EXPRESS PRIVATE TRUSTS Flashcards
THREE CERTAINTIES REQUIRED
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;
the subject matter is the property to be held on trust; and
the objects are the human benefciaries who take the beneft of the trust. All three must be pr
Certainty of Intention to Create a Trust
- 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. - Intention Must Be Manifested While Settlor Owns Propertyand Prior to Transfer
An intention to create a present trust must have been exter-nally manifested by the settlor at the time the settlor owned the property and prior to its transfer to another. - The settlor’s intent must be that the trust take efect immedi-ately, not at some future time
- 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. - Informal Words orActions May Show Intention.the word “trust” is not needed to create the obligation necessary to create the
trust. - 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.
Certainty of Subject Matter—Trust Property
- It must be clear what property is to be bound by the trust. Generally, phrases which are subjective are not sufcient-ly 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 defned.
- 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. - 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.
- Benefcial Entitlement
The benefcial 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 ‘reason-
ableness’ is invoked.It must also be clear how much of the property left on trust the benefciary is to receive. Failure to identify the amount with
sufcient 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 frst, 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. - Property Reverts to Settlor If Subject Matter
Uncertain
When a trust is void for uncertainty of subject matter, the property reverts to the settlor.
Certainty of Objects—Benefciaries
The benefciaries under a trust can
be identifed by their names or by reference to a concept which defnes the class of benefciaries, such as “my neph-ews and nieces”. When a concept is used, it must be capa-ble of objective determination
certainty of objects
fixed trust
- 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. - Benefciaries Need Not Be in ExUnascertained (for example, unborn) benefciaries may be included as long as they are ascertainable by the time their interests are to come into enjoymentistence.
- If a fund is to be divided equally between a group of peo-ple who are described but not named, application of the complete list test requires that the description is **concep-tually 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 insufcient records to en-able the trustees to establish how many former employ-
ees there are. - 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. - However, a discretionary trust will fail if it is ‘adminis-tratively unworkable’, that is, where the objects are too wide to form a class.
Certainty of objects
Discretionary Trusts
- 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. - Application of the given** postulant test** to a discretionary trust where the benefciaries 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. - Will Fail IfAdministratively Unworkable
However, a discretionary trust will fail if it is ‘adminis-tratively 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 benefciaries 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’**).
Resulting Trust Remedy If Objects Uncertain
If a trust is void for uncertainty of objects, a resulting trust in favour of the settlor or the settlor’s successors is presumed.
The Benefciary Principle
A trust cannot exist without someone to enforce it—it must have ascertainable human benefciaries. This means that a trust for an abstract purpose will normally fail unless it falls within the exceptional cases of ‘honorary trusts’
refusal or resign of trustee
Once established, a trust will not fail because the trustee dies, refuses to accept appointment, or resigns. 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. 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.
quolifications of trustees
- Anyone who has capacity to acquire and hold property for their own beneft may be a trustee.
- a minor cannot be a trustee
the number of trustees
- 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
- A trust of land usually must have at least two 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 four trustees.
RULES AGAINSTPERPETUITY
definition
The rules against perpetuity prevent a settlor from creating interests under trusts which will take efect long into the future, thereby tying up property for very long periods
Types of RULES AGAINSTPERPETUITY
- Remoteness ofVesting Rule
- Inalienability Rule
Remoteness ofVesting Rule
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 beneft of A so long as the existing house on the land remains stand-ing, and then for the beneft 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.)
Inalienability Rule
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).