Creation of express trusts in English law

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The creation of express trusts in English law must involve four elements for the trust to be valid: capacity, certainty, constitution and formality. Capacity refers to the settlor's ability to create a trust in the first place; generally speaking, anyone capable of holding property can create a trust. There are exceptions for statutory bodies and corporations, and minors who usually cannot hold property can, in some circumstances, create trusts. Certainty refers to the three certainties required for a trust to be valid. The trust instrument must show certainty of intention to create a trust, certainty of what the subject matter of the trust is, and certainty of who the beneficiaries (or objects) are. Where there is uncertainty for whatever reason, the trust will fail, although the courts have developed ways around this. Constitution means that for the trust to be valid, the property must have been transferred from the settlor to the trustees.

Contents

If property has not been transferred, the potential trustees and beneficiaries are volunteers, and an equitable maxim is that "equity will not assist a volunteer"; the courts will not look at the case. To get around this, the courts have developed exceptions to this rule for situations when the settlor has done "all that he could do", the trustees or beneficiaries have acquired the property in a different way, or where the gift was made donatio mortis causa . Formality refers to the specific language or forms used when transferring property. For chattels, no formal language or documentation is needed, unless it is made as a will. For land, the transfer must be drafted in line with the Law of Property Act 1925 and the Law of Property (Miscellaneous Provisions) Act 1989. When disposing of an equitable interest, the Law of Property Act 1925 must also be followed; much of the case law in this area has centred on the meaning of "dispose", with many cases involving people attempting to avoid tax.

Capacity

The first requirement of an express trust is capacity; the person creating the trust must be legally capable of doing so. Generally speaking, anyone capable of holding property can form a trust, although there are exceptions. A minor cannot hold land, and therefore cannot create a trust of land; in addition, unless they are soldiers or "mariners at sea", they cannot form a valid will. [1] Where a minor tries to create a trust, it will be held voidable, and can be repudiated by him when he reaches majority, or soon after. Where the trust is clearly of detriment to the minor, the courts may decide to take it as void; the individual, when he reaches majority, could alternately plead non est factum if he had been too young to appreciate the nature of forming a trust. [2] People who are considered mentally disordered (under the Mental Health Act 1983) and have a receiver appointed cannot have trusts directly enforced against them, as they no longer have control over their property. Where there is no receiver, the mentally disordered person's trust will be held void, unless it was made during a lucid period when the person was capable of understanding their actions. Corporations and statutory bodies only have the powers granted to them by their memorandum of association or authorising statute; if these do not authorise the creation of trusts, any such trust will be held to be ultra vires . [3]

Three certainties

Lord Langdale, who first conceptualised the three certainties in Knight v Knight Henry Bickersteth, Baron Langdale (19th century) by George Richmond and John Henry Robinson.jpg
Lord Langdale, who first conceptualised the three certainties in Knight v Knight

For an express trust to be valid, the trust instrument must show certainty of intention, subject matter and object. [4] Certainty of intention means that it must be clear that the settlor or testator wishes to create a trust; this is not dependent on any particular language used, and a trust can be created without the word "trust" being used, [5] or even the settlor knowing he is creating a trust. [6] Since the 1950s, the courts have been more willing to conclude that there was intention to create a trust, rather than hold that the trust is void. [7] Certainty of subject matter means that it must be clear what property is part of the trust. [8] Historically the property must have been segregated from non-trust property; more recently, the courts have drawn a line between tangible and intangible assets, holding that with intangible assets there is not always a need for segregation. [9] Certainty of objects means that it must be clear who the beneficiaries, or objects, are. [10] The test for determining this differs depending on the type of trust; it can be that all beneficiaries must be individually identified, [11] or that the trustees must be able to say with certainty, if a claimant comes before them, whether he is or is not a beneficiary. [12]

Uncertainty comes in four categories: conceptual uncertainty, evidential uncertainty, ascertainability and administrative unworkability. [13] Conceptual uncertainty arises when the language is unclear, which leads to the trust being declared invalid. Evidential uncertainty is where a question of fact, such as whether a claimant is a beneficiary, cannot be answered; this does not always lead to invalidity. [14] Ascertainability is where a beneficiary cannot be found, [15] and administrative unworkability arises when the nature of the trust is such that it cannot realistically be carried out. [16] Trustees and the courts have developed various ways of resolving uncertainties, including the appointment of experts to work out evidential uncertainty, and giving trustees the power to decide who is or is not a beneficiary. [17]

