Analysis of Trust Law Cases - Case Study Example

Trust Law The first question that arises in the context of the trust that Sally wishes to set up for her children is whether the handwritten letter that Sally has sent to Tom and Tina would be enforceable. The formality requirement under Section 53(1) of the Land and Property Act of 1925 sets out the need for a formal, written statement of intent to formulate a trust for disposition of land in the presence of two witnesses. An oral express trust will be voided if not followed up in writing1. Oral dispositions of trust will be voided, both in the case of land2 as well as equitable interests.3 Therefore Sally’s oral communication to Tom and Tina about her intention to set up a trust for her children may not be held to be valid. However, her intention to create a trust has been set out in writing in the form of a letter, despite the fact that it does not satisfy the formality requirements. Since Sally died the very next day after writing the letter, it could be construed t be a holographic will, since these are wills entirely written and signed by the testator, and can be held valid in probate even when there are no witnesses present. There are three requirements that need to be met (a) evidence that the testator created the will, which in this case could be proved through the use of handwriting experts to show that Sally did indeed write the letter (b) the testator must have the intellectual capacity to write the will and (c) the contents must be a disposition of testator’s estate and/or assets to beneficiaries4. All of these apply in the case of Sally, therefore it can also be argued that the letter can be taken as Sally’s holographic will, in which case, the letter effectively establishes an express trust5 to be administered by Tim and Tina with legal title vested in them, for the beneficiaries Ben and Sally’s other children who will gain beneficial interest in accordance with the terms of the constitution of trust6. However, the problem that arises is that in order for the trust to be valid, the legal title must be properly transferred to the trustees (in this case Tina and Tim); in this case the trust is improperly constituted since formality requirements are absent. Moreover, Sally is attempting to transfer the debt which Dan owes her, which is akin to an attempt to create a trust of future property which Sally expects to obtain but which is not yet in her position. While it is possible for a testator to create a trust on her own, this can only be of property she already owns.7 Therefore, Sally when alive would not have been able to set up a trust for the 150,000 pounds Dan owes, her, but the situation changes because she is now dead and the power of donation mortis causa8 can be invoked as was the case in Duffield v Elves.9 This principle allows a testator the power of contracting for the benefit of one’s relatives after one’s death, therefore it enforces the transfer of a gift that is made by an imminently dying or dead person in the interest of equity, even in instances where there has not been a proper transfer of legal title through the formality requirements. Hence, Sally being dead now, can legitimately allow for the provision of her children through the use of funds owed to her by Dan. A similar situation arose in the case of Beswick v Beswick10 where money was lent to a party on the basis that it would be paid back to the lender’s relatives in the event of his death. The wife of the deceased was able to successfully sue for the money that was owed on the basis of the argument that a trust had in effect been constituted. Although in the Beswick case, a specific promise had been extracted from the borrower that the money would be returned to deceased wife, this is not the case with Sally. Nevertheless, it may still be possible for the funds due from Dan to be placed in trust for Ben and Sally’s other children in the form of a gift, through fortuitous vesting. According to this principle, Courts of equity are not normally concerned about the improper constitution of a trust, so long as the trust property falls to the trustees, which in this case it does – through the letter that Sally has written transferring her debt from Dan and interest in Blue Acres to Tina and Tom. This principle of fortituious vesting will not apply only if the rule in Strong v Bird11 can be invoked to refuse equitable discretion. However, it may not hold good in this case, since the dispositions have been made to trustees to be held in trust for beneficiaries who are the testator’s relatives. The principle of the Re Rose12 can be applied to the improper constitution of Sally’s trust to validate the lack of fulfillment of all formalities. This case set out the principle that if the donor had done everything that was expected in transferring the title but the actual title transfer is delayed by routine operation of law, it will be held to be valid. In this case, since Sally died do soon after writing her letter, it may be argued that there