Creation of Express Private Trusts Flashcards
FORMALITIES REQUIRED FOR THE TRASNFER OF ASSETS
(1) Land
Transfer of property must be by deed (s. 51(1) LPA 1925). Signed and dleivered (s. 1 LP (MP) A 1989).
Registration of trasnferee as the new propreitor of the land is now required in all cases (s. 19-22 Land Registration Act 1925)
(2) Company Shares
Delivery of the share certificate plus a signed Stock Transfer Form (s. 1 Stock Transfer Act 1963).
(3) Banknotes Chattels
Mere delviery is sufficent.
(4) Existing Equitable Interests
Disposition (equitable interest or trust) must be in writing signed by the person disposing of the same, or by his agent authorised in writing to do so.
(5) Will
The must be validly executed.
Wills Act s. 9 1837 - must be in writing, signed in the presnece of two witnesses who watch the testator sign it and sign themselves.
[Exam: state such but can assume it is validly exeucted].
FORMALITIES FOR DECLARING A TRUST
(1) On death
Wills Act 1837, s.9
(2) Inter Vivos
(a) Personalty
Words or conduct are sufficent. No formaities required ‘equity looks to substance (intent) not form’.
Paul v Constance - Mr C died intestate; Mrs C next of kin. Joint account with Mrs P. Legal title of the money with Mr C, held on trust for Mrs P. Words ‘it is yours as much as it is mine’ and joint conduct of putting the money into the account = declaration of trust.
Re Kayford - customer despoits put in a seperate account upon insolvency. Trust created.
(b) Signed written evidence of declaration of trust (s. 51(1)(b) LPA 1925). [EXAM: anything].
EFFECT OF A VALID DECLARATION OF TRUST
Incorrect formalities = nothing (incompletely constituted trust or imperfect gift).
Complied formalities = trust. Settlor cannot change his mind and get the property back.
Re Bowden - B declared trust property that was trasnfered. Later asked for it back. Held formlaities complied = no equtiable entitlement anymore.
Issues with s. 53(1)(c) LPA 1925
The formality for the transfer for an existing equitable interest requirement of signed writing.
Re Paradise Motor Co Ltd
Stepdad trasnferred equtiable interest in shares to the stepson that claimed to not want them. Later changed his mind. Held statement was a disclaimer and not a disposotion thus entitled to the shares.
Vandervell v. IRC [1967]
Tried to make a large gift to charity by telling the bank that some of the shares that they own on bare trusts for him were to be trasnferred to the charity. Taxman claimed that the trasnfer was void. Held: section was not applicable as it was not the disposition of an existing interest.
[EXAM: more than one formality. E.g. transfer of land and attempt to set up a trust for land. Such case note s. 53(1)(b)).]
METHODS OF TRANSFER OF OWNERSHIP
MUTUALLY EXCLUSIVE. COMPLY WITH ONE OF THREE.
IF THE CORRECT METHOD IS NOT USED IT WILL BE VOID.
(1) Outright Gift
Needs valid trasnfer of property to donee.
Valid transfer
Needs
- Correct method of trasnfer depending on type of property
- If imperfect consider whether saved by; Re Rose or Pennington v Waine.
(2) Settlor Declares Self as Trustee
Needs valid declaration of trust.
Valid Declaration of Trust
Needs
- Formalities (if land, s. 53 (1)(b) LPA 1925).
- Three certainties
(3) Transfer to Trustee for Them to Hold on Trust
Needs:
- Valid declaration of trust and Valid trasnfer of property.
Jones v Lock - Mr J gave £900 cheque to his son stating that it was his before putting it in a safe. Had been intention to make a gift but he had not declared himself a trustee of cheque. Intended outright gift could not be an effective declaration of trust.
Pagarani - P wanted to give shares and wealth to charity. Not sign anything. Held: if he had not died it would have been unconciousable to have the shares back thus a valid gift.
IMPERFECT TRASNFER OF PROPERTY:
‘EVERY EFFORT TEST’
(1) Re Rose
TEST: if the settlor had made ‘every effort’ to trasnfer the property, complete in equity.
R signed Stock Transfer Form. New one issued. Five years later died and tax laws required survival > 5 years to avoid tax. Held equitable title passed sending stock form as he done all he need to do.
(2) Pennington v Waine [controverisal]
A wanted give shares H. Signed STF but not sent. A told H that had trasnferred the shares. H got himself director. Held ‘every effort test’ not passed but ownership passed in equity because it would have been unconscionable (no definition) for A to change her mind.
