Express trust: Formalities

Question 1

What is the rule against perpetuities?

Answer 1

Trusts can only last until statutory maximum of 125 years

Question 2

What is the remoteness of vesting rule?

Answer 2

Beneficial interests under the trust must vest (ie: become unconditional) within the perpetuity period (125 years)

Question 3

What is the difference between a gift, self-declaration of trust, and transfer on trust in terms of formalities?

I.e. which titles transfer

Answer 3

1. Only involves legal interests, so only necessary to consider formalities for legal title
2. No change in legal ownership, so only necessary to consider formalities for creating new equitable interest
3. Changes in legal and equitable title, so necessary to consider formalities for creation of equiatble and transfer of legal

Question 4

Must a settlor comply with specific formalities requirements to declare a trust?

Distinguish ‘declaration’ from ‘constitution’ (transfer of legal title)

Answer 4

No formalities must be complied with to declare a trust (so can create orally, in writing or conduct)

Subject to exception…

Question 5

What is the exception to no formalities for declaration?

Answer 5

Declaration of trusts of land

Question 6

What are the formalities for a declaration of trust of land?

Not constitution!

As per s.53(1)(b) of Law of Property Act 1925

Answer 6

Declaration must be manifested and proved by some writing in signed by a person able to declare a trust

1. **Manifested and proved **- evidential requirement (order in which declaration and writing unimportant)
2. By some writing - no prescribed mode of evidence but must show S’s intention to create trust on those terms
3. Signed by some person who is able to declare such trust - usually settlor but arguable that T can provide

I.e. signed, written evidence of intention and terms

Question 7

Where a trust of land is created by will, what formalities must be satisfied?

Answer 7

Where will is validly executed under s.9 Wills Act it will satisfy formalities

ie: Signed by testator (with signature intending to give effect) in the presence of 2 witnesses

Question 8

Will non-compliance with formalities for a trust on land render said trust void?

Answer 8

• Renders trust unenforceable (rather than void)
• Means trust exists from moment it is declared but cannot enforce rights until formalities are satisfied

Question 9

What can Bs enforce their rights in respect of over trust on land once trust becomes enforceable?

Answer 9

The period in between declaration (exists but unenforceable) and satisfaction of formalities (enforceable)

Question 10

What happens if formalities are never satisfied after declaration of trust on land?

Answer 10

Trust will not become enforceable; S has a chance to change mind about parting with beneficial ownership

Question 11

If T changes mind after declaration of trust on land what happens for

1. Self-declaration
2. Transfer on trust

Answer 11

1. Self-declaration = S can simply choose not to fulfil formalities and B cannot assert any interest in the land (provided absence of facts rendering it unconscionable for S to deny trust)
2. Intended transfer = trust will be unenfoceable but also void for lack of constitution (subject to circumstances making it unconscionable for S to deny existence of trust)

Question 12

What must a settlor do to transfer land to a third party trustee?

Answer 12

1. Execute a deed (LPA s.52) which satisfies s.1 LP(MP)A –
   ie: (a) document is stated to be a deed and
   (b) person making deed signs in presence of 1 witness who also signs it; AND
2. Give the executed deed to trustee (who will pass it onto Land Registry) or send it to LR directly

Where land is registered,** TR1 used**

LR will register trustee as new legal owner – legal title does not pass until all steps are completed and trustee is new registered proprietor

Question 13

What must settlor do to transfer shares to a third party trustee and how does it differ based on incorporation of company?

Answer 13

1. Within the CREST system – for only certain shares in public quoted companies
2. Outside CREST – for all other shares, including private companies

Question 14

How do you transfer shares within CREST?

CREST = Computerised share transfer system

Answer 14

1. Shares in designated public companies are recorded electronically and can be transferred electronically + instantaneously without paperwork
2. CREST = managed by a stockbroker, so settlor will need to instruct stockbroker to make the transfer

Question 15

How do you transfer shares outside CREST?

Answer 15

Owner will have a share certificate in their name – settlor must:

1. Execute a stock transfer form; and
2. Give executed form and relevant share certificate to trustee or to the company directly

Company secretary will then register trustee as new shareholder (and legal owner) on register of members

Legal title is ONLY TRANSFERRED AFTER TRUSTEE IS REGISTERED AS NEW SHAREHOLDER

Question 16

How does legal title to money pass to a thrid party trustee?

Answer 16

1. If personally = passes on delivery
2. If bank transfer = passes when money has arrived in T’s bank account
3. If cheque = once cheque has cleared. If S dies before, cheque can no longer be cashed

Question 17

How does legal title to chattels/tangible goods pass to a trustee?

Answer 17

Physical delivery of the asset to T

Question 18

Failure of formalities when considering a third party?

Answer 18

If the third party has no written evidence or unwilling/unable to share it, the trustee should seek the court’s direction as they cannot keep the land for themselves - leading to a constructive or resulting trust.

Question 19

What is constitution and how does it apply to the two ways of creating an express trust?

