Express Trusts: Requirements Flashcards
what is a trust?
arrangement where a trustee (T) holds property for the benefit of another (beneficiary (B))
what is the position regarding a letter of wishes?
if this accompanies a trust, Ts do not have to follow it
what is trust property and its alternative names?
- Trust property/fund/capital = property subject to trust (TP)
who is a settlor? give a summary of their role
Settlor (S) = the person who puts property into a trust
o S selects Ts, Bs, trust property and terms of the trust
o S transfers property to T who holds it on trust for B
o S is no longer involved once the trust is established
give an overview of a trustee
Trustee = holds legal title
o Any bank account and shares will be in their name
o Duty to maintain TP i.e. consider investing and protecting from erosion by inflation
what rights does the B have?
- Beneficiary = holds equitable title
o They have a proprietary right in the trust (i.e. ownership of TP)
o They have a personal right to enforce T’s duties and seek compensation for breach of trust
what is an absolute owner?
- Absolute owner = individual holds legal and equitable title
what is an express trust?
trusts intentionally created by S
what are the types of trust?
lifetime trust
will trust
what is a lifetime trust and its other name?
- Lifetime trusts (i.e. inter vivos trusts) = trusts that take effect in S’s lifetime
what is a will trust?
- Will trusts = trusts that take effect on S’s death
explain the difference between a will and will trust
o A will gifts property to someone, no strings attached
o A will trust sets out how property will be distributed, but also management of that property i.e. useful if S wants to pass the property onto their children, but wants their spouse to live their until she dies.
what are the elements for a valid/enforceable express trust?
- Valid declaration of trust:
Satisfies the three certainties
Meet any applicable formalities;
Beneficiary principle (note: exceptions)
Rule against perpetuity; - Be constituted
what happens if there is not a valid declaration of trust?
an automatic resulting trust in favour of S will arise
what is a declaration of trust?
S expressing their intentions to create a trust.
what are the elements of a valid declaration of trust?
- Declaration of Trust (DOT) and Formalities
- Three certainties
- Beneficiary principle
- Remoteness of vesting
re: declaration of trust
what form can a DOT of a lifetime trust take?
can be in writing or orally (latter not advisable)
re: declaration of trust
what form must a DOT of a will trust take?
must be in writing and signed by S in the joint presence of two witnesses
re: declaration of trust
what form must a DOT of a trust over land take?
must be in writing and signed by S
An email which states the DOT and terms will be sufficient if S types out their name, last name prefixed by initials or nickname they are known by
A signature block and email address itself are not sufficient
re: declaration of trust
explain a DOT over land by email
An email which states the DOT and terms will be sufficient if S types out their name, last name prefixed by initials or nickname they are known by
A signature block and email address itself are not sufficient
re: declaration of trust
where the DOT must be made in writing, when will is be acceptable if it is made orally?
- Where the DOT must be in writing, this can be made orally but must be confirmed in writing afterwards
re: declaration of trust
what are the requirements for all DOTs (regardless of whether orally or in writing)?
In any case, the DOT must set out:
o Name of trustees
o Trust property
o Beneficiaries and their interest (i.e. any contingencies)
o Powers and duties of the trustees
re: declaration of trust
what happens if the DOT fails to state any contingencies? explain with an example.
i.e. S asks T to hold property on trust for her son, subject to him reaching 30 years old on the phone. S informs her son of this in writing, but forgets to include the contingency. Therefore, S has failed to sufficiently evidence the DOT in writing.
re: declaration of trust
what do the three certainties apply to?
- These apply equally to lifetime trusts and will trusts
re: declaration of trust
what are the three certainties?
Certainty of Intention (i.e. certainty of words)
Certainty of Subject Matter (CoSM)
Certainty of Objects (CoO)
re: declaration of trust - certainty of intention
explain certainty of intention
- i.e. it must be clear S intended to create a trust from their words or conduct
- S must use obligatory words which impose a duty on someone to act as T
- Precatory words (i.e. wish, hope, request, ask) will not be sufficient
re: declaration of trust - certainty of intention
give an example in relation to conduct
putting money into a separate bank account for someone
re: declaration of trust - certainty of intention
give examples of obligatory words
o ‘I am transferring my cottage to you to hold on trust for Sam’
o ‘I give my vases for you to distribute to my children’
re: declaration of trust - certainty of intention
give examples of precatory words
i.e. wish, hope, request, ask
o I give you this ring trusting that you will give it to my child’
re: declaration of trust - certainty of intention
what happens if precatory words are used?
