Equity and Trusts - Coursework Example

EQUITY AND TRUSTS WORK 2007-8 LLB2 AND LPV2 By a covenant made in 2005, Angelina promised to transfer to Brad: (a) ‘£2,000,000 to be held on discretionary trust for my children’; (b) ‘My 1000 shares in Shiny Ltd to be held on trust for Courtney’; (c) ‘If I win anything on the lottery next Saturday night, the first £5,000 of the winnings to be held on trust for Dexter.’ Angelina’s lottery ticket won £10,000, which she kept. None of the transfers was executed, although the day after executing the covenant, Angelina put her Shiny Ltd share certificates and signed transfer documents in an envelope and posted them to Brad. Brad put them in a drawer and forgot about them, since he was busy trying to learn his lines for a film. In 2006, Angelina rewrote her will to leave ‘everything I own to Jennifer’ and named Brad as sole executor. Angelina has now died. At the date of her death, the Shiny shares were still registered in Angelina’s name. Angelina’s estate has been administered and valued at £20,000,000. Advise all interested parties, including Angelina’s four children. In order to be able to advise the parties as to the validity of the trusts it is necessary to examine how trusts are formed. To do this it is necessary to look at the elements required in order for a trust to be deemed to be valid. In giving advice on the validity of trusts it is important to discuss the three certainties that the courts expect to find within a trust. The three certainties are certainty of intention1, certainty of subject matter and certainty of object2. Where one of the three certainties has not been present the courts have declared the trust invalid3. On some occasions the court have allowed trusts to succeed where one of the certainties has not been present and in answering the above necessary for completeness that the exceptions should be mentioned as well. Exceptions have been allowed by the court despite the lack of ascertainable beneficiaries. In Re Thompson [1934]4 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 certainty of intention it must be clear to all concerned that the intention was to create a trust. To avoid uncertainty it is usual for the settlor to create a trust deed5. The deed should highlight the property concerned, the trustee who is to be appointed and who is to be the intended beneficiaries of that trust. Difficulties arise where there is no deed as there is no evidence in writing to identify the intended beneficiaries6 or to prove the intention of the settlor to create a trust. It is usual practice for the settlor to have the details of the trust included in their will so that the beneficiaries know of their entitlement. The beneficiaries are best placed to ensure the trustees manage the trust as the settlor intended and they also possess the necessary locus standi to bring an action in the court if the trustee breaches the trust. When the courts are considering the three certainties they need to be able to establish that the trust can be enforced and controlled. In Re Astor’s Settlement Roxburgh LJ made it clear that a trust cannot be deemed to be valid if it cannot be enforced or controlled. Certainty of intention requires the trustees to prove the intention of the testator when the will was made7. In some cases the wording of the will is such that an implication can be reached as to the intention of the testator. The courts also demand clarity in respect of the identification of trust items. The aim of this is to remove any ambiguity and therefore to enable the beneficiary to defend against another’ claim for a share of the estate. If the beneficiaries are not easily identifiable the courts have frequently taken the view that as there is no one with locus standi to ensure the terms of the trust are adhered to the trust must fail8. As it is important for the beneficiaries to be easily identifiable persons making a will should ensure that the wording of the will is not too vague9. Over the years there have been many cases that have been used to set a precedent by which future cases have been decided. The case of McPhail v Doulton10 is widely accepted as an authority in relation to the validity of a trust where it is uncertain whether an individual can be regarded as a member of a designated class. It was stated by Lord Reid in this case that ‘if the trustees do not exercise a power, the court will do so in the manner best calculated to give effect to the settlor’s or the testator’s intentions.’ Re Baden’s Trust (No 2) 11 subsequently declared the trust to be valid and made it the responsibility of the beneficiaries to provide proof that they were members of a certain group. IRC v Broadway Cottages Trust12 challenged the certainty of objects and made it a requirement that the range of objects in question had to be properly ascertained otherwise the trust would be declared void13. After considering the effect of the three certainties the courts will assess the powers of the trustees with regard to any restrictions that might apply in the administering of the trust. With trusts some bequests will be mandatory whereas others will be at the discretion of the trustees14. The inclusion of certain words within the body of the will can be used to determine mandatory requirements. Where the testator has included words such as ‘will’ or ‘shall’ these would indicate a mandatory course of action as it is a specific instruction to be carried out. Replacing these words with ‘may’ or ‘might’ makes the responsibility of the trustee a fiduciary power only and can entitle the trustee to act in their own discretion15. Discretionary trusts as the name implies allows the trustee to distribute the property they have been instructed to handle to any of the named beneficiaries as they see fit16. Discretionary trusts frequently occur when the money the trustee has been appointed to distribute is intended for the family of the testator17. These trusts can be either exhaustive or non-exhaustive. An exhaustive trust is where the trustee has to distribute all of the property included in the trust18. Non-exhaustive trusts occur where the trustee is required to invest the trust property and instructed to use the profit from the investments to provide for the beneficiaries19. In discretionary trusts the trustee is usually given a letter of wishes as a guideline as to who the money should be distributed to. Trustees have the discretion in such cases to decide which of the beneficiaries in that class should benefit as well as how much should be paid to that person. In giving advice in the above situation it is necessary to examine the relationship between donor and donee and the power of the donee of the trust. It is also necessary to discuss what happens to the trust property if the donee refuses to carry out their duties. Under the power of appointment rules a donee can elect to distribute the property of the trust as they wish20. In Re Coates (Deceased)21 the donee refused to carry out their duty as trustee so the court ordered the property to revert back to the estate. This could have been prevented if the donor had inserted a clause in the will passing the power to another if the original donee refused to carry out their function. The leading case surrounding the beneficiary principle and purpose trusts is of Morice v Bishop of Durham22. Sir William Grant MR made the point in this case that ‘Every trust must have a definite object. There must be someone in whose favour the court can decree specific performance.’ Over a century later Lord Parker reinstated this principle in Bowman v Secular Society23 when he stated that ‘for a trust to be valid it must be for the benefit of individuals24.’ It is also necessary in the present situation to discuss the validity of the transfer of the shares where the share certificate still remains in the name of the donor. The issue of the bequest regarding the winnings from the lottery ticket also needs analysing in relation to the validity of the promise to transfer items to another when at the time of the bequest the testator does not have the promised items. When looking at issues regarding the transfer of shares the courts have a tendency to treat any transfer as invalid unless the shares have been properly transferred into the name of the beneficiary. Legal ownership of shares can only be transferred by registering the transferee on the share register. Registration can occur either by the completion of a share transfer form25, or by instruction if the shares are held electronically in the CREST system26. The courts have held in the past that mere delivery of the share certificates to an intended trustee will not create a fully constituted trust27. Essentially this would mean that unless as the shares have not been registered in the name of the intended beneficiary that person might have difficulty asserted their right to the shares as they have not been properly transferred to them. If the courts reach the conclusion that the shares have not been properly transferred then the ownership of the shares will revert back to the estate regardless of the fact that the testator signed the shares over to the beneficiary. The court will take the view that the acceptance of the transfer of the shares is not complete as the shares have not been registered in the new owner’s name. The bequest of the share of the lottery winning is also unlikely to be invalid as at the time of the bequest the testator was not even aware that the ticket had won. The courts have taken the view that it is not possible to create a trust for property that the settler does not own at the time of making the bequest, even if the testator fully expects to have this property at a future time28. The courts apply this on the principle that there is a lack of certainty as to the subject matter of the bequest. In this case it is also necessary to discuss the validity of the rewritten will to decide whether the rewritten will has the effect of revoking the old will. To do this it is necessary to examine the ways in which a will can be revoked. According