EXPRESS PRIVATE TRUSTS

Question 1

THREE CERTAINTIES REQUIRED

Answer 1

1. To be valid, a trust instrument must evidence certainty of intention, subject matter, and objects. Put simply, the intention is manifest in the words which the settlor uses, whether written or spoken;
2. the subject matter is the property to be held on trust; and
3. the objects are the human benefciaries who take the beneft of the trust.

Question 2

Certainty of Intention to Create a Trust

Answer 2

1. The settlor must show by written or spoken words, or by conduct, that they intend to subject the trustee to a binding obligation. No particular words or form of words is required. Communication of intent to the benefciaries is not necessary.
2. Intention Must Be Manifested While Settlor Owns Propertyand Prior to Transfer
3. An intention to create a present trust must have been** externally manifested** by the settlor at the time the settlor owned the property and prior to its transfer to another.
4. The settlor’s intent must be that the trust take effect immedi-ately, not at some future time
5. A settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way is called precatory language. The usual inference is that precatory expressions do not create a trust as they do not show an intention to impose a binding obligation on the trustee.
6. Informal Words orActions May Show Intention.the word “trust” is not needed to create the obligation necessary to create thetrust.
7. Property Passes as Gift If Intention Uncertain
   When a trust is void for uncertainty of intention, the proper-ty passes as an outright gift to the person who would have been the trustee.

Question 3

5

Certainty of Subject Matter—Trust Property

Answer 3

1. It must be clear what property is to be bound by the trust. Generally, phrases which are subjective are not sufficiently certain to create a trust. Thus, a trust of “the bulk of my estate” will fail for lack of certainty. However, an apparently **uncertain description of property may be valid if it can be objectively defined. **
2. Fractional Shares
   A trust of a** fractional** share of an** intangible** asset (for exam-ple, “50% of my shares in X Ltd”) will not fail for lack of cer-tainty. However, where the assets are tangible property (for example, “20 bottles of the wine stored in X warehouse”), the trust will fail unless the assets subject to the trust have been **segregated **from the rest of the stock. This is true even if the objects described are all identical.
3. Trust Property Must Be Existing Interest in Existing Property
   A future interest may be held in trust, but an interest not yet in legal existence (that is, a mere expectancy, such as the right to inherit property under the will of a living person) can-not be held in trust.
   EXAMPLE
   A house was deeded to Abigail for life and then to Ben-jamin. Whilst Abigail is alive, Benjamin has only a future interest, which will vest in Benjamin’s possession only after Abigail dies. Presently, Benjamin has a vested future interest. That future interest can be trust property.

COMPARE
Abigail owns a home and tells her son Benjamin that she intends to leave the home to Benjamin in her will, and she writes a will to this efect. Whilst Abigail is alive, Benja-min has no interest in Abigail’s home because Abigail can change her mind. Benjamin has only an expectancy which cannot be trust property.

4. Beneficial Entitlement
   The beneficial entitlement must also be certain. When the benefcial entitlement is given as an objective phrase (such as “reasonable income”), the courts tend to be comfortable as this is consistent with other areas of law where ‘reasonableness’ is invoked.It must also be clear how much of the property left on trust the beneficiary is to receive. Failure to identify the amount with sufficient clarity will render the trust void.
   EXAMPLE
   A settlor leaves two houses on trust for his two children. Child A is to choose a house first, and Child B is to have the other house. If Child A dies before exercising their choice, the trust will fail as it will not be clear which house Child B should receive.
5. Property Reverts to Settlor If Subject Matter Uncertain
   When a trust is void for uncertainty of subject matter, the property reverts to the settlor.

Question 4

Certainty of Objects—Beneficiaries

Answer 4

The beneficiaries under a trust can be identified by their names or by reference to a concept which defines the class of beneficiaries, such as “my neph-ews and nieces”. When a concept is used, it must be capa-ble of objective determination

Question 5

3

certainty of objects
fixed trust

Answer 5

1. When this is the case, the trustee must be able to draw up **a complete list **of benefciaries in order to complete the task and discharge their obligation. The benefciaries must be named or described in such a way that it is possible to make a complete list.
2. Benefciaries Need Not Be in Existence
   Unascertained (for example, unborn) beneficiaries may be included **as long as they are ascertainable by the time their interests are to come into enjoyment **(‘for my son for life with remainder to his children living at his death in equal shares.’) .
3. If a fund is to be divided equally between a group of people who are described but not named, application of the complete list test requires that the description is **conceptually certain **and also that there is evidential certainty.
   For example, a trust for “my kindest friends in equal shares” fails because the concept is uncertain. A trust for “my former employees in equal shares” is conceptually certain but will fail if there are insufficient records to en-able the trustees to establish how many former employees there are.

