Trusts - Creation of Trusts

Question 1

Introduction

What is an express trust?

Answer 1

The settlor expressly intends to create a trust.

Question 2

What are the two types of express trusts?

Answer 2

(a) Express trusts that benefit individuals.
(b) Express trusts to achieve a purpose.

Question 3

What are the two main types of implied trusts?

Answer 3

(a) Resulting Trusts
(b) Constructive Trusts

Question 4

In what situations are resulting trusts implied?

Answer 4

Where it is presumed that the settlor would have intended such a trust, had they thought about it.

Robert creates an express trust for Susan, if she reaches the age of 30. If Susan does not reach that age, the trust results back to the settlor - in the absence of further information, equity presumes that he wants it back.

Question 5

In what situations are constructive trusts implied?

Answer 5

Where it would be unfair for someone else involved to allow the legal owner to have full enjoyment of the property he holds.

Ulrich is the sole legal owner of his house, but his (unmarried) partner Vivienne lives with him. Vivienne had contributed equally to the purchase price and subsequent mortgage payments. Vivienne has an equitable interest.

Question 6

Express Trusts: Declaration of Trust

What are the two requirements of the settlor to create an enforceable express trust?

Answer 6

(a) Make a valid declaration of trust.
(b) Put assets in the trust.

Question 7

What four things are identified in a valid declaration of trust?

Answer 7

(a) Identify the trustees.
(b) Identify the property to be held in trust.
(c) Identify the beneficiaries.
(d) Identify the trustees’ powers and duties (although absent express provisions, a number of default powers/duties arise by statute.

Question 8

What is a fixed interest trust?

Answer 8

Trustees have no discretion as to how trust property is to be distributed between beneficiaries.

“I give $500,000 to my Trustees to hold on trust for my children”

This is fixed, even though the trust is silent on the shares the beneficiary will take: if silent, it is presumed they share equally.

Question 9

I give $500,000 to my Trustees to hold on trust for such of my children that reach the age of 25 years - if more than one, in equal shares. Fixed or Discretionary?

Answer 9

Fixed. I have fixed who the beneficiaries are and what they are to receive.

Question 10

What is a discretionary trust?

Answer 10

A trust giving the trustees a discretion as to the amounts any person may receive and/or whether particular people will receive anything at all.

Question 11

I give my Trustees $500,000 to hold on trust for such of my children and in such shares as they think fit. What can and can’t the trustees decide in relation to the beneficiaries?

Answer 11

• They can decide which child gets what.
• They cannot choose to benefit someone who falls outside of the class.

Question 12

What are the three certainties? Define each of them.

Answer 12

1. Certainty of intention. - Must be clear that the person making the declaration intends to create a trust.
2. Certainty of subject-matter. - Must be clear what property is being held on trust, and what the individual interests are (i.e. how the property is to be shared).
3. Certainty of objects. - Must be clear who the beneficiaries are.

Question 13

Certainty of Intention

The settlor must use words (or even actions) that…

Answer 13

…impose a duty on someone to act as a trustee.

Question 14

“I give you my collection of vases trusting that you give a vase to each of my children” Is the intention certain here?

Answer 14

No. This is an example of “precaratory words”, which merely express a wish, hope or expectation.

Instead, obligatory or mandatory wording must be used.

Question 15

What is the effect of a lack of certainty of intention?

Answer 15

The transfer will be deemed to be a gift if there is precaratory wording, as in the above example.

On the other hand, if there is no evidence as to what the settlor intended, there will be either a presumption of resulting trust (back to the settlor) or a presumption of advancement, depending on the context (see later).

Question 16

Certainty of subject-matter

What are the two aspects of certainty of subject-matter?

Answer 16

(1) Trust property is described with certainty.
(2) Beneficial interests are described with certainty.

Question 17

Certainty of Subject-matter

“I will hold some of my silver on trust for my cousin, Laurence”. Is this a valid declaration of trust?

Answer 17

No. There is no way of knowing how much silver is to be held on trust.

Question 18

“I will hold 950 shares on trust for Laurence” Is this a valid declaration of trust?

Answer 18

Yes, provided there are 950 share available.

Question 19

A wine company holds each customer’s crate of wine on trust. However, the company does not label any of the crates with the customers’ names. Is this valid?

Answer 19

No. The wine remains the company’s property.

Question 20

What rule distinguishes the above examples?

Answer 20

You can create a trust over a collection of items, provided the items are identical.

A trust over a collection of intangible property (e.g. shares) is more likely to be valid than a collection of tangibles (e.g. wine bottles).