give an example
- If precatory words are used, the transfer will be deemed a gift (rather than imposing trust). This means the intended T will instead be the absolute owner and B will not receive anything
Example
o Tom says to Jane ‘I give you this ring in the hope you will look after it for Sam’. This does not impose a trust on Jane. Tom has therefore gifted the ring to Jane who will be the absolute owner.
re: declaration of trust
give an overview of certainty of subject matter
- i.e. both the trust property and interests of the Bs must be clear
clear language must be used
re: declaration of trust - certainty of subject matter
explain trust property
- DOT must specify the individual items to be held on trust
re: declaration of trust - certainty of subject matter
what property can be subject to trust?
- S can only create a trust over property they currently own (not future property)
re: declaration of trust - certainty of subject matter
give an example of when there will / will not be certainty of trust property
Must use clear language, i.e.:
o ‘the bulk of my residue estate’ no CoSM
o ‘the residue of my estate’ is CoSM
re: declaration of trust - certainty of subject matter
what happens if S only puts part of a collection in trust?
there will only be certainty of CoSM if:
Intangible items (i.e. shares) the items are identical
i.e. ‘I give 50 of my 950 ASDA shares’.
Tangible items:
If they are identical; or
Non-identical items that can be clearly identified
i.e. there is a collection of different wines. A customer may be able to argue their order is held on trust if their order can be distinguished from the rest of the wine i.e. it has been segregated from the other wines.
re: declaration of trust - certainty of subject matter
what will happen if S intended to create a trust for themselves but there is not certainty of trust property?
- If S intended to create a trust for themselves but there is no certainty of TP, the trust will fail and S will remain the outright owner
re: declaration of trust - certainty of subject matter
what will happen if S transfers trust property to a third party partly to be held on trust and party as a gift, but they fail to define the property?
- If S transfers property to a third party with the intention some of it be a gift and some be hold on trust, if the TP is not specifically defined the trust will fail and the third party will take all the property free from trust
re: declaration of trust - certainty of subject matter
explain beneficial interests
- B’s share(s) in the TP must be sufficiently defined
re: declaration of trust - certainty of subject matter
when will beneficial interests be sufficient defined?
There will be certainty of SM in this regard if:
o The shares are explicitly defined;
o The DOT is silent about the division of shares, in this case it is assumed the TP will be divided equally; or
o It is a discretionary trust i.e. ‘Ts shall hold the trust for my children in shares as they see fit’
re: declaration of trust - certainty of subject matter
give an example of uncertain Bs
- ‘Ts are to distribute generous amounts to X and X’ uncertain
re: declaration of trust - certainty of subject matter
what happens if S appoints a T and fails to specify interests of the intended Bs?
- If S appoints a T and fails to specify interests of the intended Bs, T will hold the TP for the benefit of S under a resulting trust
re: declaration of trust - certainty of objects
explain this
- i.e. it must be clear who the Bs are.
This tends to be an issue when the trust states a class of Bs, as opposed to naming them
re: declaration of trust - certainty of objects
what happens if there is no certainty?
- If there is no CoO, a resulting trust in favour of S will arise
re: declaration of trust - certainty of objects
what is a class of beneficiaries?
Class of beneficiaries = when there is more than one B and S has not referred to each B individually i.e. ‘my grandchildren’, ‘my employees’
re: declaration of trust - certainty of objects
what is the position regarding certainty of objects in relation to fixed trusts?
remember, this only applies where a class of Bs is named
- Ts must be able to draw up a complete list of all the Bs, this involves:
o Conceptual certainty
o Evidential certainty
re: declaration of trust - certainty of objects
what is conceptual certainty? give an example
Conceptual certainty = description of Bs must be clear and objective:
‘…for each of my nephews’ conceptually certain
‘…my friends’ generally not conceptually certain
re: declaration of trust - certainty of objects
what is evidential certainty? give an example
o Evidential certainty = evidence to identify the Bs
‘…ex-employees’ but there is no list of these not certain
re: declaration of trust - certainty of objects (fixed trust)
what happens if a B cannot be traced/located/
If a B cannot be traced/located, this does not make the trust uncertain
‘…on trust for my living grandchildren’ if one cannot be located, this does not mean the trust would fail
re: declaration of trust - certainty of objects
what is the position in relation to discretionary trusts?