Two ways = transfer and self-declaration

Answer 19

Constitution = the transfer of legal title from one party to the other

• Transfer on trust (applies to gift too!) = legal title must be vested in Ts (this is ‘constituting’ the trust)
• Self declaration of trust = no movement of legal title as already vested in S; trust is automatically constituted when trust declared

Question 20

How will constitution occur in testamentary and lifetime (inter vivos) trust?

Answer 20

• Testamentary = takes place via will, legal title will transfer to PRs if they have been appointed trustees
• Lifetime = legal title must be transferred using correct method

Question 21

What is the method for transferring legal title and when will it pass to a third party for registered land, shares, choses in action (debts and money in bank account), chattels, and cheques?

Answer 21

• Registered land = by deed and registered with Land Registry, will pass on registration of new owner
• Shares = by transferor signing stock transfer form and sending it to company, will pass when transferee registered in company’s internal register
• Choses in action = by notice in writing to debtor/bank, passes once notice received
• Chattels = by deed of gift or delivery with evidence of intention to transfer
• Cheques = by transferor endorsing cheque by signing name on back

If these are not used = will not be validly constituted

Question 22

What is the effect of constitution for the settlor and T in terms of the rights they have?

In case of a transfer

Answer 22

Disposition is irrevocable, so…

• Settlor - ceases to have any beneficial or legal interest in trust property
• T - has legal title and holds on trust for B

Same true for gifts

Question 23

What is the effect on the trust or gift if there is incomplete constitution (legal title not transferred)?

Answer 23

Trust/gift is void (subject to exceptions!)

Question 24

Where incomplete constitution renders the trust/gift void, will equity intervene?

Answer 24

No - equity will not assist equity will not assist a volunteer (volunteers are B –> but they give no consideration in creation of a trust)

Equity will not:

1. Treat intended (but failed) gift as a self-declaration of trust (or transfer donor to transfer legal title)
2. Treat failure to constitute trust as a self-declaration of trust (or compel S to transfer legal title)

Milroy v Lord = equity will not perfect an imperfect gift

Question 25

What must the transferor make sure to do to effect intended disposition? What is the every effort test?

Answer 25

Settlor must do everything (ie: pass the point of no recall) in their power to transfer legal title

All that must be left for completion is the act of a third party

Question 26

What if the settlor does not go far enough to satisfy the every effort test but clearly intended to create a trust and took some action?

Pennington v Waine

Answer 26

Equity may intervene and regard it unconscionable for the settlor to go back

Question 27

If legal title to property has not been transferred to a T (for transfer of trust) or to donee (as gift), how can certainty of intention help to make a trust?

Effectively a case of self-declaration (I think)

Answer 27

Strong evidence of intention that the owner intended to declare themselves a T; court must be satisfied that owner intended to take on onerous obligation of trusteeship and divest themselves of beneficial ownership

Effective declaration can happen despite not knowing what trust is!

I.e. if a S intends to make a transfer on trust but fails to transfer legal title to T, equity will not require S to take on role of T if that was not their intention!

Question 28

What happens if T intends to appoint themselves as one of a number of Ts but did not transfer legal title into joint names of co-Ts, remaining sole legal owner upon death?

Like a self declaration but also transfer of legal title!

Answer 28

As S had legal title, trust automatically constituted upon declaration - puts T under duty to vest shares in co-Ts

Transfer on trust to multiple Ts of which S is one; automatically const

Choithram - businessman decided to establish charitable trust and appointed himself as 1 of a number of Ts, validly established by deed - did not transfer legal title to shares to joint names of co Ts and remained sole legal owner on death - fact that S had not transferred legal title to all Ts did not prevent shares being held on terms of trust; he was one of Ts and would be unconscionable for him to deny that shares were subject to trust

Question 29

What is the rule in Milroy v Lord and what are its 4 exceptions?

Answer 29

Rule = if legal title has not been vested in intended recipient the disposition will fail (and equity will not intervene). Exceptions are…

1. Re Rose principles (and Mascall v Mascall)
2. The unconscionable principle
3. Fortuitous vesting
4. Donationes mortis causa (DMC)

Question 30

What is the Re Rose exception (three requirements) and what will the recipients get if fulfilled?

1st exception to Milroy v Lord

APPLIES TO BOTH TRUSTS AND GIFTS !

Answer 30

If…

1. Correct method of transfer used
2. Transferor does everything within power to effect transfer
3. Documentation ends up in hands of person capable of affecting legal transfer (e.g. registrar of company)

…then recipients will have the equitable interest under a CT and they can force the transfer of the legal title to them

2 and 3 subject to Mascall extension!

Re Rose - two transfers of share executed by Mr Rose on 30 March (one by gift to wife and other to Ts to be held on trust for wife and son) - had to be effected before 10 April if estate duty to be avoided on Mr Rose’s death 4 years later - transfers and share certificates delivered to company registrar but not registered until 30 June meaning legal title passed then (after 10 April). Was held that no estate duty payable because transfers effective in equity when Mr Rose delivered correct transfer documentation to Registrar before crucial date of 10 April = Mr Rose held legal title on constructive trust for recipients (pending registration of legal title) so as Bs they could force the transfer of legal title to them

Question 31

When will the second limb of the Re Rose exception - ‘transferor does everything within power to effect transfer’ - not be necessary?