was no time for completion of legal formalities. The underlying principle is that since the owner has demonstrated commitment to transfer the legal title to the trustee, then it is effectively held on a constructive trust on behalf of the trustee, despite the lack of adherence to the formality requirements of Section 53(1) of the LPA. These are some of the grounds that Ben may be able to reply upon in ensuring that the letter that Sally wrote is effectively equated to the establishment of a trust, in accordance with the provisions spelt out in the letter, thereby enabling him and Sally’s other children and grandchildren to acquire a beneficial interest in Sally’s estate. Tina and Tom’s trusteeship of Sally’s estate can also be enforced utilizing the provisions of the Trustee Act of 200213, which upgrades trustee powers in relation to investments made from trusts14, hence this will also empower Tim and Tina to advance capital to Ben, since he is one of Sally’s children, while also empowering them to manage the monies and incomes mentioned in Sally’s letter. However, Tina and Tim as trustees of Sally’s estate, will also have to manage the incomes from Blue Acres and Dan’s repayment of debt with care and they may not be able to advance Ben or any of the children an amount of capital that would function as a detriment to the estate and could be construed to be undue influence by Ben. This was the basis in the recent case of Re Davidge15 where the legal beneficiaries of the trust filed a suit against beneficiaries who had received monies in trust for education of children from an existing trust whose beneficiaries were different; to an amount that depleted the residue of the estate. In the case of Sally’s estate, since all the children and grandchildren have been identified as beneficiaries, Tim and Tina will be obliged not to abuse the powers of investment handed over to them under the trust by advancing capital to any one of Sally’s children in excessive amounts that could deplete the original estate. Recent changes announced in the Budget of 22nd March, 2006 will also apply, so that this trust - which is like a gift trust which is constituted over several years and therefore moves into Accumulation and Maintenance trusts, will not be exempt from fees and charges16. However, one of the exemptions to chargeable fees that have been provided is when a parent constitutes a trust for the benefit of minor children; hence the beneficial interests accruing to any of Sally’s minor children will be free of taxes. Clause 117 of the Finance Bill of 2002 has however specified that after August 1, 2002, all variations will automatically apply in so far as capital gains and inheritance tax is concerned, which will therefore apply to the beneficiaries17 – in this case Ben, Sally’s other children and grandchildren. In conclusion therefore, it may be noted that the major issues that may arise in this case would be the lack of satisfaction of formality requirements, which could render the trust created by Sally’s letter as an improper trust. But this is not an insurmountable obstacle, since the principles laid out in Re Rose can be applied, and the fact that Sally is now dead will also allow for the invoking of the donation mortis causa principle in allowing for future receipts due to Sally from the debt Dan owes her to be made a part of the constituents of the trust. The creation of the trust would be as a gift since no consideration is being paid and the legal title will pass to Tim and Tina as trustees, while Sally’s children and grandchildren will gain beneficial interest in the trust, in accordance with the terms spelt out in Sally’s letter. Tina and Tom will also have added powers of investment and discretion under the Trustee Act of 2002. The letter that Sally has written will therefore benefit Ben as one of the beneficiaries of Sally’s estate, entitling him to capital advances from the estate at the discretion of the trustees, Tina and Tim. Bibliography * “Changes on tax on trusts – do you need to restructure?” 2007. [online] available at: http://www.fishergerman.co.uk/file/2015/changes-on-tax-on-trusts---do-you-need-to-restructure.html * King, Lesley, 2002. “The Budget” Law Society Gazette, 13 June, 32 * Martin, Jill, 2005. “Modern Equity, Hanbury & Martin”(17th Edition) Sweet and Maxwell * Notes to the Trustee Act of 2002 [online] available at: http://www.stewardship.org.uk/documents/TTAct2000.pdf * Stockwell, Nigel and Edwards, Richard, 2005 “Trusts and Equity” (7th edn) Pearson Longman * Tyler E and Palmer N, 1973. “Crossley Vaines’ Personal property” (5th edn) Butterworths. Legislation cited: * Land and Property Act of 1925 * Trustee Act of 2002 * Finance Bill 2002 Cases cited: * Beswick v Beswick (1968) AC 58 * Duffield v Elves (1827) 1 Bli (NS) 497 * Hodgson v Marks (1971) 2 All ER 684 * Re Davidge (2003) WTLR 959 * Re Ellenborough (1903) 2 Ch 697 * Re Rose (1952) Ch 499 * Strong v Bird (1874) [1874] LR 18 Eq 315. * Westdeutsche v Islington B.C (1996) 2 All ER 961 Read More