Analysis of Trust - Case Study Example

Introduction The individual inter vivos gifts granted by Albert prior to and in anticipation of his death conflicts with his testamentary dispositionin which he directs John to divide his property equally among his children. Both sets of transactions also contradict to a large extent the gift to Irene which were to take place upon Albert’s death. The question then is whether or not the inter vivos gifts are valid trusts capable of enforcement and overriding the testamentary dispositions. For each of the inter vivos gifts to be valid they most comply with the formal requirements for the creation of a trust. The formal requirements are certainty of object, subject and intention.1 The objects will refer to the beneficiaries, certainty of subject refer to the trust property and certainty of intention refers to the settlor’s intention to create a trust. The court ruled however, in Tana & Anor V Tana & Anor, that “certainty of intention is in many ways the most important”of the three certainties.2 It therefore follows that once the court is satisfied that the “declarant had the requisite intention it will strive to validate it.”3 Certainty of intention will be the most important element for determining whether or not each of Albert’s gifts form valid declarations of trusts. If the property was properly disposed of by virtue of valid declarations of trust they will not form a part of Albert’s testamentary estate. The Gift to Maria The envelope that Albert gave to Maria contained personal property (the cheque for 2,000 pounds) and the title deeds to realty (freehold to Black acre). When Albert handed the envelope to Maria he specifically stated that the envelope was for her. It is assumed that Albert was referring to the contents of the envelope. The subject matter of the gift is the trust property which consist of the cheque and title deeds to Black acre as they are objectively ascertainable4. There is no doubt that Maria is the identifiable beneficiary and as such is the object of the trust. The intention to create a trust can be discerned from the words used and these words are required to be clear and imperative5. The words written on the title deeds to Black acre clearly reveal that Albert held the property upon trust for Maria. His words “I hold this for Maria” are unambiguous and represent a valid declaration of trust. The words do not have to follow a prescribed form and they only need to convey the necessary intention.6 It is obvious that Albert intended to create a two party trust in which he as settlor held the legal title to Black acre as trustee for Maria as beneficiary. There is a problem however, with the declaration of trust in Maria’s favour since it is an interest in realty. Section 52 of the Law of Property Act 1952 will therefore apply. Section 52 of the 1925 Act makes it mandatory for the disposition of realty to be conveyed by deed only. Section 52 specifically provides that: “All conveyances of land, or any interest therein are void for the purposes of conveying or creating a legal estate unless made by deed”.7 The difficulties presented by Section 52 of the Law of Property Act 1925 can be overcome. Christopher Slade J said that the disposition of an equitable interest in property requires a trust instrument or some form of writing unless a trust can be implied or construed by operation of law.8 The words “manifested and proved”9 in Section 53(1)(b) can be applied to Albert’s signed indorsement, with the result that it constitutes written evidence10 of a valid two party trust in favour of Maria. Therefore Black Acre forms part of a valid trust in Maria’s favour and will not be disposable property under Albert’s will although by virtue of Section 52 she may not hold the legal title to the property. Section 52 John may continue to hold the property upon trust for Maria as executor/trustee of Albert’s will. As for the cheque for 2,000 pounds there is no indication that Albert intended the cheque to be anything more than an outright gift since he gave it to Maria in an envelope with instructions only that she not open the envelope until she left him. Therefore the cheque is not part of the testamentary disposition since it was an absolute inter vivos gift. The Shares in Moneybags Ltd. The disposition of the shares in Moneybags Ltd. appear to meet the formal requirements for the transfer of the shares to John since John has had the shares executed in John’s favour. The transfer of the shares were completely constituted prior to Albert’s death and would not form a part of the residual estate or any part of the estate at all. The shares in Moneybags Ltd. are subject to the provisions of Section 53(1) of the Law of Property Act 1925 in that the disposition of these shares 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 Moneybags are properly movable property, since they attract stamp tax 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, on the facts provided Albert appears to have executed the transfer of the shares in John’s favour. Even if he had not, his intentions are clear in that he had handed the shares directly to John and clearly stated an intention to transfer the same to him. The maxim “equity regards as done that which ought to be done” dates back to 1802 and will operate to perfect the share transfer to John. 