Trusts (Underlying Law) Flashcards
What interest does a beneficiary of a trust have?
An equitable proprietary interest in the trust property
To be a valid charitable trust, even if there are some charitable purposes, what must be satisfied in relation to all the purposes?
To be valid the public benefit test must be met in respect of all the intended purposes
What trusts does the rule against remoteness of vesting apply to?
Trusts with people or charities as their objects
What trusts does the rule against inalienability apply to?
Consider when advising on
non-charitable purpose trusts
What is the rule against remoteness of vesting?
A person or charity must obtain a vested interest in the trust property within a perpetuity period.
This is within 125 years unless the trust instrument expresses a shorter period.
What is the effect of a trust which does not vest within the statutory perpetuity period?
The ‘wait and see’ rule
The trust is void.
It need not be clear from the outset of the trust - it subsists until it becomes apparent that the interest cannot vest within the perpetuity period
Anything done with the trust before it becomes apparent will remain valid
What can sometimes be used to save a trust failing due to perpetuity?
The class closing rules can operate to exclude objects that might cause the trust to fail because their interest would vest outside the perpetuity period
What is the rule against inalienability?
This only applies to
non-charitable purpose trusts.
The perpetuity period is 21 years
It must be clear from the outset that the trust will end within 21 years. In the absence of such an express clause, the trust usually fails.
However, the perpetuity period can be extended by reference to a ‘royal lives clause’ - that time onlt starts running at the death of a named period.
What effect does a ‘royal lives clause’ have on a non-charitable purpose trust?
For example, £5,000 to my trustees on trust to maintain my grave for a period not exceeding 21 years following the death of my last surviving descendant of Queen Elizabeth II alive at the date of my death’
The 21 years only starts running at the death of a named person.
What three certainties must exist for a valid express trust?
- Intention
- Subject Matter
- Objects
What is the requriment that an express trust has certainty of intention?
An express trust is brought into existence by an intention to create it.
The required intention is an intention to impose/assume the duty which is the characteristic of the trust (e.g. hold property for X, or apply for the benefit of X)
What is the problem with giving property to X with a “desire” that they make provision for her son?
It fails to show certainty of intention
A desire carries no legal obligation.
How is certainty of intention ascertained?
From words spone or written, and conduct.
The courts adopt an objective approach - if X manifests an intention to impose a characteristic of a trust, they intend to create one.
For example, stating over and over again that ‘this money is as much yours as mine’ has been held to objectively give rise to a trust (joint bank account) even if the account holder did not subjectively understand (a) what a trust was; or (b) that a trust could even arise.
What impact does the use of the word ‘trust’ have on certainty of intention?
The use of the word is a good indicator of intention
However, it is not determinative.
The use of the word trust/lack of the word ‘trust’ is not conclusive.
What is the relevance of Segregation of the Alleged Trust Property for intention?
If there is nothing to indicate that T was to treat the property as separate from her own, that could be a strong indication that no trust was intended.
After all, a feature of a trust is that the trustee is not free to use the property entirely for her own benefit
Can a trust be a sham?
For example, D sets up a clear trust but D at all material times regarded all the trust assets as belonging to him and had intended to retain ultimate control.
No.
- Where the real, subjective intentions of the settlor and trustee are to mislead or deceive, the appearance of an express trust conceals the true intentions which do not involve a trust relationship at all.
- In such cases, the subjective intentions of the parties trump the objective appearance of a trust, and the court will find the trust to be a sham.
- It will be considered to be void. Any property transferred will be held on resulting trust for the settlor.
What are the two requirments for certainty of subject matter?
- You can identify the trust property; and
- You can ascertain the beneficiary’s interest in the trust property
Can you declare a trust over property you do not yet have?
No
You cannot declare a trust over property you do not yet have
What is the effect of leaving a ‘bulk’ of your estate?
No trust—‘bulk’ too uncertain and fails to satisfy certainty of subject matter if you cannot determine which assets in the residuary estate were part of the ‘bulk’ that was to be held on trust.
What does it mean to query whether it is clear upon which property the trust bites?
How does this relate to segregation of tangible physical assets?
For example, wine bottles, gold, diamonds
If property is said to be held on trust (e.g. a bottle of wine) the specific property must be clear.