to the Wills Act 1837 s20 a will can only be revoked by ‘another will or codicil’ or ‘by destruction thereof’. Section 20 goes further on to state that a will can be revoked ‘by some writing declaring an intention to revoke the same and executed in the manner in which a will is herein-before required to be executed’. When looking at the destruction of the will s20 requires that the ‘burning, tearing or otherwise destroying’ of the will must be done by the testator or ‘by some person in his presence and by his direction’ with the intention of revoking the will. For the revocation to be complete the testator must destroy the whole will. Any parts that remain intact can be submitted for probate and may be enforceable. However in the case of Re Adams (Deceased)29 where the testator had obliterated the signatures on the will so effectively by overscoring with a pen the courts applied s21 of the Wills Act stating that although the signatures had not been physically removed30 from the will they had been so effectively obliterated that they were illegible. The court held in this case that as the signatures were not apparent to the eye a material part of the will had been destroyed. The court stated that the intention of the testatrix to revoke should be upheld as a material part of the will had been destroyed31. If the beneficiaries of the will can establish that at the time of the destruction of the will the testator was not of sound mind then the revocation would be ineffective32. For the destruction to be effective there is a presumption that the testator destroys it animo recovandi. If there is evidence to suggest that the person was not of sound mind when they destroyed the will then the presumption of revocation is not proved and the will is deemed to be valid. Direct extrinsic evidence is adduced from what the testator said whereas as circumstantial extrinsic evidence is adduced from the circumstances and facts known to the testator at the time the will or codicil was executed. Extrinsic evidence is only allowed to be adduced where there is an ambiguity in the will or codicil. In the case of Nasmyths Trustees v NSPCC33 the court allowed extrinsic evidence to be adduced. In this case the testator has expressed a wish to leave some of his estate to the NSPCC. When first established the association was known as the London Society for the Prevention of Cruelty to Children and changed its name by Royal Charter in 1895. The courts were asked to decide whether the disposition to the NSPCC was valid as there was a degree of ambiguity due to the name change of the association. The court held that the extrinsic evidence led to the conclusion that the testator intended the NSPCC to inherit the amount decreed. Similarly in Abbott v Massie34 intrinsic evidence was adduced to establish who the testator was referring to when he mentioned Mrs G in his will. The court’s can rely on direct extrinsic evidence if there is a latent ambiguity. Such evidence has been adduced in Lord Cheyney’s Case35 to decide which of two Johns was meant by the testator when he mentioned in his will ‘my son John’. Similarly direct evidence was adduced In the Estate of Hubbard36 to determine which granddaughter the testator was referring to when there were two possible granddaughters. In this case the court were able to aver from the fact that one of the granddaughters was living on the estate that the testator intended that she should be the one to inherit. As there is no mention of whether the previous will was destroyed or the rewritten will has been properly executed it is impossible to give a definitive answer as to the validity of the new will. For this reason the advice given will look at the problem from both points of view and will include the outcome of either will being rgarding as valid. Having analysed how a trust is formed and the certainties needed for a trust to be deemed to be valid is it possible to advise the parties as to the validity of the covenants. Assuming that the 2005 will is valid and the rewritten will is to be ignored by the courts this would mean that Brad would be a trustee of the estate and would have a duty to hold the £2,000,000 on trust for the children of the testator. As the covenant states that the trust is a discretionary trust Brad would not have to distribute the money in equal amounts to the children. Brad would have the power to decide which of the children he will give the money to and also the amount of money that he would like to give to each. With regard to the shares, as discussed above the shares have not been properly transferred to anyone and are still in the name of the testator. This effectively would mean that the shares could not be used by Brad or held on trust for Courtney. It is likely in such circumstances that the court would insist on the shares reverting back to the estate. The money won on the lottery ticket should have been paid to Dexter at the time of winning. As the testator kept the money for herself and has probably mixed this money with other money she has