Question 21

Express Trusts: Declaration of Trust

What is the effect of lack of subject-matter certainty?

3 potential consequences

Answer 21

The three potential consequences are:

(a) Where the settlor intended to create a trust with themselves as trustees, no trust is created, settlor remains legal and beneficial owner.
(b) Where the settlor transfers “some” of the property to the trustee, with the rest intended as a gift, no trust is created and the “trustee” takes the property as a gift. (Presumably situations of non-identical items?)
(c) Settlor appoints a trustee and intends to create a trust for the benefit of an individual, but fails to specify the beneficial interest to be taken, the trustee holds the trust fund on resulting trust back to the settlor.

Question 22

Express Trusts: Declaration of Trust

What test is used for certainty of objects in the case of fixed interest trusts? What does it require?

Answer 22

The complete list test. In order for the declaration of a fixed interest trust to be valid, it must be possible to draw up a complete list of each and every beneficiary.

Question 23

Express Trusts: Declaration of Trust

What test is used for certainty of objects in the case of discretionary trusts? What does it require?

Answer 23

The “given postulant” test. To be valid, it must be possible to determine whether any given postulant (individual) is or is not a member of the class.

This requires conceptual certainty, but not evidential certainty.

Question 24

Express Trusts: Declaration of Trust

A discretionary trust will be administratively unworkable if….

Answer 24

….the class is hopelessly wide.

Question 25

Express Trusts: Declaration of Trust

The discretionary trust must not be capricious. A capricious trust is one for which there is…

Answer 25

….absolutely no rational reason for the trust.

Question 26

Express Trusts: Declaration of Trust

According to the beneficiary principle, in order to be valid, a trust must be….

Answer 26

….for the benefit of individuals.

Question 27

Express Trusts: Declaration of Trust

According to the rules against perpetuity, the law only tolerates trusts that last for an acceptable period.

In relation to trusts for individuals created on or after ….. the perpetuity period is….

Answer 27

For trusts created on or after 6 April 2010, the perpetuity period is 125 years.

Question 28

Express Trusts: Formalities for declaration of trust

For will trusts, the declaration of trust must be contained in a will that is:

3 conditions

Answer 28

• made in writing;
• signed by the testator in the presence of two witnesses;
• signed by the witnesses in the testator’s presence.

Question 29

Express Trusts: Formalities for declaration of trust

For lifetime trusts can declarations be made orally?

Answer 29

Yes.

Question 30

Express Trusts: Formalities for declaration of trust

Declarations over land must comply with s.53(1)(b) of the LPA 1925 which requires:

Answer 30

That the declaration of trust is evidenced in writing and signed by the settlor.

If not, declaration is unenforceable.

Question 31

Express Trusts: Constitution of Trusts

The two methods of constituting an express lifetime trust are:

Answer 31

a) Settlor appoints themselves trustee for the beneficiary.
b) Settlor appoints a third party to be trustee.

Question 32

Express Trusts: Constitution of Trusts

Where the settlor appoints a third party to be trustee, the settlor must….

Settlor appoints a third party as trustee

Answer 32

….take steps to put legal title to the trust property into the hands of the trustee.

Question 33

If land is part of the trust fund, in order to transfer legal title to a third party trustee, the settlor must:

Settlor appoints third party as trustee

Answer 33

a) Execute the deed (by Form TR1 for registered land); and
b) Give the executed deed either to the trustee or directly to the Land Registry.

Question 34

A deed is a document satisfying s.1 of the LPA 1989:

2 conditions

Answer 34

(i) Stated to be a deed.
(ii) Person making the deed signs in the presence of a witness who also signs it.

Question 35

Legal title to land is not transferred until…

Answer 35

…all steps have been completed and the trustee is the new registered proprietor.

Question 36

If shares are part of a trust fund, legal title is transferred either:

Answer 36

a) within CREST system - for certain shares in public quoted companies
b) outside of CREST - applies to all other shares

Question 37

For shares in CREST, the settlor needs to instruct a stockbroker to make the transfer.

For all other shares (especially in private companies), paperwork is required. In order to transfer legal title to a third party trustee, the settlor must:

2 requirements

Answer 37

a) execute a stock transfer form; and
b) give the executed stock transfer form and share certificate either to the trustee or the company directly.

The company’s secretary will then register the trustee as the new shareholder in the register of members. Legal title is not transferred until all stops have been completed and the trustee is the new registered shareholder. Only then will the trust be constituted.

