Analysis of the Law of Trust Cases - Case Study Example

Question A Whether or not each of the transactions involving the Rosehall villa and the shares in Marks and Spencer represent a valid declaration of trust will fall to be determined by the formal requirements for the creation of trusts. The formal requirements for the creation of a valid trust are certainty of object, subject and intention.1 In a typical case the objects will refer to the beneficiaries under the trust, the trust property is the subject and intention refers to the trust founder’s intention to create a trust. According to the ruling in Tana & Anor V Tana & Anor, “certainty of intention is in many ways the most important”of the three certainties.2 Once the court is satisfied that the “declarant had the requisite intention it will strive to validate it.”3 Certainty of intention will therefore be the most important element for determining whether or not each of the transaction with respect to Rosenhall and the shares in Marks and Spencer are enforceable trusts. 1. Ben’s Trust Martha’s instructions to Pat and James to transfer the legal title to Rosehall to Ben and her intention to release the beneficial interests in the property to Ben is no more than a revocation of the existing trust and the creation of a new one. Martha is not at liberty to revoke the original trust unless it is provided for in the original trust instrument which created the trust in her favour.4 Assuming that Martha is authorized by the original trust instrument to reassign the beneficial interests in the trust as well as the legal title there are other relevant formalities. The question for consideration is whether or not the oral declaration to Pat and James is sufficient to meet the formal requirements for the revocation of the original trust and the creation of an entirely new trust in Ben’s favour. Marths’s instructions reflect a disposition of both a legal and equitable interest and therefore Section 53(1)(c) of the Law of Property Act 1925 will apply.5 Martha’s instructions to Pat and James represent the disposal of the original trust and the creation of a new trust and such instructions are required to be in evidenced in writing.6 Moreover, the House of Lords in Grey v IRC7, held that a replacement of beneficiaries under a trust represents a disposition of equitable interest and such disposition ought to be conducted in writing.8 Therefore, Martha’s oral instructions to Pat and James are inconsitent with the formal requirements for the disposition of an existing equitable interest in a trust and the transfer of legal title. Therefore the oral instructions to Pat and James for the creation of a trust in Ben’s favour will fail. 2. Removal of Trustees Martha’s oral declaration in which she declares herself as trustee of the Rosehall Villa is tantamount to the removal of existing trustees Pat and James and the reappointment of a new trustee, herself. As in the case of the removal of beneficiaries and the reassignment of the beneficial interests, the question therefore turns on whether or not the original trust instrument permits the removal of trustees and the appointment of new trustees.9 Therefore, unless the original trust instrument makes provision for the removal of trustees Martha is not at liberty to make a declaration which effectively removes the existing trustees. Assuming that the settlor is alive he is the only person who can remove the trustees and appoint a new trustee. Moreover, the appointment and removal of trustees is required to be made in writing.10 Since the removal of the trustees and the appointment of a beneficiary under the trust as the sole trustee of the trust property impacts upon the disposition of both the legal and beneficial interest in the property, Section 53(1)(c) of the Law of Property Act 1925 will apply. In all the circumstances, Martha’s oral declaration that she is the trustee of the Rosehall villa absolutely is no a valid declaration and cannot function to remove the existing trustees nor it will it be sufficient to validate her self-appointment as sole trustee of the trust property. 3. Assignment of Beneficial Interest to Mark Both the interests in Rosehall and Marks and Spencer are subject to the provisions of Section 53(1) of the Law of Property Act 1925 in that the disposition of these interests are required to be made in or evidenced by writing. According to the ruling contained in Grey v Inland Revenue Commissioner although the shares in Marks and Spencer are movable property, they are nevertheless subject to the provisions of Section 53 (1)(c) of the Law of Property Act 1925.11 Section 53(1)(c) provides that: “...a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.”12 However, the fact that Martha failed to properly execute the actual share transfer and the transfer of her interests in Rosehall in favor of Mark will not invalidate the transfer of the trust property to him. The maxim “equity regards as done that which ought to be done” dates back to 1802 and will operate to perfect the property transfer to Mark. Lord Eldon said: “I take the distinction to be, that if you want the assistance of the court to constitute a cestui que trust, that the instrument is voluntary, you shall not have that assistance, for the purpose of constituting a cestui que trust, as upon a covenant to transfer stock, it rests in covenant, and is purely voluntary, this court will not execute that voluntary covenant, but if the party has completely transferred stock, though it is voluntary, yet the legal conveyance being effectually made, the equitable interest will be enforced by this court.”13 Lord Gill maintained that if valuable consideration is given for the trust, whether or not the trust is completely or incompletely constituted is of no real consequences since: “Equity regards as done that which ought to be done and will perfect an imperfect conveyance for value by treating it as a contract to convey.”14 The fact is there is valuable consideration, the sum of 500,000 pounds and it moved from Mark to Martha. It can therefore be assumed that the transfer of property represent an impertect gift to Mark and the courts will regard them as perfectly constituted. If Mark does not wish to have the funds returned to him and insist that Martha stand by the terms of their agreement he can obtain an order from the court validating the imperfect transfer of the beneficial interests in the trust to him. 4. Addition of Beneficiaries Martha’s instructions to her trustees represent an attempt to create a declaration of trust in respect of her own beneficial interest. The trust is wholly discretionary in which case the trustees are at liberty to use their discretion in determining the subject of the trust. The subject