Trusts - Express Trusts (1) Flashcards
What are express trusts?
Express Trusts: Express trusts are those the settlor expressly intends to create. To create valid lifetime trusts, they must:
(1) Valid Declaration: Validly declare the existence of the trust, compliant with a number of formalities (below).
(2) Constitution: Constitute the trust, meaning to put the assets in the hands of the trustee (below).
What are the different types of trusts?
Fixed Trust
Fixed Trust: The trustees have no discretion as to how to distribute property to beneficiaries. It is stipulated once and for all in the terms of the trust.
Discretionary Trust
Discretionary Trust: The trustees have discretion as to the amounts to distribute to any person, and may even have discretion as to whether to distribute to a person at all.
What are three certainties?
Three Certainties: A valid declaration must show certainty of intention, subject matter and objects (Knight v Knight).
Certainty of Intention
Certainty of Intention: It must be clear that the settlor intended to create a trust.
(1) Wording: The words must clearly intend to convey a trust, but use of the word ‘trust’ itself is not required (Re Kayford). The trustee must be placed under a clear duty (Paul v Constance).
(2) Precatory Wording: Declaration must be definitive, not hopeful. ‘I hope you give’ is not certain (Re Adams).
(3) Effect: Where a transferor lacks intention, the transfer is more likely to be deemed an outright gift.
Certainty of Subject Matter
Certainty of Subject Matter: Both the trust property, and the interests of beneficiaries, must be certain (Palmer v Simmonds).
(1) Trust Property: The trust property must be clearly identified.
Homogenous Property: Where groups of assets are homogenous, one may identify them generally, such as ‘5 of my Amazon Shares’ (Hunter v Moss).
Heterogeneous Property: Where groups of assets are heterogeneous, one must identify each item specifically, i.e. ‘my 3 ferraris’, but not ‘3 of my cars’, as this is not clear (Re London Wine).
Future Property: Trusts can only be conveyed over property the settlor has a current right over.
Formulas: Formulas must be workable. ‘The bulk’ or ‘some’ is unclear; ‘the residue’ or ‘all’ is not.
(2) Beneficial Interests: The beneficial interests must be clear, but by default are assumed to be equal. Discretionary trusts are clear, i.e. ‘in such amounts as the trustees deem fit’, but not ‘generous amounts’.
(3) Effect: Lack of certainty means the subject matter will usually return to settlor on resulting trust. If conveyed to a trustee to hold ‘some’ on trust, it usually conveys wholly as a gift.
Certainty of Objects
Certainty of Objects: The beneficiaries themselves must be defined with sufficient certainty (Morice v Bishop). If beneficiaries are named as a class and not individuals, the following tests are required:
(1) Fixed Trust: A class in a fixed trust must be identifiable with conceptual and evidential certainty, known as the Complete List Test (IRC v Broadway).
Conceptual: Beneficiaries identified using objective concepts, i.e. ‘my children’, but not ‘best children’.
Evidential: Beneficiaries exhaustively identifiable using accessible evidence. Usually, where there are many beneficiaries, and no evidence provided, this will not be possible.
In Practice: ‘My children’ is certain, ‘my friends’ are not (no evidence/unclear).
(2) Discretionary Trust: A class in a discretionary trust must be identifiable using the Given Postulant Test, meaning any person can be conclusively determined as a beneficiary or not (McPhail v Doulton).
Administrative Unworkability: If a class is too broad (‘the whole world’), it fails (ex p West Yorkshire).
Capriciousness: If a class is irrationally chosen (‘clowns in small towns’), it fails (Re Manisty’s).
(3) Effect: If there is no certainty of objects, the property will return on resulting trust.
(4) Will Trusts: Will trusts speak from death, meaning objects must make ‘sense’ on death. For example, if the will says ‘on trust to my nephew’, and the testator now has 3 nephews, the trust will fail on death.
What is the beneficiary principle?
Beneficiary Principle: A valid trust must be for the benefit of individuals. This is subject to exceptions (purpose trusts).
What is the rule against perpetuities?
Perpetuities: Trusts must last no longer than the law allows, to prevent the locking away of capital.
(1) Period: Beneficial interests must unconditionally vest within 125 years. Most trusts satisfy this rule.
(2) Purpose Trusts: A different rule applies to valid purpose trusts.
What further formalities are there for some express trusts?
Further Formalities: Most trusts can be declared orally (though not advisably), subject to certain exceptions.
Will Trusts
Will Trusts: Wills must be written, signed by the testator, in the joint presence of two attesting witnesses (WA 1837).
Land
Land: Declarations of trust over land must be evidenced in writing (s53(1)(b) LPA).
(1) Formalities: a) Written; b) signed by settlor; c) containing all express terms. This should also be registered on proprietorship to bind purchasers of that land. It does not need to be sent to anyone.
(2) Emails: Declarations by email are permitted, provided the email ends with the settlor’s name or words indicative of their name, but not their email address (Hudson v Hathaway).
What is constitution?
Constitution: Trusts must be constituted by legally vesting the trust assets in the trustees.
(1) Trusts on Death: Trusts conveyed through wills constitute automatically on death.
(2) Self-Declaration: Trusts held solely by the settlor constitute automatically.
(3) Other Trusts: Trusts held by other trustees, including the settlor as part of a group, must be constituted in the methods listed below.
Methods of Constitution
Methods of Constitution: The method of constitution adopted will differ by type of asset.
(1) Cash: Cash is physically transferred, or once a cheque has cleared.
(2) Chattels: Chattels are transferred physically, or conveyed by deed (Jaffa v Taylor).
(3) Shares: Shares are transferred by stock transfer form, which must be sent to the relevant company or the trustees alongside a share certificate. This constitutes once a new certificate is issued to the trustees.
CREST: Alternatively quoted shares may be transferred using the online CREST system.
NOTE: Need both certificate and transfer form.
(4) Land: Land must be conveyed by deed on Form TR1 (s52 LPA).
Formalities: Clear as a deed, signed and witnessed by settlor, and dated (s1 LPMPA).
Recipient: Sent either to the Land Registry or trustee directly.
Saving Failed Constitution
Saving Failed Constitution: Failure to constitute typically renders trusts invalid, save for three exceptions (Milroy v Lord)
(1) Every Effort: The settlor made ‘every effort’ to constitute the trust before death, and merely relies on a third-party fulfilling their obligations, such as waiting on issue of share certificate. The trust is valid if they die having made every effort (Re Rose; Re Mascall).
(2) Strong v Bird: If the settlor failed to constitute prior to death, the trust will be valid provided four conditions are met (Strong v Bird).
Declaration: Settlor declared a valid trust to a trustee, but did not constitute it.
Immediacy: The intention was to immediately create the trust (Re Freeland).
Continued: The intention continued unchanged until death (Re Gonin).
Trustee-PR: The intended trustee was appointed a PR of the settlor, and now holds on trust.
(3) Settlor-Trustee: If the settlor declared themselves one of several trustees, and failed to constitute it to the other trustees before death, the trust is valid as it would be ‘unconscionable’ to deny it (Choithram v Pagarani).