Constitution

The trust must then be formally constituted, by the transfer of its property to the trustees. For chattels, merely handing the property to the trustees is sufficient, assuming it comes with the relevant intention to create a trust. In some circumstances, providing the intention and telling the trustees where to find the property is sufficient, as in Thomas v Times Books . [18] Where the property is land or an equitable interest in land, it must be transferred by writing in accordance with Sections 52-3 of the Law of Property Act 1925. When dealing with shares, the transfer is not complete until a transfer document has been completed and the company has entered the change of ownership in its books. [19] One of the equitable maxims is that "equity will not assist a volunteer"; if someone does not have an interest in property, they cannot bring a court case. When trusts are not properly constituted, the trustees and beneficiaries have no equitable interest in the property, and so are volunteers. There are several exceptions to this maxim. [20] The courts are willing to hear cases where the transfer was not completed, providing the intended beneficiaries or trustees have gained an interest through being made executor of the settlor's estate (the rule in Strong v Bird ), or the gift was given donatio mortis causa , or where the settlor did all he could do, as in Re Rose , [21] or where it would be "unconscionable" to hold the gift invalid, as in Pennington v Waine . [22] [23]

Formality

As a general rule, there is no requirement for particular formalities in trust instruments, they can be oral or written. The only requirement is that they show an intention to create a trust. The exceptions are where it is a transfer of land, the transfer of existing equitable interests, [24] or where the trust is made in a will. [25]

Land

Express trusts over land must comply with Section 53(1)(b) of the Law of Property Act 1925, which provides that:

(b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will. [26]

This means that there must be evidence of the trust's existence should someone choose to enforce it, and does not necessarily mean it need be in existence at the trust's creation. Contracts for the sale or disposition of an interest in land, such as a contract to create a trust, must additionally comply with Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which provides that:

(i) A contract for the sale or other disposition of an interest in land can only be made in writing, and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each.
(ii) The terms may be incorporated in the document either being set out in it or by reference to some other document.
(iii) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract. [24]

Equitable interests

For disposing of existing equitable interests, the Law of Property Act 1925 provides in Section 53(1)(c) that:

(c) A disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or his agent thereunto lawfully authorised in writing or by will. [26]

Much of the debate in this area is over the definition of "disposition", and unsurprisingly almost all of the cases involve people trying to avoid tax. In Grey v IRC , [27] the House of Lords gave disposition its "natural meaning", saying that it meant "a transaction whereby a beneficiary who has a beneficial interest at the beginning of the transaction no longer has it at the end of the transaction". [28] Under the rule established in Vandervell v IRC , [29] if the owner of a sole beneficial interest instructs his trustees to transfer the property, and this is done to transfer the beneficial interest and not simply to change the trustees, this does not fall under Section 53(1)(c) and requires no specific formalities. [30]

Simply disclaiming a beneficial interest does not fall within Section 53(1)(c), as in Re Paradise Motor Co . [31] Nominating somebody to receive benefits of a pension fund should the pensioner die is also not a valid disposition, as in Re Danish Bacon Co Ltd Staff Pension Fund , [32] and neither is nominating a beneficiary under a life insurance policy, as in Gold v Hill . [33] [34] Where a beneficiary declares he is holding the property on behalf of another, this would be the creation of a sub-trust and not subject to specific formalities. However, under Grainge v Wilberforce , [35] such a sub-trust will only be held to be valid if there is some difference between the trust and sub-trust, and if the trustee-beneficiary has some duties to perform. [36]

Wills

For a will to be valid (and therefore, for a trust made in a will to be valid) it must comply with Section 9 of the Wills Act 1837. This provides that no will is valid unless:

(a) it is in writing, and signed by the testator, or by some other person in his presence and by his direction; and
(b) it appears that the testator intended by his signature to give effect to the will; and
(c) the signature is made or acknowledged by the testator in the presence of two or more witnesses present at the same time; and
(d) each witness either -
  (i) attests and signs the will; or
  (ii) acknowledges his signature, in the presence of the testator (but not necessarily in the presence of any other witnesses. [37]

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Estate planning

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Constructive trust

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Express trust

An express trust is a trust created "in express terms, and usually in writing, as distinguished from one inferred by the law from the conduct or dealings of the parties." Property is transferred by a person to a transferee, who holds the property for the benefit of one or more persons, called beneficiaries. The trustee may distribute the property, or the income from that property, to the beneficiaries. Express trusts are frequently used in common law jurisdictions as methods of wealth preservation or enhancement.

In law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator. The settlor may also be the trustee of the trust or a third party may be the trustee. In the common law of England and Wales, it has been held, controversially, that where a trustee declares an intention to transfer trust property to a trust of which he is one of several trustees, that is a valid settlement notwithstanding the property is not vested in the other trustees.

Australian trust law is the law of trusts as it is applied in Australia. It is derived from, and largely continues to follow English trust law, as modified by state and federal legislation. A number of unique features of Australian trust law arise from interactions with the Australian systems of company law, family law and taxation.

English trust law

English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is growing legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.