then it would not be possible to trace the money that she won. The courts may also decide not to uphold this bequest as it was made before the ticket won. If Angelina has placed £5,000 into a separate account and nominated herself to be trustee of that account on behalf of Dexter then the money in that account would be deemed to be belonging to Dexter. If the courts take the view that the rewritten will has had the effect of revoking the earlier will then all of the above bequests would fail and the entirety of the money would be transferred to Jennifer. This would include the shares held by Brad as well as the £2,000,000 that had initially been set aside for the testator’s children. If Angelina has placed the £5,000 pound in a separate account for Dexter and has made others aware of this then the money would transfer to Dexter following the death of Angelina. Bibliography Ashburner, W, Principles of Equity, 2nd Ed, 1933, Butterworths Borkowski, A, Textbook on Succession, 2nd Ed, 2002, Oxford University Press Cockburn, T, Harris, W, & Shirley, M, Equity & Trusts, 2005,Butterworths European Commission Green Paper - Succession and wills {SEC(2005) 270} Hayton, D J , Commentary and Cases on The Law of Trusts and equitable Remedies, 11th Ed, 2001, Sweet & Maxwell Holdsworth, W, History of English Law, 7th Ed, 1956, Mathuen & Co Ltd Meadway, S L, Waterworth, M, Sherrin, C.H, Barlow, R.F.D & Wallington, R.A, Williams on Wills, 2006, Butterworths Law Pearce, R & Stevens, J, The Law of Trusts and Equitable Obligations, 2nd Ed, 1998, Butterworths Sherrin, C.H. & Bonehill, R.C, The Law and Practice of Intestate Succession - Modern Legal Studies, 2004, Sweet & Maxwell Slapper, G & Kelly, D, The English Legal System, 4th Ed, 1999, Cavendish Publishing Ltd They dont always get what they want, New Law Journal,155 NLJ 448,25 March 2005 Thomas, M, Statutes on Property Law, 8th Ed, 2001, Blackstone’s Wills and probate update, New Law Journal 156 NLJ 1591,20 October 2006 www.opsi.gov.uk www.lexisnexis.com www.westlaw.com Table of Cases Abbott v Massie (1796) 3 Ves. 148 Allnutt v Wilding [2007] EWCA Civ 412 [2007] B.T.C. 8003 [2007] W.T.L.R. 941 (2006-07) 9 I.T.E.L.R. 806 Bowman v Secular Society [1917] AC 406 Ffinch v Combe [1894] P. 191 Gardner v Rowe (1828) 5 Russ 258 Gissing v Gissing [1969] 2 Ch 85 Harwood v Harwood [2005] EWHC 3019 (Ch) Hobbs v Knight (1838) 1 Curt. 768 In the Estate of Hubbard [1905] P 109 Inland Revenue Commissioners v Broadway Cottages Trust [1955] Ch. 20 [1954] 3 W.L.R. 438 [1954] 3 All E.R. 120 47 R. & I.T. 574 35 T.C. 577 (1954) 33 A.T.C. 305 [1954] T.R. 295 (1954) 98 S.J. 588 Judge (Waldens Personal Representative) v Revenue and Customs Commissioners [2005] S.T.C. (S.C.D.) 863 [2005] W.T.L.R. 1311 (2006-07) 9 I.T.E.L.R. 21 [2005] S.T.I. 1800 Leahy v Attorney General for New South Wales [1959] AC 457 Legal Services Commission v Marchioness of Milford Haven ChD 8 December 2006 Lord Cheyney’s Case (1590) 5 Co. 68a McPhail v Doulton [1971] A.C. 424 Milroy v Lord (1862) 4 De GF & J 264 Morice v Bishop of Durham (1804) 9 Ves 399 Nasmyths Trustees v NSPCC 1913 S.C. 412 1913 1 S.L.T. 16 1912 Ord v Upton [2000] Ch. 352 [2000] 2 W.L.R. 755 [2000] 1 All E.R. 193 [2000] B.P.I.R. 104 [2000] P.I.Q.R. Q150 (2000) 97(1) L.S.G. 22 (1999) 149 N.L.J. 1904 (2000) 144 S.J.L.B. 35 Independent, January 11, 2000 Price v William-Wynn [2006] EWHC 788 [2006] W.T.L.R. 1633 R. (on the application of Newfields Developments Ltd) v Inland Revenue Commissioners [2000] S.T.C. 52 [2000] B.T.C. 3 [2000] S.T.I. 26 Times, February 15, 2000 1 Re Beadle (Deceased) [1974] 1 W.L.R. 417 [1974] 1 All E.R. 493 (1974) 118 Re Adams (Deceased) [1990] Ch. 601 [1990] 2 W.L.R. 924 [1990] 2 All E.R. 97 [1990] 2 F.L.R. 519 (1990) 134 S.J. 518 Times, December 12, 1989 Re Ahmed & Co [2006] EWHC 480 (2005-06) 8 I.T.E.L.R. 779 (2006) 156 N.L.J. 512 Re Astor’s Settlement Trusts [1952] Ch 534 Re Baden’s Trust (No 2) [1973] Ch. 9 [1972] 3 W.L.R. 250 Re Brooks Settlement Trusts [1939] Ch 993 Re Coates (Deceased) [1955] Ch. 495 [1954] 3 W.L.R. 959 [1955] 1 All E.R. 26 (1954) 98 S.J. 871 Re Denley’s Trust Deed (1996) 146 NLJ 964 Re Donald [1947] 1 All E.R. 764 (1947) 91 S.J. 338; Goodman v Gallant [1986] Fam. 106 [1986] 2 W.L.R. 236 [1986] 1 All E.R. 311 [1986] 1 F.L.R. 513 (1986) 52 P. & C.R. 180 [1986] Fam. Law 59 (1985) 135 N.L.J. 1231 (1985) 129 S.J. 891 Re Donisthorpe[1947] W.N. 226 1947 Re Double Happiness Trust [2003] W.T.L.R. 367 (2002-03) 5 I.T.E.L.R. 646 Re Levy Estate Trust [2000] C.L.Y. 5263 Re Sayer [1957] Ch. 423 [1957] 2 W.L.R. 261 [1956] 3 All E.R. 600 (1957) 101 S.J. 130 Re Thompson [1934] Ch 342 Re Toland Trust (2006-07) 9 I.T.E.L.R. 321 Trustees of Fairbairns (aka Douglass) Trust v Revenue and Customs Commissioners [2007] S.T.C. (S.C.D.) 338 [2007] W.T.L.R. 663 [2007] S.T.I. 1054 Table of Statutes Administration of Estates Act 1925 Companies Act 1985 Inheritance (Provision for Family and Dependants) Act 1975 Law of Property Act 1925 Stock Transfer Act 1963 The Law Reform (Succession) Act 1995 Wills Act 1837 Read More