The Law of Trusts - Essay Example

The Law of Trusts In order for a trust to be validly created the three certainties must be present. First there must be certainty of intention1, certainty of subject matter2 and certainty of objects3. Having established that the three certainties need to be present to make the trust valid it is necessary to look at whether the declarations made by Margaret can be read as an intention to create a trust. For a trust to be fully constituted the intended separation between the legal and equitable title must have occurred. With an express trust where the owner of the property declares himself to be a trustee, the trust will only be validly constituted is the declaration was effective. If the trust was intended to be created by transferring the property to the trustee then the trust will only become valid once the property has been transferred and the intention to impose a trust has been communicated. If the declaration and transfer are not effective then the trust is described as incompletely constituted. An express trust will only arise if the owner of the property can be shown to have intended to subject the item to a trust obligation. There is no specific requirement that the word trust be used when creating an express trust. McGarry J in Re Kayford [1975]4 held that a trust had been created stating As for the requisite certainty of words, it is well settled that a trust can be created without using the words ‘trust’ or confidence or the like… An intention to create a trust can be deduced from the language used which makes it clear that the recipient is holding the property for the benefit of another. Even if the language used is inadequate to create a trust the trust may be held to have been created if this would fulfil the settlor’s overriding intention5. For the declaration of the trust to be effective the court must be satisfied that a present irrevocable declaration of trust has been made6. An expression of intent to create a trust in the future does not create a fully constituted trust. There is no requirement that the settlor uses specific words declaring himself as trustee7. Scarman LJ in Paul v Constance8 stated that there must be clear evidence from what is said or done of an intention to create a trust. In some instances there must be certain formalities that have been complied with for the trust to be deemed to be fully constituted. This is particularly the case in respect of land9 and shares. As mentioned above there must also be certainty of subject matter and certainty of object10. If no specific property has been indicated then the trust will not be valid11. Similarly if the property has been indicated but not clearly defined then the trust will fail12. This may happen where the testator attempts to leave the residuary of their estate to another13. On some occasions it may be impossible to identify the trust property14, or the property may be unascertained property as in the case of Hunter v Moss [1994]15 where the courts held that the declaration of trust in respect of shares was not void for certainty because the shares had not been segregated or appropriated. In this case the court held that the declaration by Moss of holding 5% of the shares on trust for Hunter could be identifiable property as it did not matter which of the shares were to become the property of the other. In order to establish which of the dispositions above are valid it is necessary to examine the beneficiary principle to determine which of the above meet the criteria and can be classified as beneficiaries. It is also necessary to look at cases that do not satisfy the beneficiary principle but have been treated as valid16 and the circumstances when the courts have accepted the trust as valid despite not meeting the criteria for the beneficiary principle17. One of the main difficulties that could be caused by the above dispositions is in determining whether they are purpose trusts18 or whether they benefit specific beneficiaries. In looking at the beneficiary principle it can be noted that the rule against purpose trusts is long established. In Morice v Bishop of Durham19 Sir William Grant MR made the point that Every trust must have a definite object. There must be someone in whose favour the court can decree specific performance. Lord Parker of Waddington reaffirmed this in Bowman v Secular Society20 when he stated that for a trust to be valid it must be for the benefit of individuals21. The problem with purpose trusts has led to the adoption of the beneficiary principle. The general rule that the courts tend to follow is that there must be identifiable beneficiaries in order for the trust to be valid22. Where the trust is created for a purpose there is usually no person with locus standi to apply to the courts to ensure the terms of the trust are being carried out. The supervision of trusts falls firstly and foremost on the beneficiaries as they are the persons most interested in the proper administration of the trust and are best placed to bring abuses of the trust to the attention of the courts23. There have been many occasions when a trust has been invalidated for not satisfying the beneficiary principle24. In Re Astor’s Settlement Trusts25 Roxburgh J held that the trust was invalid because it offended against the beneficiary principle and the purposes were uncertain. He referred to Re Wood26 where Harman J asserted the position that a gift on trust must have a cestui que trust. In Astor’s case none of the exceptions to the beneficiary principle were satisfied and the trust was void. In Re Astor’s Settlement Trusts [1952] Ch 534 Roxburgh J stated ‘a court of equity does not recognise as valid a trust which it cannot both enforce and control’. Similarly in Re Endacott27 Harman L J applied the beneficiary principle to a gift given by Albert Endacott to the North Tawton Devon Parish Council for the purpose of providing a useful memorial to himself. The court of appeal held that the gift was a non-charitable purpose trust which did not fall into the exceptions category. Although the above seems to suggest that non-charitable purpose trusts are void because they do not satisfy the beneficiary principle there are number of exceptions where non-charitable purpose trusts will be upheld despite the lack of beneficiaries28. In Re Endacott29 Harman L J spoke of these exceptions when he stated that they are decisions which are not really to be satisfactorily classified, but are perhaps merely occasions where Homer has nodded, at any rate these cases stand by themselves and ought not to be increased in number, nor indeed followed, except where the one is exactly like the other. A non-charitable purpose trust will not be void if it will benefit identifiable individuals who posses sufficient locus standi to enforce it. In Re Denley’s Trust Deed30 the court upheld a gift which appeared to be a purpose trust. In this case Charles Denley had transferred land to trustees to be maintained and used as a sports field for the employees of a company. Goff J held that although the trust was expressed to be for a purpose is was in fact for the benefit of individuals as they would benefit directly or indirectly from the carrying out of the purpose. He also stated that the employees were an ascertainable and certain class31 and would have locus standi to apply to the court to enforce the trust. The