Trusts Law - Case Study Example

Trust Introduction: The scenario presented deals with the disposition of Donna’s assets, pursuant to her suicide. Donna’s will that has been duly executed in accordance with the formality requirements has appointed Abigail as the executor of the will and has divided her estate among there beneficiaries; (a) Abigail, who is to receive her Porsche Boxster car (b) Claudia who is to receive the Burberry shares (c) RSPCA, which is to receive the residue of the estate. However, the oral dispositions that Donna has made prior to her death appear to be somewhat different, because she has expressed oral intent to transfer her Burberry shares to her brother and sister and rights to her autobiography to her friend Charlie, while the Porsche car is to go to her friend Josh and she has handed over 100,000 pounds to be delivered to Tony as trustee for the Essex actors. The question that must be considered therefore, is the extent to which the dispositions in Donna’s written will may be altered, if at all, by Donna’s oral declarations, since she is of sound mind and her intent as a testator must be clearly determined so that proper disposition of assets takes place. Analysis: At the outset, it must be noted that the function of the law in the creation and adjudication of trusts is to protect individual property rights and to ensure that a person is not deprived of his or her property rights without first being subjected to due process of law. Moffat highlights the fact that trusts are in effect a measure of a confidence reposed by the testator in the legatee which is conditioned by equity and conscience by leading to “certain moral obligations that are conditioned by ethical principles”, therefore a trust constitutes “the duty or aggregate accumulation of obligations that rest upon a person described as a trustee.”1 If a trustee is therefore not provided with a clear indication of the testator’s intentions in the gifts that he/she has formulated, then the administration of those gifts could create legal problems as well as disputes among several claimants for a particular trust. It is only when the intention to donate or give away the property on trust is established without any doubt, through certain formalities2 that such a disposition may be deemed to be valid. In order to ensure that the intentions of the testator of a will who establishes a trust are made clear, the law has included certain formalities that are associated with the creation and execution of trusts. Some of the formality requirements include the intentions of the testator being required to be spelt out in writing with beneficiaries clearly named. The requirement for a written instrument would also include other forms of evidence in addition to a formal, signed document, such as maps, graphs, drawings, discs, tapes or other sound tracks, films or tapes and other such devices that have been deemed to be acceptable as evidence under the provisions of the Civil Evidence Act of 1968.3 The requirements on formality have arisen out of the Statute of Frauds of 1677, of which some provisions, notably Section 9, were incorporated into Section 53 (1)(c)of the Land Property Act of 19254. Section 53 (1)(b) deals with oral declarations of trust in land while Section 53 (1) (c) deals with oral dispositions of equitable interests in property. Section 53 (1)(c)states as follows: "A disposition of an equitable interest or trust subsisting at the time of disposition, must be in writing, signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing or by will." Therefore the purpose of this section is to enforce written instruments and according to this clause, any oral disposition of a trust that is unsupported by a written instrument will be declared null and void. Where the disposition of a trust has been set out in writing or by deed, the Courts must give effect to it. On this basis, it may thus be noted that where a written instrument that provides a clear indication of testator intent exists, it will have precedence over oral declarations, hence Donna’s written and duly executed will is likely to be the determining factor in disposition of Donna’s assets as opposed to her oral dispositions. This may best be illustrated through a comparison of two cases. In one of them – Petty v Petty4 an oral declaration was made while creating a trust account in favor of a named child which established certainty of intention of the testator. However in the case of Jones v Lock5, a father placed a check payable to himself in the hands of his baby and said he was going to put it away for him, but did not follow it up with necessary action. In this case therefore, Lord Cramworth stated, “I think it would be of very dangerous example if loose conversations of this sort, in important transactions of this kind, should have the effect of declaration of trust….."6 The principle set out in these cases will be relevant and applicable in the context of the oral disposition that Donna has made prior to her death, wherein she has sent a note to her mother informing her of her intention to transfer her Burberry shares to be held on trust for her brother and sister. However, such a declaration cannot be deemed to be valid and capable of execution under the law, since Donna has not subsequently taken the necessary steps to amend the written instrument of her will, as was the case in Petty cited above. A written and attested document is likely to have precedence over a mere note in determining how the Burberry shares are to be allocated. Moreover, in order to constitute a formal and legally actionable disposition of shares, “a share transfer form must be executed and delivered with the share certificates followed by entry of the name of the new owner in the company books.”7 Donna has not done this and therefore, on this basis, it may be concluded that in the matter of the Burberry shares, the original disposition in the written will, to Claudia is likely to stand and a mere note requesting transfer to Donna’s brother and sister cannot be held to be valid. The matter of 100,000 pounds: In the case of Timson’s Executors v Yerbury8, Romer LJ laid out four methods that would constitute a disposition, by a person entitled to equitable interest in a trust, to