The Law of Equity and Trust - Essay Example

? Law of Equity & Trust No: Law of Equity & Trust Introduction The law of Equity and Trust startedits journey to get rid of harsh legal rules by the then Royal Courts familiar as the Courts of Common Law. At that time, the affected parties have the prerogative to file petition to the Crown. The appeals of the appellants were handed over to Lord Chancellor. Those who have read Charles Dickens’s Bleak House know that by the 18th Century, equity had become obsolete. The new principles of equity are now in force since previous ones are old dated. The achievement of equity is the birth of Trust1. As far as the application of Trust Law is concerned, it should repose trust and confidence in some other person to manage his or her affairs. The law of equity manages relationships and trust provides modalities to handle a number of situations, family relationships, charities, pension funds etc2. Cardinal Principle According to the law of equity, a trust is legally enforceable by the beneficiaries against the trustees provided it is created with high degree of intention; certainty of subject as well as object (the case of Knight V Knight (1840)3can be referred here. Three elements in a trust are mandatory a) certainty of intention, which ensures that the duty of a trustee or trustees is clearly defined, the way intended by the testator. It differentiates transfer through trust instead of absolute gift. The second mandatory requirement is the certainty of subject matter (refers Palmer v Simmonds (1854)4 and the allowable beneficial interests (refers Boyce v Boyce (1849)5, Re Challoner Club Ltd (1997)6 and Margulies v Margulies (2000)7) are competent of being certain. This ensures precise scope of trustee’s Dr678uties under a trust. Lastly, the trustee should know in whose favor he or she has to perform the duties so that affecters should knock at the door of a court of competent jurisdiction in case of failure of trustees to discharge duties. However, precise requirements vary from trust to trust. In case of failure of testator to his or her objects, the property is held (refers McPhail v Doulton (1971)8. Written Dispositions To my best friend Phillip, my commercial property at 22 and 24 Shipley Street to be held on trust for my children and further that he shall receive a reasonable part of the profit in relation to the redevelopment of Lister Heights. The disposition in the will of Junaid is clear in terms of intended trust. It is true that the word ‘trust’ does not mean an imposition of trust in law (Tito v Waddell (No 2) (1977)9 may please be referred); there is secondary option in this respect. The subject matter is certain, assuming that Junaid likewise, the subject matter of the trust is certain, always assuming that the assets are in existence. Hence, there is no difficulty to confer interest given to the indentified persons in the will accordingly. The disposition will be operational under the Trust of Land and Appointment of Trustees Act 199610. Here in this case, Philip is the best friend of testator, whom Junaid had given the rights to possess the commercial property at 22 and 24 at Shipley Street to take care of the interest of his children. First, it is necessary to determine the nature of the trust affecting the two houses as this will help determine whether there is certainty of objects of the reversionary class. Please keep this in mind that the trustees have no authority to apportion the property held in trust amongst the children. However, it may divide it equally amongst the children in accordance with the disposition of will. Take the example of IRC v Broadway Cottages Trust (1955)11. The court of law focuses on the validity or invalidity of the duties as enumerated in the trust. The religion of a person does not matter in deciding the issue whether he or she be a sectarian in terms of catholic or protestant religion in his or her beliefs. The court while deciding the cases of trust will have to abide by the laws and the condition precedent should be certain otherwise, it will be near to impossible to determine who have been or who have not been excluded. It is clear from Re Tuck (1978)12 that a precedent that relates to religion may be regarded as certain. The trust empowers third person in terms of the task of deciding as to who fell within the ambit of trust or not. If fixed trust, for other reasons, failed to accomplish the tasks, the relevance of condition precedent is irrelevant13. 