principle used in Re Denley’s Trust Deed32 has also been applied to unincorporated associations. An example of this is in Re Lipinski’s Will Trusts33 where Harry Lipinski left his residuary estate to the Hull Judeans (Maccabi) Association in memory of his wife to be used solely in constructing new buildings for the association. Oliver J concluded that it was directly for the benefit of the members of the association and could be construed as a gift to them as individuals34. Having looked at the beneficiary principle and the exceptions when the principle can be overlooked it is now possible to ascertain which of the dispositions above are valid and which are likely to be classed as invalid. Dealing first with the money that has been left to David, Margaret’s husband, it was expressed in the will that she was leaving him the money in the hope that he would plant a formal garden in her memory. The words in the hope would be classed as precatory words and would in essence create a trust35. Such words do not impose any obligation on the recipient of the property but imply a purely moral obligation36. This would effectively mean that David could keep the money for himself and not spend any money on the garden as requested by Margaret. A further difficulty that is highlighted by this bequest is in respect of the second clause of the bequest were it is expressed that any monies left upon the death of David would be passed to their son Tony. As there is uncertainty as to the subject matter in that there is no stipulated some of money that should be left to Tony the trust could fail for lack of certainty37. The residue of the estate is to be passed to Margaret’s husband David. There is no mention of this being held on trust and therefore would pass to him absolutely which would entitle him to dispose of any of the remaining assets as he sees fit. The bequest to Violet of £10,000 for the Holmfirth Ladies Circle might be allowed to be administered as there it could be argued that there is certainty of beneficiaries in that the money is designed to benefit the group as a whole and not the individual members. It could be argued that there the category of beneficiaries is too wide as it does not stipulate whether the bequest is for the benefit of the members at the time of Margaret’s death or whether it should also include future members. If the court are of the opinion that there no definite object because the category is too wide then the court can treat the trust as invalid as there is no one that the court can decree is entitled to specific performance38. A similar ruling was given in Bowman v Secular Society [1917] AC 406 where Lord Parker stated that ‘for a trust to be valid it must be for the benefit of individuals.’ It may well be in this instance that the courts take the view that the Holmfirth Ladies Circle are an identifiable group and that they have the necessary locus standi to ensure performance of the trust39. The second part of the bequest could fail due to the uncertainty of the beneficiaries also. There is insufficient clarity with regards to the intended recipients for the trust to be complete40 and the wording makes it so that the money is to be divided among Margaret’s friends as Violet sees fit. If the wording was for all Margaret’s friends that have attended her dinner parties than the uncertainty would be removed41. Even though there is the uncertainty as this is a discretionary trust Violet is able to execute the trust if she is able to establish a particular category of beneficiary42. Case law surrounding the uncertainty of beneficiaries has consistently held that without certainty of the beneficiary there is no trust as there is no mentioned person who can insist on performance of the trust43. There can be exceptions to this were the courts have allowed a trust to be construed despite the lack of ascertainable beneficiaries. In Re Thompson [1934] Ch 342 the court upheld the gift but only because both the legatee and the beneficiary had applied jointly to the court for the gift to be upheld. If the legatee had not wanted to see the purpose performed and had wanted the gift to fail the court would have awarded in favour of the legatee. When dealing with the transfer of shares under law the shares are owned by the person named on the share register. Legal ownership can only be transferred by means of registration of the transferee on the share register44. Mere delivery of the share certificates to an intended trustee or beneficiary will not create a fully constituted trust45. William may have difficulty asserting his rights to the shares as they have not been properly transferred into his name thereby giving him legal title to them. Registration can occur either by the completion of a share transfer form46, or by instruction if the shares are held electronically in the CREST system47. The courts have held in the past that mere delivery of the share certificates to an intended trustee will not create a fully constituted trust48. Essentially this would mean that William might have difficulty asserting his right to the shares as they have not been properly transferred to him. In this instance the shares would be transferred back to David as he is the surviving spouse and is entitled to inherit the remnant of the estate. If Margaret had transferred the shares into William’s name by the proper means he would be classed as the legal owner of the shares and David would not be able to prevent him from having the shares. The same would also apply in respect of the shares to be held by Phillip and William for the benefit of Tony and Simon. The £250,000 that has been left to David and William to make payments to the members of Margaret’s family as they see fit is also likely to fail as there is uncertainty as to the beneficiaries. There is insufficient information for the trustees to be able to decide who should benefit so the courts are likely to not class this as a valid trust. The key that was given to Phillip stating he is entitled to everything inside the trunk is likely to succeed, however, he may have difficulty claiming the cottage because as transfers of property have to be in writing. Just because he has possession of the deeds it does not make him entitled to take ownership of the property. For Margaret to have transferred this to him she would have had to have registered the property in his name. The conclusion from the above is that the money left to David will be his entirely and he only has a moral obligation to create the garden he promised. Tony is unlikely to get the residue of the money as there is uncertainty as to the amount he is to receive. The shares will revert back to David as the surviving partner as they were not properly transferred to William. The money for the Ladies Circle is likely to be upheld but the money to Margaret’s dinner guests will probably fail. Similarly the money to be distributed among family members will fail and Philip would be entitled to the contents of the trunk but probably not the cottage as it has not been legally transferred to him. This means that the vast majority of her estate would go to David as the surviving spouse. 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(2d) 433 Re Wood [1949] Ch 498 Richards v Delbridge (1874) LR 16 Eq 11 Table of Statutes Companies Act 1985 Law of Property Act 1925 Stock Transfer Act 1963 Read More