The Gift to Sahdias Employees and Their Relatives and Dependants - Essay Example

Sadhia’s Trusts Introduction Each of the gifts created by Sadhia in anticipation of her death divides her property among several beneficiaries. Theproperty was divided by virtue of a will and a trust deed. In order to comply with her wishes the trustees will have to first determine whether or not each of the dispositions are valid trusts, capable of distribution and enforcement. For each of the testamentary gifts to be valid they are required to comply with the formal requirements for the creation of a trust, namely; certainty of object, subject and intention.1 The objects are the intended beneficiaries, the subject is the trust property and intention refers to the settlor’s intention to create a trust. If each of these elements can be ascertained by reference to Sadhia’s will and trust instrument, the trustees will be bound by her dispositions. However, the emphasis is on certainty of intention. It was held in Tana & Anor V Tana & Anor, that “certainty of intention is in many ways the most important” certainty.2 Therefore, in a typical case, once the court is satisfied that the “declarant had the requisite intention it will strive to validate it.”3 It is against this background that the trustees of Sadhia’s estate should proceed. Bearing in mind that certainty of intention is the most important element for determining whether or not each of Sahdia’s gifts form valid declarations of trusts, the trustees are advised to proceed with this mindset. The Cottage The gift of the cottage to Sadhia’s husband appears at first glance to be a discretionary trust in that the declaration assumes that her husband will do what is necessary to benefit the children of the marriage. In other words Sadhia has left the question of their children’s benefit up to her husband’s broad discretion. Certainty of subject matter is unambiguously Sadhia’s cottage and that is assuming Sadhia only has one cottage capable of being distinguished from any other realty she leaves behind. The objects of the trust are also unambiguously stated and are the children that Sadhia shares with her husband. The difficulty however, involves certainty of intention. It was held in Wright v Atkyns Turn & R 143 it is possible to descern whether or not there was an intention to create a trust by the words used. However those words must be clear and imperative4 although he failure to use specific words will not render the creation of a trust invalid.5 That said, the use of the words “in full confidence that he will do what is necessary to benefit our children” “I would like you to” can be problematic since they are precatory words and can be interpreted to confer on Sadhia’s husband an honourable duty rather than a legally binding obligation. The court ruled in Re Adams and the Kensington Vestry (1884) 27 Ch. D. 394 that the us of the words “in full confidence” could not impose an absolute duty under a trust with the result that a valid trust had not been created6. As a result the words used in Sadhia’s disposition of the cottage to her husband fails as a declaration of trust and confers on her a husband a mere honourable duty to which he is not legally bound to follow. Therefore, Sadhia’s husband will take the cottage absolutely. The Gift to Sahdia’s Employees and their Relatives and Dependants The gift to Sahdia’s employess, their relatives and dependants appear to be vague on the identification of objects, although the subject matter of 100,000 pounds is clear and unambiguous. Certainty of intention is equally clear as the trustees are directed to hold the sum for the benefit of a class of beneficiaries. While the class of beneficiaries listed as employees, their relatives and dependants appear to be too broad and too vague to pass the certainty of objects test, the House of Lords’ decision in McPhail v Doulton created an “in or out test”7 which will validate the gift to the employees, their relatives and dependants. A similar clause in a trust instrument was validated by the House of Lords in McPhail v Doulton. The relevant clause read as follow: “The trustees shall apply the net income…at their absolute discretion grants to or for the benefit of any of the officers and employees or ex-officers or ex-employees of the company or to any relatives or dependants of any such persons in such amounts at such times and on such condition (if any) as they think fit…”8 The House of Lords that where a discretionary trust rather than a fixed trust was created, complete list of the beneficiaries was not necessary. Lord Wilberforce explained that there may be situations in which the words used: “are clear but the definition of beneficiaries is so hopelessly wide as not to form ‘anything like a class’ so that the trust is administratively unworkable”.9 It therefore follows that if upon a construction of the words used to