Validity/Creation of Express Trusts

Knight v Knight

There are 3 certainties required to validly create an express trust

1. certainty of intention

2. certainty of subject matter

3. certainty of object

Certainty of intention to create a trust

S must intend to:

(a) confer on someone else (B) the benefit of rights which S holds

(b) and to do so by imposing an obligation on someone (T) to hold those rights for B's benefit

How do you find intention to create a trust

The use of imperative language is usually indicative of an intention to create a trust — i.e "you must"/ "you shall"

Re Snowden

facts: a testator created a will "to my brother to split up the estate as he thinks best"

decision: There was no imperative language which could impose a legally enforceable duty on you to do anything in particular with the trust property - the testator did not intend to bind, but rather only to burden him with a moral obligation

Re Weekes Settlement

facts: The testator said in her will, "I give my property to my husband for life, and I give him power to dispose of all such property by will amongst our children"

decision: language not sufficient to create a trust, power was created instead - whether a trust or power was created depends on the degree of compulsion/obligation and the language used

Challinor v Juliet Bellis & Co

There must be an intention to create a trust on the part of the transferor. This is an objective question.

Are thoughts relevant?

A person creates a trust by their words and conduct, not their innermost thoughts

What matters is the objective appearance of the individual's actions, not their subjective thoughts

Byrnes v Kendle

the expressed intention of the parties is to be found in the answer to the question, 'What is the meaning of what the parties have said?', not to the question, 'What did the parties mean to say?'

the word trust

There is no magic in the word "trust" — the word "trust" does not have to be used in their dealings for a trust to be created

Individuals do not even have to know what a trust is for a trust to be created

Precatory Words

words of desire/wish/confidence/pleading

insufficient to indicate an intention to create a trust

Lambe v Eames

facts: a husband left his property to his wife '[my estate to my widow] to be at her disposal in any way she may think best, for the benefit of herself and family'

decision: No evidence that the testator ever intended to place his widow under a legally enforceable duty

Re Adams and Kensington Vestry

facts: a husband left his property to his widow — '[property to wife] in full confidence that she will do what is right as to the disposal thereof between [my] children'

decision: words created an absolute gift and moral obligation which was not legally enforceable

Comiskey v Bowring-Hanbury

facts: testator had used precatory language with formal legal phrasing

decision: this was enough to deduce an intention to create a trust, the words "in confidence" can be capable of creating a trust when the circumstances are clear enough to show intention

Jones v Lock

facts: father tells infant son he was going to put a £900 cheque away for him and dies 6 days later

decision: a general intent to benefit someone is different from a trust, the father did not intend to place himself under a legally enforceable duty

Paul v Constance

facts: A died without divorcing B but had started dating C. A told C on several occasions, "the money is as much mine as it is yours" B and C tried to claim for the money

decision: A had intended the money to be held on trust even though that word was never used

segregation and insolvency

Where there are insufficient funds to satisfy all the creditors in an insolvency context, creditors may wish to say they have a claim to the assets in an express trust, which takes priority over other creditors' claims

A trust will only arise in this context if the intended trustee keeps the money in a separate account

Henry v Hammond

facts: C argued D held money on trust for him and should pay it back

decision: since the money was not held separately and was used for all his usual expenditures, there was no trust, if an individual is allowed to mix the money then he is a debtor and not a trustee

Re Kayford

facts: money was segregated into separate funds

decision: a valid trust was created, 'the whole purpose of what was done was to ensure that the money remained in the beneficial ownership of those who sent it, and a trust is the obvious means of achieving this.'

Quistclose Trusts

There was a valid trust created, 'the whole purpose of what was done was to ensure that the moneys remained in the beneficial ownership of those who sent them, and a trust is the obvious means of achieving this.'