matter of the gift is that portion of beneficial interest that is not used for Martha’s benefit and is sufficient to satisfy the certainty of subject matter since it is objectively ascertainable15. The object is Ben and that much is certain. The question then is whether or not Martha’s intention are adequately expressed in her oral declaration of trust. The intention to create a trust can be discerned from the words used and they must be clear and imperative16. It is not necessary to use specific words and the failure to do so will not render the creation of a trust invalid.17 However, the use of the words “it is my fervent desire that you would allow my dear friend, Ben to enjoy any part of my interest under the trust that is not needed for my use” can be problematic since they are precatory words and can be construed to represent a request rather than an obligation. It can therefore be argued that the words used probably impose upon the trustees an honourable rather than a legal obligation. In Re Adams and the Kensington Vestry (1884) 27 Ch. D. 394 it was determined that the words “in full confidence” could not impose an absolute duty under a trust and therefore no trust was created18.This difference determines whether or not a valid trust is created. If the words used imposes an honourable duty there is no valid trust capable of enforcement.19 Only if the words used convey an intention to create a valid trust in favour of Ben will the trust be upheld.20 Therefore the proposed gift to Ben will fail for certainty of intention. Question B Ivan’s disposition of shares to Yuri and his dwelling house to James with instructions to hold the properties upon trust for Tania are both secret trusts. A secret trust arises when property is assigned to one person by deed with independent instructions to dispose of the property in favour of another.21 By transferring property to Yuri and James by will and providing them with instructions outside of the will, Ivan created a secret trust. The question then turns on whether or not the secret trust meets the formal requirements for the valid creation of a trust. The essential elements of a secret trust were described by Bingham J in Ottoway v Norman [1972] 2 WLR 50 as follows: “…(i) the intention of the testator to subject to a primary donee to an obligation in favour of the secondary donee; (ii) communication of that intention to the primary donee; and (iii) the acceptance of that obligation by the primary donee either expressly or by acquiescence…”22 There is no disputing the fact that Ivan communicated his intention that Yuri and James hold the trust property upon trust for Tania. Whether or not they accepted the obligation is another matter entirely. It can be assumed, that based on the facts stated there were no expressed objections or refusals and it can be assumed that there was at least acquiescence on the part of James and Yuri. As explained in Snell’s Equity: “If a testator makes a gift of property to T without saying that he is to hold it on trust, and either before or after making his will tells T that he wishes him to hold the property on trust for P, T will be compelled to carry out the trust if T either expressly promises that he will do so or by silence implies it.” 23 In a typical case the courts take the position that in all claims arising out of the disposition of property passing under a will such claims must be examined with the utmost care and caution. In other words evidence of the existence of an existing secret trust will be taken seriously. To this end the evidence adduced by both sides is required to be unambiguous and satisfactory.24 The will itself contains evidence of the existence of a secret trust in respect of the house left to James. Re Snowden (dec’d) (1979) 2 All ER 172 determined that while a court is inclined to uphold a trustee’s duties under the half-secret trust the onus is on the beneficiaries to demonstrate that on a balance of probabilities the primary donee under the testamentary instrument holds the property upon trust.25 The fact that Ivan, in his will, makes reference to “other arrangements” that James is aware of will in all likelihood function to discharge Tania’s burden of proof and the executors should be governed accordingly. In other words, they ought to treat the disposition of the house in favour of James as a trust for the benefit of Tania. The shares that were transferred to Yuri although subject to a secret trust have two complex issues that could be problematic for the executors of Ivan’s will. The first difficulty is Yuri’s death. With Yuri’s death the executors, if they are satisfied that a secret trust exists will have to appoint another trustee or act as trustees themselves. The shares are to be treated as trust property and not property forming part of Ivan’s estate under the will. As A.J. Oakley explains: “secret trusts operate wholly outside the will or intestacy in question and so are governed not by the rules of probate but by the rule of the law of trusts, which in no way prevent the introduction of oral evidence. This argument will obviously apply both to fully secret trusts and to half secret trusts…The enforceability of such trusts in equity is therefore no more dependent on fraud than is any other type of trust. For these and other reasons, it will be suggested that secret trusts are in fact express trusts.”26 The second difficulty for the executors arise out of Tania acting as one of the witnesses to the will. Section 15 of the Wills Act 1837 invalidates any gift or bequest provided for in a will to which the beneficiary under the will is a witness.27 That said however, Tania’s gift does not arise upon the devolution of the property under the will but by virtue of a trust created independently of the will and therefore Section 15 of the Wills Act will not apply. Lord Cairns explained in Jones v Badley (1868) LR 3 Ch 362 that the transfer of property form one party to another on the basis of some shared understanding is a question of trust itself. On this basis the gift to Tania is a trust which was not only created independent of the will, but also functions separate and apart from the will. Bibliography Ellison v Ellison [1802] Ves 656 Grey v IRC (1960) AC 1 Knight v knight (1840) 3 Beav 148 Law of Property Act 1925 McGhee, .John. (2005) Snell’s Equity. Sweet & Maxwell Oakley, A.J. (2003) Parker & Mellows’ Modern Law of Trusts. London: Sweet and Maxwell Ottoway v Norman [1972] 2 WLR 50 Palmer v Simonds (1845) 2 draw 221 Re Adams and the Kensington Vestry (1884) 27 Ch. D. 394 Re Bowden 1936 Ch 71 Re Cleaver (Deceased) [1981] 2 All ER 1018 Re Snowden (dec’d) (1979) 2 All ER 172 Tana & Anor v Tana & Anor [2001] EWHC Ch 413 Wills Act 1837 Wright v Atkyns Turn & R 143 Read More