define or designate the potential and actual beneficiaries, the trust is administratively unworkable and not a valid trust. For example a disposition designating “all the residents of Greater London” as the class of beneficiaries would be administratively unworkable.10 The “in and out test” determines whether or not a trust is administratively workable. The test is used to determine whether any person coming forward to claim a benefit is a member of the class of beneficiaries. If it is possible to eliminate or include beneficiaries under the “in and out test” the trust is administratively workable.11 Applying the “in and out test” in McPhail’s case Sahdis’s instructions to her trustees with respect to the trust for the employees are likely to be upheld. This position is further fortified by Re Manisty, where a trust instrument granting trustees the power to add beneficiaries to an existing list of beneficiaries was held to be both valid and enforceable as long as the added beneficiaries were consistent with the intention of the trust.12 In Re Hay’s Settlement Trusts Megarry VC held that a trust would succeed even if there was no list or class of beneficiaries and the trustees could choose beneficiaries. All that was necessary was that it was possible to ascertain a beneficiary in the event the trustees failed to distribute part of the trust property or all of it.13 Based on the authorities cited, Sahdias gift to the employees, their relatives and dependants constitutes a valid declaration of a trust under a discretionary power. The Charitable Trust in India The gift to the trustees in the sum of 50,000 pounds for the poor children in Kostan (a small village in India) is a charitable trust and therefore the usual formalities required of a private trust are relaxed. Once it can be determined that the trust itself is interpreted to benefit of the public, it will be treated as a charitable purpose trust.14 A charitable purpose trust requires that these is no intimate nexus between the class of beneficiaries, for example, a trust for the education of the children of named family members will not constitute a charitable trust.15 The poor children in Kostan certainly infers that there is no intimate nexus between the individual beneficiaries and the qualifying does not require an intimate link, only that they are resident in Kostan and are poor. Moreover, in IRC v Pemsel [1891] AC 531 it was held that a charitable purpose trust for the relief of poverty was not required to meet the demands of the public benefit test.16 For the purposes of validating a charitable trust the term “poverty” is give a very broad interpretation by the courts. For example in IRC v Baddeley [1955] AC 572 that court ruled that poverty did not necessarily have to mean poor and destitute. All that was required was that the class of beneficiaries were lacking in the necessities of life.17 Having regard to the liberal approach taken by the courts with respect to charitable purpose trusts and certainty of objects, Sahdia’s trust for the poor in Kostan will be treated as a charitable trust and will be deemed valid and enforceable. Gift to Peter The bequest to Peter in Sadhia’s will is an absolute gift and does not give rise to declaration of trust. She merely intended by her words that the trustees transfer the sum of 2,000 pounds to Peter without more. There is no discretion or conditions attached to the gift and it is therefore an absolute gift, discharging the trustees of any duties once the funds are dispatched to Peter. Peter is free to use the funds as he sees fit. The Shares in Yorkshire Water The 220 shares in Yorkshire Water to be held upon trust for Sadhia’s sister’s children is a valid trust assuming that Sadhia has one sister capable of identification. In this disposition certainty of subject matter is clearly identifiable as the 220 shares in the Yorkshire Water. It makes no difference that Sahdia failed to identify which of her shares in Yorkshire Water were to make up the 220 shares. In Hunter v Moss [1993] 1 WLR 934, the declarant made an oral disposition of 50 shares in a company. The declarant, attempting to void the disposition argued that since he owned 950 shares the 50 shares could not be segregated from the share capital and must therefore fail for lack of certainty of subject matter. The court of Appeal did not agree and held that a trust was valid and certain if immediately following its creation the court could enforce it. It was therefore of no significance that the shares to be distributed had not been identified and segregated from the remaining share capital.18 Based on this ruling Sahdia’s declaration of trust with respect to the 220 shares in Yorkshire Water has the requisite certainty of subject matter. The objects are capable of identification and are Sahdia’s sister’s children and the intention to create a trust is evidenced by the use of the word “trust” and the words, “for their education”. In other words, Sahdia’s disposition of the 220 shares represents a purpose trust. The purpose and clear intention of the trust is facilitate the education of her sister’s children. Bearing in mind that of the three certainties intention is the most significant and important one,19 Sahdia’s gift will to her sister’s children is a valid trust. Since the certainty of subject matter and objects are sufficiently clear and there is no doubt that Sahdia intended to create a trust, the disposition of the shares in Yorkshire is a valid private trust. Barclay’s Bank Account The grant of the balance of the funds on Sadhia’s bank account at Barclay’s Bank will not fail for certainty of subject matter although the exact sum is not listed in the will. Once the subject matter can be objectively ascertained, certainty of subject is made out.20 In other words, once the trust is worded so that it can reasonably be determined what the subject matter is, the test of certainty of subject is satisfied. However, the proviso contained in the gift to her husband refers only to funds not used by him and to this end those funds are not objectionably ascertainable since it is unknown when or whether he will use all or only part of the funds. Moreover in Sprange v Bernard [1789] 2 Bro CC 585 a similar trust failed for lack of certainty of subject matter. In this case, a testatrix left 300 pounds in stock to her husband directing that the unused portion at his death be divided between her brother and sisters.21 The court ruled that there was no trust since there ws no certainty as to what would be left. The court pointed out that in order for a trust to be valid it had to be so certain that it was capable of execution at the time it was created. Therefore the trust will fail for lack of certainty of subject. However, certainty of intention is problematic since it confers upon Sahdia’s husband what appears to be a mere honourable duty with respect to the funds he does not use.22 Although certainty of objects is made out and are clearly Sadhia’s children, the trust will fail for uncertainty with respect to the unused portion of the trust and Sadhia’s husband will take the balance of the Barclay’s Bank account absolutely. 10 Shipley Street and 25 Horton Grove The gift of a trust in 10 Shipley Street and 25 Horton Grove in favour of Sahdia’s sister Jameela and her friend Amy is problematic since it is conditional upon Jameela choosing which property she wants to be held in trust for her. Although the property is identified there is no clear division of the property and requires that Jameela choose from among the properties before a trust can be created in favour of Jameela and Amy. Certainty of subject matter must be specified so as to allow the exact subject matter to be ascertained.23 The addresses which are referred to in the letter are clearly capable of being identified, the difficulty is in determing the division of the property between the beneficiaries since the object of each trust is not identifiable on the face of the trust itself. Jameela is required to choose before a trust can be created. In Huntingford v Hobbs [1993] 1 FLR 736 Christopher Slade J explained 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.24 The words “manifested and proved”25 in Section 53(1)(b) can be inferred from the trust instrument itself with the result that it constitutes written evidence26 of a valid trust in favour of Jameela and Amy. It therefore follows that although the properties themselves are not specifically divided among Jameela and Amy and falls to be determined only after Jameela chooses one of them, the trust is valid since Sadhia’s intention to create a trust on specific properties in favour of Jameela and Amy are clearly established in the trust deed. Therefore both the formal and substantive requirements for the disposition of an equitable interest in land are met. However, since the trust is conditional upon Jameela choosing first, the trust will fail if Jameela does not make a choice between the two properties. While in Re Golays Will Trusts [1965] 1 WLR 96 the court upheld a trust where the testators were directed to permit a beneficiary the use of one of her properties during her life time this trust can be distinguished from the trust for Jameela and Amy. In Re Golays Will Trusts the trust impacted only one named beneficiary and left it to the trustees to determine the trust property.27 In Sahdia’s trust she specifically places the onus on the beneficiary who has no trust power. The discretionary power can only be conferred on the trustee. Boyce v Boyce [1849] 16 Sim 476 is strikingly similar to the facts relating to the trust for Jameela and Amy. In this case the testator left four houses in trust with the proviso that one of the beneficiaries should choose one house and the remaining houses should be divided