Trusts 2 Flashcards
What are the three certainty requirements for the creation of an express private trust?
- Certainty of intention to create a trust - Settlor’s words, written or spoken, or conduct* Certainty of subject matter - trust property* Certainty of objects - BeneficiariesIf one is absent, the trust will fail.
What is required in order for there to be certainty of intention to create a trust?
The settlor must show by written or spoken words, or by conduct, that they intend to subject the trustee to a binding obligation. * It must be manifested while the settlor owns the property and prior to transfer* They must intend for the trust to take effect immediately* Precatory expressions will indicate there was no intention* Informal words or actions may show intention * If intention is uncertain, property will pass as a gift
Does a settlor need to communicate their intention to create an express private trust to the beneficiaries?
No
Are any particular words or form of words required by a settlor in order for them to have the required intention to create an express private trust to the beneficiaries?
No
Can an intention to create an express private trust manifested after property has been transferred satisfy the requirement of certainty of intention?
No* An intention to create a present trust must have been externally manifested by the settlor at the time the settlor owned the property and prior to its transfer to another.* Note,, the conduct of the parties subsequent to the conveyance may be evidence of an earlier intent.
Can a future intention to create an express private trust satisfy the requirement of certainty of intention?
No, the settlor’s intent must be that the trust take effect immediately, not at some future time - although a future interest can be trust property.
Can a precatory expression made by the settlor satisfy the requirement of certainty of intention to create an express private trust?
A settlor’s expression of a hope, wish, or mere suggestion that the property be used in a certain way is called precatory language. The usual inference is that precatory expressions do not create a trust as they do not show an intention to impose a binding obligation on the trustee.
When the words are written in a professionally drafted trust deed, what will the court look at to determine whether there was certainty of intention?
The document as a whole in order to determine the settlor’s meaning. The don’t look for ‘stock’ or commonly used phrases
In terms of the creation of an express private trust, how are the words “in full confidence” likely to be interpreted by the courts in determining whether certainty of intention exists?
In two cases, Re Adams and the Kensington Vestry [1884] and Comiskey v Bowring-Hanbury [1905], similar language (“in full confidence”) was used in each clause, but the context was important to determining the meaning. * In Re Adams, the wording was used alongside a statement that the trustee would “do what is right”, which the court determined was more an expression of hope and therefore did not create a trust. * However, in Comiskey, “in full confidence” was used alongside an instruction to distribute at the trustee’s discretion, and failing the exercise of discretion, the property would pass equally to the beneficiaries. The language therefore showed the intention to create a trust.
J wishes to set up a trust and transfers £50,000 to S telling her that he hopes she will hold it on trust for the benefit of B. Is there certainty of intention in the wording?
No. The wording used is precatory, so the trust will fail for lack of certainty of intention.
Can certainty of intention to create an express private trust arise from informal words or actions?
Yes but in such a situation there is an issue of proof. * The word “trust” is not needed to create the obligation necessary to create the trust. This is because of the equitable maxim that equity looks at the intention of the settlor, not the words used. * However, if the language used is ambiguous or capable of different meanings, a trust is likely not created.
Where informal words or actions suggest intention to create an express private trust, what sort of evidence may support this?
- Independent witnesses* Irrefutable evidence of conduct e.g. joint withdrawals from a bank account for joint use might also indicate joint beneficial ownership of a bank account in the name of one party alone.* Words used that were repeated frequently over a period of time e.g. as “money is as much your money as it is my money” may suffice.
What happens to property where a trust is void for uncertainty of intention?
The property passes as an outright gift to the person who would have been the trustee.
J wishes to set up a trust and transfers £50,000 to S telling her that he hopes she will hold it on trust for the benefit of B. What happens to the £50,000
It passes to S for her own purposes due to the use of precatory language by J which caused the trust to fail.
What is the ‘certainty of subject matter’ requirement for creating an express private trust?
It must be clear what property is to be bound by the trust. * Generally, subjective phrases are not sufficient e.g. a trust of “the bulk of my estate” will fail as it is not clear where the line should be drawn beyond the halfway point. * An apparently uncertain description of property may be valid if it can be objectively defined e.g. a trust to pay “a reasonable income” to the beneficiary was valid. * Fractional shares of an intangible asset will not fail* Trust property must be an existing interest in existing property* When a trust is void for uncertainty of subject matter, the property reverts to the settlor.
