Seminar 3- Constituting the Trust

Question 1

What is necessary for a trust to be fully constituted?

Answer 1

Ensuring that title in the property has been vested in the trustee(s).

Where this is not done properly equity may be able to intervene to validate the trust.

This body of law is also of relevance where a gift has not been effectively transferred at law.

Under a trust property can be disposed of my either:

1. Tranfering property on trust to a trustee; or
2. Declaring oneself trustee.

Question 2

Formalities for declaration of self as trustee/another as trustee?

Answer 2

For self as trustee only need the intention that he should then hold the property on trust, so that the legal and beneficial interests become separated.

For another as trustee need the intention that he should hold the property and the transfer of legal title to it.

Question 3

Timing in the constitution of trusts?

Answer 3

1. The declaration of trust and its constitution need not occur at the same time. Settlor can declare the trust one day and transfer title to property much later.
2. It follows that once the trust has been declared the settlor can change his mind about creating it before it is constituted. BUT once it is constituted the settlor cannot recover the property.
3. Cannot declare trust after property has already been transfered, as it will have been received absolutely.

Question 4

Issue in PQs?

Answer 4

Incompletely constituted trusts- the trust property must be in the hands of the trustee to constitute an express trust.

If trust created by declaration of self as trustee no transfer needed because the trustee already has possession of the property – so trust is fully constituted at declaration.

If trust created by transfer to another on trust settlor must effectively transfer the trust property to the trustee.

Question 5

Equitable maxims?

Answer 5

‘Equity will not perfect an imperfect gift’

‘Equity will not assist a volunteer’ (i.e. the beneficiary)

‘Equity will not strive officiously to defeat a gift’

Question 6

Why wont ‘equity assist a volunteer?

Answer 6

The provided no consideration. For this reason if the trust is not properly constituted by proper legal transfer to the trustee then the trust will fail.

Question 7

Milroy v Lord (1862)- equity will not assist a volunteer.

Answer 7

Leading case for equity will not assist a volunteer.

Case: S purported to transfer shares to T to be held on trust for C. S handed T the share certificates. BUT this was not sufficient to vest the legal title in them to T as share transfer requires further formalities.

T had power of attorney as S’s agent. This would enable him to transfer the shares into his own name BUT this power was not exercised.

Decision:

1. Trust had not been constituted because legal title had not been transferred.
2. Turner- S must do everything required by the nature of the trust property to transfer it to T.
3. Equity will not assist a volunteer- The power of attorney was not sufficient to constitute the trust because T was acting as S’s agent. The court would not compel an agent to transfer the shares if he would not have had the power to make the settlor do so.
4. Equity will not perfect an imperfect gift- if the trust is intended to take effect as a gift, the court will not hold the power of attorney as a declaration of trust, for them every imperfect instrument would be made effectual by being converted into a perfect trust.
5. Logic behind this: A trustee owes onerous obligations. If equity was to treat a failed transfer as an effective declaration of trust, it would be forcing that individual to take on such responsibilities which they never had an intention of taking on.
6. Evaluation: An alternative route might have been to treat the settlor as holding the shares on an express trust for the C, but this was clearly not what the settlor had intended and so would not have been appropriate.

Question 8

Why wont equity perfect an imperfect gift?

Answer 8

The reason equity will not perfect an imperfect gift is because, equity will not assist a volunteer. No consideration provided by person who should have received the gift.

BUT if consideration has been provided then a contract has likely been formed so it will not be a question of equity or trusts.

Question 9

Pennington v Waine (2002)

Answer 9

Arden:

1. Not clear why equity takes such a strict approach to gifts.
2. The cases do not reveal any consistent single policy behind the rule.
3. One policy may be ensuring that donors do not act unwisely in a way that they may subsequently regret. This objective is furthered by permitting donors to change their minds at any time before it becomes completely constituted.
4. BUT this is a paternalistic (restrictive) objective, which can outweigh the respect to be given to the donor’s original intention.
5. Another valid objective would be to ensure that the gift did not defeat the rights of creditors (in the case of insolvency). BUT this does not justify excluding equity perfecting a gift bc other mechanisms to stop this.
6. It could also be legal certainty- there must also be a clearly ascertainable point in time at which it can be said that the gift was completed.

Question 10

‘Equity will not strive officiously to defeat a gift’ meaning?

Answer 10

Though a failed gift or incompletely constituted trust cannot be saved by treating the donor or settlor as an express trustee of the prop for the donee or beneficiaries (because this will not have been intended), equity has found this way of fulfilling the settlor or donee’s intentions.

It means what it says.

Question 11

Jones v Lock (1865)

Answer 11

Failed gift and trust.

Case: J took cheque (payable to self) and said he gave it to his baby son as his own, and then put cheque in safe. Died shortly after.

Decision:

1. GIFT: Title had not passed so gift failed, J remained owner (ie it could be part of his estate). Attempted gift, but ineffective. Cannot simply pass title to a cheque by handing it over.
2. TRUST: Would not be treated as declaration of trust as this was not J’s intention. He intended to provide for his son, not create give him a proprietary interest in the cheque.

Question 12

Exceptions to the maxims

Answer 12

In a PQ treat the maxims as a starting point.

BUT, there are some circumstances in which Equity will intervene, or will conclude that the gift/transfer is actually perfect.

This is because the courts are not comfortable with the outcomes otherwise, from a fairness perspective.

1. The rule in Strong v Bird
2. When the settlor/donor has done all s/he could do to transfer the property – the rule in Re Rose
3. Donatio mortis causa (deathbed gifts) Also: Proprietary estoppel

Question 13

Choithram International SA v Pagarani [2001] - further

Answer 13

Fortuitous vesting and generous interpretation: Attempts to uphold intended gifts/trusts can lead to some muddying of the waters, notably in Choithram v Pagarani.

Case: S was a seriously ill wealthy businessman. He appointed himself and others as trustees of a charitable foundation and orally declared that all of his estate should be held for it. Died before legal title to his shares had been transferred to the trustees.

1. Where there is more than one trustee in a self-declartion of trust the trust can be constituted once one trustee has title to the property, even if the settlor and the one trustee are the same person.
2. This is because title is already vested in the self-declaror, so as soon as he declared his intention for the trust his conscience was affected by the trust, so it would be unconscionable for him to deny the trust.
3. Had he remained alive he would have been obliged to ensure legal title was vested in the other trustees.
4. This is a stretch because he just made an oral declaration of the trust.