Question 6

4

Certainty of objects
Discretionary Trusts

Answer 6

1. In a discretionary trust, the trustees must choose whether to pay out trust funds to one or more of a class of benefciaries (for example, “To Alex in trust for the children of Becky in accordance to their needs as Alex shall determine.”).** It is not essential for the whole range of potential benefciaries to be ascertainable so long as the description of the class is clear enough** to enable the court to decide whether the trustees have acted within their powers in paying funds to a particu-lar individual, that is, a** ‘postulant’**. The test is whether it can be said with certainty that any given individual is or is not a member of the class.
2. Application of the givenpostulant test to a discretionary trust where the beneficiaries are described (for example, “my nieces and nephews”) but not named requires the description to be conceptually certain.

3.** Evidential Uncertainty**
As with the complete list test, the lack of facts to prove whether a given postulant falls within the description of the benefciaries or should be admitted to the class will not cause the trust to fail. For instance, the trust will not
fail in the example above merely because a person seek-ing to be part of the class of benefciaries lacks proof that they are a dependant of an ex-director.

4. Will Fail If Administratively Unworkable
   However, a discretionary trust will fail if it is ‘administratively unworkable’, that is, where the objects are too wide to form a class. This can occur when there is a very large number of potential beneficiaries or when there is nothing to link the members of the class so as to enable the trustees to make a sensible choice between them (sometimes called** ‘capriciousness’**).

Question 7

Resulting Trust Remedy If Objects Uncertain

Answer 7

If a trust is void for uncertainty of objects, a resulting trust in favour of the settlor or the settlor’s successors is presumed.

Question 8

The Beneficiary Principle

Answer 8

A trust cannot exist without someone to enforce it—it must have ascertainable human beneficiaries. This means that a trust for an abstract purpose will normally fail unless it falls within the exceptional cases of ‘honorary trusts’

Question 9

3

refusal or resign of trustee

Answer 9

1. Once established, a trust will not fail because the trustee dies, refuses to accept appointment, or resigns.
2. The court will appoint a successor trustee unless it is clear that the settlor intended the trust to continue only so long as a particular trustee served.
3. However, the absence of a trustee at the creation of a trust may cause an attempted inter vivos trust to fail for lack of delivery.

Question 10

2

qualifications of trustees

Answer 10

1. Anyone who has capacity to acquire and hold property for their own beneft may be a trustee.
2. a minor cannot be a trustee

Question 11

2

the number of trustees

Answer 11

1. There is** no minimum or maximum** number of trustees re-quired. A sole trustee may act, but appointing a minimum of two trustees has practical advantages. Trustees can observe one another’s behaviour and highlight a breach of trust, and they can bring a second viewpoint to a trust decision. Be-cause trustees are required to act with unanimity (unless the trust deed permits decision by majority), it is advisable not to appoint too many trustees
2. A trust of land usually** must have at least 2 trustees** (or a trustee that is a trust corporation), because at least two trust-ees are required to give a valid receipt for money received on the sale of land. However, a trust of land may have no more than 4 trustees.

Question 12

RULES AGAINST PERPETUITY
definition

Answer 12

The rules against perpetuity prevent a settlor from creating interests under trusts which will take effect long into the future, thereby tying up property for very long periods

Question 13

2

Types of RULES AGAINST PERPETUITY

Answer 13

1. Remoteness of Vesting Rule
2. Inalienability Rule

Question 14

Remoteness of Vesting Rule

Answer 14

An interest under a trust is void if it does not vest within the perpetuity period. For trusts taking efect after 6 April 2010, the period is 125 years.

EXAMPLE
A settlor conveys land to a trustee “on trust for the benefit of A so long as the existing house on the land remains stand-ing, and then for the benefit of the then living descendants of A”. The equitable interest of the descendants of A is void because it is not certain to vest or fail within 125 years after the life of any person living at the time the trust is created. (It is possible that the house could remain standing on the land for more than 125 years after the life of any person living at the time the trust is created.)

