Formalities Flashcards
Section 9, Wills Act 1837
Is the deathbed trust.
Requires that a testator signs a written document and this is witnessed by two people
Section 53(1)(b), Law of Property Act 1925
A trust of land requires a signature on a written document evidencing a declaration
“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”
Section 53(1)(c) Law of Property Act 1925
Any “disposition” of an existing equitable interest requires a signature.
“A disposition of an equitable interest or trust subsisting at the time of disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing or by will.”
I can go to my agent, but I must authorize them in writing or by my will to declare the trust of the equitable interest.
Not applicable to the original creation of a trust.
Activated when a beneficiary under a trust seeks to dispose of his interest.
Applies to subsisting equitable interests in realty or personalty. It contains no restriction as to the type of property. “Subsisting” means that the equitable interest has already been separated from the legal interest before the disposition in question.
Section 53(2) LPA 1925
Excludes the creation of implied, resulting and constructive trusts.
Grey v IRC [1960]
A House of Lords decision, decided that a oral direction by an equitable owner to the trustees of a trust fund to hold the property upon trust for another was a purported disposition and void for noncompliance with Section 53(1)(c).
If you orally direct somebody – the trustee – to hold it for another person then that is void because you have not gone it in writing.
Back in 1949 when you had a transfer of shares to a trustee to hold on trust for the grandchildren. So that is our original trust. Remember, original trusts…it is for shares, and it can be done orally. So that is all right.
Then, a few years later in 1955 he transfers some further shares to the trustees and he says “hold them on trust for me”. So, the second transfer is slightly different. He then says to his trustees “those shares that I just transferred to you, hold them on trust for my grandchildren”. So in other words, hold them on the same trusts as the 1949 trust.
He is not putting it in writing because he does not want to pay tax (to avoid Stamp Duty) – tells us trustees not to hold them for him, but to hold him for his grandchildren.
Does this work? No because he transferred the equitable interest from himself to his grandchildren come and you can’t do that without signed writing.
The initial transfer of the legal estate to the trustees meant that in the absence of any contemporaneously declared trust the beneficial interest “resulted” to the settlor. This is why I need you to understand what a resulting trust is, because it keeps coming up. If you fail to say where your beneficial interest will go, it comes back to the settlor; it results back to the settlor.
Accordingly, the interest disposed of by settlor when he orally gave instructions as to the precise trusts was of an existing (subsisting) interest, so Section 53(1)(c) applied;
The trusts were then affected not by the oral dispositions but by the later deed upon which stamp duty was payable. so, the oral disposition did not work but the later deed was the disposition, so when he later drafts a deed…doing that transfer, then that’s the deed and Stamp Duty is payable on that.
Vandervell v IRC (1967)
If you, the beneficiary, direct your trustees to transfer the legal estate to another intending also that your beneficial interest should pass, that is not Section 53(1)(c).
The House of Lords decided that Section 53(1)(c) has no application where the equitable owner, under a subsisting trust, directs the legal owner to transfer his title to a third party, and in the same transaction, the equitable owner, without writing, transfers his interest the same third-party.
RE VANDERVELL (NO 2) [1974]
Vandervell transferred money to the Royal College of Surgeons. But he retained an option on that. So he wasn’t really a philanthropist; he retained the possibility of getting the shares back.
We identified that as the creation of a resulting trust because he retained an interest in it.
In 1961, in order to prevent further claims to tax by the Inland Revenue, Vandervell directed Vandervell Trustees Ltd to exercise the option which they did – using £5000 from a separate trust fund in favour of Vandervell’s children of which it was also a trustee. The intention (with Vandervell’s consent) was that the shares would henceforth be held on the trusts of the children’s settlement.
So, he exercises the option and gets those shares back. He says to his trustees to hold the shares on the trusts of his children’s settlement.
The legal interest is in the trustees because they had purchased the shares.
Clearly, the legal interest in the shares was now in Vandervell Trustees Ltd, since it had purchase the shares. Where was the beneficial interest? This is the key, and the Inland Revenue is watching this beneficial interest. The moment that is disposed of they would exact a tax, because you need a written document in order to dispose of it.
So the moment Vandervell transferred it to the children of the trust, then there is a tax liability because it is a Section 53(1)(c).
The Court of Appeal held that the option was destroyed when it was exercised.