a third party. The person can: (a) assign it to the third party directly; (b) direct the trustees to hold the property in trust for the third party; (c) contract for valuable consideration to assign the equitable interest to him; and (d)declare himself to be a trustee for him of such interest. This was earlier laid out by Lord Simonds in Grey v IRC9, who defined disposition by a beneficiary of a trust as follows: "If the word disposition is given its natural meaning it cannot, I think, be denied that a direction given by the beneficiary whereby the beneficial interest in the shares thetofore vested in another or others is a disposition.” Applying the above to Donna’s case, it may be noted that she has personally handed over the money to be delivered to Toby and has also included detailed written instructions on how it is to be disposed. Furthermore, it must also be borne in mind that she was of sound mind when such instructions were delivered. Since the money belongs to Donna’s estate, she as the testator will have the first right over it and as the testator, she can change her mind about dispositions at any time and indicate such change by formally attesting to the fact. In a similar, earlier case of Oughtred v IRC10, a wealthy man attempted to transfer shares to his mother on a bare trust, believing that the execution of a formal legal transfer of title would attract stamp duty and he claimed that beneficial interest passed under the oral contract. Therefore, when the formal title was registered, there was no transfer of beneficial interest. But the House of Lords found that there had indeed been a transfer of beneficial interest and the transfer was valid and mandated the payment of stamp duty. This case raised the issue of distinction between an oral disposition, which is not enforceable due to lack of a written instrument and an oral contract, which is enforceable. Lord Radcliffe, expressing a dissenting opinion in the case of Oughtred, stated: “Mrs Oughtred transferred to her son the share which were the consideration for her acquisition of his equitable interest: upon this transfer he became in a full sense and without more a trustee of his interest for her. She was the effective owner of all outstanding equitable interests.” It may be noted that the opinion rendered in this case appeared to be based upon the principle that oral dispositions cannot transfer property while oral contractual agreements can. In Donna’s case, this illustrates the difference between the note disposing of shares to her brother and sister which is in the nature of an oral disposition, as opposed to the written instructions for Toby which in effect, constitute a bare trust set up by Donna for the beneficiaries who are the Essex based actors, to be executed by Toby as trustee, entirely at his discretion. Applying the principle laid out in the Oughtred case, a bare trust has been created and since Donna was of sound mind while doing it, the transfer of the money could possibly be held by the Courts to be a valid disposition of assets through the setting up of a bare trust. Copyright of Donna’s successful autobiography: The written testament which is Donna’s will assigns all of Donna’s residual estate apart from her shares and the car to RSPCA, which is a charitable foundation. Therefore, the 100,000 pounds mentioned above as well as the autobiography would legitimately belong to the foundation upon Donna’s death. However, since Donna has made these dispositions elsewhere before her death and was presumably of sound mind when she did it, there may be a beneficial interest that can be claimed by the Essex based actors, as well as Charlie. When there is no written instrument, the Courts have been guided by the three certainties in reference to trusts which may be detailed as follows: (a) Certainty of intention: This is based upon the equitable maxim that equity looks to intent rather than form, as set out in the case of Paul v Constance11, where the Court inferred the presence of a trust in spite of no written instrument, on the basis of beneficial interest. In the case of Rowe v Prance12 the Court in a similar manner, was able to determine the existence of an equitable trust on the basis of the defendant’s use of the word “our” in reference to a property which was a yacht. In cases where the intent of the testator to create a trust have been clear, the courts have been willing to concede beneficial interest, even in the disposition of property, when the formality requirements under Section 53 of the LPA have not been met, as it did in the case of Re Steele’s Will trust13 where precatory words served to establish the existence of a trust.. (b) Certainty of subject matter: In the absence of formality requirements, the Courts have also been willing to concede beneficial interest on the principle that any property can be the subject matter of a trust, provided it is properly specified such that beneficial interests can be identified. In the recent case of Hunter v Moss14, the issue at stake was a 5% beneficial interest in the shares that belonged to the defendant and the Court deemed that a valid trust had been set up on the basis of certainty of subject matter. (c) Certainty of beneficial interest: When the beneficiaries of the trust are clearly identifiable, then despite the lack of a written instruments, the Courts have allowed beneficial interest through the existence of a trust. The three conditions mentioned above have evolved, as laid out by Lord Langdale in the case of Knight v Knight15 because the Courts are unwilling to deprive another person of his or her property or to direct how the property should be disposed unless there is certainty of the intent of the testator and that the formality requirements have been adhered to as much as possible. Therefore, applying this in the case of the 100,000 pounds, it may be argued that Donna has demonstrated certainty of intention in that she has written out the instructions precisely, certainty of subject matter in that the monetary amount is clear and certainty of beneficial interest in that the beneficiaries have been clearly identified, i.e, the Essex based actors. Therefore, her disposition may constitute a valid discretionary trust with the trustee to be Toby. Where