Express trusts: formalities

Question 1

What are the formalities for an express trust of land as per S53(1)(b) LPA 1925?

Answer 1

S53(1)(b) LPA 1925 provides that “a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will”.

Question 2

What is the effect of non-compliance with S53(1)(b) LPA 1925 in respect of the formalities for an express trust of land?

Answer 2

Non-compliance renders the trust unenforceable rather than void.

Question 3

What does constitution mean in the context of trusts?

Answer 3

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

Question 4

When will constitution of a testamentary trust take place?

Answer 4

In a testamentary trust, 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.

Question 5

What is an inter vivos trust?

Answer 5

An inter vivos trust is a legal document that allows a person to transfer assets to a trustee to be held and managed during their lifetime. The term inter vivos is Latin for “between the living”.

Question 6

How is legal title transferred in registered land?

Answer 6

Registered land transfers must be made by deeds under S52(1) LPA 1925 and registered with the Land Registry under s27 LRA 2002.

Legal title passes on registration of the new owner at the Land Registry.

Question 7

How is legal title transferred in shares?

Answer 7

Shares in a private company are transferred by the transferor signing a stock transfer form and sending it to the company.

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

Question 8

How is legal title transferred in choses in action?

Answer 8

Choses in action (eg debts and money in a bank account) are transferred by notice in writing to the debtor or to the bank under s136 LPA 1925.

Legal title passes once notice has been received.

Question 9

How is legal title transferred in chattels?

Answer 9

Chattels (including physical cash) may be transferred either by deed of gift or by delivery of the chattel with evidence of the transferor’s intention to transfer it (Re Cole (1964)).

Question 10

How is legal title transferred in cheques?

Answer 10

Cheques in favour of the transferor may be transferred to a third party by the transferor endorsing the cheque by signing their name on the back according to the Bills of Exchange Act 1882.

Question 11

What is the effect of constitution?

Answer 11

The effect of constitution is that the disposition is irrevocable.

Once a trust is constituted, the settlor ceases to have any beneficial or legal interest in the trust property. The trustee has legal title and holds it on trust for the beneficiary.

Question 12

What is the effect of failed constitution?

Answer 12

If the trust property is not vested in the trustees the trust is incompletely constituted and is therefore void.

Question 13

Describe the case of Milroy v Lord (1862) in relation to constitution.

Answer 13

FACTS: the settlor intended to transfer shares to Lord to be held on trust for the Cs but failed to comply with the correct method for transfer of the legal title of the shares. Instead, the settlor simply handed the share certificates to Lord.

HELD: the trust was not constituted, despite the settlor’s intention to create one, as legal title to the shares had not vested in Lord. The settlor had not completed the process of transferring legal title and equity would not treat him as if he had.

Question 14

What is the rule in Milroy v Lord?

Answer 14

The transferor must do everything necessary to effect the intended disposition by following the correct method for transferring legal title.

If they fail to do so, equity will not perfect the disposition or treat the transferor as having used one of the other methods.

Question 15

Describe the case of Jones v Lock (1865) in relation to equity will not assist a volunteer.

Answer 15

FACTS: a father returned from a business trip without a gift for his baby and produced a cheque for £900 payable to himself, which he put into his son’s hands and stated it was for him. He did not endorse the cheque and therefore failed to transfer legal title to his son.

HELD: the Court rejected the argument that he had declared himself a trustee of the cheque-he had intended an absolute gift. The £900 could not be transferred to the baby and passed to his estate under the will.

Question 16

What are the four possible exceptions to the rule in Milroy v Lord that if legal title has not been vested in the intended recipient, the disposition will fail?

Answer 16

1. Principle in Re Rose
2. The unconscionable principle
3. Fortuitous vesting
4. Donationes mortis causa

Question 17

What is the principle in Re Rose (1952)?

Answer 17

The Re Rose principle, also known as the “every effort rule”, is a legal principle that states a gift is effective if the donor has made every reasonable effort to transfer the property. The principle applies even if the transfer is delayed by a third party or by the law.

