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Question 1

The three ways you can give away property during your lifetime identified in Millroy v Lord are to…

Answer 1

…give a gift, create a trust with himself (the settlor) as sole trustee or create a trust with a third party as trustee.

Question 2

Personal property is all property except..

Answer 2

…freehold land.

(a) Chattels (‘choses in possession’). Tangible things, eg jewellery, cars, furniture, paintings, animals, etc.
(b) ‘Choses in action’. Intangible things which must be recovered by bringing a claim in court, not by taking physical possession, eg debts, life assurance policies, copyrights, company shares, bank accounts, etc.
(c) Leasehold land

Question 3

What are the correct formalities to make an outright gift in your lifetime?

Answer 3

The donor must have the necessary mental capacity to make the gift
The donor must have the intention, manifested by words or conduct, to make a gift
The donor must ensure there is certainty of subject matter and objects.
The property must be transferred to the donee in the correct manner.

Question 4

Certainty of subject matter - What is wrong with giving ‘the bulk of my estate’?

Answer 4

There is no indication of how much constitutes the ‘bulk’ of my estate. Therefore, the subject matter is uncertain (Palmer v Simmonds).

Question 5

Certainty of subject matter - Why is this ok? I give the residue of my estate after payment of legacies and my debts to my trustees to hold on trust for A for life remainder to B.

Answer 5

The subject matter (‘residue’) is certain. The size of residue will be ascertainable when the will has effect on the testator’s death. At this time the extent of the debts and legacies will be known. The fact that it is not a definite amount until death is immaterial because the will has no effect until the testator dies.

Question 6

Certainty of subject matter - In Re London Wine Company (Shippers) Ltd [1986] PCC 121, the buyers of wine stored in a warehouse but not segregated from the general stock of wine could not establish a trust as the subject matter was uncertain. What did the settlor have to do?

Answer 6

The settlor had to identify which chattels (out of his larger collection of chattels) he intended to form the subject matter of the trust.

Question 7

Certainty of subject matter - What is the ratio of Hunter v Moss?

Answer 7

Shares of the same class in the same company are indistinguishable from each other. Therefore, the settlor does not need to stipulate exactly which 50 he means

Question 8

Re: Creation of Trusts - In Re Lewis’s of Leicester Ltd Robert Walker J held that the traders were able to recover the money held in the bank account because there was a valid trust for them. The subject matter was certain because…

Answer 8

…by placing the money in a separate account, it had been segregated from Lewis’s other money.

Question 9

Re Creation of Trusts - In Mac-Jordan Construction Ltd v Brookmount Erostin Ltd, while there had been an intention to set up a trust of the retained money, this had not been accomplished because there was uncertainty of subject matter. What was the issue?

Answer 9

The retention monies had not been segregated from Brookmount’s other funds. The key fact was that they had not been placed in a separate bank account.

Question 10

Creation of Trusts - The subject matter of a trust is certain if the settlor gives a workable formula for calculating the amount. In Re Golay [1965] 2 All ER 660, where a beneficiary was to be given a ‘reasonable income’, the court decided…

Answer 10

…that this term was sufficiently objective to provide an ‘effective determinant’ to enable the court to decide how much income to give the beneficiary. The court would be guided by the level of the beneficiary’s previous income. It is very unlikely that a gift of capital, eg ‘a reasonable legacy’, would be valid.

Question 11

Creation of Trusts - In which two instances is it not necessary to specify the exact share of a beneficiary?

Answer 11

The first case is a discretionary trust.

The second case is where a trust or gift is made for a group of beneficiaries but the settlor does not specify the shares each member of the group is to receive; they are assumed to be equal.

For example, a gift to ‘my trustees to divide it between my children living at my death’ is silent as to the share of each child but the shares are certain because they are assumed to be equal.

Question 12

Creation of Trusts - The beneficiary principle is…

Answer 12

…as a general rule, trusts must have ascertainable human beneficiaries

Question 13

Creation of Trusts - What are the two basic exceptions to the beneficiary principle that trusts must have ascertainable beneficiaries?

Answer 13

First, if the purpose is regarded as charitable – then this is valid. The trust is a public trust and the Attorney-General will enforce the trust on behalf of the public.

Secondly there are some purpose trusts which, despite not being charitable, are nonetheless permitted e.g. a legacy in a will to maintain a much loved pet.

Question 14

Creation of Trusts - What are the two rules against perpetuity?

Answer 14

The rule against remoteness of vesting

The rule against inalienability

Question 15

Creation of Trusts - What is the rule against remoteness of vesting?

Answer 15

This rule is relevant to contingent interests and discretionary trusts. A contingent interest is void unless it vests (ie the contingency will be satisfied) within ‘the perpetuity period’.
The Perpetuities and Accumulations Act 2009, which came into force on 1 April 2010, now permits a 125-year perpetuity period.