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 of the kind that exists as the love and affection between family members15. It is not clear why the director’s of the company refuse to register John’s shares since the shares were completely constituted. As noted, even if they were not the shares would represent a an imperfect gifth which the courts would perfect and would compel the directors to comply with Albert’s intentions. The car itself represents an outright gift to John prior to Albert’s death since he gave the car to him during his lifetime. It is no moment that Albert died shortly afterward. The gift of the car was completed prior to his death. Since it is movable property, the transfer of the car as a chattel can be perfected by merely taken possession. The Gift to Irene The presumption is that having perviously disposed of the interests in Black acre and share certificate in Moneybags to Maria and John respectively, Albert did not mean to dispose of these properties to Irene. Be that as it may, he provided Irene with a key to a deed box having told her he wished her to take everything. The box contained the bank’s receipt of the title deeds to Black acre, property he claimed to have held for Maria. It is not clear if the shares contained in the deed box include the share transferred to John. Assuming that they do include that particular share certificate it appears that Albert made conflicting dispositions of his property in that he transferred the same property to all of his children. It cannot be argued that Albert’s gift to Maria and John were only meant to subsist during his lifetime since it was clear that he called his children together in anticipation of his death. Assuming that the trust created by Albert in respect of Black acre in favour of Maria and the transfer of the share in Moneybags Ltd are valid trusts the question of certainties are not relevant except to the extent that a new trust is created in favour of Irene Sally’s with the result that the trusts in favour of John and Maria are extinguished. The instructions and gifts to Irene involve the disposition of beneficial interests from one set of beneficiaries to another. The gifts to Irene also functions to appoint a new trustee since the will itself appoints John as the executor/trustee of the property contained in the estate. Albert specifically tells Irene that she is to have everything should he die, at the same time, his will which takes effect upon his death appoints John as executor/trustee of the estate. In other words, in addition to appointing a new beneficiary, Albert is appointing a new trustee and removing previously appointed beneficiaries and trustees since Irene is effectively being asked to administer the property or take full possession of it for her own benefit. In this sense, there is an attempt to revoke the previous trusts in favor of both Maria and John. This is accomplished by virtue of naming new beneficiaries and a new trustee. The question then turns on whether or not the oral instructions to Irene constitute a proper revocation of the existing trusts and the creation of new trusts. These kinds of transactions represent a disposition of both a legal and equitable interest and therefore Section 53(1)(c) of the Law of Property Act 1925 will apply.16 On the facts of the case for discussion, Albert’s oral instructions to Irene are insufficient to meet the requirements contained in Section 53(1)(c) of the Law of Property Act 1925. Albert has purportedly disposed of existing trusts and in order for such a transaction to be valid written evidence of such a disposition is vitally important. This is so since beneficial interests move from one party to another. Albert tells Irene that he wants her to have everything, an unequivocal attempt to grant her a gift out of property already subject to express declaration of trusts. In Grey v IRC17, it was held by the House of Lords that when a transfer of property represents a replacement of beneficiaries under a trust such a transaction is no more than a disposition of equitable interests and such dispositions are required to be conducted in or evidenced in writing.18 Moreover in order for a disposition of an equitable interest to be valid it must satisfy the requirements for writing as contained in section 53(1)(c) of the Law of Property Act 192519 . The instructions to Irene are oral and as such they are inconsistent with the provisions of Section 53(1)(c) and the ruling in Grey v IRC . In light of the facts and circumstances surrounding the gifts to Irene and in view of the relevant law discussed above, the gifts to Irene will fail for lack of formality. The gift of the bank pass was not meant to take effect unless and until Albert passed away and it would therefore fall to form a part of Albert’s will. The gifts to John and Maria, although granted in anticipation of Albert’s death were granted inter vivos with no stipulation that were to take effect only after Albert’s death. Therefore the gift of Black acre to Maria and the share certificate in Moneybags Ltd. to John operate separate and apart from the will since these gifts were disposed of prior to Albert’s death. Conclusion The Black acre property is the subject of a properly constituted trust in favour of Maria and is therefore enforceable. Likewise the share certificate in the name of Moneybags Ltd. is also a completely constituted gift in favour of John and there is no valid reason for the directors’ refusal to register the share. Therefore John should petition the courts for an order compelling the registration of the share certificate in his favour. All other property, including the furniture in the Black Acre home, shares that do not form a part of the share certificate from Moneybags Ltd. and the bank pass book for Bricks and Mortar, should all be disposed of under the terms of Albert’s will. In other words all property not forming the trust properties in favour of John and Maria should be divided between all of Albert’s surviving children equally according to his testamentary instructions. Bibliography Ellison v Ellison [1802] Ves 656 Grey v IRC (1960) AC 1 Huntingford v Hobbs [1993] 1 FLR 736 Knight v knight (1840) 3 Beav 148 Law of Property Act 1925 Lee Eng Teh v Teh Thiang Seong [1967] 1 MLJ 42 Martin, J E Hansbury. Modern Equity. (2005) Sweet and Maxwell. London McGhee, .John. (2005) Snell’s Equity. Sweet & Maxwell Palmer v Simonds (1845) 2 draw 221 Re Tylers Fund Trust (1967) 1 WRL 1969 Tana & Anor v Tana & Anor [2001] EWHC Ch 413 Wright v Atkyns Turn & R 143 Read More