upon trust for other named beneficiaries. The beneficiary who should have selected a house first, died before choosing. The court ruled that it was impossible to ascertain, in the circumstances which houses should go to the remaining beneficiaries with the result that the trust fail. 28 It therefore follows that if Jameela refuses to choose a cottage or dies before doing so, the trust in favour of Jameela and Amy would fail for uncertainty of subject matter. However, Sadhia’s case can be distinguished since she was in possession of the book and the book itself has propriety interest in future sales and royalties. Even if the book had been sold prior to her death the subject matter in future sales would not change since the sale of a book is ongoing and income will be derived from it in much the same way as a rent and income attached to an apartment. Just as the future income to an apartment can be held in trust, the royalties and sale from book can be left in trust. The Proceeds from the Publication of Sahdia’s new Book The subject matter of the gift from the proceeds of the sale of Sahdia’s book is sufficiently clear as are the objects who are her children Asma, Junaid and her brother. Even so, the courts have been relatively consistent in their view that a trust to settle future property cannot form the basis of a trust. For example in Re Cook’s ST [1965] Ch 902, Buckley J held that a promise to settle future funds “involves the law of contract, not the law of trusts.”29 An earlier case, Re Ellenborough [1903] 1 Ch 697 will also defeat the trust. In this case the trust referred to a future inheritance and it was ruled that a trust in which the subject was not yet in the possession of the settlor or declarant would fail for lack of certainty of subject.30 Although there is no ambiguity in this bequest, the trust will fail for practical difficulties. Sadhia’s intention to create the trust in favour of two of her children and her brother are clear by the use of the word “trust”. However, the funds are not in her possession and may never come into being. Based on the reasoning in Re Ellenborough and Re Cook’s ST, Sadhia’s intention to create a trust out of the future sale of her book will fail since future property cannot be settled by virtue of a trust settlement. Indian Prints Sahdia confers upon the trustees a power of sale of the Indian Prints only after her family members choose a print. This particular gift has a significant problem, which cannot be overstated. There is no provision in the will for what is to become of the funds from the proceeds of sale of the Indian Prints once family members have taken possession of Prints of the choosing. Certainly the class of beneficiaries can be validated for the reasons outlined in McPhail and discussed previously. The beneficiaries however are only entitled to take a Print, permitting the remaining prints to be sold. Likewise the certainty of subject is clear with the Indian Prints comprising the trust property. However, there is no trust since Sadhia leaves no instructions to her trustees for the disposition of the proceeds of sale from the power of sale. It was held in Morice v Bishop of Durham that: “‘every [non-charitable] trust must have a definite object. There must be someone in whose favour the court can decree performance.”31 There are no named beneficiaries and no class of beneficiaries mentioned in this particular disposition making it impossible to apply the rule in the McPhail case. As a result the power of sale under the trust will fail. After family members choose from among the Indian Prints the remaining Prints will fall to the residue of Sadhia’s estate. The Proceeds of Sale from the Classic Mini Cooper Although the specific sums are not designated by the trust deed, they are capable of being objectionably ascertained. As a result the subject of the trust meets the formal requirements for the creation of a valid trust. All that the trustees are required to do is to hold the proceeds of sale from the sale of Sadhia’s Mini Cooper. The word trust is used so that there is no confusion with respect to Sahdia’s intention to create a trust. Likewise her children are the beneficiaries and are likewise capable of objective ascertainment. Therefore this particular part of the trust instrument creates a valid declaration of trust by which the trustees are bound to follow. The obligation is a legal one and not an honourable one as previously discussed. The Gift to Safeena The three certainties are sufficiently clear in this particular disposition in the trust instrument. Safeena has been appointed trustee of the diamond jewellery and is required to hold the same upon trust for Sahdia’s grandchildren and their grandchildren. It therefore follows that the three certainties are met in this declaration of trust. The trust property is the diamond jewellery. The beneficiaries are her grandchildren