Express and implied trusts

Question 1

What must a valid declaration of trust include?

Answer 1

Identify the trustees

Identify the property

Identify the beneficiaries

Identify the powers and duties of the trustees.

Question 2

What is the main difference between a presumed resulting trust and a constructive trust?

Answer 2

Resulting trust occurs when equity presumes that the settlor would have intended a trust (or the trust fails)

Constructive trust occurs when equity thinks a trust should be imposed to achieve a fair result for the parties involved.

Question 3

What is a trust?

Answer 3

A trust is an equitable duty relating to property. The person subject to the duty is called a trustee and the person to whom the duty is owed is called a beneficiary.

• The property to which the duty relates is called the trust property.
• The trustee is usually the legal owner of the trust property.
• The beneficiary has an equitable proprietary interest in that property
• The duty is equitable because it was created and developed by the Court of Chancery (the court which administered the equitable jurisdiction).
• The basic content of the duty is that the trustee must hold or apply the trust property for the benefit of the beneficiary.

Question 4

What are equitable maxims?

Answer 4

Equity will not assist a volunteer.

He who comes to equity must come with clean hands.

Question 5

What is an express trust?

Answer 5

Trusts that are made with the express intention of the settlor. They can benefit individuals or be for a purpose.

Question 6

What is an implied trust?

Answer 6

Trusts that arise where there has been no express intention on the part of the settlor. Can be resulting or constructive trusts.

Resulting trust - where presumed that the settlor would have intended a trust.

Constructive trust - implied to achieve a fair result between the parties involved.

Question 7

What is a fixed interest trust?

Answer 7

A trust in which trustees have no discretion as to how the trust property and to who is distributed.

Question 8

What is a discretionary trust?

Answer 8

Gives the trustees discretion to the amounts a person may receive and or whether a person may receive anything at all.

Question 9

What are the three certainties?

Answer 9

Certainty of intention
Certainty of subject matter
Certainty of objects

Question 10

Paul states that he hopes to give his collection of Grayson Perry vases to Anna to hold on trust for her daughter. Is this a valid trust?

Answer 10

No because ‘hope’ is a precatory word. These words invalidate the declaration.

Question 11

What are the aspects of certainty of subject?

Answer 11

The settlor must describe the property with certainty and define the beneficiaries interests with certainty.
There is no need to distinguish individual items however when items are similar they should be distinguished.

Question 12

What is the test for certainty of objects in a fixed trust?

Answer 12

The complete list test.

You must be able to draw up a complete list of every beneficiary.

There must be both conceptual and evidential certainty.

Question 13

What is the test for certainty of objects in a discretionary trust?
The is/is not test.

Answer 13

Can it be said with certainty whether someone is or isn’t a member of the class.

Require:
- Conceptual certainty
- Evidential certainty

Question 14

What is administrative unworkability?

Answer 14

When the class is ‘so hopelessly wide as to not look anything like a class.

Question 15

What formalities are required for an express declaration of trust over land?

Answer 15

Must comply with s53(1)(b) LPA 1925
- can be oral must be evidenced in writing
- contain the terms of the trust
- be signed by the person declaring the trust
- (doesn’t need to be a deed, just any signed document)

This can be in an email.

Question 16

What formalities are required for an express declaration of trust over objects?

Answer 16

None - declaration can be oral.

Question 17

What formalities are required to constitute a trust over land with a third party as the trustee?

Answer 17

The settlor must execute a deed.

Give the executed deed to the trustee or send it to the Land Registry.

The Land Registry will register the trustee as the new legal owner.

Legal title is not transferred until all steps are complete.

Question 18

What formalities are required to constitute a trust over shares with a third party as the trustee?

Answer 18

Execute a stock transfer form and send it to the company - the company may also require the share certificate or an indemnity in respect of the transferor’s ownership as part of this process.

Legal title passes when the transferee is registered in the company’s internal register of members.

Question 19

What formalities are required to constitute a trust over money with a third party as the trustee?

Answer 19

Legal title passes with delivery so handing over case, transfering money

With cheque, legal title passes once the cheque has been cleared.

Question 20

What formalities are required to constitute a trust over chattles with a third party as the trustee?

Answer 20

Physical delivery of the asset.

Question 21

How can the ‘every effort’ test assist when a trust has not been properly constituted?

