Trusts (Constructive, resulting, express)

What is the nature of a trust

• Split ownership (trustee = legal ownership, beneficiary = equitable interest)

• Means of holding property, and fiduciary relationship between trustee and beneficiary

Express trust

Governed by the Trusts Act 2019 Same person can be the settlor, trustee and beneficiary BUT cannot be sole trustee and sole beneficiary (no split ownership otherwise) General position: No particular formalities are required to make a trust, may be informal (Paul v Constance) Except where Land (signed in writing PLA, s25) and Wills - signed and witnessed (wills act, s 11) Section 15 Trusts Act 2019 Sets out requirements for formation of an express trust If using the model deed = express trust.

express trust elements

A) Certainty of intention

B) Certainty of Object

C) Certainty of Subject

A) Certainty of intention - express trust

Created through Deed (evidence from the deed) Evidence from interactions, words and conduct (Jones v Lock, Paul v Constance) Contrast with the intention of Gifting where the intention is to transfer legal title now. Trusts = intention to create a particular relationship concerning property.  If there's an intention to create a gift but it fails, there is no remedy in equity because there's no trust and equity doesn’t help volunteers. (Jones v Lock)

B) Certainty of Object - express trust

Clear who the beneficiary(ies) are and what their interests are; 

• Evidenced in the deed, defined terms. 

• May be a defined ‘class’ of beneficiaries. 

TYPES OF BENEFICIAL INTERESTS

• concurrent

• Successive

• vested

• Contingent

• Discretionary

Concurrent interest

If property is left jointly to more than one person, ownership interests can either be joint or in common

In unspecified, joint ownership is the default rule

JOINT TENANCY Each person owns an undivided share in the whole If one dies, the others continue to own the whole (survivorship rule)

TENANCY IN COMMON Each person owns a proportion of the whole Upon death, that person's share passes to their estate, not to the other owners

Successive interest

The same property can be held on trust for multiple beneficiaries with interests crystalling at different points in time

LIFE INTEREST Beneficiary has a time-limited interest in the property (usually for life) which then reverts to another beneficiary First life tenant is entitled to income from the trust property Life interests which expire without a successor revert to the settlor by resulting trust

REMAINDER INTEREST Beneficiaries receive the property ‘in remainder’ following the expiry of the precedent life interest Not entitled to income but have an interest in the maintenance of capital

VESTED interest

A direct interest in the property, not contingent on anything

CONTINGENT interest

A property interest which only crystallises in the event of certain specified conditions being met (e.g. surviving after settlor’s death, surviving to a certain age)

DISCRETIONARy interest

The beneficiary’s interest is subject to discretionary decisions regarding the distribution of trust property. Not a property interest so no equitable claim to the property arises.

C) Certainty of Subject

Clear what the trust property is; 

• Evidenced by defined terms in the deed

• Or expressly what the trust property is. 

Resulting Trust

Note Trusts Act 2019 only really applies to express trusts Property transferred to someone who pays nothing for it, then implied to have held the property for the benefit of another person. Presumed intention that property should ‘spring back’ to the settlor. (can be rebutted) (Westdeutsche Landesbank v Council of London Borough of Islington) 2 circumstances where this presumption arises (Westdeutsche Landesbank v Council of London Borough of Islington)

2 ways a resulting trust may form (Westdeutsche Landesbank v Council of London Borough of Islington)

Express trust Failure - Type 2

Attempt to set up an express trust but for some reason that has failed, and then no-one knows what to do law is going to presume that the intent was that it will spring back to the settlor.

conceivably there's been a gratuitous bestowal of property - Type 1

Where property that is acquired using A's money ends up being held in B's name [or partially in B's name] {A paid for whole thing} Sum of money is being held for A by B [in B's name], could be a gift, presumed starting point is that A was going to hold onto some form of beneficial interest in the property acquired = resulting trust to A in the proportion of their payment. From equitable perspective is when A gives money to B and property is held only in B's name that A intended to have a beneficial interest in the property [resulting trust]

3) Constructive Trust

• Not intention focused in the same way as express and resulting trusts. 

• To benefit a party that has been wrongfully deprived of its right by imposing a trust.