Question 15

Inalienability Rule

Answer 15

In the exceptional cases in which a noncharitable purpose **trust is valid, the trust period is limited to 21 years or for the rest of a living person’s life (we call that a ‘life in being’) plus 21 years. (Again, a noncharitable trust is a trust set up to support a purpose rather than a person, see ‘honorary trusts’.) The following are acceptable perpetuity periods for noncharitable purpose trusts:
*A human life in being plus 21 years;
*A fxed period of up to 21 years;
*A period expressed as being “for as long as the law allows”, which will be taken as 21 years; and
*A period assumed to be 21 years when no period is permitted (for example, if a trust for the erection and main-tenance of a monument to the memory of the deceased has no perpetuity period, it may be assumed that it will be erected within the perpetuity period).

Question 16

2

CREATION OF INTER VIVOS TRUSTS

Answer 16

1. Declaration of Self as Trustee
2. Transfer to Another as Trustee

Question 17

Declaration of Self as Trustee

Answer 17

**Where a settlor desires to appoint themselves as trustee, the settlor must demonstrate by words or conduct that they intend to be legally bound. The requirements of certainty, the benefciary principle, and the perpetuity rules must be satisfed.

Question 18

Transfer to Another as Trustee

Answer 18

*The settlor must transfer the trust property to the trust-ee(s) in the appropriate legal fashion; and
*The settlor must make** a declaration of trust**; that is, the settlor must demonstrate by words or conduct that they intend the trustee(s) to be legally bound, satisfying the requirements of certainty, the benefciary principle, and perpetuity.

Question 19

3

Formal Requirements and Constitution

Answer 19

a.Declaration of Trust
b.Requirements for Transfer
c.EquityWill Not Assist a Volunteer

Question 20

Declaration of Trust

Answer 20

There are no formal requirements for a declaration of trust of personalty. However, a trust of land is unenforceable unless there is written evidence of the declaration of trust, signed by the settlor. This rule applies both where the settlor declares themselves trustee and where the settlor transfers property to another as trustee.

Question 21

Requirements for Transfer

Answer 21

1. Constitution is the process of transferring legal title to property from one party to another. When the settlor is not to hold as trustee themselves, the settlor must transfer the legal title
   in the property to the trustee(s) in order to constitute the trust.
2. To transfer land, the legal owner must execute a transfer deed, which must then be registered at HM Land Regis-try, usually by the transferee.
3. To transfer shares, the donor must sign a stock transfer form, which must then be registered with the company, by either the donor or the donee.
4. To transfer chattels, the owner must have the intention to transfer the chattels and must deliver them to the recipi-ent. Alternatively, the transfer may be made by deed.
5. Legal title to a bank account is transferred by providing a signed, written notice of the transfer to the bank.

Until the appropriate transfer is made, the trust is said to be ‘incompletely constituted’.

Question 22

2

Equity Will Not Assist a Volunteer

Answer 22

1. if a person declares that a third party is to hold some property as trustee but fails to make the necessary transfer, equity will not enforce the trust (because the person would be volunteering to serve as a trustee when no trust was created). The incompletely constituted trust fails.
2. However, there are exceptions to the rule:
   （1） “EVERY EFFORT TEST”
   （2） Donatio Mortis Causa (Gift by Reason of Death)
   （3）Fortuitous Vesting—The Rule in Strong v Bird
   （4）Proprietary Estoppel

Question 23

5

EVERY EFFORT TEST

Answer 23

1. If the donor (settlor in the case of a trust) has done everything required of them to transfer the property and **has put the property outside the donor’s control, **an imperfect gift is enforceable.
2. This rule applies to the transfer of land and shares where the donor has execut-ed the necessary deed or transfer, and handed over the document to the donee, but the process of registration has not been completed.
3. Likewise, this rule applies to a trust where the settlor has completed the transfer to the trustees but it has not yet been registered with the Land Registry or company.
4. Note that the requirement to put the property outside the settlor’s control means that the rule will not apply where the settlor retained possession of the completed transfer

Question 24

2

Donatio Mortis Causa (Gift by Reason of Death)

Answer 24

1. A gift mortis causa (by reason of death) may be enforced if:

(1) the donor delivers the property to a donee while in contemplation of imminent or impending death;

(2) with the intention that the property be given to the donee if the donor dies and be returned if the donor survives (that is, itis conditional on death); and

(3) the donor dies. Note: If thedonor had no objective basis to believe that their deathwas imminent, a gift mortis causa will not be made out.