[EXAM: apply Re Rose then throw in Pennington.]
THREE CERTAINTIES
Three elements must be expressed with certainty
(1) Intention to create a trust
(2) Subject matter (the property in it)
(3) Objects (the beneficaries)
Not established = trust void.
CERTAINITY OF INTENTION
Example: Bill says to Bert “I am giving this money to you for you to hold on trust for any children you may have”. Trust.
Bill says to Bert “I am giving this money to you and you can spend it as you see fit on yourself or your children”. Outright gift.
IMPERATIVE WORDS versus PRECATORY WORDS
Former – commanding words – ‘I direct’, ‘I require’, ‘I command’, ‘it is a duty’, you must hold on trust’. No doubt of an obligation thus intention to create a trust.
Latter – vague words – ‘I hope’, ‘I desire’ – not show intention sufficient to create a trust.
CERTAINITY OF INTENTION CASES = TRUST OR NO TRUST
[EXAM: essay – use the cases, as authority for precatory words will not have sufficient certainty of intention to create a trust].
Lambe v Eames- A gift by Will to a wife “to be at her disposal in any way she may think best, for the benefit of herself and her family? No Trust.
Le Marchant v Le Marchant: A gift by Will to a wife “for her sole use and benefit, in the full confidence that she will so bestow it on her decease to my children. Trust.
Re Adams -A gift by Will to a wife in full confidence that she will do what is right as to the disposal thereof between my children.No Trust. Case introduced change in attitude.
Re Diggles- A gift by Will to daughter, adding “And it is my desire” that she pays some money each year to someone else. No Trust.
Gold v Hill: A man had a life insurance policy that arranged that the proceeds of it when he died would go to his friend. This guy had a wife (A), a mistress (C) and children. Over dinner he said to his friend:instruction to friend (who would receive some insurance moneys on death of client) “If anything happens to me you will have to sort things out. You know what to do. Look after Carol and the kids. Don’t let that (bitch) get anything”. Trust. The asset here is money therefore we do not need any particularly formality in writing to declare a trust therefore a valid trust was created.
Shah v Shah:
A letter written in the following terms:
“Dear Mahendra
Re Mister Dee International PLC
This letter is to confirm that out of my shareholding of current 12,500 in the above company I am as from today holding 4,000 shares in the above company for you subject to you being responsible for all tax consequences and liabilities [arising] from this declaration and letter.
Yours faithfully, Dinesh”
He changed his mind later and decided that he wanted to keep the shares. Remember Re Rose every effort test he argued that because he had not handed over the share certificate and signed stock transfer form, this was an imperfect gift and he had not made every effort to do it properly therefore he had not given the shares away. The question was had his words showed enough certainty of intention to create a trust over his shares? Trust. Enough certainty to create a trust over the shares even if no attempt had been made to validly transfer the shares.
But note:-
Comiskey v Bowring-Hanbury- A gift by Will to wife “absolutely in full confidence that she will make such use of it as I should have done myself and that at her death she will devise it to such one or more of my nieces as she may think fit and in default to be divided equally between the nieces. Trust. The court said that looking at all of those words they impose such an obligation on her. This is a borderline decision.
Section 2(1) Administration of Justice Act 1982
Evidence is admitted for trusts created in wills if it is ambigious or meaningless.
CASELAW.
Paul v Constance - if there is no written evidence one must look at the words used to decide if there is certainity of intention.
Jones v Lock - putting cheque in baby’s hand did not make effective gift or show intention.
Lowe v Prance - P promised L divorce wife buy yatch together. L purchased the yacht in his name but referred to as ‘our’. Use of word ‘our’ sufficent to amount to certainty of intention.
SHAME TRUSTS
COURTS WILL LOOK THROUGH SHAME TRUSTS
Midland Bank Plc - W had a trust that he was trustee for his wife and daughter (unaware). Used to defraud creditors. Held shame trust. No certaitny of intention.
OBJECTIVE ASSESSMENT OF CERTAINTY OF INTENTION
Twinsectra - solicitor undertaking regarding creation of a trust. Held entering into arranagements, which have effect of creating trust not necessary to aprpeciate that they do so.
Effect:
Method 1 - outright gift.
Method 2/3 - nothing happened and property remains with the settlor.
CERTAINITY OF INTENTION IN COMMERCIAL CONTEXT
- Re Kayford* - company’s act of putting the deposits into a seperate account was enough certainty of intention. No writing is necessary to decalre a trust of moeny.
