void and voidable trusts

Difference between void and voidable

Voidable is valid until challenged, whereas void was never valid.

Trusts that are contrary to public policy are trusts that are void

Void cases

Illegal or immoral aim - Truthp v Collin 1958

• Settlor created a trust that paid the fines of illegal poachers.

• Court said this trust was void

A trust for one’s future children born out of wedlock?  Thompson v Thomas [1891] (Irish case)

·      Held to be void

·      Status of children act revserses this and makes it valid

What if a settlor makes a condition that a person loses a trust asset if they object or complain about what they’ve been given? Nathan v Leonard [2003]

·      Court said this was not void

 

• Conditions

Trusts that are void often have:

• A condition precedent

  • When a trust does not come into effect unless and until the condition is met/satisfied.

·      You dont get it until you do something

• A condition subsequent

  • When the gift vests in the trust but it can be divested when the condition is met.

·      You get it, but I'll take it back if you do something

 

• Conditions that are made which usually tend to be void

Trusts in restraint of marriage

• Condition precedent

  • provided that you marry one of the Johnson daughters”

    • “provided that you get married

      • This would not be void as it promotes marriage rather than restricts

Condition subsequent

• it will be taken away if Cody gets married”

•  In Ireland, even partial restrain on marriage is void.

 

Trusts interfering with parental duties

• Trusts that try to weaken ties between parents that their children are generally void, e.g. children must live separate from their parents

  • Boulter

  • Testator (makes will) gave a gift to his grandchildren on the condition that they must not live with their father otherwise they lose the gift.

  • Borwick (English)

    • Property would be forfeited if beneficiaries became a roman catholic

    • Parents have the responsibility and right to shape their children's religion

  • 1976 HoL case Glathway

    • Trustr provision forefeited the trust if the beneficiary became a roman catholic

    • Upheld by HoL               

       

  • Some inconsistencies in the law

 

o   Re Burkes Estate [1951] (Ireland)

§  Provision in which nephews' education in a roman catholic school would be controlled by the trust.

§  Held to be void by Irish courts for interfering with parental rights

o   Re Blake [1955]

§  Trust for grandchildren on the condition that they be raised as roman Catholics

§  Held to be void

Trusts that are voidable

o   Trusts that are the product of mistake, misrepresentation, fraud, duress or undue influence are voidable

o   Trusts that are created to defraud creditors

• Creditors e.g bank

• Debtors think if they transfer their assets to a trust then creditors won't be able to get their assets, this is fraud

o   Trusts that are made within a certain amount of time before a bankruptcy is declared

• Section 59 of the bankruptcy act

• Bona fide purchaser for value without notice

This is equity’s darling, they’re the one person who doesn’t have to give back the asset that has been misused or fraudulent.

They prevail over even other beneficiaries

Bona fide

• They must not know it’s fraudulent

• in good faith

Purchaser

• Have to buy for something of real value, usually money

Without notice

• Cannot know it’s trust money that’s being sold to them without knowing it’s being held in a trust

If they don’t meet these conditions, then transfer under bankruptcy act will be voidable

Re Blake

• The testator, John Joseph Blake, made a will leaving a sum of money (£6,000) to trustees.

• The will directed that the income from the trust should be used for the maintenance and education of certain grandchildren provided they were brought up in the Roman Catholic faith.

• The capital was also to be applied for the grandchildren if they had been brought up in that faith; otherwise, the legacy was to fall into the residuary estate.

• The will set conditions precedent and subsequent tied to religious upbringing.

• Additional issues arose about succession duties on foreign assets and other administrative questions.

Court held parts of the trust to be void as there were conditional gifts tied to religious upbringing which were hard to determine whether they were enforced.

This also a interfered with parental rights which is contrary to policy

• The portions of the trust dependent on these conditions failed.