Three certainties

The three certainties refer to a rule within English trusts law on the creation of express trusts that, to be valid, the trust instrument must show certainty of intention, subject matter and object. "Certainty of intention" means that it must be clear that the donor or testator wishes to create a trust; this is not dependent on any particular language used, and a trust can be created without the word "trust" being used, or even the donor knowing he is creating a trust. Since the 1950s, the courts have been more willing to conclude that there was intention to create a trust, rather than hold that the trust is void. "Certainty of subject matter" means that it must be clear what property is part of the trust. Historically the property must have been segregated from non-trust property; more recently, the courts have drawn a line between tangible and intangible assets, holding that with intangible assets there is not always a need for segregation. "Certainty of objects" means that it must be clear who the beneficiaries, or objects, are. The test for determining this differs depending on the type of trust; it can be that all beneficiaries must be individually identified, or that the trustees must be able to say with certainty, if a claimant comes before them, whether he is or is not a beneficiary.

Wills Act 1837 United Kingdom legislation

The Wills Act 1837 is an Act of the Parliament of the United Kingdom that confirms the power of every adult to dispose of their real and personal property, whether they are the outright owner or a beneficiary under a trust, by will on their death (s.3). The act extends to all testamentary dispositions or gifts, where "a person makes a disposition of his property to take effect after his decease, and which is in its own nature ambulatory and revocable during his life." As of 2012, much of it remains in force in England and Wales.

<i>Vandervell v IRC</i>

Vandervell v Inland Revenue Commissioners [1967] 2 AC 291 is a leading English trusts law case, concerning resulting trusts. It demonstrates that the mere intention to not have a resulting trust does not make it so.

Charitable trusts in English law Express trusts dedicated to charitable goals in English law

Charitable trusts in English law are a form of express trust dedicated to charitable goals. There are a variety of advantages to charitable trust status, including exception from most forms of tax and freedom for the trustees not found in other types of English trust. To be a valid charitable trust, the organisation must demonstrate both a charitable purpose and a public benefit. Applicable charitable purposes are normally divided into categories for public benefit including the relief of poverty, the promotion of education, the advancement of health and saving of lives, promotion of religion and all other types of trust recognised by the law. There is also a requirement that the trust's purposes benefit the public, and not simply a group of private individuals.

A purpose trust in English law is a trust created for the fulfillment of a purpose, not for the benefit of a person. These are normally considered invalid by the courts because they have no legally recognized beneficiaries, therefore nobody to enforce the trust, with the exception of charitable trusts, which are enforceable by Attorney General as they represent public interest. As well as charitable trusts, there are several exceptions to the rules against purpose trusts. If the requirement to fulfill a purpose is a request, rather than an obligation, the trust is valid; a trust will also be found valid if, while being for a purpose, it involves beneficiaries in some respect. Purpose trusts can also be valid if they are for the erection or maintenance of tombs and memorials, the maintenance of animals, and arguably the saying of masses, although these must all obey the rule against perpetuities and not continue for more than 21 years after the testator's death.

In English law, secret trusts are a class of trust defined as an arrangement between a testator and a trustee, made to come into force after death, that aims to benefit a person without having been written in a formal will. The property is given to the trustee in the will, and he would then be expected to pass it on to the real beneficiary. For these to be valid, the person seeking to enforce the trust must prove that the testator intended to form a trust, that this intention was communicated to the trustee, and that the trustee accepted his office. There are two types of secret trust — fully secret and half-secret. A fully secret trust is one with no mention in the will whatsoever. In the case of a half-secret trust, the face of the will names the trustee as trustee, but does not give the trust's terms, including the beneficiary. The most important difference lies in communication of the trust: the terms of a half-secret trust must be communicated to the trustee before the execution of the will, whereas in the case of a fully secret trust the terms may be communicated after the execution of the will, as long as this is before the testator's death.

Resulting trusts in English law

Resulting trusts in English law are trusts created where property is not properly disposed of. It comes from the Latin resultare, meaning to spring back, and was defined by Megarry VC as "essentially a property concept; any property that a man does not effectually dispose of remains his own". These trusts come in two forms: automatic resulting trusts, and presumed resulting trusts. Automatic resulting trusts arise from a "gap" in the equitable title of property. The equitable maxim "equity abhors a vacuum" is followed: it is against principle for a piece of property to have no owner. As such, the courts assign the property to somebody in a resulting trust to avoid this becoming an issue. They occur in one of four situations: where there is no declaration of trust, where an express trust fails, where there is surplus property, or upon the dissolution of an unincorporated association. Rules differ depending on the situation and the type of original trust under dispute; failed charitable trusts, for example, have the property reapplied in a different way from other forms of trust.