Question 16

Creation of Trusts - What is the rule against inalienability?

Answer 16

This rule applies to trusts for non-charitable purposes. The trust must be limited in duration to 21 years; or allow the trustees to spend all the trust capital on the purpose and thereby end the trust at any time.

Question 17

Outright gift - Transferring personal property - Money

Answer 17

Money is effected by delivery of the note to the transferee. No writing is necessary.

Question 18

Outright gift - Transferring personal property - Chattels

Answer 18

Title to chattels passes by delivery, provided the transferor intended a gift. (Re Cole). Title will also pass if the transferor executes a deed of transfer (Jaffa v Taylor Galleries)

Question 19

Outright gift - Transferring personal property - Shares outside CREST systems (private or with share cert)

Answer 19

(i) Transferor signs stock transfer form.
(ii) Transferor hands completed stock transfer form and share certificate to transferee.
(iii) Transferee sends both documents to the company to be registered. The legal title does not pass until the transferee is so registered. This could take a week or so. (Note: Instead of steps (ii) and (iii), the transferor could send the completed stock transfer form and ‘old’ share certificate direct to the company on the transferee’s behalf.)

Question 20

Outright gift - Transferring personal property - Shares within CREST system (public limited companies, plc)

Answer 20

Transfers are recorded electronically on the instructions of the shareholder without the need for them to sign a stock transfer form.
Registration, and therefore transfer of legal title, is immediate. However, where a public quoted company has not dispensed with share certificates as evidence of ownership, the paper-based system of transfer will continue to apply.

Question 21

Outright gift - Transfer of Land

Answer 21

A transfer of land requires a deed under section 52(1) of the Law of Property Act 1925.

Under the Law of Property (Miscellaneous Provisions) Act 1989 section 1, a deed must be stated to be a deed, it must be signed and it must be witnessed.

Where the land is registered, the ‘deed’ is Form TR1, as issued by Land Registry. The deed must then be sent to Land Registry to register the transferee as the new legal owner. Legal title is not transferred until the registration is completed.

Question 22

Outright gift of equitable interest

Answer 22

If the equitable interest is to be transferred separately from the legal title then, by s 53(1)(c) of the Law of Property Act 1925, it must be in writing, otherwise the purported transfer is void (Grey v IRC).

The written disposition can be signed by the person disposing of the interest (the transferor) or by his agent if the transferor has given the agent written authorisation to sign for him.

Question 23

If the transfer of the property is not properly executed what is the general rule?

Answer 23

Usually “equity will not perfect an imperfect gift” (Milroy v Lord), however, there are some limited exceptions to this rule.

Question 24

What is the rule in Re Rose (the Every Effort Test)?

Answer 24

Where the donor has failed to transfer legal title, the transfer may be regarded as complete in equity if the donor has put the property beyond his recall, ie he has done everything in his power to transfer the legal ownership to the donee;

the only outstanding matters are the actions of third parties, whose involvement in the transfer process is required.

Question 25

What is the rule in Strong v Bird?

Answer 25

The donor intends to make an immediate gift to the donee, but the gift is invalid because he fails to comply with the appropriate formality.

There must be

• an intention to create an immediate gift (or trust) of specific property and
• the intention was unchanged up to death and
• the property vests in recipient as a personal representative on donor’s death.

Question 26

What is the rule in Pennington v Waine?

Answer 26

The donor executes the transfer document and has told the donee of the gift. The donee has acted in reliance of the gift and so it is unconscionable to recall the gift.

Question 27

What two things must you do to create a lifetime trust by transfer to trustees?

Answer 27

First, you must transfer the money and shares to the trustee. This is called ‘constituting the trust’.
This must be done in the same way as we saw in relation to gifts. Milroy v Lord and the every effort test applies to transfers to trustees as they do to outright gifts.

Secondly, you must ‘declare the trust’ This means that you must tell the trustee to hold the property on trust, identify the beneficiaries, their shares and the terms on which they are to benefit. These details must be sufficiently clear to satisfy the three certainties.

Question 28

What two things must you do to create an express trust by declaring self as a trustee?

Answer 28

You must
- make a declaration that you are now a trustee,
- identify the trust property and
- the beneficiary and the
- terms of the trust (ie the contingency).
Again, you must define all these details with sufficient clarity to satisfy the three certainties rule.

A written document is desirable in all cases as evidence of the declaration, but we will consider whether it is strictly necessary.

No transfer of property is needed. With this method of creation, the settlor already has the legal title, and the trust is automatically ‘constituted’. From the moment the settlor declares the trust, the settlor only holds the legal interest in a trustee capacity. The equitable interest passes to the beneficiary.

