FLK2 Trusts Flashcards
What are express trusts?
Express Trusts: Express trusts are those the settlor expressly intends to create. To create valid lifetime trusts, they must:
(1) Valid Declaration: Validly declare the existence of the trust, compliant with a number of formalities (below). (2) Constitution: Constitute the trust, meaning to put the assets in the hands of the trustee (below).
What are the types of express trust?
Fixed Trust: The trustees have no discretion as to how to distribute property to beneficiaries. It is stipulated once and for all in the terms of the trust.
Discretionary Trust: The trustees have discretion as to the amounts to distribute to any person, and may even have discretion as to whether to distribute to a person at all.
What are the three certainties?
Three Certainties: A valid declaration must show certainty of intention, subject matter and objects (Knight v Knight).
Certainty of Intention
Certainty of Intention: It must be clear that the settlor intended to create a trust.
(1) Wording: The words must clearly intend to convey a trust, but use of the word ‘trust’ itself is not required (Re Kayford). The trustee must be placed under a clear duty (Paul v Constance).
(2) Precatory Wording: Declaration must be definitive, not hopeful. ‘I hope you give’ is not certain (Re Adams).
(3) Effect: Where a transferor lacks intention, the transfer is more likely to be deemed an outright gift.
Certainty of Subject Matter
Certainty of Subject Matter: Both the trust property, and the interests of beneficiaries, must be certain (Palmer v Simmonds).
(1) Trust Property: The trust property must be clearly identified. Homogenous Property: Where groups of assets are homogenous, one may identify them generally, such as ‘5 of my Amazon Shares’ (Hunter v Moss). Heterogeneous Property: Where groups of assets are heterogeneous, one must identify each item specifically, i.e. ‘my 3 ferraris’, but not ‘3 of my cars’, as this is not clear (Re London Wine). Future Property: Trusts can only be conveyed over property the settlor has a current right over. Formulas: Formulas must be workable. ‘The bulk’ or ‘some’ is unclear; ‘the residue’ or ‘all’ is not.
(2) Beneficial Interests: The beneficial interests must be clear, but by default are assumed to be equal. Discretionary trusts are clear, i.e. ‘in such amounts as the trustees deem fit’, but not ‘generous amounts’.
(3) Effect: Lack of certainty means the subject matter will usually return to settlor on resulting trust. If conveyed to a trustee to hold ‘some’ on trust, it usually conveys wholly as a gift.
Certainty of Objects
Certainty of Objects: The beneficiaries themselves must be defined with sufficient certainty (Morice v Bishop). If beneficiaries are named as a class and not individuals, the following tests are required:
(1) Fixed Trust: A class in a fixed trust must be identifiable with conceptual and evidential certainty, known as the Complete List Test (IRC v Broadway).
Conceptual: Beneficiaries identified using objective concepts, i.e. ‘my children’, but not ‘best children’.
Evidential: Beneficiaries exhaustively identifiable using accessible evidence. Usually, where there are many beneficiaries, and no evidence provided, this will not be possible.
In Practice: ‘My children’ is certain, ‘my friends’ are not (no evidence/unclear).
(2) Discretionary Trust: A class in a discretionary trust must be identifiable using the Given Postulant Test, meaning any person can be conclusively determined as a beneficiary or not (McPhail v Doulton).
Administrative Unworkability: If a class is too broad (‘the whole world’), it fails (ex p West Yorkshire).
Capriciousness: If a class is irrationally chosen (‘clowns in small towns’), it fails (Re Manisty’s).
(3) Effect: If there is no certainty of objects, the property will return on resulting trust.
(4) Will Trusts: Will trusts speak from death, meaning objects must make ‘sense’ on death. For example, if the will says ‘on trust to my nephew’, and the testator now has 3 nephews, the trust will fail on death.
What is the beneficiary principle?
Beneficiary Principle: A valid trust must be for the benefit of individuals. This is subject to exceptions (purpose trusts).
What is the rule against perpetuities?
Perpetuities: Trusts must last no longer than the law allows, to prevent the locking away of capital.
(1) Period: Beneficial interests must unconditionally vest within 125 years. Most trusts satisfy this rule. (2) Purpose Trusts: A different rule applies to valid purpose trusts.
What other formalities need to be satisfied depending on the type of trust for it to be valid?
Further Formalities: Most trusts can be declared orally (though not advisably), subject to certain exceptions.