Question 18

Describe the case of Mascall v Mascall (1985) in which the Re Rose principle was applied.

Answer 18

FACTS: the Re Rose principle was applied by the Court of Appeal to the gift of registered land from a father to his son. The father handed the son the signed transfer deed and land certificate, which was sent by the son’s solicitors to the Stamp Office.

The father and son argued and the father wanted to revoke the gift, which had not yet been registered and so legal title had not passed to the son.

HELD: the Court of Appeal extended the Re Rose principle to registered land and held that the gift was complete in equity and so could not be revoked by the father.

Question 19

Describe the case of Pennington v Waine (2002) in relation to the unconscionable principle.

Answer 19

The transfer documents for the transfer of 400 shares from Ada Crampton to her nephew, Harold, remained with her agent, Pennington. But Ada took the following steps to make the gift to Harold:

-she signed a stock transfer form and gave it Pennington who put it on file

-she told Harold she wanted him to be a director of the company

-she and Harold signed a form of consent for him to act as director

-her agent, Pennington, told Harold he need take no further action

The Court perfected the gift (by imposition of a constructive trust), holding that it would have been unconscionable for Ada to have resiled from the gift.

Question 20

What is fortuitous vesting?

Answer 20

In some cases, a failure to perfect the intended recipient’s title may be cured if they obtain legal title through another route-this exception is called fortuitous vesting because legal title vests in the recipient in another capacity.

Question 21

Describe the rule in Strong v Bird (1874) and the circumstances of the case.

Answer 21

FACTS: Bird had borrowed money from his step-mother and agreed that he would pay her back by a deduction from her quarterly rent payments. Two deductions were made but she then orally agreed to forgive the debt, but this was ineffective at law and so on her death Bird still owed her estate the money.

On her death, Bird was appointed executor of her estate.

HELD: the debt was released at common law by Bird’s appointment as executor. As legal owner of the estate, he was both creditor and debtor. It was the step-mother’s unchanged intention to forgive the debt, followed by Bird’s appointment as executor which released him from the debt.

Question 22

Will the rule in Strong v Bird apply even if the intended recipient is one of several executors?

Answer 22

Yes, but there are several conditions that must be met in order for the rule to apply.

Question 23

What conditions must be satisfied in order for the rule in Strong v Bird to apply to a recipient who is one of several executors?

Answer 23

-There must be an intention to make an immediate gift

-The intention must continue until the donor’s death

-The intended donee becomes an executor/one of the executor of the donor’s estate

Question 24

What is a donationes mortis causa (DMC)?

Answer 24

A gift made in contemplation in death (‘donatio mortis causa’ or ‘deathbed gift’) is the final exception to Milroy v Lord.

This exception is utilised in circumstances where a person contemplates their imminent death and wishes to leave their property to another person but doesn’t have time to execute a will.

Question 25

What are the requirements of a valid DMC?

Answer 25

-The gift is made in contemplation of death which the donor believes to be imminent

-The gift is conditional on death

-There is delivery of the property, the donor must part with control of the property by handing it or something which represents title to the donee

Question 26

What are the two sets of perpetuity rules?

Answer 26

1. The rule against remoteness of vesting
2. The rule against alienability

Question 27

What is the statutory perpetuity period?

Answer 27

S5(1) Perpetuities and Accumulations Act 2009: this period is a maximum of 125 years but can be limited to a shorter period.

Any interest under a trust which does not vest within the statutory perpetuity period is void.

Question 28

What is the wait and see rule in relation to perpetuity?

Answer 28

S7 contains a wait and see rule which means that the trust can subsist until it becomes apparent that the interest cannot vest within the perpetuity period-anything done before this will remain valid.

Question 29

What is the class closing rule in relation to perpetuity?

Answer 29

S8 contains class closing rules which can save a trust by excluding objects who might otherwise cause the trust to fail because their interest would vest outside the perpetuity period.

Question 30

What is the rule against alienability?

Answer 30

This is a more limited rule which provides that assets cannot be tied up on trust for no longer than the common law perpetuity period of a specified life in being plus 21 years (or just 21 years if no life in being is specified).