Equity and Trusts - Case Study Example

Equity and Trusts Assignment This assignment looks at the will of Marcus. I have been asked to advise the trustees, Sally and Gurninder on the natureand validity of each of the dispositions in this will. Before looking at each clause separately I will make a few general comments. The first relates to the issue of testamentary capacity. While there is nothing in this question to suggest that Marcus lacked capacity, it must be borne in mind that in order for any trust to be valid, the law requires that the testator understands the effects of what he is doing and of his wishes being carried out.1 The second general point is that in order for any trust provision to be valid, it must comply with the rule set out in Knight v Knight2 by Lord Langdale MR. This states that there must be three certainties in the trust provision, certainty of words, certainty of subject matter and certainty of objects.3 The certainty of words requirement was described in Re Kayford Ltd.4 as being akin to a certainty of intention. The intention is to impose a mandatory obligation on the trustees of how the trust property is to be dealt with. The certainty of subject matter relates to the trust property. The trust property must be clearly defined and identified.5 Certainty of objects means that it must be clear, or possible to identify with certainty, who the beneficiaries of the trust are. If these three basic requirements are not met, then there can be no valid trust in any circumstances and the provision will fail. Now I will look at each of the provisions of the will in more detail. My real property in England and Wales to be sold and the proceeds to be distributed equally amongst my grandchildren. Regarding certainty of subject matter I do no see any issues. English law has long recognised the distinction between real and personal property, with real property being land, interests in land, and fixtures.6 Coupled with the condition that the property be in England and Wales, this description would allow for a clear identification of the trust property. Per Ungoed-Thomas, in Re Golay7 as long as property is capable of ascertainment, it will be valid. Regarding certainty of objects, if this is a discretionary trust then the requirement, as set out by the House of Lords in Macphail v Doulton8 is that it must be possible to determine whether any individual is within the class of beneficiaries or not, with absolute certainty. The Court of Appeal further clarified this requirement by stating9 that what was required with a discretionary trust was 'conceptual certainty' of the class. 'Evidential certainty' would then only be required for the members of the class that were actually to benefit, and the rest of the class, or the 'complete list' of beneficiaries need not be defined. However, since it states that the proceeds are to be distributed equally, it could also be a fixed trust, in which case the stricter requirement, known as 'complete list' certainty is required10. This means that there must be 'conceptual certainty' regarding who is or can potentially be a beneficiary. As well as this, there must be 'evidential certainty' identifying clearly, every single member of the class. Only if full certainty is present in both of these senses, will the trust be upheld as certain of objects. In this case, it should not be too difficult to establish who are the grandchildren of Marcus and therefore this provision should be successful. My shares in Delta to be sold and the proceeds, at the discretion of my trustees, to the employees and ex-employees of Delta. According to the beneficiary principle, 'for a trust to be valid it must be for the benefit of individuals'.11 This follows the simple logic that without beneficiaries, there is no owner of the property. This is the basic reason why purpose trusts, trusts that have as their goal some purpose other than the direct benefit of persons, are also invalid. However, in Re Denley's Trust Deed12 it was held that the maintenance of property for the benefit of the employees of a company was a valid trust purpose as the employees were an ascertainable group of persons who could enforce the trust. This would seem to allow a trust in favour of the current employees of Delta. However, as regards the ex-employees, this may be what is regarded as an administratively unworkable class. In R v District Auditor13 a trust was established for 'the benefit of all or any or some of the inhabitants of West Yorkshire.' This was held to be administratively unworkable and it would be impossible to say who had a right to enforce the trust. The class of beneficiaries was held to be 'far too large' to be practical. It could not come within the meaning of Denley. If the ex-employees are a sufficiently numerous class, then following this case, the trustees would be unable to properly serve them. The issue is one of degrees. In McPhail v Doulton, Lord Wilberforce described the situation as when 'the definition of beneficiaries is so hopelessly wide as not to form 'anything like a class' so that the trust is administratively unworkable or one that cannot be executed. I hesitate to give examples but perhaps 'all the residents of Greater London' will serve. However, since this is a discretionary trust, it may not fail. As we have seen before with the case of Re Baden's Deed Trusts (No. 2)14, all that is required in such trusts is that each beneficiary that the trustees decide to pay must be identifiable as a definite member of the class. We know that Delta currently have 5,000 employees and have not kept record of all past employees. This therefore would become a question of degrees. If it was held to be administratively workable, the trustees would be entitled to apply the trust assets to the benefit of such members of the class as they saw fit. All they would require to do would be prove that whoever they paid was, or had been an employee of Delta. While it is difficult to state with certainty how the above cases would be applied to this provision, I would be of the opinion that given the degree of discretion that the trustees have been given in this case, and the fact that the courts would not be required to administer this trust, then the provision should have a good chance of succeeding. The Balance of my Midwest account to be used to provide reasonable income for the education of the employees of Delta. This is again a question of degrees. The trustees have not been given discretion here, but we know that the class of Delta employees will have conceptual and evidential certainty and could be provided by the company. It therefore meets the requirement of certainty of objects. The trust property is specifically ascertained and meets the strict requirement for specificity set out in Hemmens v Wilson Browne (a firm).15 The provision does seem