Creating Express Trusts - Declaration of Trust

Equity and Trusts - Chapter 2

What is the difference between a trust and outright gift?

A trust imposes an obligation on a trustee to hold the property for benefit of another

What are the three certainties for a trust?

i) evidence of a certain intention to create a trust

ii) a clear definition of the subject-matter of the trust

iii) the description of the intended objects (the beneficiaries) being objectively clear

How is certainty of intention worked out?

Need to examine the words used by the owner - need to be sufficiently certain to fix the conscience of the recipient to deal with the property in the specified way.

Court won’t save an invalid gift - will ‘give effect to the intention … wherever it can be ascertained’

Is it necessary to use a particular form of words to create a trust?

NO - ‘equity looks to intent rather than form’

Any wording, or even conduct, which manifests an intention to impose the trust obligation on the trustee will be sufficient (using the word ‘trust’ would help tho.

PRE-CAUTORY WORDS ARE NOT ENOUGH (E.G. ‘HOPING THAT’)

What are the two aspects to certainty of subject matter?

i) clear description of trust property - needs to be clear (not ‘some of my finest silver’) - ‘bulk’ = vague ‘residue’ = certain

ii) clear description of the respective interests of the beneficiaries in that property

What is an issue with certainty of subject?

If the settlor owns a collection of a particular item, quantifies the part to be held on trust but does not segregate that part from the rest*

E.g. wine company case - needed to ID the individual bottles

*if money is involved - should segregate the money in a separate bank account.

How was the wine case distinguished in Hunter v Moss?

The first instance judge distinguished Re London Wine because chattels, such as bottles of wine, are not identical, and so it is essential for the settlor to specify exactly which ones are intended to be subject to the trust

Shares of the same class in the same company, on the other hand, are indistinguishable from each other - therefore, the settlor does not need to stipulate exactly which 50 is meant

Also distinguished tangible and intangible assets (this decision has been criticised)

What happens if the settlor gives a workable formula for calculating the amount?

The subject matter will be workable - the court decided that this term was sufficiently objective to provide an ‘effective determinant’ to enable the court to decide how much income to give the beneficiary

The court would be guided by the level of the beneficiary’s previous income

However, it is very unlikely that a gift of capital, eg ‘a reasonable legacy’, would be valid.

iii) How must the intended beneficiaries be made clear?

i) Nature of interest must be clear - e.g. absolute or contingent?

ii) Size of share must be clear - e.g. one third or one quarter

iii) must be certain - e.g. cannot be ‘my greatest fans’

How would you make a trust without necessitating the shares without offending the intended beneficiary rule?

i) a discretionary trust

ii) create a trust and don’t specify shares - they are assumed to be equal.

What is the complete list test?

A test for certainty of objects in a fixed trust:

a) conceptual certainty - settlor must define the objects using clear concepts so that the trustees know what type of person they are looking for - precise, objective meaning

b) evidential certainty - identify each and every member of the class

What happens if a trustee is able to compile a list of beneficiaries in a fixed trust?

Difficulty in tracing a known beneficiary does not cause the trust to fail

Trustees can apply to the court for directions regarding the share of a beneficiary who cannot be found.

What happens if a trustee becomes insolvent?

Money held on trust is not available for the creditors

What was the criteria for the given postulant test when the court changed from the complete list test?

i) conceptual certainty

ii) linguistic certainty

What is administrative unworkability? (in discretionary trusts)

If the class of beneficiaries was so hopelessly wide as not to form ‘anything like a class’ then the trust would be administratively unworkable

What is capriciousness? (in a discretionary trust)

‘Capricious’ means irrational:

a) the terms negative any sensible intention on the part of the settlor

b) the terms require the trustees to consider only an accidental conglomeration of persons who have no discernible link with the settlor or any institution.

What is the beneficiary principle?

As a general rule, trusts must have ascertainable human beneficiaries

A trust for a purpose (an obligation to do something with the trust fund), as opposed to a trust for a human beneficiary, has no one to enforce the obligation

Purpose trusts are therefore, with exceptions, void

What are the exceptions to the beneficiary principle?

i) if he purpose is regarded as charitable then this is valid (AG will enforce it on behalf of the public)

ii) A legacy in a will for a pet

What are the rules against perpetuity?

Limits the ability of settlors to restrict the use of their property for an excessive length of time - in a market economy, property must be freely useable so that the market can allocate resources to the most profitable uses

What are the rules against remoteness of vesting?

A contingent interest is void unless it vests (ie the contingency will be satisfied) within ‘the perpetuity period’ - 125 years - cannot be for an infinite amount of time

What are the rules against

This rule applies to trusts for non-charitable purposes

A trust for non-charitable purposes will be void from the outset if the trust capital is not freely alienable (used) within the relevant perpetuity period.

What are the formalities for a trust of personalty?

i) no written formalities - can be oral

*although the law accepts oral declarations of trust over personalty, in practical terms writing is clearly desirable for evidential purposes.

What are the formalities for a trust in land?

i) must be evidenced in writing - does not have to be a deed - can be signed doc/email

ii) the written evidence must contain the terms of the trust

iii) the written evidence must be signed by the person able to declare the trust (usually the settlor)