Trusts - Introduction and Creation of Express Private Trusts

Question 1

Express Trusts

Answer 1

Arise when a person (settlor) clearly and expressly states an intention to declare a trust

• Inter vivos: lifetime
• Testamentary: will

Private express trusts: created to benefit ascertainable persons

• Fixed: specific interests of beneficaries are fixed by settlor
• Discretionary: settlor gives trustee discretion as to how to distribute trust property amongst a group of identifiable beneficiaries
• Purpose: established to benefit a specific purpose rather than people

Charitable trusts: type of purpose trust for an indefinite class of persons or general public

Question 2

Implied Trusts

Answer 2

Settlor did not expressly state a clear intention to create a trust but equity implies a trust to achieve a fair result

Resulting: 1) Interest under express trust fails, 2) Express trust fails to exhaust the beneficial interest or 3) A person makes a voluntary transfer or purchase in the name of another. Beneficial interest reverts back to the settlor or their estate

Constructive: equitable remedy imposed by a court to prevent unjust enrichment of one person at the expense of another as a result of wrongful conduct

Question 3

Three Certainties for Express Trusts

Answer 3

• Intention
• Subject matter: property covered by trust
• Objects: beneficiaries

If any are not present the trust will not be valid

Question 4

Certainty of Intention

Answer 4

• Intention to place trustee under binding obligation
• Shown through written or spoken words or by their conduct
• Must also intend that the trust takes effect immediately
• Settlor must have the intention to create the trust whilst they own the intended property and prior to its transfer
• Precatory language (i.e. words such as ‘hope’ or ‘wish’) will not show certainty of intention

If a trust is void for uncertainty the property passes as an outright gift to the person who would have been the trustee

Question 5

Certainty of Subject Matter

Answer 5

• Clear what property is subject to trust
• If there is no certainty of subject matter the trust will fail
• Phrases such as ‘the bulk’ do not show certainty of subject matter
• Uncertain description may be valid if it can be objectively defined (e.g. a reasonable amount)
• Future interest may be held in trust but an interest not yet in legal existence cannot [e.g. a mother leaving her home to her son in her will, the son has no interest in the home until his mother dies]

When a trust is void for uncertainty of subject matter the property reverts to the settlor

Question 6

Fractional Shares

Answer 6

• Settlor intends to make a particular share of an asset subject to a trust (e.g. half of a shareholding, half of the stock in a warehouse)
• Intangible assets (e.g. shares): trust will be effective
• Tangible assets: (e.g. stock in a warehouse) subject matter subject to trust must have been physically segregated from that which isn’t subject to the trust for there to be sufficient certainty of subject matter [applies even if the objects described are all identical]

Question 7

Certainty of Objects

Answer 7

• Beneficiaries are sufficiently clearly defined
• Reference to a concept - will be certain if it is capable of objective determination. I.e. ‘My children’ is valid, in contrast ‘my friends’ or ‘my relatives’ is likely to fail

Test used by the court will vary depending on whether the trust is fixed or discretionary:

Fixed:

• Complete list test: it must be possible to use the description of objects in question to draw up a fixed list of every beneficiary
• Conceptual and evidential certainty required (i.e. “my former employees” is conceptually certain but there may not be evidential certainty if there are insufficient records to establish how many former employees there are)
• Unascertained beneficiaries (i.e. unborn children) may be included as long as they are ascertainable by the time ther interests come into enjoyment
• The fact a beneficiary cannot be traced will not cause a fixed trust to fail (trustees should apply to the court for directions in this scenario)

Discretionary:

• ** Given postulant test**: must be possible to say with certainty whether or not a given individual is a member of group/class that will benefit
• Conceptual certainty required
• Evidential certainty not required
• If proposed class of objects is so large it makes trust administratively unworkable a discretionary trust will fail (i.e. all or some of the inhabitants of West Yorkshire)

If trust fails due to lack of certainty of object the law implies a resulting trust in favour of settlor or their successors (means property goes back to the settlor or whoever inherited their property)

Question 8

Beneficiary Principle

Answer 8

• General rule that trust must have ascertainable human beneficaries