discretionary trusts are concerned, in the case of McPhail v Doulton16, it has been clearly stated that the test for certainty of existence of a trust is “whether it can be said with certainty if any given individual is or is not a member of the class and the trust does not fail simply because it is not possible to ascertain every member of a class.” In this case, the class of beneficiaries are clearly identifiable as the Essex based actors and therefore the trust may not fail. However, this is not necessarily the case where the copyright of Donna’s successful autobiography is concerned. In this case, Donna’s oral message over the answer phone is equivalent to the use of precatory words which are unreliable at best in establishing a beneficial interest. As also pointed out by James LJ in the case of Lambe v Eames17 the use of precatory words to construe establishment of a trust could be equivalent to imposing a trust where such was not the intent of the testator. Similarly Cotton LJ in Adams v Kensington Vestry18 also pointed out how precatory words alone could not be deemed to be an indication of certainty of trust. Lord Diplock in the case of Gissing v Gissing19 stated that any beneficial interest in a trust or a gift, in order to be deemed to be valid, must constitute a cestui que trust and the intention of the testator must be firmly established in order to give effect to it. Where there is a prior claim on the copyright of the autobiography, as set out in the will, it is likely that the courts will give effect to the written intent of the testator Donna, rather than the precatory words left on the answer phone. The car: In the case of the car, it is possible that Donna’s leaving the keys with her friend Josh may constitute a cestui que trust, however since there is a prior claim on the car and the written intent of the testator Donna indicates that it was meant to go to Abigail, it is likely that this aspect will remain unchanged. While the Courts will strive to give expression to the specified intent of the testator and will try to determine the three certainties in order to give effect to the testator’s real intent, it will be the written testament that will have greater force in establishing the intent of the testator. The mere act of providing Josh with a spare set of keys cannot be said to constitute an intent on Donna’s part to transfer the car to Josh, especially when she has not taken any further steps to consolidate the deal, such as constituting a written agreement setting out her desire that Josh have the car, or revoking her formal will and testament in which she had provided the car to Abigail. Conclusion: Therefore, in response to Abigail’s concerns on the dispositions in the will, the factor that will be important is to establish what exactly Donna’s intentions were and how serious such intentions were. Section 3 of the Wills Act clearly states that “all property may be disposed of by will” and what is important to note in the context of Donna’s oral dispositions is the fact that they occur after a formal written will has been executed. In this connection, Section 23 clearly states that any subsequent conveyance will not impact upon the operation of a valid will, therefore, the provisions of the written will are likely to apply and the residual estate will pass over to the charitable foundation, since it constitutes a legitimate gift to a properly constituted and recognized charity. As far as the 100,000 pounds are concerned, she has specifically set out instructions on the use of the money, including the identification of a clear class of beneficiaries, therefore it is reasonable to assume that she has set up a discretionary trust to be administered by Tony, which may hold good despite the fact that it is not formally executed through the payment of stamp duties, etc. Certainly, the beneficiaries of such a trust will have the right to make a claim on Donna’s estate and the Court may concede that they have a beneficial interest on the 100,000 pounds that were given to Tony out of Donna’s estate. However, where the matter of the Porshe car, the Burberry shares and the copyright to her autobiography are concerned, Donna has not taken the necessary steps to confirm her oral intentions. Since her death was not a natural one and was premeditated, therefore it is reasonable to assume that if it had been her intent to follow through on the oral dispositions she had made, she would have taken necessary steps to change her will. But since she has not done this, the Courts may not be prepared to grant beneficial interest, despite the fact that Donna was of sound mind, because she has not demonstrated that certainty of intent that is required to substantiate a claim for beneficial interest. Therefore, Abigail can rest assured that the car which was to come to her will still be hers and other dispositions are also likely to follow the written document rather than the oral disposition. Hence, the following is likely to hold good: (a) The Porsche car – to Abigail (b) The Burberry shares – to Claudia (c) The 100,000 pounds – to a discretionary trust for the Essex actors to be administered by Toby (d) The copyright of Donna’s book and the residue of Donna’s estate – to RSPCA. Therefore, it is likely that the only aspect that may be contested is the 100,000 pounds, which may be deemed by the Courts to constitute a discretionary trust. Bibliography Books: * Moffat, Graham Trusts Law: texts and Materials Fourth edition * Wolstenhome and Cherry’s Annotated Land Registration Act 2002. London: Sweet and Maxwell, 2003 Cases: * Adams v Kensington Vestry (1884) 27 Ch D 394 COA * Knight v Knight (1840) 3 Beav 148 * Gissing v Gissing (1971) AC 886 * Grey v IRC (1960) AC 1 * Hunter v Moss (1993) 1 WLR 934 * Jones v Lock (1865) 1 Ch App 25 * Lambe v Eames (1871) 6 Ch App 597 COA * McPhail v Doulton (1971) AC 424 * Oughtred v IRC (1960) AC 206 * Paul v Constance (1997) 1 WLR 527 * Petty v Petty (1853) 22 LJ Ch 1065 * Rowe v Prance (1999) ECGS 75; (1999) 2 FLR 787 * Re Steele’s Will trust (1948) Ch 603 * Timson’s Executors v Yerbury (1936) 1 KB 645 CA Legislation: * Civil Evidence Act of 1968 * Companies Act of 1985 * Land Property Act of 1925 * Land registration Act of 2002 * Wills Act of 1837 Read More