Answer 21

If the settlor has passed the point of no return or put the property beyond recall then equity may regard the trust as complete.

All that must remain are the actions of third parties.

Question 22

How can the rule in Pennington v Waine assist a trust that has not been properly constituted?

Answer 22

When it would be unconscionable to revoke the trust.

• Made the gift of her own free will
• Told the donee about the gift
• Set the wheels in motion by signing a stock transfer form and sending it to the donee, she thought she had done all that was needed
• Donor told Donee there was nothing for them to do
• Donee acted on the gift/in reliance of it (in accordance with donor’s wishes) agreed to become a director
• It was therefore unconscionable to revoke the gift even though it was an incomplete transfer

Curtis v Pullbrook - detriment is key as Pennington is an example of proprietary estoppel

Question 23

What does the law say about certainty of intention

Answer 23

• Must be clear the person intended to make a trust
• Oral statements made on a single intention might be seen as ‘loose conversations’
• written statements can be insufficiently clear as to whether a person intended to a create a trust, the words may seen merely as a expression of a non binding wish
• It is not necessary to use the word ‘ trust’ to create one, equally the use of the word does not automatically mean that there is one
• It must be clear of intention to make a trust rather than an outright gift

Question 24

What does the law say about certainty of subject matter

Answer 24

• subject matter should be described with accuracy
• The property which is subject to the trust must be described clearly, whether it is a sum of money or an intangible asset (eg a holding of shares), or tangible property (eg an item or items of personal property, or real property—particular land and buildings).
• Must be ascertainable
• The beneficial interests of the beneficiaries in the subject matter must also be certain. It is possible to have certainty of subject matter but not know what interests the beneficiaries have in that subject matter; that is, it is not clear who should get what.

Question 25

What is the difference between a trust and gift

Answer 25

A trust is different from a gift in that with a trust the legal title to the trust property is held by the trustee and the beneficial or equitable interest belongs to the beneficiary.

With an outright gift, though, the person making the gift (the donor) intends to give both the legal title and the beneficial or equitable interest to the recipient of the gift (the donee).

Question 26

Inter vivos trusts and certainty of subject matter

Answer 26

(With inter vivos trusts there are different rules seemingly for tangible (ie physical) and intangible property.)
- Tangible property (eg bottles of wine or gold bars and coins) have to be ascertainable, if they form part of a larger number of such items.
- rules on ascertainability and intangible property are less clear - for company shares it is possible to have a trust over a number of shares which form part of a larger whole (provided all same class)

Question 27

What is an inter vivos trust?

Answer 27

A trust created to take effect in the lifetime of the settlor.

An inter vivos trust is to be distinguished from a trust declared by will, known as a testamentary trust.

Question 28

What does the law say on certainty of objects

Answer 28

It must also be clear who is meant to benefit from the trust, namely who are the beneficiaries. There are different tests for certainty of objects for different types of trust and similar provisions.

Question 29

Fixed interest trusts

Answer 29

A fixed interest trust is one where the beneficial interest of each beneficiary is fixed. The beneficiary might be entitled to a fixed sum of money or a particular item of property, but most commonly the beneficiary will have an entitlement to a proportional part of the trust property, say, one-third, one-tenth or one-twelfth, depending on what proportions are specified in the trust instrument.

The rule for certainty of objects of a fixed trust is that it must be possible to draw up a complete list of the beneficiaries.

Question 30

Discretionary trusts

Answer 30

In a discretionary trust the beneficiaries do not have a fixed entitlement to an identifiable proportion of the trust property. Instead, the trustees are given the power, within parameters set by the settlor/testator, to decide who should benefit from the trust property.

The trust instrument will specify a class of beneficiaries but the trustees do not have to divide the trust property equally among all the persons within that class. Instead, the trustees have the discretion to make payments to some beneficiaries but not to others, and to pay different amounts to those beneficiaries who do receive payments.

Question 30

Example of a fixed interest trust

Answer 30

Arthur makes a will in which he leaves his residuary estate on trust equally for those of his grandchildren living at his death. This is a fixed trust, as the shares of the beneficiaries will be fixed depending on the number of grandchildren in the class. When Arthur dies, there are five grandchildren living at his death, so each grandchild will be entitled to one-fifth (or 20 per cent) of the trust property.