- The trust must satisfy the ‘given individual test’, be administratively workable and not be capricious
re: declaration of trust - certainty of objects
explain ‘given individual test’
- Given individual test = can it be said with certainty that an individual is or is not a member of the class? (the class will need to be conceptually certain)
re: declaration of trust - certainty of objects
explain ‘administratively workable’
give an example
- Administratively workable = if the class is so wide as not to form anything like a class, the trust will fail
o i.e. a trust for the inhabitants of West Yorkshire failed
re: declaration of trust - certainty of objects
explain capricious
give an example
- Capricious = the trust itself or the power conferred on T is irrational / illogical
o i.e. it would benefit an accidental group of persons with no discernible link between S and the Bs.
re: declaration of trust
explain the beneficiary principle
- A trust will only be valid if there is a human B capable of enforcing the trust
Not applicable to charitable and some non-charitable purpose trusts
re: declaration of trust
explain the remoteness of vesting
what is the other name for this?
i.e. the rule against perpetuity
A trust will only be valid if the BI vests within the perpetuity period
Perpetuity period for trusts created on or after 1 April 2010 - 125 years
re: constituting a trust
what does this mean?
- A trust is not created until it has been constituted i.e. until legal title to the TP has vested in T(s), giving Ts control of the property.
re: constituting a trust
what happens if the trust is not constituted?
- If the trust is not constituted, S remains the absolute owner
re: constituting a trust
what happens once the trust is constituted?
- Once the trust is constituted, S cannot change their mind
re: constituting a trust
when is a will trust constituted?
a valid will must direct that title to trust property is put into the hands of T on their death.
re: constituting a trust
when is a lifetime trust constituted when S appoints themselves as T?
so long as the above formalities are complied with, they do not need to do anything else as they already own the legal title
re: constituting a trust
when is a lifetime trust constituted when S appoints a 3rd party as T?
must apply relevant transfer rule depending on type of property
re: constituting a trust
when is a lifetime trust constituted when S appoints themselves and a 3rd party as T?
Must transfer property from S’s sole name to joint names of S and Ts
However, if they do not complete the transfer rules, equity will step in and the trust will be valid in equity
re: constituting a trust
what are the transfer rules in relation to land?
S must execute a deed and either S or T must send this to HMLR
o Requirements for a deed: stated to be a deed and someone else witnesses S sign the deed
o If the land is registered Form TR1 will be used
HMLR will then register T as the new legal owner
re: constituting a trust
what are the transfer rules in relation to public quoted shares?
- Public quoted shares within the CREST electronic transfer system
- The company will then register T as the new SH in the register of members
re: constituting a trust
what are the transfer rules in relation to cash?
title passes on delivery
re: constituting a trust
what are the transfer rules in relation to bank transfer?
titles passes when it arrives in T’s bank account
re: constituting a trust
what are the transfer rules in relation to a cheque?
title passes once cheque is cleared. If S dies before then it cannot be cashed
re: constituting a trust
what are the transfer rules in relation to shares which are not public quotes?
- All other shares S must execute a stock transfer form and either S or T must give this and S’s share certificate to the company
- The company will then register T as the new SH in the register of members
re: constituting a trust
what are the transfer rules in relation to chattels?
title passes on physical delivery of the asset
re: constituting a trust
what is meant by ‘equity will not assist a volunteer’?
- i.e. if the transfer rules at not adhered to, there will be no trust.
re: constituting a trust
what are the exceptions to equity will not assist a volunteer?
There are some exceptions (i.e. equity will constitute the trust, even when transfer rules haven’t been adhered to):
1) Every effort test
2) Pennington v Waine
3) Strong v Bird rule
re: constituting a trust
explain the ‘every effort test’
S has made every effort to transfer legal title, but this has failed due to the actions of a 3rd party, equity may step in and complete the transaction where the TP is transferred beyond recall
Test will not be satisfied if S still has the transfer documents i.e. S files all the paperwork but dies before it is registered. The every effort test would be satisfied and so the trust will be valid in equity
re: constituting a trust
explain the ‘Pennington v Wine’
S has not made every effort to transfer title, but it would be unconscionable for the trust not to be formed
re: constituting a trust
explain when Strong v Bird will apply
o S intends to create an immediate trust with the third party as T;
o The trust was not completed due to failure to transfer legal title;
i.e. does the intended T now have the property?
o S dies, but their intention to create the trust continued up to death; and
i.e. if they change their wishes before death, the rule cannot be relied on
o The third party acquired legal title to the TP by becoming executor or administrator
