Analysis of Equity and Trusts - Case Study Example

Order 257527 Topic: Equity and Trusts Instructions: James recently died and left a will with the following provisions: a. 100 000 to my beloved sister - Emily, in absolute confidence that she will use a decent amount to look after my step daughter,Mary. b. My leasehold estate in Blackacre to my nephew, John who is authorised and empowered to dispose of the rent to such of my children as John shall think most deserving and that will make the best use of it or to his children as he shall think most deserving. John died without distributing any property. c. 100 000 to Mark so he can invest it and use the income to help any of my friends' dependants complete a law degree. Consider the above provisions and determine whether they are valid and who will receive what property. PARKER & MELLOWS- THE MODERN LAW OF TRUSTS- ALLISTAR HUDSON - EQUITY & TRUSTS ANY JOURNALS RELATING TO THREE CERTANITIES. AND ANY OTHER USEFUL BOOKS, JOURNALS AND ETC. James has died recently and has left a will with provisions that we will deal with during the course of this paper. We shall proceed on the assumption that the formal requirements i.e. any requirements imposed as a result of the will of the Parliament have not been breached. This is so because, even though equity looks at intent and not form, equity is also bound to take cognizance of the express will of the Parliament. We shall now turn our attention to the provisions of the will made by James: a. 100 000 to my beloved sister - Emily, in absolute confidence that she will use a decent amount to look after my step daughter, Mary: James is entitled to leave as much money as he wills to his sister or on trust for his step daughter. The problem we have in the scenario at hand is that of the three certainties i.e. whether what James stated amounts to a declaration of trust over the 100,000 The second is whether the amount left for Mary is identifiable The issue of objects does not seem problematic as Mary is clearly the intended beneficiary. The last problem that we will deal with is what would happen to the 100,000 if no trust is to be found. To consider whether James has created a valid trust or gave a power of appointment. In Re Weekes' Settlement (1897) a testatrix left property to her husband with a 'power to dispose of all such property by will amongst our children in accordance with the power granted to him as regards the other property which I have under my marriage settlements.' The court decided that the document did not create a trust for the children of the testatrix but a mere power of appointment for the husband to distribute the money if he willed. In the will left by James, an analogy could easily be drawn with the facts in Re Weekes' Settlement (1897). He has left the 100,000 to his sister with a power of appointment that she could use a decent amount of the money for the care of James's step daughter. There are also cases where a relatively clearer intention was found like in Mussorie Bank Ltd v Reynor (1882), here also the question was whether the testator actually wanted to create a trust. However, in light of cases like Lambe v Eames (1871) where the Court of Appeal refused to hold a valid trust because the testator left a estate to his widow stating 'to be at her disposal in any way she may think best, for the benefit of herself and her family' seems to be closest to facts at hand. The only problem in concluding that the money was an absolute gift to Emily is the case of Comiskey v Bowring-Hanbury (1905), where a trust was held on the words 'in full confidence that', in our case, similar words are used. In Comiskey however, the testator's words were construed in such a way also because they were followed by an instruction that if the wife died without devising the property to her nieces then the property will be divided equally amongst them. James uses similar words, 'in absolute confidence' but one may be bound to incline towards earlier authorities as there are no further instructions. This indicates two things, first, that James wanted the estate of Emily to benefit if she died without spending a decent amount on Mary and second, that it was a gift to Emily but gave her the power to use it for the benefit of his step daughter. Another point to be made here is that if Mary were to sue Emily for her right, it seems unlikely that the courts will be willing to force Emily to use her power when and how Mary desires it. On this point the trust seems to fail. Another problem is that of the certainty of the subject matter of the trust. How should 'a decent amount' be construed Emery (1982) divided the certainty of objects into three heads; 1) Conceptual Uncertainty; 2) Evidential Uncertainty and 3) Whereabouts Uncertainty. These facts fall under the first head of conceptual uncertainty. In Palmer v Simmonds (1854), the courts held that the bulk of my residuary estate was too uncertain. In contrast, In Re Golay (1965), the court held that reasonable income was not too uncertain. The Learned judge stated that the court is 'not to be deterred' in making such objective assessments 'because subjective influences can never be wholly excluded.' Further, courts could infer the subject matter by virtue of outside opinion (Re Coxen 1984, Re Tuck's Settlement Trusts 1978). In our scenario, on the available facts it seems unlikely that we will be able to determine the subject matter. However, the court may be able to infer that looking at the living standards within the family and other transactions. On the available facts one is inclined to conclude that the trust will fail on this ground also. As we can conclude that the trust for Mary will fail. The question arises what will become of the trust property Will it go back to the trust as a result of an Automatically Resulting Trust or will it be left for Emily Basing it on the authorities cited above, it can safely be said that the 100.000 will become the property of Emily absolutely. b. My leasehold estate in Blackacre to my nephew, John who is authorised and empowered to dispose of the rent to