It is insufficient to have multiple as ‘part of a bulk’ and assume that any could satisfy the condition of certainty.
For example…
- London Wine Co > Wine Company allowed people to purchase wine and they store it. The purchased bottles were not segregated from the rest of the stock. There was no trust since the subject matter of the trust was uncertain.
- Goldcorp > A company dealing in gold had not segregated specific parcels of bullion to the individual purchasers, but held it in bulk and handed certificates of sale to their customers. No trust.
This rule does not change for tangible assets whether the items are fungible (identical and interchangeable) or non fungible (different)
D owns 100 tangibe diamonds.
They are non-fungible since they each contain different cuts and qualities.
Does D have to make it clear which diamon is held on trust?
Yes, for certainty of objects, tangible non-fungible items need to be segregated.
If it isn’t clear which exact diamond is held on trust, the trust fails.
How are shares treated for certainty of subject matter?
For example, A owns 950 shares in a company with 1,000. A makes an oral declaration of trust in favour of B in respect of 50 shares. Is this void?
No. The trust is not void for uncertainty despite not knowing which exact 50 shares constitute the trust property.
This is because shares are intangible and fungible.
Shares are not separate pieces of property, and so it is nonsense to talk about specifying particular shares in a declaration of trust
What happens if a trust fails due to uncertainty of subject matter?
- If A purported to declare himself a trustee, A would remain legally and beneficially entitled to that property as if no declaration had been made.
- If A purported to transfer legal title to uncertain property to B to hold on trust, then the disposition of legal title to B would fail, and A would remain legal and beneficial owner.
- If A transferred certain property to B, but B was to hold an uncertain portion of it on trust for C, then B would hold all the property on resulting trust for A.
What is the certainty of objects requirment?
The declaration of trust must make it sufficiently clear who are the beneficiaries or what is the object to which the trust property is to be applied.
The declaration of an object trust will fail if the description of the object to which the trust property is to be applied is too vague to enable the court to enforce it.
What is a fixed trust?
A trust under which the trustees are required to distribute the trust property to the beneficiaries in the proportions identified by the trust document.
The trustees have no discretion as to which people are to benefit from the trust and in what proportions
What is the certainty of object test for fixed trusts?
Complete List Test
The fixed trust is valid only if it is possible to ascertain the identity of every member of the class (i.e. to make a complete list) of potential beneficiaries.
This requires….
- Conceptual certainty > The precision of language used by the settlor to define the classes of person whom he intends to benefit need to be clear.
- Evidential Certainty > The objects of a fixed trust will be evidentially uncertain if it is impossible to list all the members of the class at the appropriate time. Every member needs to be listed.
For the complete list test, is a trust for ‘my old friends’ conceptually certain?
No
A fixed trust for the settlor’s ‘old friends’ in equal shares would be likely to be conceptually uncertain because of so many different interpretations
Can a trust for ‘relatives’ be sufficiently certain to satisfy conceptual certainty requirments?
Whilst unclear, the best view is that it is conceptually certain if it refers to “next of kin” or “nearest blood relations” so that a complete list could be formed.
If a trust is created for “John” but the settlor knows four John’s, can there be concpetual certainty for a fixed trust?
No since it must be possible to identify the intended John.
For the complete list test, what is the ascertainability requirment?
So long as the class is conceptually certain (e.g. we can make a list of everyone), the fact that it may be difficult to ascertain the whereabouts or continued existence of some of its members is irrelevant.
For example, a trust for “nephews and nieces” will not be void if one of the nephews emigrated to Canada and hasn’t been seen for 40 years. So long as the list can be drawn up, they need not ascertain his whereabouts.
What is a condition precedent?
If a trust that initially seems conceptually uncertain such as ‘my old friends’ includes a condition such as ‘to allow my any old friends who may wish to do so to purchase any of my pictures” it may be saved.
It is not necessary to draw up a complete list of friends, and any persons who can prove that, by any reasonable test, they were friends of the testator would be entitled to exercise the option.
What is a discretioanry trust?
The trustees holds the trust property on trust for member or members of a class of beneficiaries as they shall in their absolute discretion determine.
