W1 - Lifetime Trust: Transfer to trustee

Question 1

What must the settlor do in order to create a valid trust?

Answer 1

1) Declaration - Make a valid declaration of trust; and

2) Constitution - Ensure that the property is properly vested in the trustee(s).

Question 2

Four requirements for a valid declaration of trust

Answer 2

1) The Three Certainties must be present;
2) The Beneficiary Principle;
3) The Rule against Perpetuity;
4) The formalities for express declarations of trust.

Question 3

The Three Certainties

Answer 3

1) Certainty of Intention
2) Certainty of Subject Matter
3) Certainty of Object

Question 4

Certainty of Intention

Answer 4

The donor must have the intention to make a trust, manifested by words or conduct (Paul v Constance)

Question 5

Paul v Constance

Answer 5

The donor must have the intention to make a trust, manifested by words/conduct.

Question 6

Certainty of Intention: equitable maxim?

Answer 6

Equity looks at intent rather than form.

Question 7

Re Adams and Kensington Vestry

Answer 7

Precatory words will not suffice.

Question 8

What is a precatory word?

Answer 8

Words that express a wish/desire rather than an obligation. Generally won’t create a trust.

“hoping that” // “in full confidence that” // “expecting that”

Question 9

Certainty of Subject Matter

Answer 9

1) The settlor/testator must identify the trust property clearly
2) It must be clear what type of interest each beneficiary has and what portion of trust property they will enjoy.

Question 10

Palmer v Simmonds

Answer 10

“bulk of” is unclear

Question 11

Re Golay

Answer 11

The subject matter of the trust is certain if the settlor provides a workable formula for calculating the amount.

“reasonable income” was sufficiently objective to provide an effective determinant.

“reasonable legacy” = unlikely to be valid

Question 12

Re London Wine Company (Shippers)

Answer 12

There must be segregation of tangible items of trust property or else it will be deemed uncertain.

Segregated stock of wine could not establish a trust as the subject matter was uncertain.

Question 13

Hunter v Moss

Answer 13

There need not be segregation of intangible items if the items are indistinguishable (eg identical shares).

Question 14

Re Lewis’ of Leicester

Answer 14

Subject matter was certain because by placing the traders’ money in a separate account, it has been segregated from other money, creating a valid trust for them.

Question 15

Mac-Jordan Construction

Answer 15

Subject matter was uncertain because the money was not retained in a separate bank account (ie not segregated).

Question 16

Certainty of Objects

Answer 16

Settlor must define the beneficiaries with sufficient clarity when declaring the trust - otherwise the trust is invalid.

Question 17

Beneficiary Principle

Answer 17

General rule: Trusts must have ascertainable human beneficiaries.

In the absence of human beneficiaries, there is no one to enforce the trustee’s obligation to deal with the trust property in accordance with the trust.

Question 18

Re Jackson

Answer 18

Testarix left “legacy to my nephew, Arthur Murphy”.

She had three nephews called Arthur Murphy.

Held: Evidence showed that she had contact with one but not others and that she intended to benefit him.

Question 19

Rule against Perpetuity: two rules

Answer 19

1) Rule against remoteness of vesting

2) Rule against alienability

Question 20

Rule against remoteness of vesting

Answer 20

A contingent interest is void unless it vests within the perpetuity period.

For trusts before 6 April 2010 - perpetuity period of up to 80 years

For trusts on/after 6 April 2010 - perpetuity period of up to 125 years

Question 21

Rule against alienability

Answer 21

Applies to trusts for non-charitable purpose trusts

If the trust capital is not freely alienable within the perpetuity period, the trust for non-charitable purposes will be void.

Question 22

Formalities for express declaration of trust: Will

Answer 22

If the trust property is in a will, there is no need to consider this. It will be transferred by virtue of the will.

Question 23

Formalities for Express Declaration of trust: Personalty

Answer 23

If settlors wish to declare a trust over personalty during their lifetimes, there are no formalities.

Declaration can be oral, but writing is desirable for evidential purposes.

Question 24

Formalities for Express Declaration of trust: Land

Answer 24

Declaration of trust over land must satisfy (s53(1)(b) LPA)

It must be evidenced in signed writing. No need for a deed.

Question 25

Constitution: Chattels

Answer 25

Simple physical deliver or by deed (but deed not necessary)

Question 26

Constitution: Private shares

Answer 26

Falls outside the CREST system.