Question 38

Generally, legal title to money passes with…
When does this occur for
a) Cash
b) Bank transfer
c) Cheque

Answer 38

Delivery.

a) Legal title to cash passes on delivery.
b) Legal title to a bank transfer passes on arrival of the monies at the trustees bank account.
c) Legal title to a cheque passes once the cheque has cleared.

Question 39

Express Trusts: Constitution of Trusts

The “every effort” test holds that:

Exceptions to the maxim “equity will not assist a volunteer”

Answer 39

Where the settlor did everything they could to transfer legal title, the transfer may be regarded as complete in equity.

Question 40

For the “every effort” test to be satisfied, the settlor must have completed all the steps required of them, i.e. ….

The only steps that remain to be completed are…

Answer 40

(a) Properly executed the transfer deed and
(b) Sent out all related documents.

The only steps that remain to be completed are the acts of a third party.

Question 41

Ben wants to create a trust over his second home with Cassy as trustee and David as beneficiary. He validly declares the trust, executes a deed and gives the deed to Cassy, who sends them to the Land Registry. Before she is registered as the new proprietor, Ben dies, but his will leaves everything to his civil partner Elliot.

Does the house belong to David or Elliot?

Answer 41

Ben did everything he could to transfer legal title. The trust is valid in equity, therefore the house belongs beneficially to David.

Question 42

If the settlor doesn’t go far enough to satisfy the every effort test, equity may regard the trust to be valid if:

3 conditions

Answer 42

1. The settlor intended to create a trust.
2. The settlor took some action to follow that intention.
3. It would be unconscionable for the settlor to back out of creating the trust.

This applies to lifetime gifts, but is less clear regarding the application to trusts.

Question 43

Express Trusts: Constitution of Trusts

When does the rule in Strong vs Bird apply to create a trust?

4 conditions

Answer 43

(a) The settlor intended to create an immediate trust with a third party as trustee;
(b) The trust was not immediately created due to a failure to comply with a relevant transfer rule;
(c) Settlor’s intention continued until their death;
(d) The intended trustee acquired legal title by becoming the settlor’s executor/administrator.

Question 44

Express Trusts: Constitution of Trusts

Megan, who was ill and unable to leave her house, said to Natalie “I want you to hold my wedding ring on trust for Olivia. Megan dies later in the week, leaving a valid will that was executed two days after speaking to Natalie, in which she appointed Natalie as executor and the whole estate to Oxfam.

Who takes the wedding ring - Olivia or Oxfam?

Answer 44

Oxfam.Strong v Bird would not apply: the settlor’s intention did not continue until her death.

Question 45

Express trusts: Constitution of trusts

In these situations, the settlor must take steps to….

Settlor declares themselves and third party as trustees

Answer 45

….transfer legal title from their sole name to the joint names of the settlor and the other trustee.

Question 46

Beneficial Entilement

A capital return relates to….
Whereas an income return relates to….

Answer 46

A capital return relates to the underlying value of the property.
An income return relates to money received on a regular basis deriving from the property.

Question 47

Beneficial Entilement

A beneficiary with an interest in capital is often referred to as having…
Whereas a beneficiary with an interest in income has a …

Answer 47

A beneficiary with an interest in capital: “absolute” interest.
A beneficiary with an interest in income: “limited” interest.

Question 48

Beneficial Entitlement

A beneficiary has a vested interest if….

Answer 48

…that beneficiary exists and does not have to satify any conditions imposed by the terms of the trust before becoming entitled.

Question 49

If a beneficiary has a vested interest and dies before trust property is paid over to them, what happens to the trust property?

Answer 49

The property belongs to the beneficiary’s estate.

Question 50

Beneficial Entitlement

“I give my shares in Aviva to my Trustees to hold on trust for my son Warren”

(a) Is Warren entitled to the trust capital or trust income?

(b) If Warren dies before the shares are transferred to him, what will happen to the shares?

Answer 50

(a) He is entitled to both. Where the declaration contains no instruction to separate capital from income, it is assumed that the beneficiary is entitled to both.

(b) Warren has a vested interest, therefore the shares will pass to his estate (under his will or intestacy)

Question 51

I give my shares Aviva to my Trustees to hold on trust for my son, Warren. Warren is 8 years old.

(a) Does Warren have a vested interest or contingent interest?
(b) What must the trustees do? Why?

Answer 51

(a) Warren has a vested interest.
(b) The trustees must hold the property on trust for Warren until he reaches 18 because a minor cannot give good receipt to trust property.

Not a contingent interest, as Warren does own the property; it is just that the trustees cannot transfer to him as he cannot give good receipt. If he dies, the property forms part of his estate, and will pass under the rules of intestacy.