500,000 pound sterling to my trustees to apply the income in providing grants at their discretion for all my employees, former employees and their children and any other dependants. In accordance with Section 1 of the Charities Act 2006, charity as an institution should be established for charitable purposes only. Section 2 contains 13 avenues and is considered feasible to satisfy charity in the larger public interest. Now, the question arises whether GBP 500,000/- is meant for charitable activities or for the benevolence of cited segments. As per the will, the amount in question will be spent on providing grants to existing employees, erstwhile employees, their children and the dependents. This satisfies the purpose of testator. Charitable institutions are subject to certainty of objects. If allocated funds are utilized for the specified purpose, the test stands satisfied. The test should be clear in words and objectives. Take the case of Chichester Diocesan Fund v Simpson (1944)14, wherein a testator directed his executor to apply funds to achieve the desired goal. In the mentioned scenario, the executors are clear in their objectives. There is no ambiguity in discharging their duties. The court of Law while hearing the said case, observed that, since the clause did not contain charitable gift, hence the gifts are considered null and void. Look at the case of Bahamas v Royal Trust (1986)15. There is a possibility that the competent court of law while passing on the judgment will take into account the non-charitable purpose, close to key charitable purposes (refers Verge v Somerville (1924)16. If the will does not serve the purpose for which, it was drafted, it will defeat the very purpose of will. In case of failure of imposition of will, the court before deciding the case will look into all the circumstances of the case, besides the entire will and evidence provided to examine the intention of the author of the will. A quarter each of my shares portfolio on trust for my nieces Sofia and Saris. In accordance with the will of Junaid, trust can gift number of shares to his nieces, Sofia and Saris. Here, we find that the will lacks the number of shares to be allocated to each niece. It should be clearly mentioned in the trust deed that a certain number of share should be given to each niece. Otherwise, the deed will be in fructuous. Further, transfer of shares’ portfolio in the name of Sofia and Saris needs the following steps to be taken. a) An outright transfer of the legal title to the property. b) A transfer of legal title of the property to a trustee to hold on trust 17. My collection of Turner prints to my brother Amar and my sister Meena and I direct that Amar may choose which two prints he wishes and the remaining prints shall go to Meena.  As per the Wills Act 1837, a contingent gift is linked with a condition that the beneficiary should have a qualifying age that is 21years. If the required condition is not fulfilled, it will not be gifted to the identified beneficiary. It will fail to be materialized. However, vested gift has no such condition. It will straightaway pass on to the beneficiary simply on the instruction of the testator18. The term which I mentioned, specifically relates to the gifts enumerated in the will. As per the legal requirement, gift of a particular nature should have the ownership of a testator. If the gift does not make part of the estate at the time of death, the written disposition concerning gift cannot take its effect19. In the case under discussion, the collection of Turner prints has to go to brother Amar and sister Meena. Further, Amar has the option to choose one of them according to his liking. In the will, age of the recipient is not mentioned. The person who will hand over said prints to above brother and sister is not identified. Since the previously mentioned conditions are not met by the testator in his will, therefore, the will due to its lacunas cannot be implemented20. It is incumbent upon the testator to remove the bottlenecks as identified above to meet the requirements of Section 9 of the Wills Act 1837, as amended by Section 17 of the Administration of Justice Act 1982 so as to gift prints in question to the beneficiaries21. One quarter of my residuary estate to my trustees to distribute as they see fit for the poor in my home town of Branton. The above written disposition of Junaid regarding residuary estate in favour of trustees is a clear mandate for the trustees to distribute to some they find poor in the home town of Branton. However, the yardstick to measure the poverty is not identified. There are all the chances that it may create difference of opinion regarding the poor people to be accommodated accordingly22. Further, the will allows distribution of assets from the estate. The trustee may allot and distribute the assets including undivided interests in an asset. If a distribution is meant for more than one beneficiary, the trustee may distribute assets amongst the poor on a prorate basis valuing as per the date of distribution. Even the guardian of a person or of the estate nominated in the will shall have all the powers conferred by law to be exercised23. I give all the royalties that I received from Elise’s film score to my son Adil on the condition he completes his undergraduate studies. It is interesting to note that royalties received from films are in fact assigned to Junaid by his sister, Elise, in recognition of his care during her early career days. Since the royalties