Equity and Trusts and Alices Will - Essay Example

Equity and Trusts The major issues raised in the context of Alice’s will are (a) whether a private express trust has been formulated and (b) whetherthe dispositions made under the will can stand under the three certainties that must be established before a trust can exist. As executors of the trust, if it exists, Edward and Sandra will have to carry out the instructions laid out in the will to match the testator’s intent as far as possible. Hence, the testator’s intent needs to be determined, and if this is not clear, then the trusts that are implied under these dispositions may not be held to exist. Firstly, this scenario raises the issue of creation of a private express trust. An express trust is like a fiduciary relationship where the person who is the trustee holds legal title for property in trust for the beneficiary who holds the equitable title. In order for a trust to be valid, it must be in writing, it must be executed by a settler who has the necessary capacity, it must have a legal purpose, must have an identifiable beneficiary and trustee, and the intent to create a trust must be clearly identifiable. In the case of Alice’s will, the validity may not be questionable in large part because it has been set out in writing. It appears that Edward is the primary beneficiary, although he is also one of the executors of the trust. One of the issues that arises in this case is establishing the validity and authority for both Edward and Alice’s carer Sandra, to function as executors of her estate. One of the first things that must be established is whether the will as written can stand as an express trust with testamentary capacity having been adequately proved. The terms of a will can be held to be valid only if it can be shown that a testatrix was in full possession of her faculties when she made the dispositions under the will. In the recent case of McClintok v Calderwood1 this was one of the issues that was raised. In this case, the defendant was the wife of one of the deceased’s nephews. The deceased had made two wills while at a nursing home, the only difference between the two was that the first one did not name an executor, while the second named the defendant as executrix of the deceased’s estate. One of the defendant’s brothers contended that the wills were invalid for lack of testamentary capacity and for want of knowledge and approval. Testamentary capacity was however, established in the case of McClintok v Calderwood. Although the deceased had been confused at times and showed early signs of dementia when the wills were executed, it was not so severe that testamentary capacity was thrown into doubt. In this case, the Court also held that where knowledge and approval were concerned, the defendant had discharged the burden of proving validity because she had not instigated the preparation of the wills and the carer who served as the drafter and witness of the will did not gain any benefits out of them. Applying this precedent in Alice’s case, although she was 80 years old, she was not known to be suffering from dementia or a similar condition that could have impaired her mental capacity, especially because she has drafted the will herself. Moreover, she has drafted the will herself and there is no indication that there was any undue influence being placed upon her by Edward, although he stands to gain and benefit from its provisions. Hence it does not appear that the will is likely to be held to be invalid for want of knowledge and approval. When an express trust has been set out in the form of written terms, then there is an element of conclusiveness about it, as expressed by Lord Upjohn in the case of Petitt v Petitt2 "If the property in question is land there must be some lease or conveyance which shows how it was acquired. If that document declares not merely in whom the legal title is to vest but in whom the beneficial title is to vest, that necessarily concludes the question of title as between the spouses for all time, and in the absence of fraud or mistake at the time of the transaction, the parties cannot go behind it." This could also be applied to the case of Alice’s will, although it deals with dispositions other than land, because there does not appear to be grounds for fraud or mistake in executing the will. Additional issues raised in the context of the will are the three certainties. In order that a trust is considered to be valid, there must be three certainties associated with it, as set out in the cases of Knight v Knight3 and Phail v McDoulton4. These are (a) certainty of intent (b) certainty of subject matter and (c) certainty of objects. Applying the first criterion, it must first be established that the intent of the testator is to create a trust and not with some other purpose in mind. Earlier, courts were more willing to accept ambiguity in wording as being equivalent to the constitution of a valid trust. One example that may be cited in this regard is the case of Tribe5, the Court was quite willing to accept words such as “in full confidence” as sufficient establishment of the intent to set up a trust. But this is no longer the case; for example in the case of Re Connolly(1909)6, the Court held that the mere use of precatory words cannot be a grounds for the imposition of a trust in the absence of other forms of corroborative evidence. The case of Lambe v Eames7 established that where a testator uses words that express a wish or a hope that some action is carried out, this does not necessarily equate to the establishment to sufficient intent to constitute a trust. Alice’s will provides the sum of 10,000 pounds to Edward. The question that arises in the context of this sum of money is – can this be deemed to constitute a gift for Edward because Alice has stipulated that he can have whatever is left of it after making the allocations she has suggested. Or does it provide an indication that a trust has been constituted, where the beneficiaries are the rest of her relatives who have not been named in the other provisions of the will? The latter question raises problems where the establishment of certainty of intent is concerned, because the nature of the words used under this provision appear to indicate that the amount is intended more as a gift rather than to establish a