Question 52

Beneficial Entitlement: vested interest

When the minor beneficiary reaches 18, is the trust automatically brought to an end? Explain what happens.

Answer 52

No. The trustees will continue to hold the property on trust until the beneficiary requests the trust property be transferred to them.

Question 53

Beneficial Entitlement: contingent interest

A beneficiary has a contingent interest if…

Once the beneficiary satisfies the condition, the beneficial interest becomes…

Answer 53

…it is conditional upon a future event that may not happen, or the beneficiary is not yet in existence.

…a vested interest.

Question 54

Beneficial Entitlement: contingent interest

Is a contingent interest a fixed or discretionary interest?

Answer 54

Fixed. Settlor stipulated who gets what and when.

Question 55

Beneficial Entitlement: Successive interests

“I give my shares in Aviva plc to my Trustees to hold on trust for my wife Yara, for life, remainder to my son Adam.”

(1) Yara

• Does Yara have a vested or contingent interest?
  -What is it limited to?
• What do we call Yara, and what is this type of interest known as?
• That interest is said to be ____ as she can enjoy the trust income now.

(2) Adam

• Does Adam have a vested or contingent interest, and in what? Explain why it is not the other interest.
• What do we call Adam, and what is this type of interest known as?
• What will the trustees do when Yara dies?

Answer 55

(1) Yara

• vested. Limited to trust income during her lifetime.
• Life tenant. Life interest.
• Interest in possession.

(2) Adam

• Vested interest in capital. Not contingent, as the future condition (Yara dying) is a certainty.
• Remainderman; interest in remainder.
• Transfer the trust property to Adam.

Question 56

Beneficial Entitlement: Successive Interests

During their life time, the life tenant receives income arising from the trust property. Alternatively, a life tenant can have the…

Answer 56

‘use and enjoyment’ of trust property.

Particularly important in trusts over land, where the life tenant can choose to live in the house rent free.

Question 57

Beneficial Entitlement: Successive interests

If the remainderman dies, what happens to his interest in remainder?

If the settlor created a contingent interest in remainder, what happens if the remainderman dies before satisfying the condition?

e.g. I give my shares to my Trustees to hold on trust for my wife for life, remainder to my son should he reach the age of 25”

Are successive interests fixed or discretionary?

Answer 57

The interest passes to whoever inherits under his will or intestacy.

The interest in remainder will go back to me on resulting trust.

Fixed.

Fixed as settlor has stipulated who gets what and when. Trustees have no discretion.

Question 58

Beneficial Entitlement: Discretionary Trusts

In a discretionary trust, at what point does an individual object gain a vested right as a beneficiary?

Answer 58

When the trustee selects the object to be entitled.

Question 59

Beneficial Entitlement: Saunders v Vautier

An adult beneficiary with a ____ beneficial interest can require that trust property is conveyed to them by the trustees, bringing the trust to an end.

I give my shares to my trustees to hold on trust for my son Warren, if he attains the age of 25, but if not to Cancer Research UK. Can Warren tell the trustees to hand the trust fund over to him?

What is the effect of Saunders v Vautier?

Answer 59

Vested.

Yes, but only once he reaches the age of 25.

To extend that principle beyond a single beneficiary.

Note: can be fixed or discretionary trust, so long as the beneficiary has a vested interest and they are absolutely entitled to the property (no other person with a potential interest)

Question 60

Beneficial Entitlement: Saunders v Vautier

Beneficiaries can end the trust by calling for a transfer of trust property to themselves or other trustees, so long as ____ satisfy the following three requirements:

Answer 60

So long as all the beneficiaries who could possibly become entitled satisfy the following three requirements:

(a) They are in existence and ascertained;
(b) They are aged 18 or over and have mental capacity;
(c) They agree to the proposal.

Question 61

Beneficial Entitlement: Saunders v Vautier

The requirements must be met by all beneficiares who could possibly become entitled. What does this mean?

Answer 61

That there is no other person with a potential interest in the trust fund.

Question 62

Beneficial Entitlement: Saunders v Vautier

(1) “I give my estate to my Trustees to hold on trust for such of my children now living as reach the age of 21 years and if more than one in equal shares”. There are three children: Greg, aged 24; Harriet, ages 22; Iain, aged 20. Can they compel the trustees to transfer the property to them?

(2) Nicola gave £300,000 to trustees, on trust for her cousin Matt, so long as he reaches age of 30. Matt is 25. Nicola dies intestate, with her next-of-kin being Oliver, her estranged husband. Can Matt compel the trustees to end the trust?