In that situation, no beneficiary owns any part of the trust fund unless and until the trustees have exercised their power
What is the certainty of object test for discretionary trusts?
The Given Postulant Test — it needs to be possible to determine with certainty whether any given postulant is or is not a member of the class.
Does the Given Postulant Test (Is/Is Not Test) require conceptual certainty?
The class always has to be conceptually certain.
- Friend are too conceptually uncertain
- Deserving is too conceptually uncertain
- Relatives are conceptually certain indicating common ancestors
- Employees and Children are conceptually certain
Does the Given Postulant Test (Is/Is Not Test) require evidential certainty?
This is problematic since the judges in Baden 2 each gave differing opinions.
Sachs LJ is the widley accepted view that “the court is never defeated by evidential uncertainty”
Simply, once the class to be benefited is conceptually certain it then becomes a question of fact to be determined on evidence whether any postulant has on inquiry been proved to be within it.
If someone doesn’t come forward and prove they are in the class, they are not in it.
Can a a discretionary trust be void because of administrative unworkability?
Yes
In West Yorkshire it was held that even if one conceded that there was conceptual clarity, a trust with 2.5 million potential beneficiaries is administratively unworkable.
If the class is too wide, a discretionary trust will fail.
This is not a problem for fixed trusts/
What is a mere power?
‘Mere powesr’ grant the holder of the power the ability to exercise it, but without any requirement to do so
For example, “‘£100,000 to my trustees to distribute if they see fit to anyone in the world.”
What happens if a trust fails due to uncertainty of objects?
If A transferred title to B to hold on trust, and the trust failed for certainty of object, then B would hold that title on resulting trust for A
If A purported to declare a trust over his house for uncertain objects, A would remain legal and beneficial owner of his house.
Can a settlor declare a trust without formalities?
Generally, yes - no formalities are required.
Writing, though desirable, is not essential
However, s.53(1)(b) LPA requires that declerations for **trusts of land **have to be manifested and proved by writing.
What is the formality requirment for declaring a trust of land?
Section 53(1)(b) applies only to land and requires that a declaration of trust must be manifested and proved by some writing signed by some person able to declare such trust or by his will
The deceleration does not have to be in writing, it only has to be proved in writing
What does it mean for a trust of land to be ‘proved’ in writing?
s.53(1)(b) LPA
The necessary evidentiary writing can take the most diverse forms and be provided at any time
It can be a done at any point after the decleration.
For example, a letter written 2 years later is sufficient to satisfy s.53(1)(b) LPA
What is the effeect of failing to comply with the evidentiary requirment of writing per s.53(1)(b) LPA for a trust of land?
Non compliance does not make the transaction wholly void but merely unenforceable.
This means the beneficiary can only enforce their rights after the point of writing. However, after this point they can enforce their right and any breaches since the decleration.
For example, A declares a trust in favour of B in May. Signs in December. B cannot enforce their rights until Decemeber. However post-december they can enforce any breaches since May.
What if a settlor for a trust of land never manifests and proves it by writing?
s.53(1)(b)
Simply the trust does not become enforceable and the beneficiary will not be able to asser any interest over the land.
However, this is subject to the Principle in Rochefoucauld
What is the Principle in Rochefoucauld and how does it impact trusts of land and s.53(1)(b)?
The principle is that equity will not allow a statute enacted to prevent fraud to be used as an instrument of fraud and so the court will allow oral evidence to prove the express trust, despite s 53(1)(b) requiring written evidence.
Despite academic discussion as to how this operates, if oral evidence is accepted to prove the trust of land the following may result…
- Two Party Scenarios: A gives their land to B, for B to hold on trust for them. B denies the existence of a trust. If it is proven that a trust was meant to exist, even without written proof, a Constructive or Resulting Trust will arise.
- Three Party Scenarios: If A declares a trust for C (and declares B as trustee) then if B denies the trust (he gave it me outright) then B holds the land on resulting trust for A, who will then be able to terminate the trust and recover the property (Solomon v McCarthy)
What is constitution?
For a trust to be effective, it is not enough simply to declare the trust; it is also necessary to ensure that title to property has been vested in the trustee or trustees.