Will Trusts
Will Trusts: Wills must be written, signed by the testator, in the joint presence of two attesting witnesses (WA 1837).
Land
Land: Declarations of trust over land must be evidenced in writing (s53(1)(b) LPA).
(1) Formalities: a) Written; b) signed by settlor; c) containing all express terms. This should also be registered on proprietorship to bind purchasers of that land. It does not need to be sent to anyone.
(2) Emails: Declarations by email are permitted, provided the email ends with the settlor’s name or words indicative of their name, but not their email address (Hudson v Hathaway).
How are trusts constituted?
Constitution: Trusts must be constituted by legally vesting the trust assets in the trustees.
(1) Trusts on Death: Trusts conveyed through wills constitute automatically on death. (2) Self-Declaration: Trusts held solely by the settlor constitute automatically.
(3) Other Trusts: Trusts held by other trustees, including the settlor as part of a group, must be constituted in the methods listed below.
What is the method of constitution?
Methods of Constitution: The method of constitution adopted will differ by type of asset.
(1) Cash: Cash is physically transferred, or once a cheque has cleared. (2) Chattels: Chattels are transferred physically, or conveyed by deed (Jaffa v Taylor).
(3) Shares: Shares are transferred by stock transfer form, which must be sent to the relevant company or the trustees alongside a share certificate. This constitutes once a new certificate is issued to the trustees.
CREST: Alternatively quoted shares may be transferred using the online CREST system.
NOTE: Need both certificate and transfer form.
(4) Land: Land must be conveyed by deed on Form TR1 (s52 LPA). Formalities: Clear as a deed, signed and witnessed by settlor, and dated (s1 LPMPA). Recipient: Sent either to the Land Registry or trustee directly.
How can failed constitution be saved?
Saving Failed Constitution: Failure to constitute typically renders trusts invalid, save for three exceptions (Milroy v Lord)
(1) Every Effort: The settlor made ‘every effort’ to constitute the trust before death, and merely relies on a third-party fulfilling their obligations, such as waiting on issue of share certificate. The trust is valid if they die having made every effort (Re Rose; Re Mascall).
(2) Strong v Bird: If the settlor failed to constitute prior to death, the trust will be valid provided four conditions are met (Strong v Bird).
Declaration: Settlor declared a valid trust to a trustee, but did not constitute it.
Immediacy: The intention was to immediately create the trust (Re Freeland).
Continued: The intention continued unchanged until death (Re Gonin).
Trustee-PR: The intended trustee was appointed a PR of the settlor, and now holds on trust.
(3) Settlor-Trustee: If the settlor declared themselves one of several trustees, and failed to constitute it to the other trustees before death, the trust is valid as it would be ‘unconscionable’ to deny it (Choithram v Pagarani).
What is necessary for valid constitution of trusts?
- Three certainties
- Perpetuity principle
- Beneficiary principle
- Constitution
- Formalities
What is a purpose trust?
Purpose Trusts: A trust applied to achieve a purpose, rather than merely benefit an individual. They are generally void, subject to charitable trusts, imperfect obligation trusts, and Re Denley trusts.
How are purpose trusts validly declared ?
Valid Declaration: Valid purpose trusts must still satisfy the rules of valid declaration, but in places these differ.
The Three Certainties
Three Certainties: Declaration must be certain in intention, subject matter and objects.
(1) Intention: It must be clear that the settlor intends to convey a trust. (2) Subject Matter: The property held on trust must be clear. (3) Objects: The ‘purpose’ of the trust must be clear. Exception: Valid charitable trusts will be enforced regardless of how vague they are, i.e. ‘to local young people’ will be enforced and determined by the Charities Commission. Re Denley: Benefiting parties must be identifiable by the ‘Given Postulant’ Test.
Beneficiary Principle
Beneficiary Principle: Purpose trusts do not generally exist for the direct benefit of individuals, which means there is no one to enforce the trust. This is why purpose trusts are generally void (Re Shaw).
Perpetuities
Perpetuities: The rule against perpetuities differs for valid purpose trusts.
(1) Charitable: There is no limit for charitable trusts. (2) Non-Charitable: The trust must be exhaustible within 21 years, achieved in two ways. Express: Trust limits itself to ‘as long as the law allows’. Implied: Trust permits trustees to fully exhaust the funds within the timeframe, i.e. ‘use all the money on building a shed for my son’.
