Trusts Flashcards
Trusts inter vivos
1) Transfer on trust: Transfer of the property from the S to Trustee.
2) Self-Declaration on trust: Not involve any transfer bcs the Settlor is also the Testator.
Requirements for the creation of EXPRESS trust
1) 3 certainties
2) A B or Bs ( or permitted purpose)
3) Compliance w applicable perpetuity rule.
Addition:
For testamentary trusts: + a valid will
For inter vivid trusts: + if Transfer on trust - “CONSTITUTION of the trust”, if a Trust of Land “COMPLIANCE w LPA s53(1)(b).
Certainty of subject matter
1) The trust property must be identified + ascertainable (clearly defined and segregated ≠fungible + intangible)
2) The B’s entitlement to the trust property must also be identified + ascertainable (clearly described so as NOT to be vague)
Certainty of Objects
if it fails –> Automatic Resulting Trust
1) Conceptual Uncertainty (language): The language used by the S must be clear and allow definition of the persons the trust is to benefit;
2) Evidential Uncertainty (fact): Evidence that allows the trustees to understand who actually qualifies as object of a trust.
- For children: Birth certificate
- For employees: Payslips
Fixed Trusts VS Discretionary trusts - Certainty of objects
Fixed trusts:
Test: Complete List test
- Both conceptual certainty
- Evidential certainty
Must draw up a complete list of Bs otherwise the trust will fail (automatic resulting trust)
Discretionary trusts:
Test: Is/ is not test;
- Need for conceptual certainty
But not need for EVIDENTIAL
The Trustees will distribute to Bs who can prove they are within the list of objects; There is no need for a complete list –> Is/ is not test is resolved against any potential object by treating them as outside the class unless they can show that they are within it;
- Trust will NOT fail if not possible to determine as a matter of fact whether a person is or is not within it;
- additional matter for discretionary trusts: Size of class and matter of administrative unworkability; The size of class can be an invalidating factor ≠not for powers - FIDUCIARY POWER OF APPOINTMENT for anyone in the world and still VALID.
Charitable purpose trust s
Testamentary only
+
V limited range of purposes that can’t be extended:
1) Maintenance of particular animals
2) Erection/ Maintenance of graves/ monuments/ even if private
3) Provision of private Masses
Must comply w:
1) Certainty: no devision of a scheme by the court to fill in the gaps (like charitable)
2) Limited to perpetuity period: Rule against inalienability
–> Trust of imperfect obligation –> depend on a willing trusts; bcs if trustee is unwilling to apply the funds for the purpose no one CAN make him to so.
Trusts of imperfect obligation
- No one can enforce the Trustee of a Non-Charitable Purpose Trust to enforce the trust if they are unwilling to do so.
But the trustee will hold the funds/ property ON RESULTING TRUST for T’s estate –> so NOT able to keep the funds for themselves and the persons interest in that estate can ensure T not apply the fund for anything other than the purpose.
So although no one can positively enforce the trustee to apply the fund for the Purpose –> they can ensure it does not get misapplied.
Perpetuity rules - Rules against inalienability
Non-Charitable purpose trusts only:
- The Trust must come to an end within the Common Law Perpetuity period of 21 years + life in being (often the Queen)
- No wait and see; if not clear from the start when the trust will come to an end –> Trust is VOID; Duration of the trust must be EXPRESSLY LIMITED by a perpetuity clause (an express clause)
Perpetuity rules - Rules against remoteness fo vesting
Charitable purpose trusts and Persons Trusts:
- Interests must vest in interest within the perpetuity period of 125 years from the point the trust is created (Interests which would vest beyond that period are void);
- Wait and see rule; any interest under a trust which does not vest within the statutory perpetuity period is VOID; this need not be clear from the outset of the trust bcs of ‘wait and see rules’
- Class closing rules; Can save a trust form failing by excluding objects that would vest outside the perpetuity period (ie. in fixed interest trust where ‘Complete list’ Standard would require waiting maybe longer than 125 years to ensure the list was complete –> The rule on perpetuity can apply to limit the class of B to the objects that are alive - as identified under the trust - AT THE END OF THE PERPETUITY PERIOD.
Constitution
Refers to the transfer of legal title from one party to another; Requires legal title in the property to be vested in the trustees (from S).