Question 31

What situations would a resulting trust arise?

Answer 31

Conventionally, they arise in three situations:

· Where a transfer on trust wholly or partially fails but the property has been transferred to the trustee

· Where a person gratuitously transfers property to another person

· Where a person pays all or part of the purchase price for an asset

The trust in (1) is called an ‘automatic’ resulting trust.

The trusts in (2) and (3) are called ‘presumed’ resulting trusts.

Question 32

Explain automatic resulting trusts

Answer 32

Automatic resulting trusts arise where there has been some sort of failure in the creation of a transfer on trust. They are effectively a default position which returns the beneficial interest to the settlor, giving them Saunders v Vautier rights and thus the ability to collapse the trust and either retain the property or re-attempt the intended express trust.

For example, resulting trusts will arise for A in each of the following circumstances:

· A transfers property to B intending B to hold it on trust but fails to properly identify the intended beneficiaries. The trust fails for uncertainty of objects.

· A transfers property to B intending B to hold it on trust for C and D but fails to specify their beneficial entitlements. The trust fails for uncertainty of subject matter.

· A transfers property to B intending B to hold it for a non-charitable purpose which does not fall within a recognised exception to the beneficiary principle. The trust fails for non-compliance with the beneficiary principle.

Question 33

Even if a trust has been validly created, it may still fail subsequently. For example:

Answer 33

· A private express trust has run for the full 125 year statutory perpetuity period and some of the trust property has still not vested in a beneficiary. There is no gift-over.

· The purpose of a non-charitable trust can no longer be carried out (e.g. the trust is for a pet that has died) but there are funds remaining and no gift-over.

In both cases, the property is held on a resulting trust for the settlor’s estate.

It is also important to note that concluding that there is a problem with one of the three certainties does not necessarily mean there will be a resulting trust:

A self-declaration of trust which fails for uncertainty of objects or subject matter will simply have no effect. The settlor will remain the full legal owner of the property.

Similarly, a testamentary trust which fails for uncertainty of objects or subject matter will be void. The property will be treated as part of the testator’s residue.

If property is left to an individual in a will, and it is concluded that there is insufficient certainty as to whether they are intended to be a trustee, the effect of the provision will be a straightforward gift to that individual.

Question 34

Presumed resulting trusts

Answer 34

Presumed resulting trusts arise in situations where a transfer is gratuitous and there is no evidence that the transferor intended the recipient to receive the property as a gift. They arise by way of a presumption that the transferor or contributor intended to create a trust. The presumption can be rebutted by evidence that the transferor or contributor’s actual intention is inconsistent with the creation of a trust.

Question 35

Scenario of a presumed resulting trust

Answer 35

· If B provides consideration for the transfer, there is no presumption of resulting trust. The transaction is a sale.

· If B provides no consideration, there is a presumption of resulting trust. But if there is evidence that A intends to make a gift to B, the presumption will be easily rebutted and B will become the full legal owner of the property.

· If B provides no consideration and can adduce no evidence that A intended to make a gift, B will hold the asset on a resulting trust for A.

Question 36

What is constitution

Answer 36

Constitution refers to the transfer of legal title from one party to another.

A transfer on trust requires the legal title in the property to be vested in the trustees. This is known as ‘constituting’ the trust. Transfer of legal title is also required for a gift to be made from a donor to a donee.

A self declaration of trust does not require any movement of the legal title as legal title to the property is already vested in the settlor. This means that the trust is automatically constituted when the trust is declared.

Transfer on trust – constitution rules apply

Gift – constitution rules apply

Self declaration of trust - automatically constituted so no constitution rules necessary

Question 37

Testamentary v lifetime constitution

Answer 37

If a trust is created in a will (a testamentary trust)then constitution will take place via the will. After the death of the testator, their personal representatives must obtain legal title to the testator’s estate.

When they are ready to distribute the estate, the personal representatives must ensure that legal title is transferred to the recipients of any testamentary gifts and the trustees of any testamentary trusts. If the personal representatives have also been appointed as trustees, they will already have legal title and will now hold it in their capacity as trustees.

In a lifetime trust (also known as an inter vivos trust), legal title must be transferred using the correct method.

The formalities for transferring legal title will vary according to the nature of the property in question.