Question 29

In creating a trust the settlor must;

Answer 29

(a) make a valid declaration of trust; and

b) ensure that the property is properly vested in the trustee(s)(‘constitution of the trust’

Question 30

What amounts to a valid declaration of trust?

Answer 30

(a) exhibit certainty of intention to create a trust, subject matter and objects (the three certainties);
(b) comply with the beneficiary principle;
(c) satisfy the rules against perpetuity; and
(d) complete any formalities for express declarations of trust.

Question 31

What case established the need for the three certainties in the creation of trusts?

Answer 31

Knight v Knight

Question 32

What case established that there is no need to use the word trust when creating a trust?

Answer 32

A settlor need not use the word ‘trust’ (Paul v Constance).

Question 33

Re Adams and Kensington Vestry (1884) 27 ChD 394 held that…

Answer 33

…no trust was created where the settlor used precatory words. Examples of such words would be a transfer of £1,000 to John ‘in full confidence’/’hoping that’/’believing that’/’expecting that’ he will benefit Betty.

Question 34

Declaration of trust - What are the formalities for creating an express trust regarding personalty - all property except freehold land?

Answer 34

If settlors wish to declare a trust over personalty during their lifetimes there are no formalities to observe. The declaration can be oral. Although the law accepts oral declarations of trust over personalty, in practical terms writing is clearly desirable for evidential purposes.

Question 35

Declaration of trust - What are the formalities for creating an express trust regarding land?

Answer 35

For a declaration of trust over land to satisfy s 53(1)(b), it must fulfil two requirements:
(a) First, it has to be ‘evidenced in writing’. The declaration itself can be written or the declaration can be oral and confirmed in writing. For example, s 53(1)(b) is satisfied if the settlor tells X orally, ‘from now on I am holding Blackacre on trust for you’, and later that day writes to his solicitor telling him what he has done. The letter to the solicitor is written evidence that will satisfy s 53(1)(b).

(b) Secondly, the written evidence must contain the terms of the trust and be signed by the person able to declare the trust. The person able to declare the trust will usually be the settlor.
You will notice that the written evidence need not be a deed or other formal document. A signed letter or memorandum will suffice.

Question 36

For a trust to be valid, title to the property must be vested in the trustees. Put another way, the trust must be ‘constituted’. If the settlor has created a trust with trustees he must therefore…

Answer 36

…transfer the trust property to the trustees and makes a valid declaration of trust imposing the trust obligation on the trustees to hold on trust for the beneficiary.

Therefore - land is transferred by deed (Law of Property Act 1925, s 52), company shares by stock transfer form, chattels by delivery or deed etc.

Question 37

For a trust to be valid, title to the property must be vested in the trustees. Put another way, the trust must be ‘constituted’. If the settlor has created a trust whereby he is a trustee, constituting the trust is…

Answer 37

… automatic following the valid declaration of trust as the settlor will already hold the legal title to the trust property.

Question 38

‘I want you to have my entitlement under Aunt A’s will’ - Is this enough to transfer the equitable interest?

Answer 38

No. Section 53(1)(c) applies. Telling J is not enough. It has to be in some form or writing, signed by C or her authorised agent.

Question 39

C tells trustees ‘From now on, I hold these shares on trust for J’. Is this enough to transfer the equitable interest?

Answer 39

This is a direct from C to the trustees to hold the trust property for J. The trust is continuing, the trustees continue to hold the legal title. All that has changed is the identity of the beneficiary. In this circumstance, Grey v IRC confirms that s53(1)(c) applies. To be effective, the disposition must be in writing signed by Catherine or her authorised agent.

Question 40

For Vandervell v IRC to apply - what are the conditions?

Answer 40

There must be a bare trust on the facts ie where the trustee holds the trust property absolutely for the beneficiary. There are no conditions attached. It is simply a convenient way of arranging matters. In a bare trust, when the beneficiary directs the trustee to transfer the legal estate to a third party with the intention that the third party takes the equitable interest as well, s 53(1)(c) does not apply.

There has to be a direction for the trustees to transfer the legal title and this then has the intention of carrying with it the equitable title. The transfer of legal title carries equitable interests such that those interests are reunited after the transfer and the trust comes to an end.

The trustees comply with the direction.

Question 41

Grey v IRC disposition of equitable interest was not in signed writing and so was…

Answer 41

…void.

Question 42

Choithram v Pagarani only applies where the transferor…

Answer 42

…actually setting up a trust and he is one of the trustees.
Declaration of himself as one of the trustees – no need for transfer as trust constituted in one trustee so it would be unconscionable to change his mind.

Settlor has:
• Attempted to create lifetime trust of specific asset with self and 3rd party as trustees
• Done enough to validly declare himself and 3rd party as trustees
• Has not done enough to transfer asset to self and 3rd party as trustees
• Valid declaration makes it unconscionable for settlor to change his mind; has duty to complete transfer.