(3) I give my estate to my Trustees on trust for such of my children now living who reach the age of 25 years and if more than one in equal shares”. Greg is 22. Harriet is 20. Iain is 18. Can they compel the trustees to end the trust?

Answer 62

(1) Yes, so long as they all agree. They all have a vested interest, they are in existence and over 18.

(2) No. He would need the agreement of Oliver. Between them, they are absolutely entitled.

(3) No.

On (3) the big difference between this and the previous slide with the same names is the ages: none of them have reached the contingency. That means if all of them die before 25, there is someone else who has a potential interest: the trust results back to the settlor, and so it passes under his will or intestacy. Therefore if they want to end the trust, they require the agreement of that other person with a potential interest.

Question 63

Refresher on validity rules for the declaration of trust

As a refresher, what are the 6 validity requirements of a declaration of trust?

Answer 63

1. Certainty of intention.
2. Certainty of subject-matter.
3. Certainty of objects.
4. Must benefit individuals (Beneficiary Principle).
5. Must not lock away property in a trust for too long (Rule against Perpetuities)
6. Must comply with formalities

On 6, if it’s land, it must comply with s.53(1)(b) of LPA.

Question 64

Non-Charitable Purpose Trusts

Non-charitable purpose trusts are void for offending the rule against inalienability of capital unless either:

Rule against Perpetuity

Answer 64

(1) The trust states that it is to last for no more than 21 years.

(2) The trustees are able to spend all the trust capital on the purpose, and thereby bring it to an end.

The first of these can often be stated as “for as long as the law allows”.
The second of these will not apply where e.g. the money is to be used for maintenance because that is an ongoing obligation, which may never come to an end.

Question 65

Non-Charitable Purpose Trusts

What are the only two valid non-charitable purpose trusts?

Answer 65

• Re Denley trust
• Trust of imperfect obligation.

Question 66

Non-Charitable Purpose Trusts: Re Denley Trusts

For a Re Denley trust to be valid, the following three requirements must be met:

I give £500,000 on trust for maintaining a gymnasium for use by employees of King International Limited”. Is this valid?

Answer 66

(1) The purpose of the trust is sufficiently clear, with a sufficiently tangible benefit;
(2) The persons who stand to benefit must be ascertainable.
(3) The trust must not offend the rule against inalienability.

Not valid. It offends the rule against inalienability of capital.

On (2) the description of those people must satisfy the “any given postulant test”, to be conceptually certain.
On (3) this means it must be limited to 21 years in duration, or the trustees are able to spend all the trust capital on the purpose)

Question 67

Non-Charitable Purpose Trusts: Imperfect Obligation Trusts

These trusts include two types:

As a concession to human weakness, these are…

What does this mean in terms of the following example:

“I leave Non-Charitable Purpose Trusts 225,000 to my trustees to spend on looking after my dog Bouncer”

Answer 67

(a) Trusts to care for specific animals
(b) Trusts to maintain graves and tombs.

• valid but unenforceable.
• No one can complain if the trustees spend the money on that purpose.
• But equally, no one can compel them to do so.

Must still comply with rule against inalienability of capital.

Question 68

Charitable Purpose Trusts

(1) Which validity requirements are charitable trusts are exempt from?

To be registered as a charity, the Charity Commission decided whether the trust meets the following three conditions:

Answer 68

(1) Beneficiary principle and rule against perpetuity.

(2) It must:
- be for a charitable purpose
- have suffiicient public benefit;
- be exclusively charitable

Question 69

Charitable Purpose Trusts: Charitable Purpose

What are the three most important charitable purposes?

Answer 69

(a) Prevention or relief from poverty.
(b) Advancement of education.
(c) Advancement of religion.

Question 70

Charitable Purpose Trusts: Public Benefit

What are the two aspects of the public benefit test?

Answer 70

1. The purpose must have an identifiable benefit;
2. The benefit must accrue to the public or sufficiently large section of the public.

Question 71

Charitable Purpose Trusts: Public Benefit

What constitutes “sufficient section of the public” in relation to the following purpose trusts:

(a) Prevention or relief of poverty

(b) Advancement of religion (2 conditions)

Answer 71

(a) Prevention/relief of poverty: Named individuals = not charitable. But “My family” or “My relatives” is sufficient.

(b) Advancement of religion: Either
- Place of worship is open to all; or
- Not open to all, but memebers “live in this world and mix with their fellow citizens”.

Religions with no contact with outside world aren’t charitable.

Question 72

Charitable Purpose Trusts: Public Benefit

(1) Advancement of education and other charitable purposes: for these trusts to be for a sufficiently large section of the public, what three tests must be satisfied?