such of my children as John shall think most deserving and that will make the best use of it or to his children as he shall think most deserving. John died without distributing any property: In this scenario there are two umbrella issues that need to be looked at like in part a. above. First, whether the discretion given to John means that the trust is invalid due to uncertainty of intention and/or objects and subject matter. The second issue will depend on the answer to the first one and therefore is connected to it. The issue arises because John dies without distributing any of the property. The question we need to deal with here is of where would the property go after he dies, does he take the gift absolutely or does it revert back to the estate of James by the operation of an Automatically Resulting trust The property under the trust is clearly identifiable i.e. the rent received from James's estate in Blackacre. We shall proceed on the assumption that the estate is already on rent and shall remain so when the property passes to John. First let us consider the certainty of intention. James states that John is empowered and authorized to use the money for either the children of James or his own children. Here, like in part a. the property is clearly left to John. The problem is whether it is a trust or merely a power of appointment. On the authorities also cited above especially Lambe v Eames (1871), it seems that this will merely be a power of appointment. Especially looking at the fact that he could use the money for his own children also indicates that the money was to be left to John or estate. However, James's words are also open to another interpretation that there was a trust for his own children or the children of John, this was the only discretion that was allowed to John failing which the property i.e. the rent generated from the estate shall revert back to the James estate, in other words, the children could be said to be the eventual beneficiaries whereas the children of John, seem to be prejudiced. James LJ captures this result in the following words: "In hearing the case after case cited, I could not help feeling that the officious kindness of the Court of Chancery in interposing trusts where in many cases the father of the family never meant to create trusts, must have been a very cruel kindness indeed." In our situation, one is inclined to side with the opinion of the Honourable Lord Justice in Lambe v Eames. Here, to find a trust instead of just a mere power, which is also a probable interpretation seems inequitable. Hence, we shall conclude that on the point of the certainty of intention, the trust clearly fails. If the court were to differ on this matter and adopt an approach analogous to the approach taken in Comiskey v Bowring-Hanbury (1905), and conclude that there was a valid trust on the property then we will face a dilemma as to who should be the beneficiaries because the discretion given to John cannot be accounted for due to his death without distribution. Further, if both the children of James and John are decided to be the beneficiaries then, in what proportions will the amount of rent be distributed between the children of the two and amongst them. In Boyce V Boyce (1849), when the trustee died without choosing which daughter had to receive which house, the courts held that the gift of the testator had failed. In a more commercial context similar rulings were given in Re London Wine Co (Shippers) Ltd (1986) and in Re Goldcorp Exchange Ltd (1995). Hence, one can conclude that owing to all the difficulties cited above, it is unlikely that a trust could be upheld. The question still remains as to what will happen to the estate in Blackacre and its rent. Assuming that the formalities of the transfer of property were all complied with whilst making the will, the likely outcome seems to be that the courts will hold that the property was an absolute gift to John with a power to use it for specified purposes failing which it should pass on to John's estate. It is unlikely that a trust will be found, but if it is then, the failure of the achievement of the object of the trust by virtue of John's death will be that the property shall automatically revert back to the estate of James by the operation of the law in the state of the Automatically Resulting Trust. c. 100 000 to Mark so he can invest it and use the income to help any of my friends' dependants complete a law degree. Adopting arguments forwarded above, the facts here are such that the people or the class of people who are to benefit are uncertain. So first, we have a problem of the uncertainty of objects and secondly of the administrative difficulties that may arise. It is clear that Mark should be given 100,000 for investment. The problems arise as per the identification of the friend's dependants who are doing a law degree, more so with the definition of friends i.e. who should be considered to be the friends of James. In Re Barlow's Will Trusts (1970), Wilkinson J has held that the word friend was not too uncertain to be upheld and he devised a whole formula to ascertain who a friend was calling it inexhaustive. However, in cases like Re Gulbenkian (1970), the term old friend was stated to be the paradigm example of the uncertainty of objects. A similar approach was adopted in Brown v Gould (1972) and in Re Wright's Will Trusts (1982) (CA). Here, it is pertinent to mention that even recourse to outside opinion may not be possible as it seems extremely difficult to ask a third person as to the friendship between the testator and the hopeful beneficiary. Hence, in this situation, it can be safely concluded that the trust would fail. The property i.e. the 100,000 will revert back to James's estate. References: 1. Martin, Jill, Hanbury and Martin: Modern Equity, Singapore, Sweet & Maxwell Asia, 2005. 2. Hayton, David J., Sweet & Maxwell, London, 1989. 3. Penner, J. E., The Law of Trusts, Oxford University Press Inc., New York, U.S.A., 2006. 4. Oakley, A.J., et al, Parker and Mellows: The Modern Law of Trusts, Sweet & Maxwell, London, 1994. Read More