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)