(2) I give £250,000 to my Trustees for the education of the children of employees of Red Anchor”. Is this valid?

(3) For ii. the class of people who can benefit can be limited, so long as those limits are…

(4) For iii. a charitable institution can charge fees, provided that…

Advancement of education

Answer 72

(1) The three tests:

i. “Personal nexus” test.
ii. “class within a class”
iii. Must not exclude the poor.

(2) Invalid: There is a personal nexus between the parent’s employment and the particular company.

(3) …legitimate, proportionate, rational or justifiable.

(4) …any profits are ploughed back into the charitable purpose.

On (4): fee-charging schools with charitable status must operate in a way that doesn’t exclude the poor. This can include provision of scholarships, enabling local state school students to attend, etc.

Question 73

Charitable Purpose Trusts: Exclusively Charitable

What are the two limbs for this requirement?

However, for the first limb, a charity can engage in such activities where they are… provided they do not become the…

Advancement of education

Answer 73

1. Must not have political purposes;
2. Must plough any fees back into the trust (rather than pay over to private individuals, or as a commercial venture)

…ancillary/incidental, provided they do not become the dominant means of carrying out the purpose.

Question 74

Resulting Trusts: Situations creating presumption of resulting trust

1. What are the two main situations in which a resulting trust is presumed? In both cases, who holds the legal title and who gets the equitable interest? Explain using an example of A and B.
2. Is there a presumption of resulting trust where there is a voluntary transfer of land?
3. What formalities are required?

Answer 74

1. 2 main situations giving rise to the presumption of resulting trust

a. Voluntary transfer of personalty - Where A transfers personalty to B for free, a resulting trust is presumed whereby B holds the legal title and A gets the equitable interest.

b. Purchase money cases. Where A purchases property but arranges for it to be held in the name of B, B holds the legal title and A gets the equitable interest.

2. Voluntary transfer of land

• Only if the court has evidence to arrive at that conclusion, or there are additional factors (e.g. if A and B are strangers).

3. None.

In (2) this could also be where Acontributes towards the purchase price in B’s name. Then Y holds the legal title on resulting trust for both A and B.

Question 75

Resulting Trusts

(1) Problem questions

Sam hands over £100 to his girlfriend Mary. The presumption is that…

Tess and her daughter, Maggie, decide to buy a house to let to tenants. Tess contributes £40,000 and Maggie pays the remaining £360,000. The house is conveyed in Maggie’s sole name. The presumption is that… If Maggie sells the house for £500,000 what amount would Tess be entitled to?

(2) In the first example, this presumption can be rebutted by… Additionally, the presumption of advancement might apply to…

(3) In the second example, this presumption will only arise where the contribution was (2 conditions):

Answer 75

1. Problem Questions

• Mary holds the money on resulting trust for Sam.
• Maggie holds the house for herself and Tess; 10% of the purchase price = £50,000.

2. …evidence of Sam’s actual intention; family members.
3. Contemporaneous with the purchase and directed toward the actual purchase price.

Question 76

Resulting Trusts: Situations creating presumption of advancement

(1) In some voluntary transfer and purchase money cases a different presumption applies known as the presumption of advancement. In these cases, is there a resulting trust and what is presumed?

(2) Broadly speaking, when does it apply?

(3) Specifically, what are the four categories giving rise to this presumption?

(4) What are the presumptions if roles are reversed?

(5) Sienna purchases a house in the name of her husband Richard. The presumption of … arises, so it is presumed that Sienna…

Answer 76

(1) No; presumption that the transferor gifted the property to the transferee.

(2) When equity regards the transferor as being under a moral obligation to provide for the transferee.

(3) Gifts from:
a. Father to child;
b. Guardian to child (minor)
c. Husband to wife.
d. Fiance (male) to fiancee (female) provided they subsequently marry.

(4) If roles are reversed, the presumption of resulting trust arises unless rebutted by contrary evidence.

(5) Resulting trust; Sienna retains the beneficial interest in the house.

It is important to remember that the presumptions of resulting trust and advancement are merely presumptions. They can be rebutted. Indeed, their main function is to allocate the evidential burden of proof.

Question 77

Victoria bought shares in the name of her partner Willow. Victoria dies giving all of her estate on death to Xavier. Xavier claims the equitable interest in the shares belong to him.

In the absence of evidence of Victoria’s intention, who inherits the equitable interest of the shares?

If there were such evidence, can it be evidence of Victoria’s intention after the time of transfer?

