Declaration and Constitution of Trusts

Question 1

How do you create an express trust?

Answer 1

To be enforceable a settlor must:
- make a valid declaration of trust. (how trustees should run the trust)
- put assets in the trust (transfer the property to trustees)

Question 2

What must a declaration of trust identify?

Answer 2

1. The trustees
2. The property being held in the trust
3. The beneficiaries
4. The powers and duties that the trustees have

Question 3

What are fixed interest trust?

Answer 3

The trustees have no discretion as to how the trust property is distributed.

Question 4

What are discretionary trust?

Answer 4

Gives the trustees a discretion as to the amounts any person may receive and/ or whether particular people receive anything at all?

Question 5

What are the three certainties a declaration of trust must satisfy?

Answer 5

Knight v Knight (1840)
1. Certainty of intention
2. Certainty of subject-matter (must be clear what property is held on trust and what the individual interests of beneficiaries are)
3. Certainty of objects (must be clear who the beneficiaries are)

Question 6

What is needed for certainty of intention?

Answer 6

Requires the settlor to have used words that impose a duty on someone to act as a trustee.
Cannot be precatory words e.g ‘i hope’

Question 7

What is needed for certainty of subject matter?

Answer 7

(a) the trust property must be described with certainty (cannot be any future property); and
(b) the settlor must define the beneficiaries’ interests with certainty.

Question 8

What is needed for certainty of objects? Fixed trusts

Answer 8

The beneficiaries need to be identified with sufficient
certainty so that the trustees know to whom they should distribute property.

Fixed interest trusts: The test complete list test. Under this
it must be possible to draw up a complete list of each and every beneficiary.
.

Question 9

What is needed for certainty of objects? Discretionary trusts

Answer 9

Postulant test: this
test asks: can it be said with certainty whether any given postulant (individual) is or is not a member of the class of objects? You need conceptual certainty, has the settlor laid down sufficient criteria - if it is difficult to prove or not a clear/objective class this will not cause the trust to fail.

If the language used to describe the class is
unclear and lacks precision, then the trust will fail.

Question 10

What is administrative unworkability in regards to trust?

Answer 10

A discretionary trust will be invalid if the class is too wide / large as the trustees may spend too much time and money locating and deciding the beneficiaries who should benefit. McPhail v Doulton (1970)

Question 11

What is the rule against capriciousness?

Answer 11

A discretionary trust may be capricious if there is absolutely no rational reason for the trust
or absolutely no rational basis on which the trustees can exercise their discretion to distribute the property.

Question 12

What happens if there is no certainty of objects?

Answer 12

Then there will be a resulting trust in favour of the
settlor.

Question 13

What is the beneficiary principle?

Answer 13

There is must be human beneficiaries

Question 14

What is the rule against perpetuities/ remoteness of vesting?

Answer 14

To be a valid trust, the beneficial interests under the trust must vest within the relevant perpetuity period, which is 125 years.

Question 15

Formalities for declarations of trusts.

Answer 15

For lifetime trusts, declarations can be made orally (not advised).

For will trusts it must be contained in a will that complies with the Wills Act 1837 (in writing and signed by the testator in the joint presence of two witnesses)

For trusts of land it must comply with s 53(1)(b) of the Law of Property Act (LPA) 1925. Must be ‘manifested and proved by some writing signed by some person who is able to declare such trust’

(emails count as a written document)

Question 16

What are the two methods of constituting an express lifetime trust?

Answer 16

1. The settlor appoints themselves trustee for the beneficiary by making a valid declaration of trust.
2. The settlor appoints someone else to be the trustee by making a valid declaration of trust.

Question 17

How do yo validly transfer land to a trustee as part of a trust?

Answer 17

1. Execute a deed (LPA 1925, s 52) - the document must be stated to be a deed, signed and witnessed s1 LPA 1989 - for registered land Form T1 is used
2. Give the executed deed either to the trustee or send to the land registry directly.

Question 18

How do you validly transfer money to a trustee?

Answer 18

With delivery:
- Handing cash over
- Transferring electronically
- Hands over a check

Question 19

How do you validly transfer shares to a trustee?

Answer 19

Public companies - within the CREST system, transferred electronically

Private companies - outside the CREST system:
1. execute a stock transfer form set out in sch1 Stock Transfer Act 1963
2. give the executed stock transfer form and relevant share certificate either to the trustee or send it to the company directly

Question 20

How do you validly transfer chattels to a trustee?

Answer 20

Chattels and anything else that is tangible in nature is passed by physical delivery of the asset or a deed.

Question 21

What happens if trust property is not transferred validly?

Answer 21

‘equity will not assist the volunteer’
There will be no trust

Question 22

What are the exceptions to trust property which is not transferred properly? (every effort test)

Answer 22

The ‘every effort’ test -
- The settlor must have completed all the steps they were required to take, all that remains for the transfer to be completed is the act of a third party.
- If the settlor does not go far enough to satisfy the every effort test but reached when it would be unconscionable (unfair) for the settlor to back out of creating a trust equity MAY regard it as valid.

Question 23

What are the exceptions to trust property which is not transferred properly? (strong v bird)

Answer 23

If the settlor wanted to create a trust with a third-party trustee but did not transfer the legal title in their lifetime and they have died, a trust will be created if the conditions in strong v bird are satisfied:
(a) the settlor intended to create an immediate trust with a third party acting as trustee;
(b) that trust was not immediately created due to a failure to comply with a relevant transfer rule;
(c) the settlor’s intention continued up to their death; and
(d) the intended trustee acquired legal title to the trust property by becoming the settlor’s executor or administrator

Question 24

What is the test for certainty of objects in a fixed trust?

Answer 24

The complete list test.
It must be possible to draw up a comprehensive list of each and every beneficiary.
Must be conceptual certainty - the settlor must define the objects using clear concepts
Evidential certainty - Must be able to identify each and every member of the class

Question 25

What is the test for certainty of objects in a discretionary trust?

Answer 25

The postulant test There must be conceptual or linguistic certainty - sufficient criteria so it's objectively clear what sort of person will qualify