What rules apply to certainty of subject matter in the context of fractional shares?
- A trust of a fractional share of an intangible asset (e.g. “50% of my shares in X Ltd”) will not fail for lack of certainty. * Where the assets are tangible property (e.g. “20 bottles of the wine stored in X warehouse”), the trust will fail unless the assets subject to the trust have been segregated from the rest of the stock. This is true even if the objects described are all identical (e.g. all wine in X warehouse is of the same type and vintage).
A company which held gold investments went into liquidation. The investors who had paid for the gold upfront claimed their investments. Some gold had been segragaged from the assets. Which investors were successful in their claim?
The claims by investors whose gold was segregaged were successful. However, the gold which was unsegregated became part of the assets of the company and available to its unsecured creditors.
Can a future interest be held on trust?
Yes, a future interest may be held in trust, but an interest not yet in legal existence (a mere expectancy, e.g. the right to inherit property under the will of a living person) cannot be held in trust.
Will an express private trust fail if the beneficial interest of trust property is uncertain?
Yes, the beneficial entitlement must also be certain. * When the beneficial entitlement is given as an objective phrase (e.g. “reasonable income”), the courts tend to be comfortable as this is consistent with other areas of law where ‘reasonableness’ is invoked. Thus, leaving £1 million on trust “to be invested to produce a reasonable income for the beneficiary” may be valid. * It must also be clear how much of the property left on trust the beneficiary is to receive. Failure to identify the amount with sufficient clarity will render the trust void.
A settlor leaves two houses on trust for his two children. Child A is to choose a house first, and Child B is to have the other house. Child A dies before picking a house. Can Child B claim their house?
No, the trust will fail as it will not be clear which house Child B should receive.
Will an express private trust of £1 million “to be invested to produce a reasonable income for the beneficiary” fail for uncertainty?
No the courts tend to be comfortable as this is consistent with other areas of law where ‘reasonableness’ is invoked.
What happens to trust property if the trust fails for lack of certainty of subject matter?
The property reverts to the settlor.
R declares that L is to hold the bulk of a valuable art collection that he expects to inherit from his mother on trust for S. Is this a valid express private trust?
No, The intended trust will fail for lack of certainty of subject matter and R will retain full ownership of the art collection that he inherits on his mother’s death. It fails for use of the wording “the bulk” and the fact that R didn’t own the art collection at the time he tried to give it to L on trust.
What is required in order for an express private trust to have certainty of objects?
The beneficiaries (or “objects”) of the trust must be defined with sufficient certainty. * They can be identified by their names or by reference to a concept which defines the class of beneficiaries e.g “my nephews and nieces”. * When a concept is used, it must be capable of objective determination; e.g. “nephews and nieces” would be the children of the settlor’s siblings. * Generally, subjective expressions like “my friends” “ are not sufficient. * When a concept is used to define the class, the test used to determine certainty depends on the type of trust created i.e. whether the trust is fixed (Complete List test) or discretionary (Given Postulant test)
When is the ‘Complete List’ test used?
To determine whether there is certainty of objects in an express fixed trust * The trustee must be able to draw up a complete list of beneficiaries in order to complete the task and discharge their obligation. * The beneficiaries must be named or described in such a way that it is possible to make a complete list. * Note: beneficiaries need not yet be in existance at the date of the trust (e.g. unborn child) but the description must be both conceptually and evidentially certain* If a trust is void for uncertainty of objects, a resulting trust in favour of the settlor or the settlor’s successors is presumed.
Can the Complete List test be satisfied where beneficiaries are unascertained?
Yes, as long as they are ascertainable by the time their interests are to come into enjoyment (e.g. “for my son for life, with remainder to his children living at his death in equal shares”).
What is conceptual certainty in the context of the Complete List test?
Conceptually certainty in the description of beneficiaries is required if a fund is to be divided equally between a group of people who are described but not named e.g. “my kindest friends in equal shares” fails because the concept is uncertain.
What is evidential certainty in the context of the Complete List test?
In addition to conceptual certainty, there must be evidential certainty for the Complete List test to be satisfied * a trust for “my former employees in equal shares” is conceptually certain but will fail if there are insufficient records to enable the trustees to establish how many former employees there are. * The fact that a beneficiary who is known to exist cannot be traced (‘ascertainability’) will not cause a fixed trust to fail. The trustees should apply to the court for directions when they are holding funds for a beneficiary who cannot be located.