Answer 77

Xavier. There is a presumption of resulting trust back to Victoria that Willow held the legal title of the shares, but the equitable interest on trust for Victoria.

No. Must be before or at the time of transfer.

Question 78

Allen purchased a house in the name of his daughter Beatrice. Allen retained the title deeds until death five years later and his wife clearly recalls that Allen always intended his son-in-law Carlton to repay the purchase price. Shortly before death, Allen signed a document that gave directions that the house would be divided between his three children.

What is the presumption and is it rebutted?

Answer 78

Presumption of advancement. However, it is rebutted by the evidence contemporaneous with the purchase. Note: The document subsequently signed was not admissible evidence.

Question 79

Resulting Trusts: Beneficial interest not completely disposed

Where there is certainty of intention from the settlor, but the trust fails, do the trustees take the equitable title or does it revert back to the settlor?

The automatic resulting trust arises where: (2 conditions)

Answer 79

Reverts back to settlorin the absence of a contrary intention.

a. Settlor transfers property to trustees on trust; but
b. Anticipated trust doesn’t dispose of all or part of the equitable interest because the trust is void or does not exhaust the trust fund.

Question 80

Resulting Trusts: Beneficial interest not completely disposed

What are the four specific situations in which an attempted trust does not dispose of the equitable interest:

Answer 80

(a) No beneficiary attains the vested interest;
(b) Lack of certainty of objects.
(c) Lack of certainy as to beneficial interests.
(d) Offending the rule against perpetuity.
(e) Offending beneficiary principle.

Question 81

(1) James appoints Kamily a trustee of £250,000 for the benefit of Laura should she reach 25. Laura dies aged 22. What happens here and why?

(2) Paul appoints Quentin a trustee of £250,000 to give “a decent amount to Ruby and the rest to Sylvia”. What happens here and why?

(3) Michael appoints Neil a trustee of £250,000 “to use the income to maintain a sportsground in the village of Bramcote for the benefit of the employees of Marsh Consulting Limited”. Michael dies shortly after, naming Oxfam as the beneficiary of the residuary estate. What happens here and why?

Answer 81

1. Resulting trust back to James as the beneficial interest must vest in someone.
2. Resulting trust back to Paul due to lack of certainty of subject matter.
3. Void trust, as a non-charitable purpose trust must make reference to perpetuity of 21 years, or ability to spend capital in one go. It results back to his estate, and passes to Oxfam as the residuary beneficiary.

Question 82

Trust of the Family Home

Where there is only one registered proprietor between a cohabiting couple, why are the beneficial interests generally determined under common intention constructive trusts rather than resulting trusts?

Answer 82

• It is much more likely to give rise to equal beneficial interests.
• It takes into account contributions after the date of purchase.
• It takes into account non-financial contributions.

Question 83

Trust of the Family Home: Common Intention constructive trusts

1. If the home is jointly owned, there is a presumption that the equitable interest is held ____ because…
2. If, in this circumstance, one party claims the shares are unequal, the onus is on them to prove that the courts should depart from the general rule. They can do this by proving one of three things:

Legal owner + legal owner

Answer 83

1. Jointly and equally, as equity follows the law.
2. Evidence that the equitable interest is held unequally:
   - The parties came to a clear agreement.
   - The agreement/common intention changed over time.
   - There was no agreement, but the whole course of dealing shows it is fair that the property be held in unequal shares.
   -

E.g. of common intention changing over time: if one party financed a major extension, it may have been intended that going forward, that partner had a greater share)

Question 84

Trust of the Family Home: Common Intention constructive trusts

In determining, in the absence of agreement, whether the whole course of dealing shows that unequal shares would be the appropriate outcome, the court consideres several factors. Name seven:

Legal owner + Legal owner

Answer 84

• Advice/discussions at the time of purchase;
• Reasons why the house was transferred jointly;
• Nature of relationship;
• Whether they had children for whom they had a responsibility to provide a home;
• financing of the purchase;
• partners’ financial arrangements;
• arrangements for household expenses/outgoings.

Question 85

Trust of the Family Home: Common Intention constructive trusts

If there is only one proprietor of the family home, in the absence of an express trust, is there a presumption of joint beneficial ownership? Who bears the burden, and what must they prove?

What are the two stages for that person to prove their entitlement?

Legal owner + Non-legal owner

Answer 85

No; the non-legal owner must prove thay are entitled to a beneficial interest.

The two stages of proving their entitlement in the family home:

(1) Proving there is a common intention constructive trust.
(2) Quantifying the beneficial interest.

