Dispositions, declarations, and the correct formalities Flashcards
Stages to follow when considering whether the gift or trust is valid?
STEP 1: Identify the type of disposition and the necessary declaration
STEP 2: Where there is a transfer i.e. Gifts and Trust with someone else/others as trustee, identify the correct formalities (state: “there must also be a proper constitution”)
STEP 3: Where transfer (i.e. NOT declaration) has been defective, consider whether equity will perfect an imperfection
What are the three modes of benefiting another?
Milroy v Lord [1982] – Turner L.J. gives three ways how gifts & trusts are made:
1) Outright gifts to the donee
2) Transfer to trustees to hold on trust for the beneficiary
3) Declaration of self as trustee for the beneficiary
General rule about perfecting
Turner L.J.: Equity will not save an imperfect gift: “if the settlement is intended to be effectuated by one of the modes…the court will not give effect to it by applying another of those modes”
Why make gifts and create trusts in lifetime?
Avoid inheritance tax. Lifetime gifts are regarded as “potentially exempt transfers” (PETs). If a donor survives a PET by more than seven years, it escapes inheritance tax completely.
- If under 7 years: more generous inheritance tax exemptions than equivalent gift on death. Lifetime creation of a trust attracts inheritance tax charge of 20% if settlor survives 7 years
Necessary elements for a perfect gift?
The 3 certainties:
Mental capacity: Re Beaney: Donor must have necessary mental capacity – Level required rises with value/size of gift
ii) INTENTION:
Donor must have intention, manifested by words or conduct, to make a gift. (what were circumstances?)
iii) SUBJECT MATTER: Must be a tangible benefit which can be enforced
iv) OBJECT: those who will/may benefit must be certain
AND - transfer of property in correct manner (see later cards)
Necessary elements for declaring and constituting a valid trust with self as trustee?
1) 3 Certainties (intention, subject matter, objects)
2) Beneficiary principle
3) Rule against perpetuity
4) Formalities for declaration
NB - No need to transfer, already own property, constitution automatic
Necessary elements for declaring and constituting a valid trust with someone else/others as trustee(s)?
1) 3 Certainties (intention, subject matter, objects)
2) Beneficiary principle
3) Rule against perpetuity
4) Formalities for declaration
Plus the transfer of the property in correct manner to ensure constitution of the trust
How do you find the 3 certainties? And in what case were they originally stated?
look to trust instrument for these (extrinsic evidence only allowed in limited circumstances, e.g., where words are ambiguous)
Originally stated by Lord Langdale in Knight v Knight (1840)
What constitutes certainty of intention?
There must be a binding obligation on trustee. Do not need to use the word ‘trust’ – ‘Equity looks to intent rather than form’
• Paul v Constance: Intention is ascertained by words or conduct.
• Re Adams & Kensington Vestry: Merely precatory words will not suffice
Facts of Paul v Constance
Intention is ascertained by words or conduct. Mr. Paul received £950 compensation for industrial injury. Lived with but not married to Mrs Paul. On advice of bank manager, opened an account in Mr Constance’s sole name although went to bank together intending to open a joint-account. Paid bingo winnings into it, treated as joint and Mr Paul said it is as much mine as yours. Passed to Mrs Paul when he died, not to his estranged widow. Words and course of conduct amounted to express declaration of trust.
Two elements of certainty of subject matter?
1) Description of trust property
2) Description of the extent of each beneficiary’s interest
Palmer v Simmons
“Bulk of” my estate = unclear
Re Golay
Subject matter of trust is certain if settlor provides a workable formula e.g. “reasonable income” (but “reasonable” probably will not apply to capital sums). Court would be guided by level of beneficiary’s previous income
Re London Wine Co (Shippers) Ltd [1986]
must segregate tangible items of trust property from like items (wine in warehouse)
Hunter v Moss
Need not segregate intangible items if items are indistinguishable (e.g. shares) – owner of shares in a small company declared himself trustee for the benefit of a beneficiary in respect of a 5% holding in the issued share capital (1000 shares). He owned 950 shares. Did not indicate which 50 shares were to be the subject matter of the trust.
Re Lewis’s of Leicester Ltd [1995]
Lewis’s department store had granted licenses of parts of its floor space to traders on a ‘shop within a shop’ basis. Traders paid takings into Lewis’s tills and some of these takings were paid into a separate bank account in Lewis’s name. Lewis’s went into liquidation. Traders argued money in account was held on trust for them and should not be available to Lewis’s creditors. Judge found the subject matter was certain, as in separate account, and traders could recover.