A trust can be constituted in two ways:
- By declaration of oneself as a trustee or
- By transfer of property to trustees.
How is a self declearation of trust constituted?
A self decleration of trust does not require any transfer since the legal title is already vested in the settlor
It is automatically constituted the second the settlor says ‘I hold my laptop on trust for Jim’
When does constitution take place for trusts created in a will?
A testementary trust is constituted after the death of the testator when their PRs obtain legal title by way of the will
When does constitution take place for lifetime trusts (intervivos trusts) that are not self-declerations?
Legal title must be transferred using the correct method
How is a trust for land constituted?
Registered land transfers must be made by deed and registered.
Legal title passes (and the trust is constituted) on registration of the new legal owner.
How is a trust of shares constituted?
When the transferor signs the stock transfer form and sends it to the company who enters the new shareholder.
Legal title passes (and the trust is constituted) when the transferee is registered in the companys register of members.
How is a trust of choses in action such as money in bank accounts constituted?
They are transferred by notices in writing to the debtor or bank.
Legal title passess (and the trust is constituted) when the bank/debtor recieves notice.
How is a trust of chattel constituted?
This includes physical money (cash)
Chattel may be transferred either by (a) deed; or (b) delivery with evidence of intention to transfer.
What is the effect of constituting a trust?
The disposition is irrevocable.
Once a trust is constituted, the settlor ceases to have any beneficial or legal interest in the trust property.
The trustee has legal title and holds it on trust for the beneficiary (or if it is a self-decleration, the settlor only has legal title and holds it on trust for the beneficiary)
What is the effect of a failed constitution?
If trust property is not vested in the trustee, the trust is void
If legal title has not passed, the settlor can change their mind.
What is the rule in Milroy?
Unless A completes the formalities to transfer legal title to B, B will not acquire legal title, and the trust will not be constituted
What are the five exceptions to ‘equity will not perfect an imperfect gift?’
- Settlor or donor has done everything necessary to transfer title - Re Rose
- Where it is unconscionable for the transferor to change his mind - Pennington v Waine
- Strong v Bird - the intended donee is appointed the testator’s executor or administrator
- Proprietary estoppel - donee acts to his detriment in reliance
- Donatio mortis causa - a deathbed gift, but fails to transfer property as planned
What is the Re Rose exception to Milroy?
Where a settlor has done everything within his power in order to render a transfer effective but something has yet to be done by a third party, the transfer will be immediately valid in Equity.
For example, A wanted to transfer legal title to shares to B. A had executed the share transfer form, and delivered it to B but died before they were registered. Since A did all she could, equity intervened
What is the extension of Re Rose principle?
Choithram > Unconscionability
Re Rose principle has been extended to apply even where the settlor or donor had not done everything necessary to effect a transfer of title, but where the settlor or donor had done enough to effect the transfer such that any attempt to deny validity of transfer would be considered to be unconscionable.
Factors indicating ‘enough’ include:
* clearly wanting to make the gift
* executing documents that would have sufficed had they have been handed
Pennington has been applied to cases concering houses with defective TR1 forms.
What is the exception deriving from Strong v Bird to Milroy?
Though equity will not help to vest the intended trust property in the trustee , its help is not needed when the property has become vested in him.
When this has happened, equity will enforce the trust, even though it would not have helped to constitute it.
Thius applies if the intended donee is appointed the testator’s executor or administrator
What is Donatio Mortis Causa and how does it create an exception to Milroy?
The doctrine may apply where S attempts to make a deathbed gift, but fails to transfer property as planned to the donee.
The gift is regarded in equity as having made a valid transfer, and thus holds the subject matter of the planned gift subject to a constructive trust for the donee.
What are the requirments for a Donatio Mortis Causa?
- Donor must have made the gift in contemplation, though not necessarily in expectation, of their impending death
- Donor must have delivered to the doneethe subject-matter of the gift, or the means or part of the means of getting at that subject-matter
- the circumstances must have been such as to establish that the gift was to be absolute and complete
What is a successive interest trust?
These involve a series of consecutive interests in the same trust property.
For example, a life interest trust has the life tenant beneficiary (they recieve income during the lifetime) with the remaindermen becoming entitled to the capitcal after the life tenants death.