The moment Vandervell said he wanted to exercise the option – remember there is the resulting trust (he holds the interest in those shares under a resulting trust) and the Royal College of Surgeons are the Trustees for him – then that extinguished his equitable interest in it. It brought the resulting trust to an end because the legal title came back. This is not Section 53(1)(c).
The equitable interest is not moving; the legal interest is moving.
Lord Denning said what the position is is the termination of the resulting trust in favour of Vandervell, and the declaration of a new trust in favour of the children.
Grainge v Wilberforce 1889
(Sub trust)
Where the beneficiary creates a sub trust of his equitable interest does Section 53(1)(c) apply? If you have active duties to perform – e.g. the exercise of discretion in a discretionary sub- trust, that is you deciding which first year law students are worthy – or any part of the equitable interest which is the subject matter of the sub-trust – so you declare that 50% of it remains with you, but 50% goes to the first year law students – then that is a valid declaration of the new trust and outside Section 53(1)(c).
Re Lashmer 1891
(Sub trust)
If the beneficiary has no active duty to perform in a passive or a bare trust, then the beneficiary effectively drops out of the picture, and the beneficiary is treated as having assigned their equitable interest, so the disposition will be invalid unless Section 53(1)(c) is satisfied.
Oughtred v IRC [1960]
(Contractual transfer of the equitable interest)
When the parties entered into a contract to exchange equitable interests.
The question is: was that contract a disposition of an equitable interest? Was that transfer of their equitable interests to each other… Was that a disposition under Section 53(1)(c)?
Constructive trust… Are they subject to formalities in Section 53(2)? No, they are not.
In the father’s will he had left 200,000 shares on trust for the mother for life, and on her death the remainder to her son.
Together they were absolutely entitled to the property. There is only the mother and son involved. The 200,000 shares for the mother remained in the son, and if you add those together they are absolutely entitled to the property.
So what they wanted to do was for her to have those shares. The problem with a life interest is that you cannot do what you want with it – you have got to retain the capital for the son on your death (or her death in this case). So the mother could only take dividends from those 200,000 shares.
So, it would be better for her reconfigure the will, and the son transferred his remainder interest to her.
This is ringing alarm bells, isn’t it? Because his remainder interest in equity to her is a transfer of existing equitable interest triggering Section 53(1)(c).
However, what they decided to do… It wasn’t as if the son was just going to give it to her. In return for doing that, his mother was going to transfer 72,000 of the shares to him completely.
So, the exchange is… I’m the mother and you are the son… You transfer your remainder interest in my shares to me, and I will give you out right 72,000 of those shares. So, of my 200,000 shares I will give you 72,000 of them, and you give me your remainder interest.
Then the son has absolute entitlement to 72,000 shares, and the mother has an absolute entitlement to whatever the balance of that is.
Is it a Section 53(1)(c) disposition? No, the court said. This is because it is a contract. It is a contract of which you would get specific performance. Therefore, a constructive trust arises, and therefore it falls outside of Section 53(1)(c) because under Section 53(2) constructive trusts are exempt from all formalities.
Neville v Wilson [1996]
This was all questioned in Neville v Wilson [1996] 3 AER 171 whether Section 53(2) really exempts all of these things, and the courts said yes.
If an implied trust is created by the courts can’t say that it is subject to formalities.
Rochefoucauld v Boustead
This has to do with a coffee estate in Ceylon, which is Sri Lanka today.
The transfer was to a trustee who then wanted to mortgage the estate in Ceylon and then claimed that the transfer to trust was valid but unenforceable because it wasn’t in writing. And, the holding in this case is that a trustee cannot use the writing requirement affirmatively to perpetuate a fraud and therefore take a property for himself.
Milroy v Lord
The court will not allow a purported gift which is ineffective because there is no delivery of the subject matter to take effect as a trust.
Jones v Lock
A father put a cheque into the hand of his nine month old son saying “I give this to baby for himself”. When the father later died and the cheque was found among his effects, it was held that there had been no effective gift; nor had any effective trust of the cheque been created.
Richard v Delbridge
Where a grandfather endorsed a lease of property he had with the words “This deed and all thereto belonging I give to [his grandson] from this time forth’, it was ineffective to transfer the lease by way of gift as a deed was required to transfer a legal estate in land. But neither could the words of gift be construed as an intention to create a trust.