- not required for self-declaration of trust/ will trust - constitution via will
EFFECT:
Disposition becomes IRREVOCABLE
Settlor cases to have ANY B/ Legal interest in trust property;
Same for gifts: once done acquires legal title the donor has NO rights in the property
–> BUT: Milroy v Lord: Equity will not assist a Volunteer perfect an imperfect gift or treat a failed gift as a self-declaration of trust.
–> UNLESS… 4 exceptions
Trust of land
LPA s53(1) (b): if Testamentary Trust of Land; Automatic Assumption compliance w 53(1)(b) - think: you already have ‘singed writing’ = the will.
Express Trust of land must be evidence in SIGNED (by S may even be by T but riskier) WRITING ( No prescribed form/ sth that is evidence of S intention to set up the trust + terms of it)
What if no ‘singed writing’?
- The trust exists and is valid from the moment it is declared by the T ≠it is unenforceable.
Requirements for Purpose trusts
1) Be for a particular charitable purpose
2) Satisfy the public benefit test
3) Be wholly and exclusively charitable
Charitable purpose trust - Be wholly and exclusively charitable
If not the case then:
1) The trust will be void and the property of the trust will return to the S on a resulting trust; unless the non-charitable purpose is one of the recognised non-charitable purpose categories.
2) Note though if the non-charitable purpose is “incidental and subsidiary” to the charitable purpose then the trust is still effective
3) if it is possible to sever the two purposes ie. the charitable and non-charitable purposes and allocate a portion of the funds to each –> then the court will sever the trust and recognise the charitable part; This will only be possible if the trust LANGUAGE contemplates severance of the fund (the amounts allocated to each purpose should be quantifiable).
Public Benefit test
- Must be for the public or a substantial section of the public; Numerically non-negligible although no magic number + must be no personal nexus between the Settlor and the section of the public that is benefitting (the quality that distinguishes those who benefit should NOT depend on their relationship to particular individual);
- Possible to focus on certain individuals; as long as not exclude the poor, proper reasons.
- Charities can even charge for services BUT must be NECESSARY COSTS to carry out charities aims + must NOT be unreasonably high so as to restrict the poor (and if they are the charity should ensure they can benefit in some other way ie. school only fees - Made scholarship provision for the poor). Note: possible for personal nexus if the charitable aim is to help the poor.
- Must be Identifiable benefit; NOTHING to do w S’s belief it was beneficial; objective assessment; not to do with whether the benefit is quantifiable or measurable.
Cy- pres
Where a charitable trust fails –> any surplus fund will be applied for another charitable purpose by way of a scheme devised by the Charity Commission or the court.
However where there is INITIAL FAILURE –> Cy-pres can only apply if S has shown GENERAL CHARITABLE INTENTION; (Not too specific; ie. creation of detailed plans relating to the management of homes)
Non-charitable purpose trusts
Imperfect Obligation; they are NOT enforceable; meaning the court can’t make the trustee carry them out even though it has recognised their validity; This is why must make sure the trustee are willing to carry out the terms of the tryst BEFORE appointment;
- If they are willing –> the court can make a Petingall order; which essentially requires trustee to given UNDERTAKING to comply with the trust –> then residuary legatee’s fo have the right to SUE to enforce the undertaking.
Effect of Constitution
Disposition is IRREVOCABLE; once the trust is constituted the settlor CEASES to have any B or L interest in trust property (same as for gifts);
What is FAILED constitution?
Trust NOT properly vested in trustees = VOID
EQUITY will NOT assist a Volunteer
Milroy; Since B of Tryst gives NO CONSIDERATION/ Gift Recipient - they are Volunteer and so –> Equity will NOT intervene to compel a settlor/ donor to transfer legal title to the trustee/ donee.
Milroy v Lord guidance
The transferor must do EVERYTHIG NECESSARY TO EFFECT the intended disposal by following the correct method of transferring legal title.
- if a gift fails the donor will not be treated as having made a self-declaration of trust.
Exception to the rule on constitution
NO NEED for gift/ transfer on trust to be constituted if: The Settlor is one of the Trustees; Automatically constituted (he was one of the Ts and would be unconscionable for him to deny that the shares were subject to the trust.
Re Rose
Correct method
Transferor does everything in power
Or puts beyond own control
(can’t be anyone on donor’s payroll)
Strong v Bird (EXECUTOR)
Intend immediate gift
intention continues until death
Transferee is executor or administrator
DMC
Intend conditional gift
in contemplation of death
Actual or constructive delivery
Unconscionable principle (directorship cases)
