unable to sell. They also agree that the man will pay the proceeds from any sales into a separate bank account and that he will transfer the sum credited to that account to the company at the end of each week. The man sells some of the goods. He pays the proceeds of sale into a separate bank account.

Which statement best describes the man’s relationship with the company?

The man’s relationship with the company is not fiduciary in nature: it is merely contractual.

The man is an agent for the company.

The man is a trustee for the company.

The man is a bailee for the company.

The man is a bailee, an agent and a trustee for the company.

Answer 24

The man is a bailee, an agent and a trustee for the company.

The man has possession of (but not title to) the company’s goods. This creates the relation of bailor and bailee. The man is authorised to sell goods on behalf of the company. This creates the relation of principal and agent. The man has paid the proceeds of sales into a separate bank account, which he must transfer to the company. This creates the relation of trustee and beneficiary.

Question 25

Formalities for a trust created over land?

Answer 25

However, declarations of trust over land must comply with s 53(1)(b) of the Law of Property
Act (LPA) 1925. This requires that the declaration of trust must be ‘manifested and proved by
some writing signed by some person who is able to declare such trust’. This means that the
declaration of trust must be evidenced in writing signed by the settlor. If a declaration of trust
over land does not comply with this formality, the trust will be unenforceable

Question 26

How can lifetime trusts be made?

Answer 26

For lifetime trusts, most declarations of trust can be made orally, although this is not advised
given that the trustees (and possibly the beneficiaries and the court in the case of any future
dispute) will want to refer back to that declaration over the duration of the trust.

Question 27

Question 2
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
about 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?
A 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.
B Yes, because the accountant has identified the home and the daughter with sufficient
certainty.
C Yes, because the accountant created an express trust in favour of the daughter and
that trust was manifested and proved in signed writing.
D 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.
E No, because the daughter is too young to hold legal title in land.

Answer 27

Answer
Option D is correct. What the accountant says is not sufficient to give rise to a trust, ie there
is no certainty of intention. He used precatory wording – ‘I would like you to think about …’.
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.