These tests are also used where the home is jointly owned, but the existence of a common intention constructive trust is already presumed.

Question 86

Trusts of the Family Home: Common Intention constructive trusts

What are the two methods to establish that a common intention constructive trust exists to give the non-legal owner a beneficial interest in the property?

Legal owner + non-legal owner

Determining existence of common intention constructive trusts

Answer 86

• Express common intention + detrimental reliance.
• Inferred common intention + detrimental reliance.

Question 87

Trusts of the Family Home: Common Intention constructive trusts

One way to establish that a common intention constructive trust exists is Express common intention + detrimental reliance.

1. Which one of the following examples is an express common intention, and which one is not?

“The last thing I want for you is to be homeless, so why don’t you finish the lease and move into my house”

“I wanted to put the house in the joint names of me and my partner, but I’ve taken legal advice that this was not advisable, as it would prejudice my partner’s current divorce proceedings with his estranged wife”.

2. Is detrimental reliance limited to financial contributions? Do they have to be made before the purchase?

Legal owner + non-legal owner

Determining existence of common intention constructive trusts

Answer 87

1. The first quote is not an express common intention. The second one is.
2. Not necessarily just financial contributions, but it is not 100% clear.
   What is 100% clear is that financial contributions includes mortgage payments and indirect financial contributions such as substantial payment of house keeping expenses.

Question 88

Trusts of the Family Home: Common Intention constructive trusts

The second way to establish that a common intention constructive trust exists is Inferred common intention + detrimental reliance.

(1) The aspect of ____ is hardly necessary to consider, because ____ is itself comprised of (two things):

(2) Can indirect financial contributions be considered?

Legal owner + non-legal owner

Determining existence of common intention constructive trusts

Answer 88

(1) Detrimental reliance. “Inferred common intention” is itself made up of:

• direct contributions to the purchase price; or
• Significant contributions to mortgage payments.

which already show detrimental reliance.

(2) In specific circumstances, where e.g. there was an “arbitrary allocation of responsibility”, of one party paying the expenses, and the other paying the mortgages.

Question 89

Trusts of the Family Home: Common Intention constructive trusts

Apart from determining that a common intention constructive trust exists in the first place, the court also needs to quantify the size of the beneficial interests. This will be similar to the seven factors in relation to jointly owned property cases:

Legal owner + Non-legal owner

Quantifying the beneficial interests

Answer 89

• Advice/discussions at the time of purchase;
• Reasons why the house was transferred jointly;
• Nature of relationship;
• Whether they had children for whom they had a responsibility to provide a home;
• financing of the purchase;
• partners’ financial arrangements;
• arrangements for household expenses/outgoings.

Question 90

Trusts of the Family Home: Proprietary Estoppel

This is another method by which a partner may become entitled to an interest in the family home. However it extends further: it prevents someone from…
It asks whether it would be…

What are the two stages for proprietary estoppel?

Legal owner + non-legal owner

Answer 90

…going back on their word where it would be unfair to do so.
…unconscionable for a party to deny that which, knowingly or not, he has allowed or encouraged another to assume to his detriment”.

Stage 1: Estoppel must be established.
Stage 2: Estoppel must be remedied.

.

Commonly relied upon by a relative or friend, who was assured by the legal owner “the home will be yours when I die” only to be left out of the will.

Question 91

Trusts of the Family Home: Proprietary Estoppel

1. What are the three key elements to establish a claim in proprietary estoppel?
2. Can the first prong be passive?
3. Define the second prong.
4. Does the third prong need to be the sole reason for the second prong?

Establishing Proprietary Estoppel

Answer 91

1. Three elements of the claim:
   (a) Assurance
   (b) Detriment
   (c) Reliance
2. Yes.
3. Substantial detrimental reliance on the assurance (need not be financial), balanced against any benefits gained.
4. No, although the claim will fail if it is shown that the real reason for the detriment was not the assurance.

Question 92

Trusts of the Family Home: Proprietary Estoppel

(1) If proprietary estoppel is found to exist, is the court required to find a remedy?

(2) Give five remedies they can choose to employ:

(3) What is the main difference between the common intention constructive trust and proprietary estoppel?

(4) When might a claiming party be barred from obtaining a remedy? (2 ways)

Answer 92

(1) No, they have a discretion.

(2) Five remedies available:
(a) transfer of legal ownership
(b) grant of lease
(c) a right of occupancy
(d) financial compensation
(e) beneficial share

(3) The former guarantees a beneficial share, whereas the latter gives the court a wide discretion.

(4) Inequitable or unconscionable conduct; unreasonable delay