Barclays Bank v Quistclose

facts: Q lent money to RR to pay debts and if RR collapsed before paying debts the money should be paid back to Q

decision: a valid trust was created as the money was paid for a specific purpose and was not supposed to become a part of RR's estate, it should not be available for creditors

certainty of subject matter

The subject matter of a trust must be clearly defined and identifiable, or a trust will be void for uncertainty

Re Ellenborough - timing

You cannot have a trust of property which does not yet exist — if the settlor does not have the property, then they cannot hold it on trust for the beneficiary

testamentary trust of residue

giving some money to A and B, and whatever is left (residue) is held on trust for C

Ottowway v Norman

facts: testator dies and leaves house and £1500 to his housekeeper and requests when the housekeeper dies she should leave whatever money is left to the testator's son

decision: a trust of whatever is left is possible, however on the facts this was not the intention of the parties as the money was not kept in a separate account, so there was no certainty of the subject matter of the trust and no clear intention to create such a trust

Palmer v Simmonds [1854]

facts: Testator left the "bulk of my residuary estate" on trust

decision: This description of subject matter was too vague, and therefore, no valid trust was created

Re Golay's Will Trust [1965]

facts: parents left a "reasonable income" to their daughter

decision: The court can objectively assess what is a reasonable income for the beneficiary by looking at her standard of living

Therefore, a valid trust can be created

subject matter is part of a bulk/group

When it said that part of the property should be held on trust, it may be clear which part of the whole makes up the subject matter of a trust

what are the requirements for subject matter in a bulk to be certani

1. bulk is identifiable

2. trust assets are earmarked

Re London Wine

facts: LWC sold wine to customers are kept the wine in warehouses, the sold wine was not segregated from the rest of the company's stock of wine

decision: no trust due to uncertainty of subject matter as the bottles were not separated from the bulk

Hunter v Moss

facts: D owned 950/1000 shares in the company and declared he held 50/950 on trust for C

decision: a valid trust was created This case was distinct from Re London Wine as it was a self-declaration of trust over shares, not the sale of chattel (where legal title remained with the defendant to be held on trust for the plaintiff)

How does Hayton criticise Hunter v Moss

Wills and lifetime trusts are not the same. The courts drew a false analogy

Criticisms of Hunter v Moss

When a settlor declares a trust of 50/950 shares, we can construe this in 1 of two ways:

settlor declared a trust of all 950 shares with the settlor and the beneficiary holding the shares as tenants in common — share of 1/19 in favour of the beneficiary and 18/19 in favour of the settlor as equitable tenants in common

Settlor declared a trust of only 50 shares

Re Harvard Securities

the outcome in Hunter v Moss was accepted, but it was stated there is a need to distinguish between tangible and intangible property

tangible property

Need to segregate so we know who owns which

Two bottles of wine can differ - one may be 'corked'

intangible property

No need to segregate because there is no significant difference between them

Two shares in the same company are completely alike

Pearson v Lehman Bros

interpreted Hunter v Moss differently

where a settlor declares a trust of part of a bulk, this can be construed as creating a trust of the entire bulk

The settlor holds the legal title to the bulk, and the legal title is held on trust for the beneficiary and the settler in proportionate shares as equitable tenants in common

North v Wilkinson

facts: A trust was declared for the percentage ownership of a business

decision: as long as the bulk itself is certain and the percentage share that the beneficiary has to hold is certain, then the trust will satisfy the subject matter requirement

what happens if there is an absence of certainty of subject matter

Trust will fail ab infinito (from the beginning)

This is because no property passes to the trustee, so the trust is never constituted

e.g. Re London Wine

What are the 4 types of certainties for certainty of object

1. Conceptual certainty

2. evidential certainty

3. ascertainability

4. administrative workability

conceptual certainty

specific language used to define the intended object

If no definition can be found, a trust will fail due to a lack of conceptual certainty of objects

evidential certainty

the extent to which there is evidence available in particular cases to enable individuals to be identified as members of the class of objects

ascertainability

the extent to which the whereabouts of the objects can be physically ascertained

what happens if there is not ascertainability?