2. Delivery May Be Constructive
   It is not necessary to physically deliver a chattel; con-structive delivery will do. For example, if a person desires to give their jewellery collection to their daughter on trust for their granddaughters, delivering the key to the safe in which the jewellery is stored would be sufcient.

Question 25

2

Fortuitous Vesting—The Rule in Strong v Bird

Answer 25

1. If the person intending to create a trust dies before the transfer on trust is made and the trustee becomes the settlor’s personal representative on the settlor’s death, the trust will usually be found valid under the rule in
   Strong v. Bird.
2. If there is evidence to suggest that the donor changed their mind before they died—by doing something inconsistent with the giving of the gift—the rule does not apply.

Question 26

2

Proprietary Estoppel

Answer 26

1. A donee may be able to establish that a gift on trust is complete if they can prove that, by** reliance** on an assur-ance, they have acted to their detriment.
2. The claimant’s reliance must be reasonable—that is, a consequence of the assurance—and they must sufer a detriment in con-sequence of the reliance.

Question 27

4

CREATION OF TESTAMENTARY TRUSTS
FORMALITIES

Answer 27

1. To this point, all of the trusts we have considered involved** inter vivos trusts** (that is, trusts made during the settlor’s life). But a trust can also be created to take efect on a person’s death.
2. A trust which is to take efect on death and is to remain revocable until then must be contained in a will duly executed under the Wills Act.
3. The usual rule is that all of the terms of the trust must appear in the will. In addition, the requirements of** certainty, the beneficiary principle, and the perpetuity rules** must be satisfed.
4. There is no requirement for transfer as the property will be vested in the trustees by the testator’s personal representatives after death.

Question 28

3

‘Secret’ and ‘Half Secret’Trusts

Answer 28

1. The existence of the trust is either not revealed in the will or only partially revealed in that the benefciary is not identifed but the fact of a trust is mentioned. These trusts are known as secret trusts.
2. There are two types of secret trust: the fully secret trust and the half secret trust.
3. A fully secret trust looks like an outright gift to a nominated per-son, whereas a half secret trust mentions that a trust exists but keeps the identity of the benefciary secret.

EXAMPLE
Whilst Thomas Testator was writing his will, he decided he wanted to leave £200,000 to his mistress Mary. Not wanting to reveal Mary’s identity, Thomas sent a letter to his friend
Frederic, informing Frederic that he will leave him £200,000 in his will but that the money is on trust to be used for the beneft of Mary. Thomas sent a copy of the letter to Mary as well. This is a secret trust because not even the fact of the trust is revealed on the face of the will.
COMPARE
Thomas leaves a will, one clause of which provides,
“£200,000 to Frederic on trust for the purposes which I have made known to him”. This is a half secret trust because a trust is revealed but the benefciary is not revealed.

Question 29

2

Enforcing a Secret Trust

Answer 29

1. The intended benefciary of a secret trust may enforce it if they can prove the terms of the trust by clear and convincing evidence. The trust will be enforceable even if the communication describing the trust was not made** until after** the will was executed.
2. If the legatee/trustee expressly refused to accept the trust, or did not know of the intended trust until after the testator’s death, there is no trust and the legatee will take the property free from any trust. However, if the legatee merely failed to respond to the communication, acceptance is implied.

Question 30

Enforcement of Half Secret Trust

Answer 30

The benefciary under a half secret trust can enforce the trust provided that their identity was communicated to the trustee** at or before the making of the will** and the language of the
will is consistent with such communication.

Question 31

BENEFICIAL ENTITLEMENT

Answer 31

1. FIXED INTEREST TRUST
   2.Limited and Absolute Interests

Question 32

FIXED INTEREST TRUST

Answer 32

A fixed trust is a trust under which the trustees have no freedom as to how the trust property is to be distributed between the benefciaries. The interests of the benefciaries are deter-mined at the date of the trust’s creation.