trust as such. For example, applying the precedent set out in Lamb v Eames, words that indicate a wish or a hope will not be sufficient to establish the intent to establish a trust. The words that Alice has used require Edward to provide a small momento for the relatives, if there are any left out from the other will provisions, but there is an element of the voluntary about it rather than a compulsion. The manner in which the words have been used appear to suggest that it is left up to Edward’s discretion about purchasing small momentos, hence the indication appears to be more in line with Edward being allowed to keep the money for himself. On this basis, it would appear that this particular disposition indicates the lack of intent to create a trust and is more in line with giving a gift. Another problem in construing this disposition of 10,000 pounds as a trust rather than a gift lies in the fact that there is no clear purpose that can be determined in the allocation of the trust. The will requires Edward to purchase small momentos in the event that any relative has been left out of the will, but these are only momentos of Alice which do not serve any definite purpose or provide any financial benefit other than a keepsake of Alice. Hence, holding this disposition as a trust may also pose problems in terms of lacking a definite intent behind it. It appears more of a general kind of trust in favour of Alice’s relatives, expressing Alice’s wish to provide some small momento for their benefit. In the case of Re Endacott8, there words in the will were of a similar precatory nature and the stated purpose was for the general benefit of the daughters rather than a clearly defined objective. The Court held in this case that trusts for purposes are void, and this may also apply in the case of Alice’s will. The use of precatory words is no longer deemed to be adequate to establish the intent to set up a trust. In the later case of Adams v Kensington Vestry9, similar words were at issue and the Court held that using words such as “in full confidence” cannot be held to be equivalent to the constitution of a trust; hence in that case it was held that a trust had not come into force. The Court was of the view that a trust can only be said to arise when it can be firmly established that setting up such a trust was indeed the settlor’s intent; using words such as “in full confidence” however were not sufficient to establish such an intent. A similar issue is presented in the case of Alice’s will, where in the case of the bottles of wine, Alice states that she gives 50 bottles of the wine in her cellar “in the fullest trust and confidence” that he will divide it equally between her old friends. Alice’s choice of words in this instance may not necessarily lead to the inference that it was her intent to set up a trust, because expressing her confidence in Edward’s action implies that she has left the decision to Edward and has not necessarily constituted a trust for this purpose. It is equivalent to an oral statement of intent, which may not be construed to be definitive enough to establish a trust. Where there is such oral evidence in support of a trust, the contract could be deemed to be one of mandate and therefore lacking in the ability to establish certainty of intent. Applying the precedent mentioned above in Adams v Kensington Vestry, Alice’s intent to establish a trust with Edward as trustee for her bottles of wine will thus fail on the grounds of certainty of intent, although there is a slim chance that since Alice has expressed these words in writing, it may be held by the Courts to be adequate to show her intent to set up a trust. Where the bottles of wine are concerned however, the question of whether a trust has come into place may not necessarily be one where a positive affirmation is given by the courts, because the trust must also succeed on grounds of certainty of subject matter. In order for a trust to be definitively established, it is necessary that it must satisfy all the three grounds of certainty, of which the certainty of subject matter is one. Unless there is certainty of subject matter, no trust can be said to exist. For example, in the case of Simonds the Court held that the words of the testator: “the bulk of my residuary estate” were not adequate to establish the existence of a trust because it was not definitive enough on the issue of subject matter. In the case of Re Golay10, the words used were “one of my flats and a reasonable income”. This was held to be definitive enough to establish the level of certainty required to establish certainty of object. Another issue that will arise when the question of certainty of subject matter is concerned is the question of whether the subject matter of the trust is sufficiently separate from other assets. For example, in the case of Re Goldcorp11, the subject matter of the trust was bullion but the Court held that since it had not been separated from the other parts of the trust, it could not constitute a valid trust. On the other hand, in the case of Hunter v Moss12, the subject matter of the trust was shares, but since these assets were considered to be fungibles or incorporeal assets, they were held to constitute a valid trust. Applying these precedents in the case of Alice’s disposition about the wine bottles, it appears likely that if the Court can determine that the corporeal subject matter is not divided from the other assets, then the trust will be declared invalid because it is not separate, but if such division can be established, then the trust will be declared valid even if the subject matter of the trust is not separate from the rest of the assets. The problem which arises in the way Alice has spelt out the disposition of the wine bottles is the lack of separation of the 50 wine bottles from the entire group of 80 wine bottles which is the entire asset. All of the 80 wine bottles are completely alike and there is no means available to distinguish the specific components of the trust, i.e, the 50 bottles which Edward is to separate out and set aside for distribution among Alice’s friends. Since the wine bottles could fall under the category of fungible or incorporeal assets however, there is a chance that the Courts may find the disposition to constitute a valid trust. Since fungible assets are