A settlor leaves “£400,000 to be divided equally between my nieces and nephews”. The list of beneficiaries is incomplete because there is some uncertainty over the number of nieces and nephews the settlor has. Does the trust fail for lack of certainty of objects?
No, the trustees can apply to court for an order to distribute the fund if they are able to demonstrate that efforts have been made to find all the beneficiaries.
When is the ‘Given Postulant’ test used?
To determine whether there is certainty of objects in an express discretionary trust* The test is whether it can be said with certainty that any given individual is or is not a member of the class (the whole range of potential beneficiaries need not be ascertainable)* Definition of the class is sufficiently clear to enable the trustees to assess the range of potential beneficiaries and make decisions as to how to distribute the funds.* Note, a discretionary trust will fail if administratively unworkable or there are no ascertainable human beneficiaries.* If a trust is void for uncertainty of objects, a resulting trust in favour of the settlor or the settlor’s successors is presumed.
An employer leaves a discretionary fund to be distributed between “directors, ex-directors, their relatives, and their dependants”. Does this trust have certainty of objects?
Yes, the trust is valid.
Does the given postulant test require conceptual certainty?
Yes
Does the given postulant test require evidential certainty?
No* A potential beneficiary who cannot prove they are within the class will have no right to be considered by the trustees. * As with a fixed interest trust, the fact that the trustees may be aware of the existence of potential beneficiaries whom they cannot trace will not affect the validity of a discretionary trust.
What does ‘administratively unworkable’ mean in the context of the given postulant test?
The objects are too wide to form a class and therefore the trust will fail. This can occur when:* there is a very large number of potential beneficiaries or * there is nothing to link the members of the class so as to enable the trustees to make a sensible choice between them (sometimes called ‘capriciousness’). Example: a discretionary trust for “all or some of the inhabitants of West Yorkshire” (2.5 million people) is deemed too wide to enable the trustees to carry out their duty of selection.
If an express private trust is void for lack of certainty of objects, what happens to the property?
A resulting trust in favour of the settlor or the settlor’s successors is presumed.
What is the ‘beneficiary principle’ in relation to certainty of objects?
A trust cannot exist without someone to enforce it - it must have ascertainable human beneficiaries. * A trust for an abstract purpose will normally fail unless it falls within the exceptional cases of ‘honorary trusts’ * Note, the beneficiary principle does not apply to charitable trusts which are enforceable on behalf of the public by the Attorney General.
In his will, T gives his estate to trustees “on trust to preserve the freedom of the press”. The purpose does not fall within the requirements of the Charities Act. Is the trust valid?
No. The trust offends the beneficiary principle and will fail. The trustees hold the property on resulting trust for T’s estate which, if he has made no further provision in the will, passes to his next of kin on intestacy.
What are the elements required to create a valid private trust?
- Certainty of intention to create a trust (manifested by settlor’s words, writing, or conduct)* Certainty of subject matter (property subject to the trust defined with certainty)* Certainty of objects (must be able to identify beneficiaries of fixed and discretionary trusts)* Trustee (inter vivos trusts only; a testamentary trust will not fail for lack of a trustee)* Ascertainable human beneficiaries (the beneficiary principle)
Once established, if a trustee dies, refuses to accept appointment, or resigns, will the trust fail?
No. The court will appoint a successor trustee unless it is clear that the settlor intended the trust to continue only so long as a particular trustee served.
When will an absence of a trustee at creation cause a trust to fail?
It may cause an attempted inter vivos trust to fail for lack of delivery.
What is required for a person to be capable of being a trustee?
Anyone who has capacity to acquire and hold property for their own benefit may be a trustee. * A trustee may be a private individual, a professional person, or a trust corporation (a company whose object is to act as a trustee). * However, a minor cannot be a trustee, even if the trust property is personal property.
What is the minimum and maximum number of trustees permitted in a trust?
There is no minimum or maximum (except for trusts of land). * A sole trustee may act, but appointing a minimum of two trustees has practical advantages* However, because trustees are required to act with unanimity (unless the trust deed permits decision by majority), it is advisable not to appoint too many trustees.
Why is it beneficial to appoint more than one trustee?
Trustees can observe one another’s behaviour and highlight a breach of trust, and they can bring a second viewpoint to a trust decision.