Constructive trusts in English law are a form of trust created by the English law courts primarily where the defendant has dealt with property in an "unconscionable manner"—but also in other circumstances. The property is held in "constructive trust" for the harmed party, obliging the defendant to look after it. The main factors that lead to a constructive trust are unconscionable dealings with property, profits from unlawful acts, and unauthorised profits by a fiduciary. Where the owner of a property deals with it in a way that denies or impedes the rights of some other person over that property, the courts may order that owner to hold it in constructive trust. Where someone profits from unlawful acts, such as murder, fraud, or bribery, these profits may also be held in constructive trust. The most common of these is bribery, which requires that the person be in a fiduciary office. Certain offices, such as those of trustee and company director, are always fiduciary offices. Courts may recognise others where the circumstances demand it. Where someone in a fiduciary office makes profits from their duties without the authorisation of that office's beneficiaries, a constructive trust may be imposed on those profits; there is a defence where the beneficiaries have authorised such profits. The justification here is that a person in such an office must avoid conflicts of interest, and be held to account should he fail to do so.

A Quistclose trust is a trust created where a creditor has lent money to a debtor for a particular purpose. In the event that the debtor uses the money for any other purpose, it is held on trust for the creditor. Any inappropriately spent money can then be traced, and returned to the creditors. The name and trust comes from the House of Lords decision in Barclays Bank Ltd v Quistclose Investments Ltd (1970), although the underlying principles can be traced back further. There has been much academic debate over the classification of Quistclose trusts in existing trusts law: whether they are resulting trusts, express trusts, constructive trusts or, as Lord Millett said in Twinsectra Ltd v Yardley, illusory trusts.

Tracing in English law is a procedure to identify property that has been taken from the claimant involuntarily. It is not in itself a way to recover the property, but rather to identify it so that the courts can decide what remedy to apply. The procedure is used in several situations, broadly demarcated by whether the property has been transferred because of theft, breach of trust, or mistake.

Discretionary trusts and powers in English law are elements of the English law of trusts, specifically of express trusts. Express trusts are trusts expressly declared by the settlor; normally this is intended, although there are situations where the settlor's intentions create a trust accidentally. Normal express trusts are described as "fixed" trusts; the trustees are obliged to distribute property, with no discretion, to the fixed number of beneficiaries. Discretionary trusts, however, are where the trustee has discretion over his actions, although he is obliged to act. The advantages of discretionary trusts are that they provide flexibility, and that the beneficiaries hold no claim to the property; as such, they cannot seek to control it, and it cannot be claimed for their debts. A power, or "mere power", on the other hand, is where not only does the holder have discretion over his actions, he has discretion over whether to act in the first place.

The South African law of succession prescribes the rules which determine the devolution of a person's estate after his death, and all matters incidental thereto. It identifies the beneficiaries who are entitled to succeed to the deceased's estate, and the extent of the benefits they are to receive, and determines the different rights and duties that persons may have in a deceased's estate. It forms part of private law.

References

  1. ↑ Edwards (2007) p.90
  2. ↑ Edwards (2007) p.91
  3. ↑ Edwards (2007) p.92
  4. ↑ Hudson (2009) p.73
  5. ↑ Edwards (2007) p.93
  6. ↑ Hudson (2009) p.79
  7. ↑ Hudson (2009) p.87
  8. ↑ Hudson (2009) p.97
  9. ↑ Hudson (2009) p.104
  10. ↑ Hudson (2009) p.117
  11. ↑ Hudson (2009) p.120
  12. ↑ Hudson (2009) p.123-4
  13. ↑ Hudson (2009) p.143
  14. ↑ Hudson (2009) p.144
  15. ↑ Hudson (2009) p.145
  16. ↑ Hudson (2009) p.146-7
  17. ↑ Hudson (2009) p.138
  18. ↑ [1966] 2 All ER 241
  19. ↑ Edwards (2007) p.100
  20. ↑ Edwards (2007) p.106
  21. ↑ [1952] 1 All ER 1217
  22. ↑ [2002] 1 WLR 2075
  23. ↑ Edwards (2007) p.101
  24. 1 2 Edwards (2007) p.107
  25. ↑ Hudson (2009) p.211
  26. 1 2 Edwards (2007) p.108
  27. ↑ [1959] All ER 603
  28. ↑ Edwards (2007) p.109
  29. ↑ [1967] 1 All ER 1
  30. ↑ Edwards (2007) p.110
  31. ↑ [1968] 2 All ER 625
  32. ↑ [1971] 1 All ER 486
  33. ↑ [1999] 1 FLR 54
  34. ↑ Edwards (2007) p.111
  35. ↑ (1889) 5 TLR 436
  36. ↑ Edwards (2007) p.114
  37. ↑ Hudson (2009) 269

Bibliography

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