Formalities
Formalities: For purpose trusts over land, the ordinary written formalities exist.
What are charitable trusts?
Charitable Trusts: Charitable trusts are purpose trusts with: a) a charitable purpose; b) sufficient public benefit; and c) exclusive charitability (CA 2011).
** Charitable Purpose**
Charitable Purpose: A charitable purpose is any listed under s3 CA 2011. It includes:
(1) Poverty: Preventing or relief of poverty, including ensuring people do not ‘go without’ (Re Cohen). (2) Religion: Advancing religion and beliefs, including lack of beliefs (Neville v Madden). (3) Education: Advancing education, including research and museums, unless intended to ‘persuade’ (Re Shaw).
Public Benefit
Public Benefit: Charitable trusts must have sufficient public benefit.
(1) Benefit: The charity must be beneficial on balance, meaning outweighing any detriment (s4(2)).
(2) Public: The charity must benefit a sufficient section of the public, and give rise to no more than an incidental personal benefit to the settlor (s4(3)).
Personal Nexus: Charity cannot be restricted to those with a personal nexus to a named individual, such as family relations or employees of a common employer (Oppenheim v Tobacco).
Exception: Trusts to prevent poverty of one’s family generally is permitted (Dingle v Turner).
Restricted Access: Restrictions may be imposed if ‘proportionate, rational and justifiable’. ‘Old people in the local village’ is okay, ‘43 year olds who like football in the local pub’ is not.
Excluding the Poor: Trusts cannot exclude the poor by design, i.e. prohibiting a private school from offering public benefits (Independent Schools v Charity Commission).
Cloistered Religions: Trusts for cloistered/antisocial religious sects are prohibited (Gilmour v Coats).
Exclusive Charitability
Exclusive Charitability: The trust must be of ‘exclusive’ charitability, meaning the entire purpose is charitable (s1).
(1) Lobbying: Charitable trusts cannot support political parties or campaign to change the law (McGovern v AG).
(2) Profits: Charities that charge for services may do so, provided they do not exclude the poor and any profits are reinvested into the charitable purpose.
Private Schools: Private schools with charitable status are permitted, provided they give more than minimal assistance to the poor, such as bursaries or free summer schools.
(3) Mixed Aims: Trusts for ‘charitable and other purposes’ are not exclusively charitable.
What are the trusts of imperfect obligation?
Trusts of Imperfect Obligation: Two types of purpose trust may be valid, albeit imperfectly (Re Astor).
(1) Maintenance of Animals: Trusts to care or provide for a pet (Re Dean). (2) Maintenance of Graves: Trusts to maintain a grave or sepulchral monument (Re Hooper).
Enforceability
Enforceability: Trusts are legally valid, but trustees cannot be compelled to enforce them, making them imperfect. They must also comply with the rule against perpetuities.
What are RE Denley trusts?
Re Denley Trusts: Purpose trusts for the benefit of a class of given postulants are valid (Re Denley’s Trust).
(1) Example: A trust to ‘maintain a sports field for my current employees for as long as the law allows’.
What types of fixed trust interests are there?
Fixed Trust Interests: Beneficiaries under fixed trust have their interests ‘fixed’ by the settlor. The settlor may also decide when they will become entitled, and whether they are entitled to income, capital or both.
(1) Vested Interests: Beneficiary exists and needs to satisfy no conditions to become entitled. Their interest is ‘unconditional’, and on death the property passes to their estate.
(2) Contingent Interests: Beneficiary will only become entitled on the happening of some future event, or the beneficiary does not yet exist. If condition is not met, the property will return to settlor or pass as stipulated.
(3) Successive Interests: Property may be distributed over generations. Commonly, ‘My wife for life, remainder to my son’. The wife (life tenant) receives income for life. The son (remainderman) receives capital on her death.
What types of discretionary trust interests are there?
Discretionary Trust Interests: Settlor determines class of potential beneficiaries, but trustees decide who benefits and to what amount.
(1) Objects: Members of the potential class are ‘objects’, not beneficiaries. Once benefited, any relevant property is vested in them.
(2) Combination: A combination of fixed and discretionary elements may be achieved. For example, ‘Francesa for life, then to my children as selected by my trustees’.
What is the Saunders v Vautier rule?
Saunders v Vautier: Beneficiaries may elect to bring a trust to an end if certain conditions are met.
