PRIVATE TRUSTS Flashcards
How do resulting and constructive trusts arise?
By operation of law
What are 2 ways a settlor can create an express trust?
1- by aself-declaration of trustor
2- by atransfer on trust.
What does a self declaration trust require?
- requires the settlor to manifest an intention to hold one of their assets on trust for the beneficiary.
- The settlor remains the owner of the asset but is divested of their beneficial interest in it.
- The settlor becomes the trustee. This type of trust can only be created during the settlor’s lifetime
What does a transfer on trust require?
- requires the settlor to transfer property to a third party and to manifest an intention that the third party should hold the property on trust for the beneficiary.
- This type of trust can be created during the settlor’s lifetime or by their will. In the latter case, the settlor’s intention is manifest in their will. The property is transferred to the trustee by the settlor’s personal representatives.
What are the requirements for creation of an express trust?
- core requirements (3 certainties, beneficiary principle, compliance with the perpetuity rules)
- formalities (declaration of the trust, constitution of the trust, registration of the trust)
What is the beneficiary principle?
- the rationale behind the beneficiary principle is the need for a trust to be enforceable. Without identifiable beneficiaries or objects, there is nobody who can enforce the trust.
- The beneficiary principle therefore requires the objects of a trust to be legal persons (whether individuals or other legal persons).
- This means that a trust which is created purely for purposes is not permissible.
- The most common exception is charitable trusts and ‘non-charitable purpose trusts’ or ‘private purpose trusts’.
What is the perpetuity rule?
- limited the duration of private express trusts.
- With the exception of charitable trusts, it is not in the public interest for property to be tied up on trust indefinitely.
- the rule against remoteness of vesting which requires that a person must obtain avestedinterest in the trust property within a recognised ‘perpetuity period’ - 125 years.
- Any interest under which does not vest within the 125 year period is void.
What is the wait and see rule?
Section 7 Perpetuities and Accumulations Act 2009
- the trust can subsist until it becomes apparent that the interest cannot vest within the perpetuity period.
- Anything done before this will remain valid.
What is the class closing rule?
Section 8 Perpetuities and Accumulations Act 2009
- can save a trust by excluding objects who might otherwise cause the trust to fail because their interest would vest outside the perpetuity period.
What are the formalities of creating a trust (equitable interest)?
For most (not a trust of land) there are no formalities. Settlor just has to express the intention - if it is a testamentary trust - compliance with s9 Wills Act 1837 needed
What are the formalities for creation of an express trust of land?
s53(1)(b) LPA 1925:
- trusts of land must be ‘manifested and proved’ in signed writing by the person declaring the trust.
- will not be enforceable until that written evidence has been provided.
What are the exceptions to the formality rules around land in s53(1)(b) LPA 1925?
- The formalities rules ins 53(1)(b) LPAonly apply to the creation of express trusts.
- There is an express exception ins 53(2)for resulting, constructive and statutory trusts. This means that there are cases where trusts of land can arise in the absence of written evidence.
- There are also some exceptions to the rules requiring testamentary trusts to fully comply with the requirements ofsection 9 Wills Act 1837.These include trusts known as ‘secret trusts’ which involve the identity of the beneficiary or even the existence of the trust itself being kept off the face of the will.
What are the rules regarding constitution of trusts?
- A transfer on trust will not be complete until the trust property has been transferred to the trustee. This is known as constituting the trust.
- The formalities for constituting the trust will depend upon the nature of the property being transferred, as there are different formalities for transferring legal title to different types of property.
- both of the following are required for a successful transfer on trust of registered land:
○ Registration of the trustee as the legal owner of the land with the Land Registry.
○ Written evidence of the beneficiary’s equitable interest satisfyings 53(1)(b) LPA 1925. - In the case of a testamentary trust, none of this has to be done as long as the will complies with s9 Wills Act 1837.
What happens if there is an intention to create a trust but the settlor fails to comply with the requisite formalities?
- If the intended trust is a self-declaration of trust, non-compliance withs53(1)(b)will render the trust unenforceable.
- If the intended trust is a transfer on trust, but the settlor fails to constitute the trust, the trust will fail. Equity will not instead treat the settlor as having made a self-declaration of trust because that was not their intention. This is known as the rule inMilroy v Lord.
- There are some limited exceptions to the rule inMilroy v Lord
What happens if a settlor successfully transfers land to an intended trustee but fails to comply with s53(1)(b)?
- succeeded in constitution but failed the formalities
- It is clear that the trustee does not hold the property beneficially.
- The trust for the intended beneficiary is unenforceable unless and until there is compliance withs 53(1)(b).
- most likely a resulting trust for the settlor