Constructive trust will override subjective intentions. 'the fact that the defendant is not willing to yield an interest or did not expect to have to do so is no bar to [the] claim. (Lankow v Rose

Contribution based constructive trust: 

Adding contributions to property despite the fact that the sole title owner not wanting them to have an interest. Constructive trusts are harder to form in commercial settings (Gilles v Keogh) If someone makes contributions they can get an interest in the trust (Gilles v Keogh) Interest by way of constructive trust cannot arise if reasonable person in claimant's position would have understood that he or she would not receive one (Gilles v Keogh) The reasonable expectations of parties is inferred from their conduct; (Gilles v Keogh) Degree of sacrifice by claimant  Value of contributions vs value of benefits received (board + lodging for groceries wouldn’t expect an extra benefit) Freedom to make own property arrangements  3 Situations CBCT will arise (Gilles v Keogh) Express agreement to joint ownership Parties regard property as being jointly owned.  One party misleads the other into believing shared ownership exists but has no intention to shared ownership. Elements of CBCT from Lankow v Rose

Elements of a Contribution based constructive trust (Lankow v Rose)

Contributions to property in question

Domestic contributions count (doesn’t have to be financial) Because they lead to the improvement or maintenance of the house

The expectation of an Interest

That expectation is reasonable

The defendant should expect the plain

Objective standard.

Paul v Constance

express trust formation;

Mr Constance’s marriage broke down; moved in with Ms Paul They had a shared bank account, in Constance's name bc were unmarried Mr Constance repeatedly said "the money is as much yours as mine" Mix of Constance’s funds and joint funds Constance died intestate; wife and Ms Paul both claimed the account Issue: Did Constance intend to hold the money on trust for Ms Paul?

In order for the courts to infer that a settlor intended to create a trust: Their "words and actions [must] show a clear intention to dispose of property ... so that someone else acquires a beneficial interest." "It is true he need not use the words 'I declare myself a trustee,' but he must do something which is equivalent to it, and use expressions which have that meaning..."

Jones v Lock

express trust formation

Father tried to gift a check to his baby but the gift failed due to lack of delivery He later died Issue: Whether the court could gift effect to the father’s intention to gift by constructing a trust

Requisite intention to create a trust was not present as the intention was only to make a gift Trust creates ongoing obligations whereas a gift is a one-off Equity will not perfect an imperfect gift by artificially deeming it a trust

Westdeutsche Landesbank v Council of London Borough of Islington

Resulting trust formation:

Granny Flat example Elderly parent and their child who owns land, parent pays for a Granny Flat to be built on that land -> assume that Granny flat becomes apart of that land, because flat is apart of land it ends up being held by the legal owner of the land [child], in common law child owns the flat

Equity will apply the presumption that the parent is not making an outright gift of the flat but rather it's being held on trust by the child for the benefit of their parent [to the extent of the contribution of the Granny flat. Gave the 2 ways a resulting trust may be formed.  a gratuitous bestowal of property  Failure of an express trust

Gillies v Keogh [1989] 2 NZLR 327

Constructive trust

Parties were in a de facto marriage Gillies bought a house in her name and with her money and money loaned from family and friends The parties lived together in the house Keogh contributed significant improvements to the house It was eventually sold at a $22,000 profit Keogh claimed an interest in the proceeds and sought a constructive trust Issue: Did Keogh have an interest in the property through constructive trust?

Interest by way of constructive trust cannot arise if reasonable person in claimant's position would have understood that he or she would not receive one The reasonable expectations of parties is inferred from their conduct Value of contributions to property can be used to infer reasonable expectation but does not establish expectation

Lankow v Rose [1995] 1 NZLR 277

Parties were in a de facto relationship for 10 years Lankow started with no assets; Rose with $5300 By separation, Lankow had $650,000 in assets During relationship they had lived off Rose's income and used Lankow's to invest in property Rose sought a share in Lankow's assets on separation Issue: Whether Rose had an interest in the assets through constructive trust

Established a process for de facto partners to claim on partner's property Empowered court to impose constructive trusts where de facto partner has contributed to property NB: No longer applicable in de facto relationship scenarios due to statutory provisions but still appears in other scenarios