Formalities Flashcards
(23 cards)
What are formalities?
Requirements that govern the docs in which intention to CREATE A TRUST or DISPOSITION OF EQUITABLE INTEREST are expressed (for land or testamentary trusts).
In general - trusts don’t require formalities - just need intention
Declaration of trust on death
Needs to be in will, S9 Wills Act 1837. Requirements: 1) in writing 2) signed by testator 3) signed by 2 or more witnesses
Declaration of trust intervivos over land
S53(1)(b) LPA 1925 - evidenced in writing and signed (need not necessarily be executed in a deed)
Declaration of trust intervivos over personal property
No formalities.
Chattels → oral declaration of trust is sufficient intention → Paul v Constance
Rule for disposition of Equitable Interest
Rule in S53(1)(c) - must be signed by writing
Difference between disposition and declaration
Disposition: includes gifts & sales of EI where trust ALREADY exists - where B under existing trust transfers BI in prop to another.
Declaration: creates new trust & EI under it
Purpose of S53(1)(c)
→ Prevent hidden oral transactions
→ So you know where EI is at one time
→ Disposition of EI used to avoid tax
Grey v IRC (1960)
Whether or not a transac. falls within s53(1)(c) ?
→ H attempted to transfer shares to 6 grandchildren under separate trusts to avoid tax liab.
→ He created a trust over 18,000 shares (3,000 each) and declared himself sole B (so no tax payable)
→Then directed trustees to ORALLY transfer his E.I. into those shares to the trusts held for his grandchildren. A few months later he wrote these instructions down.
→ HELD: HoL - no transfer of E.I. when oral declaration made as there was no compliance with S53(1)(c). But, it was effective later once written declaration made. Therefore stamp duty tax due in months between oral declaration and it being written down.
Oughtred v IRC (1960)
→ O had BI in 200,000 shares in company under trust, with her son owning the reversion (when she died, shares held on trust for son).
→ O was absolute owner (LT+BT) of another 72,200 shares in company. To reduce estate tax payable on O’s death, an ORAL agreement was made where son would surrender his reversionary interest in settled shares in consideration for 72,200 shares, so both would have a parcel of shares absolutely.
→ IRC assessed whether stamp duty payable on oral contract of transfer of son’s reversionary share to O
→ IRC said should be void under S53(1)(c) - not in writing
→ Held: Stamp duty payable on documents only and not on transaction. As S53(1)(c) had not been complied with, when son told trustees to transfer his reversionary interest to his mother, it had no effect - value transferred in doc (NOT oral contract), and therefore was taxable under stamp duty.
Vandervell v IRC (1967) - in relation to S53(1)(c)
Way around applic. of S53(1)(c)
→ Mr V wished to make donation to Royal College of Surgeons. For tax reasons, he decided to transfer 100,000 shares to RCS. The shares were originally held on trust for V as sole B by a bank as trustee together with Vandervell Trustee Co Ltd (Wholly owned by Mr V). Therefore, V himself only had an EI in shares. Mr V agreed an option to repurchase shares for £5000. In 1961, Mr V + Trustee Co decided to exercise option to purchase shares as RCS had reached amount the required dividend.
→ IRC argued in relation to S53(1)(c) that V failed to divest himself of his EI as he did not do so in writing, therefore he retained EI making him liable to taxation
→ HELD: where a B directs a trustee to move entire absolute interest in prop. (LT + ET) to new trusts, there does not need to be a separate disposition of EI under S53(1)(c)
Why did Vandervell fail?
Problem was documentation did not make it clear who would be entitled to exercise the otpion to repurchase the shares - the option constituted an EI in shares, but not clear who owner was.
HoL: where was no equitable owner specified over option, must be treated as being held on resulting trust for person who had it originally → so Mr V failed to divest himself of whole EI and so was liable to pay tax
Vandervell Trusts (No2)
Claim by executors of V’s will against trustees of 1949 settlement.
→ V’s executors held, as a result of Vandervell v IRC, the shares repurchased under option were held on trust for V and formed part of his estate from 1961-65 before transferring them to his children.
→ During that period, the shares had paid substantial dividends: if shares belonged to the defendants (trustees) during that time, they would form part of his estate and go to his B’s, passing to his residuary B’s, NOT children under trust.
→ If shares belonged to trust - would be a large tax liabl. to estate.
→ HELD: CoA said resulting trust came to an end when option was exercised in 1961. Denning held a new trust of shares was created and, as a trust of personality, did not require writing under S53(1)(b) and was not a trust of land, or S53(1)(c) as resulting trust not longer existed, was no subsisting BI
→HELD: Money used to exercise purchase came from 1949 trust fund: as a general principle, any prop bought with money under a trust becomes part of trust prpoerty
→ The resulting trust which came into existence because of V’s failure to declare what basis option was held, was exempt from provision S53(1)(c) by virtue of S53(2) LPA 1925
→ Said the children settlement must be deemed to acquire EI immediately on basis that the children settlement provided the money to exercise the option
Why was Vandervell No2 controversial?
→It is unconvincing and difficult to reconcile with that the shares benefit is for the children, that they acquire EI.
→ Denning said: this was because option ceased to exist once it had been exercised
→ Seen as a ‘just’ solution rather than practical one
Is a declaration of a new trust a disposition of EI?
No, creates a new EI
What is a secret trust?
When testator wishes to benefit some person who cannot be named in the will, so testator asks a trusted confidant to agree to arrangement where confidant will receive a gift under will, not for their own benefit, but to hold on trust for 3rd party
→ Equity will enforce this arrangement so confidant cannot claim BI under trust
Difference between fully secret and half secret trust
Fully secret: neither existence or terms of trust are disclosed in will
→ Oral evidence of agreement is satisfactory
Half-secret: existence of trust is disclosed/hinted in will but terms are not
Ottoway v Norman
3 steps to prove secret trust
1) Settlor must have intended to create a trust
2) Intention must have been communicated to intended trustee during lifetime
3) Trustee must have accepted the office and terms of trust explicitly or impliedly
McCormick v Grogan
SECRET TRUST → INTENTION
Testator executed a short will, all estate passing to Mr G. He left a letter to Mr G instructing ass to certain bequests. Letter said ‘I do not wish you to act strictly to the foregoing instructions, but leave entirely to your good judgement to do as you think I would if living, as as parties are deserving’. The Claimant considered himself to have been deserving and overlooked by Mr G. Therefore, C sought declaration of a right under secret trust. Held: testator had not intended to impose a trust obligation on Mr G
Re Boyes
SECRET TRUST → COMMUNICATED
Testator informed intended trustee that he meant to leave prop to him under secret trust arrangement. Terms of trust not communicated. After death, 2 unattested docs found which purported to direct T’s to hold prop on trust for T’s mistress and child. Held → documents were insufficient to constitute communication of terms
Re Keen
SECRET TRUST → COMMUNICATED
Testator put name of B into sealed envelope and told secret trustee not to open until after death. The communication was at time of delivery of envelope - so was done during testator’s lifetime, so allowed.
Wallgrave v Tebbs
SECRET TRUST → ACCEPTANCE
Must take place during life time → acceptance may be express of by silence
What is required for half-secret trust?
Still need intention, communication, acceptance.
→ Communication must be before or at time of execution of will - NOT after (will fail)
→ Terms can come after death
What is the purpose of S9 Wills Act 1837?
→ Prevent fraud
→ Provide justice in circs where Wills Act would permit unconscionable behaviour