and their grandchildren, making it possible for a class of beneficiaries to be ascertained. The intention to create a trust is manifested by the words used which are quite specific. The gift is a clearly a purpose trust in that Sahdia intends that the jewellery remain in the family as a heirloom. However, the difficulty with this disposition is not with respect to the three certainties, but with the appointment of successor trustees. The heirlooms are vested in Safeena as trustee, but it is unlikely that she will survive until Sahdia’s grandchildren have grandchildren with the result that there will be no one left to administer the trust. There does not appear to be a provision in the trust deed for the appointment of a successor trustee. Appointment of trustees and replacement of existing trustees are required to be manifested in writing.32 In this regard, the trust with respect to the heirlooms will fail since it makes no clear provision for the legal interests into the future. Since Sahdia did not intend for Safeena to take the jewellery as a gift, but merely as a trustee for her future heirs, the jewellery will fall to the residue of Sahdia’s estate. The Oral Declaration of Trusts The gift of the retail shop by Sahdia to her children Irfan and Safeena and her brother although not in writing can function to create a trust. A declaration of trust can be created by word of mouth “or even inferred from conduct.”33 Sahdia clearly intends that Irgan, Safeena and her brother hold the retail shop upon trust. The fact is Sahdia made this declaration in contemplation of death from her hospital bed and as such it is a donatio mortis causa. In order to be a valid donatio mortis causa the gift must meet the criteria set by Lord Russell in Cain v Mood [1896] 2 QB 283. The gift is required to be made in contemplation of death34 and there is little doubt that Sahdia anticipated her death when she made the oral declaration. It is also required that the gift itself is delivered to the beneficiaries.35 This particular requirement can only be met by delivery of documents and since there was no passing of documents to the intended beneficiaries the gift will likely fail. Sahdia merely states that she wishes the donees to take over the shop and to run it. Section 53(1)(c) of the Law of Property Act, 1925 is all the more relevant for the purpose of delivering the gift of the shop to the beneficiaries. By virtue of the ruling in Grey v Inland Revenue Commissioner [1960] AC 1, Section 53 (1)(c) of the Law of Property Act 1925 will apply.36 Section 53(1)(c) of the Law of Property Act 1926 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.”37 If Sahdia had not previously held the property upon trust for the benefit of her family or anyone else, she is at liberty to create a new trust orally with respect to the business. However, there is no evidence that she intended to create a trust and the retail shop will fail in that regard. If Sahdia held the business as a company and in shares, Section 53(1)(c) of the 1925 Act applies and the disposition of the legal and equitable interest in the property is required to be in writing. Therefore the oral disposition of the shop will not function to effect delivery of the business at all with the result that the gift will fail as a donatio mortis causa and would fall to the residue of Sahdia’s estate. The gift of the car is an outright gift, certainly something that Sahdia had the authority to do in her life time. The car is a chattel and can be conferred as a gift by delivery of the keys. But there does not appear to be such a delivery with the result that this gift also fails as a donatio mortis causa under the test in Cain v Mood [1896] 2 QB 283. The final leg of the test requires evidence that the donor intended that in the event she does not die the property would revert to her.38 There is no evidence that Sahdia made this clear. Both gifts would therefore fail as they do not meet the criteria for a valid donation mortis caus. Bibliography Boyce v Boyce [1849] 16 Sim 476 Cain v Mood [1896] 2 QB 283 Grey v Inland Revenue Commissioner [1960] AC 1 Huntingford v Hobbs [1993] 1 FLR 736 IRC v Baddeley [1955] AC 572 IRC v Pemsel [1891] AC 531 Knight v Knight (1840) 3 Beav 148 Law of Property Act 1925 Martin, J E Hansbury. Modern Equity. (2005) Sweet and Maxwell, London. McGhee, .John. (2005) Snell’s Equity. Sweet & Maxwell McPhail v Doulton [1971] AC 424’ Morice v the Bishop of Durham [1804] 32 All ER 656. 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 [1981] 1. WLR 939 Re Compton [1945] 1 ALL ER 198 Re Cook ST [1965] Ch 902 Re Ellenborough [1903] 1 Ch 697 Re Golays Will Trusts [1965] 1 WLR 96 Re Hay’s Settlement Trusts [1981] 3 All ER 786 Re Manisty [1974] Ch 17 Sprange v Bernard [1789] 2 Bro CC 585 Tana & Anor v Tana & Anor [2001] EWHC Ch 413 Verge v Somerville[1942] AC 496 Wright v Atkyns Turn & R 143 Read More