are assigned to Junaid by her sister, therefore he cannot assign it to his son Adil. However, Junaid may request her sister to assign it to Adil in her lifetime or through trust deed so as to save him from legal hitch of any sort. In order to safeguard the interest of sons and daughter, one should be mindful of his or her responsibilities in drafting the will duly consented by the lawyer24. We have to take care of other aspects of the will. For example when a beneficiary dies well before the testator, what would be the modalities to redress this problem? As per English law, if a residuary legacy lapses, the property will be dealt in accordance with intestacy statutes. In this respect, UPC § 2-604(a); Mo. Rev. Stat. § 474.465; Tex. Prob. Code § 68 may please be referred25. To tackle the issue of lapsing pre-deceased beneficiary’s gift, all the states are in league with reference to anti-lapse statutes. In such cases, if a beneficiary is a relative, the anti-lapse statutes come forward for the rescue of deceased beneficiary to take the allocated gift. It is to be decided by the member states, who as a relative qualify under the anti-lapse statutes in existence. Some of the states have conservative view as to who is a qualifying beneficiary to a child or other descendent of the testator. Please have a look at Ark. Code § 28-26-104. However, the gift simply lapses in other cases26. In Bobbi Jean’s will, she assigned her home to her nephew and residuary estate to her sister. Jed pre-deceases Bobbi, left a daughter Renata who survives Bobbi Jean. The anti-lapse statute is not applicable to save the gift for Renata since Billy Bob was not Bobbi Jean’s descendent27. In a broader term, considering the anti-lapse statutes; very few states apply their statute if beneficiary was a child or other nearest relative of the testator (Refers Mass. Gen. Laws ch. 191 § 22; Mo. Rev. Stat. § 474.460; Neb. Rev. Stat. § 30-2343). The only restriction is that if neither the beneficiary is related to the testator by blood nor is an adopted relationship that excludes relatives by marriage, anti-lapse statue is not applicable (Refers Estate of McReynolds, 800 S.W.2d 798 (Mo. 1990), Dodge’s Estate, 84 N.W.2d 66 (Wis. 1957))28. Take a look at Bobbi Jean’s will, wherein she devised her home to her step son namely Tad and residuary estate to her sister, Betsy. She had never adopted Tad. The anti-lapse statute is not applicable to save the gift for Tad because Bobbi Jean was not related to Tad by way of blood or adoption29. Remainder to my wife In the will, there is no declaration as to which wife will be entitled for the remaining assets of Junaid. As per available information, Junaid is married to two wives namely Farzana and Anisa. Under the mentioned scenario, the settler should identify which wife is to benefitted from his will. Without specifically quoting the name of beneficiary or names of beneficiaries, the beneficiary will not be able to bear the fruit of benefits stemming out of will. The imposition of trust requires Junaid to have imposed a mandatory obligation upon trustees to carry out his wishes. It is a matter of construction of the words used in trust. In this respect, please see the case of Lambe v Eames (1871)30. It is very much clear that words of expression, hope or desire will not itself impose a trust on the would be recipient of the property in the absence of corroborative evidence. We are of the view that uncertain terms of a trust deed would be helpful in constituting a trust. Take the example of Adams and the Kensington Vestry (1884)31 according to which, a gift in full confidence should be absolute and not mandatory in the way of a trust. In the case of Margulies v Margulies (2000)32, communication from the testator was mandatory and in some instances, was optional. It is the court to decide whether this demonstrated a lack of intention to establish a trust33. It is obvious that a trust in favor of wife or wives should be perfect as to the objects. The intention of settler in order to secure the future of wife or wives is important. If the trust lacks the purpose connected with it, it stands void. In view of the cited situation, it might be possible to construe the disposition in favor of wives per se or a trust in line with the Re Denley principle34. However, difficulties in defining the objects of a trust in precise terms will add to the doubts that surround the lack of certainty or certain intention (take the example of Re Kayford (1975)35). By all means, this would be an absolute gift to the wives who have the opportunity to use it for the benefits of self and the kids but cannot be compelled to do so (Lassence v Tierney (1849)36). A Trust of ?1m was created to build a school for the children of Branton with special needs and Sports Academy at the same location who are under the age of 18. Since the trust was already constituted in the life of Junaid to achieve the mentioned objectives according to by laws of the Trust. Hence, it was not