1) Transferor completes and signs the STF
2) Transferor sends the STF and share certificate to the transferee
3) Transferee sends the documents to the company to register as the new owner

Question 27

Constitution: Public shares

Answer 27

Falls within the CREST system

1) Transfer of ownership by instructions of the shareholder.

No need to sign a STF.

Question 28

Constitution: Land

Answer 28

Must be transferred by deed (s52(1) LPA) and sent to the Land Registry to notify them that there is a new legal owner (Richards v Delbridge)

Question 29

Constitution: Equitable Interests

Answer 29

s53(1)(c) LPA - Transfer of equitable interests must be in signed writing by the person disposing of the interest or a lawfully authorised agent or by will.

Question 30

Grey v IRC

Answer 30

Oral direction does not satisfy s53(1)(c) LPA and would be ineffective and void.

Question 31

Vandervell v IRC

Answer 31

s53(1)(c) LPA does not apply to bare trusts where the beneficiary directs the trustee to transfer the legal estate to a third party with the intention that the third party takes the equitable interest as well.

Question 32

When is s53(1)(c) LPA relevant?

Answer 32

When dealings with the equitable estate are divorced from dealings with the legal estate.

Question 33

Constitution: Wills

Answer 33

Must follow formalities under s9 Wills Act to be valid.

Question 34

s9 Wills Act 1847

Answer 34

No will is valid unless:

1) It is in writing and signed by the testator;
2) The testator intended to give effect to the will;
3) The signature is made in the presence of at least two witnesses who must attest and sign the will or acknowledge the signature.

Question 35

How are trusts constructed in wills?

Answer 35

The will transfers the title to the trustees (via the personal representatives).

Note: The declaration of trust must still comply with the three certainties, the beneficiary principle and the rules against perpetuity.

Question 36

Enforcing an incompletely constituted trust: equitable maxim

Answer 36

“Equity will not assist a volunteer”

Question 37

When will an incompletely constituted trust be enforced?

Answer 37

Equity will only enforce an incompletely constituted trust in favour of a beneficiary who has given value (consideration).

Question 38

Milroy v Lord

Answer 38

Uncompleted constituted trusts will not be construed as declarations of trust by the settlor, just as imperfect gifts will not be construed as a declaration of trust.

Question 39

Rule in Strong v Bird

Answer 39

Exception to equity will not assist a volunteer.

On the death of a donor, the donee can claim legal title if:

1) Transfer fails due to not satisfying formalities (eg no deed for land)
2) Intention to make immediate gift by donor (Re Freeland)
3) Intention continues until death (Re Gonin)
4) Donee becomes executor/PR/administrator of donor.

Question 40

Re Freeland

Answer 40

“as soon as I get the car on the road” was not an immediate gift.

Question 41

Re Gonin

Answer 41

Mother dealt with the property which suggested she still owned it (sold part of the garden), which indicated that she still considered herself as the owner.

Question 42

Every Effort test (Re Rose)

Answer 42

Exception to incompletely constituted trusts.

The gift completes in equity if the donor did everything he could.

Mr Rose sent a completed and signed STF along with the share certificate to his wife. His wife sent the documents to the company. Company did not register until months later.

Gift was perfected by equity on date of wife’s delivery.

Question 43

Unconscionability - Proprietary Estoppel

Answer 43

Exception to the rule that equity will not assist a volunteer.

Despite the fact that the transferor does not hand the transfer form and share certificate to the transferee, it would’ve been unconscionable for the transferor to be able to retract the gift (Pennington v Waine)

Question 44

Pennington v Waine

Answer 44

1) Transferor informed the auditor that she wanted to transfer shares to her nephew
2) Transferor signed STF and sent to auditor
3) Auditor told nephew that the transferor wanted to transfer shares to him and that he didn’t have to do anything.
4) Auditor sent the transferee a form agreeing to be a director, then he signed and returned.
5) Transferor passed away with the transfer incomplete.

Held: It was unconscionable not to treat the transfer as complete (in equity), even though every effort had not been made (Re Rose).

Question 45

Curtis v Pulbrook

Answer 45

Confirmed that Pennington v Waine is of detrimental reliance.

Ada was bound because she had told her nephew that she was giving him the shares and he acted to his detriment by becoming a director of the company.