Question 33

2

Vested and Contingent Interests

Answer 33

The nature of each benefciary’s interest varies according to the terms of the trust. If there are no conditions attached to an interest, it is said to be vested. An interest with conditions attached (for example, the attainment of a particular age, or surviving another benefciary) is a contingent interest.

EXAMPLES
1) In her will, Jane gives “the residue of my estate to Tessa and Tom on trust for my son Simon”. When Jane dies, Simon is 10 years old. Simon has a vested interest, as no condi-tions were placed on the gift on trust and he is defnitely
entitled to the residue of Jane’s estate. Tessa and Tom hold the property on trust for Simon until he reaches majority at 18 years of age.** Simon cannot claim the property before he is 18, as he cannot give the trustees a valid receipt during his minority. If Simon dies before he is 18, his interest under the trust is part of his estate, which will pass on his death to his next of kin under the intestacy rules.
2) In her will, Jane gives “the residue of my estate on trust for my son Simon provided he attains the age of 25”. Simon has a contingent interest, as the trust provides Simon must
reach the age of 25 to get the gift. If Simon dies before he is 25, his interest fails **and passes under the terms of Jane’s will.

Question 34

Limited and Absolute Interests

Answer 34

If the benefciary’s interest does not give them the right to the capital of the fund, it is a limited interest. The most com-mon limited interest is an interest** limited as to time, usually for the benefciary’s life, meaning that the benefciary has an interest only in the income of the fund**.
EXAMPLES
1) Sam wishes to create a trust for the beneft of his daugh-ter Diana but also to retain control over the ultimate destina-tion of the property. He transfers £50,000 to Tessa and Tom “on trust for Diana for life, with remainder on her death to
her children George and Grace in equal shares”. Diana has a limited interest. The trustees must invest the fund and pay the income to Diana for her life. George and Grace have absolute interests in remainder. **Their interests are vested **because there are no conditions attached. They each own the right to half the fund on their mother’s death and, should either die before Diana, this interest would form part of their estate, passing under their will or by intestacy.

2) Sam may wish to retain further control over the fund, in which case he may add conditions to the interests of the children. He may declare a trust “for Diana for life, with re-mainder on her death to George and Grace in equal shares provided they attain age 25 and are living at Diana’s death”.
In this case Diana’s interest is unchanged, but George and Grace have contingent interests in remainder. Their interests will not vest until Diana dies and they respectively attain 25 years. Sam should make provision for what should happen if either benefciary dies before Diana.

Question 35

Enforcement of fixed interest trusts

Answer 35

A failure by a trustee to perform the obligations under a fixed trust can be enforced by the benefciary against the trustee.
The benefciary has a right to receive what they are identifed as being able to receive. Equally, the benefciary has the right to restrain improper exercise of the trust obligation.

Question 36

Distrectionary trusts

Answer 36

A discretionary trust is a trust under which the trustees may choose how to distribute the trust property, usually among the members of an identifable class.

Question 37

enforcement of discretionary trusts

Answer 37

Each member of the class has a right to see the trust en-forced (by asking that the trustees exercise their discretion) and may sue the trustee for breach of trust. For example,
they could seek an injunction to prevent the trustee from distributing trust funds to someone who is not a benefciary.
However, no member may insist that the discretion be exer-cised in their favour.

Question 38

Mixed Trusts

Answer 38

A trust may be drafted to include both a fixed and a discre-tionary element to it. Thus, a trust may permit for discretionary payments of income, allowing unused income to be accumulated (that is, saved and re-invested if not needed) but fix the capital which each of the beneficiaries is to receive under the trust.
EXAMPLE
A settlor creates a trust “to use the income between A, B, and C, for life, as the trustees may, in their absolute discre-tion, determine, with remainder to D and E equally”. The income part of this trust is discretionary, but the payment of the remainder to D and E is fixed.

Question 39

4

Termination by Benefciaries—The Rule in
Saunders v Vautier

Answer 39

The rule in Saunders v Vautier allows for the termination of a trust by all of the beneficiaries. The rule states that if **all **of the benefciaries have an absolute interest in the trust and are of full age and sound mind, they can call for the transfer of the trust property, and the trustees are required to obey the instruction. Note that minor beneficiaries are not able to consent to the use of the rule.