Should consider if second limb does not apply

Answer 31

When transferor has ‘put matter beyond their control’ (as this makes a transfer irrevocable); so if correct method of transfer used = transfer irrevocable if transferor puts matters beyond their own control

Mascall v Mascall - father wanted to gift registered land to son, handed son signed transfer deed and land certificate which son’s solicitors sent to Stamp Office, then father wanted to revoke gift after argument at a time when the transfer had not yet been registered and so legal title had not passed to son - held that gift complete in equity and could not be revoked by father in spite of documents not yet being sent to Land Registry; by sending documents to son, father had given intended transferee everything needed to complete transfer for himself; had put matter beyond control and made gift irrevocable

Question 32

Does the Re Rose principle apply to registered land?

Answer 32

Yes (as seen in Mascall v Mascall)

Question 33

What will arise if the Re Rose (correct method, everything in power, document ends up in hands) or Mascall v Mascall (matter beyond their control) exception applies?

Answer 33

A constructive trust - transferor (or PRs if they die) will hold the property on constructive trust for intended T/B pending constitution (who may themselves hold the equitable interest on trust for intended B)!

E.g.

• N wants to transfer shares to S to hold on trust for K. N completes stock transfer form and gives to S who is not yet registered with shareholder.
• N dies and leaves shares to M in will.
• Applying Milroy v Lord = trust is void because imperfectly constituted
• Applying Re Rose exception = if N did everything in power to transfer shares to S it will be complete in equity, but it did not end up in the hands of person capable of effecting transfer!
• Applying Mascall extension = by giving S stock transfer form and share certificate, N has given them the means to effect transfer of legal title, so N (and consequently PRs) will hold shares on CT for S pending transfer or legal title, who in turn holds equitable interest on trust for K

Question 34

When will the transferor not have put the matter beyond their control?

Answer 34

• If the transferor sent document to agent e.g. solicitor or accountant (agency is revocable)
• If the transfer requires consent which has not been obtained (e.g. Treasurer as transferor domiciled abroad)
• Where not all documents are disposed of by transferor (e.g. stock transfer form but not share certificate)

Question 35

What is the unconscionable principle?

2nd exception to Milroy v Lord

Pennington v Waine

Answer 35

Perfection will be permitted in cases where it would be unconscionable to resile from transfer

Question 36

What factors are considered for the unconscionable principle to apply?

Answer 36

No comprehensive list of factors to considered but has a broad scope of operation:

• The transferee/donee believes the trust/property is theirs
• Relevant method has been carried out with few mistakes
• If transferor/donor has represented to TPs that they have no interest in the property
• If any legal claims/disputes re the property have been abandoned

Question 37

When will fortuitous vesting (the rule in Strong v Bird) operate and what is the result?

3rd exception to Milroy v Lord

Answer 37

If the settlor did not get around to transferring legal title, but appointed a third party as their executor/ administrator, that person has sufficient legal title to constitute a trust as long as conditions are satisfied

Question 38

What are the three requirements for fortuitous vesting?

Answer 38

1. Intention to make an immediate trust with TP as trustee
2. That trust was not immediately created due to a failure to comply with relevant transfer rules
3. The settlor’s intention continued until their death and
4. The intended trustee acquired legal title to trust property by becoming settlor’s executor / administrator

Eg: A told B ‘i want you to hold my wedding rings for C. I will give you the ring next time you visit.’ A died. In her will, she executed B as her executrix and gave her entire estate to Oxfam (charity).

Strong and Bird will constitute a valid trust as:
1. A intended to create an immediate trust
2. Relevant transfer rules did not take place
3. A had continued intention until her death
4. B acquired title through her position as executrix

C.f if A made another will 2 days after speaking to B without this provision, there would not have been continuous intention

Question 39

What is not an ‘immediate gift’?

Answer 39

• A future intention to give (e.g. after car is put in running order)
• A gift of future acquired property

Question 40

What is Donationes Mortis causa?

4th exception to Milroy v Lord

Answer 40

A gift made in contemplation of death (a ‘deathbed gift’) where person wants to leave property to another person but has no time to execute a will nor transfer legal title (also may not want to part with property just yet if unsure of when they will die)

Question 41

What are the three requirements for a DMC?

Answer 41

1. Gift made in contemplation (but not necessarily expectation) of death which donor believes to be imminent
2. Gift is conditional on death (not intended to be fully effective until then and can be revoked before death)
3. There is delivery of the property - donor must part with control of property by handing it/something representing title to the donee

Question 42

What does it mean for imminent death to be in contemplation?

Answer 42

Where there is a reason to anticipate dying

I.e. the death cannot have been by chance

Question 43

What if settlor makes a declaration that the settlor + another TP will act as trustee, but does nothing to transfer legal titles into joint names of both trustees?

Choithram v Pagarani!

Answer 43

There is no distinction in cases where settlor appoints himself as sole trustee and where he declares him as ONE of the trustees.

In both cases, it would be unconscionable to, in the absense of special factors, back out.

Question 44

Summary

Answer 44