Trust will not fail — if the object cannot be found, the money can be paid into court, and the court will hold the money until the object is found

Appointment of Trustees Act means that after a certain point, if the objects have not claimed the trust, they cannot sue the trustee for the money

Administrative workabilty

the extent to which it is practical for the trustee to carry out the terms of the trust

If the class of objects is so large and the amount of money is so small, the trust cannot be meaningfully carried out

Typically only applies to discretionary trusts

what is the test for conceptual certainty for fixed trusts

The complete list test — you need to be able to list all the beneficiaries for it to be a valid, fixed trust

- It does not matter if the list cannot be drawn up at the time the trust is created — e.g. a trust for my future grandchildren — as long as the trust can be drawn up at the time the trust is executed

OT Computers v First National Tricity Finance Ltd

facts: trust for urgent suppliers

decision: Failed for lack of evidence of who the urgent suppliers were

Re Barlow's WT

facts: testator said her paintings should be bought at a reduced price from her friends

decision: the will did not create a trust or power, but rather a series of individual gifts to anyone answering the description 'friend'

Each person coming forward to purchase the paintings has to prove that they were friends — there is no legal requirement to discover who all the friends are

trust for unborn babies

trusts will not fail for conceptual certainty even tough when the trust is set up we do not know who the beneficiaries will be - so long as the objects can be identified on the date the property comes to be distributed, the trust is valid

what is the test for conceptual certainty of powers

"is or is not test."

A power of appointment is valid if you can say with sufficient certainty whether the person is or is not a part of the class of objects

Re Gulbenkian Settlement Trusts

facts: power to appoint in favour of G, his wife, children and anyone employed by him

decision: easy to determine whether an individual is or is not a member of class so the instrument was conceptually certain

evidential uncertainty of powers

no case law - If a person cannot show they are within a class, then we presume they are outside of it, but the power is still valid

Failure to ascertain objects cannot validate a power

can a power of appointment be invalid because the class is too large?

very unlikely - Re Hays Settlement - power of appointment in favour of anyone in the entire world was held to be valid

Re Mainstys Settlement

LJ Templeman — a power of appointment could be declared void if there is no sensible intention on the part of the settlor (obiter dicta) known as void for capriciousness

what is the test for conceptual certainty for discretionary trusts?

is or is not test (McPhail v Doulton)

Re Baden's Deed Trusts No 2

the words dependents and relatives were conceptually certain

There were two definitions of relative

next of kin (Lord Justice Stamp)

Descendant of a common ancestor (Sachs & Megaw LJJ)

Both definitions can satisfy the is or is not test

Why does LJ Stamp believe the trust in Re Baden is valid

strict approach, faithful to the words used by Lord Wilberforce

"Trust is valid if it can be said by any given individual whether or not they were a member of the class of objects" — Lord Wilberforce

Stamp argues that the trust could only be valid if you can determine whether any given person is a member of the class

If you were uncertain about any given person, the trust would fail

Why did LJ Sachs believe the trust in Re Baden was valid?

If you came across a person who you could not determine whether or not they are in the class, they were presumed to be outside the class

evidential presumption, someone is presumed not to be outside the class until they can provide evidence to prove that they are

The trust will not fail

criticisms fo LJ's sach's view

There is an argument that this would not work in practice

Is it enough to be evidentially certain without conceptual certainty?

There needs to be a benchmark against which you assess the criteria of relative — you still need to know what counts as a 'relative' to determine whether or not the evidence is valid

LJ Megaw

agrees with Sachs, but only if there were a substantial number of people in the class

If everyone were uncertain, the trust would not fail, but the object would be uncertain

Trust can go ahead if you are certain about at least 50% of the class

How does Lord Wilberforce define adminsitrative unworkability

'[Where] the meaning of the words used is clear but the definition of the beneficiaries is so hopelessly wide as to not form 'anything like a class' so that the trust is administratively unworkable.'

R v District Auditor, ex parte West Yorkshire MCC

facts: trust was created for a class of 2.5 million

decision: the trust was conceptually certain but it was void for administrative unworkability

Re Leek - powers of appointment

facts: power of appointment for anybody that the trustee deemed to have a moral claim on the settlor

decision: Does not appear conceptually certain. However, it was held that the power itself provided that, in cases of uncertainty, the trustees themselves should decide who is an object

Re Coxen - discretionary trusts

It was insufficient to merely give the trustees the power to resolve any conceptual uncertainties in the language used