made part of his Will. However, it will be the responsibility of trustees of the trust in question to continue the affairs of schools and the sports academy accordingly. The letter written to mother by Junaid saying that Tamina (sister) will look after her and his house at Bingley will be in her name until she looks after the mother. The sister will look after her mother as per the instructions of Junaid. Now the question is what will be the disposal of Junaid’s property if his mother dies since sister is allowed to keep the property as long as she takes care for his mother. In the absence of any will in respect of Bingley property, the survivors have the option left to invoke the jurisdiction of competent court of law to decide the case according to the law of the land Comments We have gone through the written dispositions of will drafted by the lawyer in consultation with Junaid, the owner of J Construction Limited and touched upon the relevant laws, rules and regulations in details. We come to know if trustees fail in discharging their prime duties; the law will take its course taking into account the nature of breach. Such sort of breaches of rules can be remedied by way of specific performance, or through compensation. Breaches in performing duty will attract right to compensate. Breaches in performing duty in order to avoid conflicts of interest, and misapplication of property will give rise to restitution, to restore the property taken away. In the above mentioned scenarios, last two situations, the courts of equity have developed more principles of liability, which is applicable when a trustee had gone bankrupted. Equity does not consider merely a personal, but also a proprietary claim on assets held in breach of trust and profits made in breach of duty of loyalty37. As far as the proprietary claim is concerned, the claimant could demand the thing in priority to other creditors of the bankrupted trustee. Alternatively, the courts have to follow an asset or trace its value provided that, the trust property was exchanged with other assets. If trust property is given to a third party, the trust fund calls back the property as a right, unless the recipient was a bona fide purchaser. Generally, any recipient of trust property can exchange the thing with other assets. Lastly, people who have not received trust property but assisted in a breach of trust dishonestly, a claim can be there to return the property's value38. Beneficiaries who wish to sue trustees for breach of obligations, there chances are bright as there can be many issues such as a) disappearance of trustee b) become insolvent c) beneficiaries will desire to have a specific asset returned. In the mentioned situations, the law has a limited remedy provided that, a person passed on trust property to a not bona fide purchaser of the asset. A bona fide purchaser of property, even if he or she has received after a breach of trust, will be absolved from any claims by earlier owners who have committed no wrong, and they have paid for it. When the value in assets is traced, it may technically term as neutral in relation to the rights of a claimant39. Last but not least, English trusts law is originated from law of trusts in the world, and a valuable contribution of English law to the colonial legal system. Trusts comprise law of property, where one person gives assets to another person to keep them safe or to manage them on behalf of another person. Bibliography Bahamas v Royal Trust Co [1986] 3 All ER 423. Boyce v Boyce (1849) 16 Sim 476. Chichester Diocesan Fund v Simpson [1944] 2 All ER 60 (HL). Halliwell, M. (2004). Equity and Good Conscience. 2nd edn. London: Old Bailey Press. Hayton, David J. & Michell, C. (2010). Hayton and Marshall: Commentary and Cases on the Law of Trusts and Equitable Remedies. 13th edn. London: Sweet & Maxwell. IRC v. Broadway Cottages Trust [1955] 1 Ch 20 CA. JARMAN, T., JENNING, R., & HARPER, J. C. (1951). A Treatise on Wills. London, Sweet and Maxwell. Knight v Knight (1840) 49 ER 58. Lambe vs. Eames [1871] 6 Ch App 597. Lassence v Tierney (1849) 1 Mac & G 551. Margulies v Margulies and others [2000] All ER (D) 344 REF4. McPhail v Doulton (1971) AC 424 (HL). Palmer v Simmonds (1854) 2 Drew 221. Penner, J. (2008). The Law of Trusts. London: Oxford University Press. Re Adams and Kensington Vestry (1884) 27 Ch D 394. Re Challoner Club (1997) TLR 4 November 1997 (proprietary rights in liquidation). Re Kayford Ltd [1975] 1 WLR 279. Re Tuck's settlement trusts (1978). Tito v. Waddell [1977] 2 WLR 496. Verge v Somerville [1924] AC 496. Watt, G. (2009). Equity Stirring: The Story of Justice Beyond Law. Oxford: Hart Publishing. Wendel, P. (2005). Emanuel Law Outlines: Wills, Trusts, and Estates: Keyed to Dukeminier/Johanson/Lindgren/Sitkoff. 7th edn. New York: Aspen Publishers. Wisconsin Legislative Documents. (2012). Chapter 853: Wills. [ONLINE] Available at: http://docs.legis.wisconsin.gov/statutes/statutes/853/II/61. [Accessed 29 November 2012].   Read More