- Re Lewis’s of Leicester* - concessionaries put their money into the tills. LL would sort their undertaking and give it to them minus their commission. Held money on trust for the concessionaries.
CERTAINTY OF SUBJECT MATTER
&
CASELAW
Not have to state exact amount but must be capable of being clearly defined. Relevant in a Will.
Palmer v Simmonds - ‘the bulk of my residuary estate’. No trust. ‘Bulk’ makes it too uncertain. ‘My residuary estate’ = ok.
Anthony v Donges - gift ‘such minimal part of my estate as she enetitled under law for maintaince purposes’. No trust - no law exists.
Re Kolb’s Will Trusts - ‘First class stocks and shares in the blue chip catergory’ - void. No agreement to the catergory.
In the Estate of Last - propery left to brother ‘at his death anything that is left that came from me’ with pass to others. Trust. Life interest that will pass.
Boyce v Boyce -‘My four houses to my trustees to allow my daughter Maria to choose whichever one she wants and then to give all the other houses to my other daughter Charlotte’. Void - unclear which would go to C as M had not choosen.
Re Golay’s - father said ‘I direct my executors to let Tossey enjoy one of my flats during her lifetime and to recieve a reasonable income from my other properties’. Trust. Enough background information to objectively establish income for Tossey thus ‘reasonable’ was certain.
PROBLEMS POSED BY A BULK OF UNSEGREGATED ASSETS
Goods must be clear and identified.
Re London Wine - D sold wine from a warehouse. No certainty unless actual bottles had been segreated.
Re Flecter - bottles had been segreated recorded therefore certainty.
Re Goldcorp - gold bullion. Only those that had been seperated = certain.
Hunter v Moss - M said give 5% shares to H. Sale H did not recieve shares. Shares had not been segregared. Not necessary (controverisal decision). Creates uncertainties if shares not identifical. Martin argues that it is a ‘fair, sensible and workable solution’.
Difference - needs segreation for tanginles but no intangibles.
‘Co- ownership’
Pearson v Lehman Brothers - trust works by creating benefical co-ownership share in the identified fund. Allows trust for unsegregated shares where trust is a percentage of the whole.
CAN FUTURE PROPERTY BE SUBJECT MATTER OF A TRUST?
NO.
Re Ellenborough - creation of a trust for whatever she might inherent. No certainty as she might not get anything.
Re Lewis’s of Leicester - segregation -can declare trust of money out of an account as long as it does not have more than that fixed amount.
CERTAINTY OF OBJECTS
= beneficiaries.
Not established - resulting trust if the trust property to the settlor, or if he has died, his estate.
Re Endacott - only left for one’s memorial. Trust must be left to human beneficaries (he was dead).
FIXED TRUST V DISCRETIONARY TRUSTS
Fixed
Trustee is holding the amount under an obligation to distribute into those fixed shares. No flexibility and no discretion.
Equal division or successive interests.
Beneficiaries over 18 and with a sound mind can together rearrange the interests if they are all in agreement (Saunders v Vautier).
Discretionary
T has obligation to distribute the trust property but has to exercise discretion in doing so as to how much and when the beneficiaries can receive income of capital out of that trust.
Advantage: flexibility
No individual beneficial interest in the trust property until a beneficiary’s share is allocated to him.
TEST FOR CERTAINTY OF OBJECTS
Fixed Trust
- Test: the complete list.
IRC v Broadway Cottages [QUOTE AS AUTHOIRTY] – trust of £80,000 as a fixed trust. Persons included: everyone that had been employed by him, his father, wife and mother. Held not possible to come up with a list of them all therefore void for uncertainty.
OT Computers– trust for customers made by a company going in insolvent was fine as records exists and you could draw up a list of them but the trust for urgent supplier was void as the term ‘urgent’ was uncertain.
Discretionary Trusts
- Note the test for powers. Power – selection amongst a class of beneficiaries.
Re Gestetner Settlement – G created a fund with a power to distribute money amongst wide class of beneficiaries. Held he did not have to who all the beneficiaries were if it was a power before payment could be made to one of them. Only have to be able to say with certainty of any given person that he is or is not within the scope of the power.
- Is or is not test.
- Requires conceptual certainty (linguistic or semantic).
CONFIRMED: Re Gulbenkian’s - power to make payment for anyone that had lived with him at anytime during his lifetime. Could determine on the is or is not test.
Test for certainty of objectives for a power was the ‘is or is not test’ but at the time the broad test for discretionary trusts was the ‘complete list’ test.