certain. However, we also know that there are over 5000 members of the class and the fund is 12,000. This would give a share of about 2 per beneficiary. While it may be possible to pay 2 to someone, it is harder to see how you can use it provide 'reasonable income' for their education. While Re Golay16 shows that the court is prepared to view 'reasonable income' as a certain and objectively ascertainable subject of a trust I wonder would it be so certain if the trust property was simply far too small to do so. In Mussoorie Bank Ltd. v Raynor17 the Privy Council showed how all of the elements of certainty must be looked at as a whole. It could therefore be argued that if the trust property is far too small to satisfy the trust purpose, there cannot be certainty as to either or both of the subject or objects of the trust. There is also the rule noted above relating to administrative unworkability. Therefore I would conclude that this provision is void. Paintings to Neil, knowing that he will sell them and pass the proceeds to his children. This is uncertain. Is there a trust intention First off, this is not a resulting trust, the circumstances of which have been laid out by the House of Lords in Westdeutsche Landesbank18 nor is it a constructive trust, which comes about due to the actions of the trustee. This could however be an express trust. Is Neil required to hold the property in trust for his children, or is he being given the property in his own right. 'Knowing' is a precatory word. As such the courts have decided that they will not automatically create a trust, but can, in the whole circumstances create a trust if that is the intention of the testator. In Re Adams and Kensington Vesty19 the testator left property to his wife 'in full confidence that she would do what was right as to the disposal thereof between his children.' This provision wording is plainly ambiguous to say the least. The Court of Appeal held that while it may create a moral duty on the wife to do what is right, it did not create a legal duty and she therefore was the absolute owner of the property, no trust having been created in favour of the children. However, in Re Steele's Will Trusts20 it was held that the precatory words she used did create a valid trust with regard to a diamond necklace. The approach taken by courts therefore, will be to look at the intention of the testator, having regards to the entire wording and language of the will to try and ascertain what his or her wishes were. In the whole circumstances of this case, and given the court's reluctance to allow precatory words to create trusts, it would appear that Neil will be the owner of these paintings and the duty to sell them for the benefit of his children will be a wholly non-binding moral obligation. Residue to Frida's children for their education, declaring that money not used within three years is to go to Jody. While the initial part of this provision is a valid residue clause providing money for the education of Frida's children, I think that the part giving the unused funds to Jody after three years would fail. This is based on the certainty of subjects requirement. While it may be argued that the remaining funds would be ascertainable after three years, the case of Re Jones21 shows how a very similar provision failed. In this case the testator tried to create a trust containing the part of his residuary estate that was not spent by his wife. This failed as it did not cover 'certain' property. However there are two differences here. The first is that the testator stated the purpose of the expenditure, and second, he has specified a time limit at when the remaining funds can be quantified. This may be held as ascertainable by a court but I would be of the opinion that it must fail. This same problem came up in the older case of Sprange v Barnard22. Here a testator gave 300 to her husband, declaring that whatever he did not use would be divided between her brothers and sisters. The court held here that no trust could be constituted and accordingly, the husband took the sum in absolute ownership. This shows the problem with any formulation that purports to leave a sum to A, with the unused amount to B. Usually, the requisite degrees of certainty are not satisfied and A will take the whole. The issue of suspended trusts, which was referred to by Brightman J in Ottaway v Norman23 is at odds with this interpretation however. Looking at the Australian case of Birmingham v Renfrew24 he allowed for the possibility that while A had ownership of the assets now, a suspended trust did exist in favour of B, which take effect on the death of A, and attach to the remainder of the assets. In Renfrew, Dixon J stated that 'by the special doctrines of equity such a floating obligation, suspended, so to speak, during the lifetime of the survivor can descend upon the assets at his death and crystallise into a trust.'25 Such decisions have been followed, for example, in Re Cleaver26. However these suspended or floating trusts, recognised as they are in certain contexts such as mutual wills, do raise certain and definite problems regarding the certainty of subject matter. Since this certainty is a crucial requirement of trusts their use may not be successful. To quote Moffat's textbook, 'we suggest that it is not easy to reconcile the 'floating' or 'suspended' trust wither with the conceptual requirement that the subject-matter of a trust must be certain or with the sort of practical concern with enforceability expressed in a case such as Sprage v Barnard.'27 If such authoritative sources doubt the effectiveness of such a provision, I am compelled to agree and advise that this provision is likely to fail. Bibliography Books: Snell, Principles of Equity, 29th ed. 1990 Pearce and Stevens, The Law of Trusts and Equitable Obligations, 2nd ed. Butterworths, 1998 Hayton D J, Commentary and cases on the law of trust and equitable remedies, Sweet and Maxwell, 2000 Moffat, G. Trusts Law: Text and Materials, 3rd ed. Butterworths, 1999 Gray, Elements of Land Law, (2nd ed. 1993) Legislation: Trustee Act 1925 Cases: Banks v Goodfellow (1870) 5 QB Knight v Knight (1840) 3 Beav 148 Wright v Atkyns (1832) Turn & R 143 Re Kayford Ltd. [1975] Palmer v Simmonds (1854) 2 Drew 221 Re Golay [1965] 2 All ER 660 Boyce v Boyce (1849) 16 Sim 476 IRC v Broadway Cottages Trust [1955] Ch 20, CA McPhail v Doulton [1971] AC 424 Re Baden's Deed Trusts (No. 2) [1972] Ch 607 Morice v Bishop of Durham (1804) 9 Ves 399 Hemmens v Wilson Browne (a firm) [1995] Ch 223 IRC v Broadway Cottages Trust [1955] Ch 20, CA Bowman v Secular Society [1917 AC 406 Re Denley's Trust Deed [1969] 1 Ch 373 R v District Auditor, ex p West Yorkshire Metropolitan County Council [1986] RVR 24 Sprange v Barnard (1789) Bro CC 585 Ottaway v Norman [1971] 3 All ER 1325 Birmingham v Renfrew (1937) 57 CLR 666 Read More