Bare Trusts
Bare Trusts: A trust for a sole, adult, capable beneficiary with a vested interest is a ‘bare trust’.
(1) In Practice: Common in the investment world, where clients can instruct stockbrokers, but receive the shares back at will. Also common where a sole contingent interest vests.
(2) Effect: Trustee can end trust at any time.
Extended Rule
Extended Rule: Trusts for multiple beneficiaries can be ended in the terms requested provided certain conditions are met.
(1) Conditions: All beneficiaries who could possibly become entitled are: a) in existence and ascertained (known); b) sui juris (capable adults); and c) agree.
(2) Effect: Effectively, beneficiaries can override the provisions of the settlor’s intention. A trust with 90/10 split can be paid out 50/50 if this is agreed.
What is a resulting trust?
Resulting Trust: Resulting trusts may arise where Party A transfers property to Party B, who therein implicitly holds that property on their behalf on ‘resulting trust’.
(1) Purchase Money: Party A provides Party B with all or some of the purchase money for a property. (2) Voluntary Transfer: Party A voluntarily transfers to Party B personalty (not land).
(3) Effect: Property is held on resulting trust for Party A, who is entitled to their financial contribution to it (but nothing further). Need not be subject to any further formalities.
Presumption of Resulting Trust
Presumption of Resulting Trust: It is rebuttably presumed that a resulting trust arises where:
(1) Voluntary Transfer: Party A transfers personalty to Party B, unless there is evidence of a contrary intention, or it is land (Thavorn v Bank of Credit).
(2) Purchase Money: Party A transfers money to Party B, to purchase a property solely or jointly on their behalf (Abrahams v Abrahams).
Exception: Not ancillary fees or later mortgage payments (Curley v Parkes).
Presumption of Advancement
Presumption of Advancement: Presumption of RC does not apply if parties are related in given ways, but this can be rebutted, and will soon be abolished (s199 EA 2010).
(1) Father to Child: Father advances personalty or purchase money to their own child, provided the child was born to married parents (Bennet v Bennet).
(2) Loco Parentis: Person advances personalty or purchase money ‘loco parentis’, meaning to someone they financially provide for as if their own child during their infancy (Bennet v Bennet).
(3) Husband to Wife: Male fiance/husband advances personalty or purchase money to their female fiance/wife (Pettit v Pettit). Not the reverse.
Rebutting Presumptions
Rebutting Presumptions: Both presumptions are rebutted with any evidence of intention to the contrary adduced prior to or during the relevant transaction - evidence post-transaction may only be used against them (Shephard v Cartwright).
Incomplete Disposal
Incomplete Disposal: Resulting trusts may also arise on ‘incomplete disposal’ of trust property, held by the trustee on trust for the settlor. For example, a child’s contingent interest fails because they die, so the property is returned on RC.
What are trusts of family homes?
Family Homes: There is no legal concept of family property. During a breakup, married couples and express co-owners are protected in several ways, but unmarried cohabitants must often rely on implied trusts instead.
(1) Legal Spouses: On divorce, legal spouses/CPs can be made subject to ‘Property Adjustment Orders’, whereby the court orders split of property at its discretion (Matrimonial Causes Act 1974/CP Act 2004).
(2) Express Trusts: If unmarried, cohabitants may rely on express trusts if expressly named as joint tenants or tenants-in-common on the property deeds or registers. This will typically determine their ownership.
Requirements: Must be evidenced in signed writing - if not, see resulting/constructive.
(3) Implied Trusts: If unmarried and there is no express trust, unmarried cohabitants may have to rely on an implied trust to defend their beneficial entitlement to property on separation.
Formalities: As implied trusts, need not be in writing.
Exception: May seek constructive trust even with an express joint ownership, if to seek a greater proportion than half.
Resulting Trust
Resulting Trust: An unmarried cohabitant may be able to impose a resulting trust, but this is constrained.
(1) Purchase Price: Only applies to purchase price, which occurs before or during transaction. Later payments or other sacrifices do not suffice.
>(A) gave (B) £5,000 to purchase house, worth £10,000. They may be able to claim 50% of this house on RC.
(2) Voluntary Transfer: Voluntary transfers do not apply to land.
(3) Remedies: Courts can only provide remedies to the extent of proportion of financial purchase contributions, which are often limited (Stack v Dowden).