McPhail v Doulton – B signed a trust for 1300 employees. Not possible to draw up a list. HL changed the test of certainty of objects for discretionary trusts. They took the test from Re Gulbenkian in powers, the ‘is or is not’ test and applied it to discretionary trusts as well as it seems appropriate to have the same test for both. Important as it allowed discretionary trusts to be used in different contexts.
A discretionary trust might still be invalid however, for reasons of
- Administrative Unworkability
If the class of beneficiaries was so hopelessly wide and has not to form anything like a trust.
West Yorkshire Metropolitan County Council – transfer of funds on trust for all inhabitants of W. Yorkshire. Potential 2.5 million beneficiaries held to be administratively unworkable – too large.
Could be issue with conceptual certainty – what does ‘inhabitants’ mean?
- Capriciousness (stupid)
Re Manisty Settlement – terms negative any sensible intention on the part of the settlor. A class of beneficiaries, which were only an accidental conglomeration of persons who has no link with the settlor, would be regarded as capricious and not upheld.
[EXAM: add ‘there might be administrative unworkability or it might be capricious’ and consider it].
‘IS OR IS NOT TEST’ APPLICATION
CASELAW
Re Baden’s Deed Trusts –T for employees and their relatives. Is ‘relatives’ conceptually certain? May be able to say with certainty that you is one of my relatives but you cannot say with certainty that you is not one of my relatives.
Argument – you have to be in one category or another or else the test is not passed and the trust is void. All three judges held that the trust for relative did pass the test but on different terms.
[EXAM: apply the different approaches]
- Stamp L.J.
You have to be able to put a person either in an ‘is’ box or an ‘is not’ box for the test to be cast.If relatives meant common ancestor then it would have to be void for certainty, as they could not say they are not with certainty.Thought that relatives meant ‘next of kin’ – whom you would know therefore certain.Criticised as going back to the complete list test.
- Sachs L.J
Relative = descendants. Person must come within the ‘is’ part and if they cannot then they fall within the ‘is not’ part. A group of ‘don’t know’ will not cause the trust to fail.
- Megaw L.J.
Substantial number of people that would be in the ‘is’ class is sufficient + conceptual certainty.
[EXAM: Identify disposition, state and explain the relevant test and apply it. Conclusion. Analysis of how it might be conceptually certain or not. Arguments for and against. Remedy (outcome)].
CASELAW
APPLICATION
Re Baden - “Upon trust for such of those to whom I am under a moral obligation as my trustees think fit”No.
Re Bose’s Will Trusts
“To grant scholarships for education to my promising relatives and/or to help the deserving material hardship cases amongst my relatives” What is ‘promising relatives’ and ‘deserving material hardship’? In their analysis the court seemed to assume that promising could be conceptually certain but deserving was the thing that they could not ascertain as conceptually certain therefore
there was no trust.
Re Allen - “Pure blooded Englishmen”. No. This is not conceptually certain, as there is probably no such thing.
CURING CONCEPTUAL UNCERTAINTY
Opinion of a third party
- Opinion of trustees
Re Jones - father wanted his daughter to lose her income on trust if she ‘in the uncontrolled opinion of the trustees had a social or other relationship with a certain named person’. Conceptually uncertain and trying to give the role to the trustees did not help, as they could not resolve it, as it was so uncertain.
- Opinion of a third part
Re Tuck’s - gift subject to a condition precedent. Wanted his hereditary title and his money to continue to pass on in his line of descendants and for that to remain Jewish. Appointed Chief Rabbi to determine. Held: ‘it is not that the third party is being asked to resolve uncertainty in the definition of the class but the third parties opinion forms part of the definition of the class’.
GIFT SUBJECT TO A CONDITON PRECEDENT
A less strict test of certainty of objects applies:
Re Barlow’s Will Trusts – B directed executor to allow any members of her family and friends to acquire one of her paintings. Class beneficiaries in discretionary trust ‘friends’ would have issues of conceptual certainty. Held ‘one person’ test applies. Said ‘it is not that the third party is being asked to resolve uncertainty in the definition of the class but the third parties opinion forms part of the definition of the class’.
The ‘one person’ test: Re Allen.
POWERS
Donor - gives the money.
Donee - given the right to exercise the power. If power not exercised = gift over in default.
Words like ‘must’ mean that it is a trust but words like ‘may’ mean it is a power.
Range of beneficiaries depends on the power:
- Special power
Choose between, a specified group of people (‘anyone in this room’).
- General power
Exercisable amongst anyone in the world and the donee of the power can even include him.
- Intermediate power
Exercised amongst anyone in the world except for a specific person/s.