generally those which are identical in quantity and are interchangeable, the wine bottles, being commodities, could be classified under this category and the Court may hold that the 50 bottles which are the subject of the trust can be separated out from the rest of the assets and form the subject matter of a valid trust. Thus, where the wine bottles are concerned, the certainty of subject matter may be established. A third aspect that must also be established is the certainty of object. In particular, when the constitution of a trust cannot be definitely and conclusively established, the Courts may find it necessary to examine the certainty of object in order to determine whether they can declare that a discretionary trust has come into place. The certainty of object is a very important of determining whether a trust exists or not because (a) it requires that the property which is the subject of the trust be specified, as was the case in Palmer v Symonds 13, but also that the extent of ownership of the beneficial interests specified under the trust are also certain, as was laid out in the cases of Boyce v Boyce14 and Re Challoner Club Ltd15. The certainty of object of the trust must be clearly established, because it helps a trustee to be certain about which beneficiaries he must perform the trust for and also provides redressal for those beneficiaries in the event that they have a legal dispute with the manner in which the trustees are discharging their duties under the trust. Hence, where Alice’s will is concerned, Edward and Sandra have been designated as trustees but they need to be certain in whose favour they must perform their duties, otherwise the property could lapse into a resulting trust.(Dixon, 2001:75). Establishing certainty of object requires that a trust must clearly specify who the beneficiaries of the trust are. In the case of McPhail v Doulton, the trust was to be set up for the benefit of “my relatives and dependants of staff”. The Court held that in this instance, a trust could be said to exist because there was conceptual certainty. In this case, Lord Wilberforce observed that every disposition in a will could be said to be valid if it could be ascertained whether or not an individual was a member of a class; in the event that it was not possible to ascertain this then the validity of the disposition would be an issue. A discretionary trust and a power of appointment made under such a trust allows a wide latitude of discretion to trustees to distribute the proceeds of a trust among specific individuals on the basis of generic instructions contained within the trust. This was applied in McPhail v Doulton, where the Court held that the beneficiaries could be determined because the trust was conceptually certain. The question of ascertainability is also the basis upon which the Courts can impose a discretionary trust. Hence, when the Court finds that it is possible to specifically determine the class of beneficiaries of the trust, then it may hold that a trust exists and thereby impose a discretionary trust even if the original disposition is not clear as to the certainty of object of the trust. But where the class of beneficiaries is not clear, it may not be possible to impose such a trust. In the case of Re Baden (No: 2)16, it was held that the certainty of objects test was to be used to determine whether or not the class of beneficiaries could be clearly identified, so that in the event the appointed trustees chose not to exercise the discretion available to them under the provisions of the trust, the Court could then divide up the property equally among the beneficiaries of the trust. In the case of IRC v Broadway Cottages, the Court held that a trust did not exist because it found that based upon the provisions of the will, it was impossible to conclusively and clearly determine all the persons who qualified for inclusion among the class of beneficiaries specified by the provisions of the trust. The main reason why the existence of the trust was rejected in this case was because it was impossible to ascertain what the settler meant. In the case of Re Gulbenkian17, the House of Lords also set out a similar test of certainty of object in order for a discretionary trust to operate, i.e, the dispositions under the trust should clearly identify a class of beneficiaries. This could also be an issue in the case of the disposition made by Alice of 20,000 pounds, which is to be held in trust for 21 years and then disbursed among the first 300 people to have crossed the Victoria Bridge. The basis for rejection that operated in the case of IRC v Broadway Cottages18 may also apply in this instance; i.e; it is next to impossible to clearly distinguish the class of beneficiaries. At the outset, the beneficiaries are apparently to be the first 300 people who cross the Victoria Bridge on 24th October 2008. This in itself would be a difficult exercise, but Alice further stipulates that such beneficiaries of the trust who have crossed the Victoria Bridge must also be considered “most deserving” by the executors of the trust, which further uses precatory terms that are difficult to assess quantitatively, and therefore may not be adequate to establish the intent of the testator. The basis upon which such a determination is to be made is unclear in the case of Alice’s will and in practice, it is likely to be difficult to effectively determine who the beneficiaries of such a trust would be that would adequately fulfil the necessary conditions by crossing the Victoria Bridge and being most deserving. Dixon(2001) has discussed the distinction between different kinds of certainty of objects. Since the objects of a discretionary trust are defined in reference to a specific description of a class of beneficiaries, such as employees” or “friends” for example, there is a need to distinguish between conceptual certainty and evidential certainty.(Dixon, 2001:71). Conceptual uncertainty arises when the words used by a testator do not have a precise meaning as such, irrespective of what the factual circumstances are. For example, using such terms as “people I am acquainted with”, makes the class of beneficiaries so vague and imprecise that it is difficult to determine who exactly they are. This also arises in the case of the beneficiaries stipulated in Alice’s will, i.e, the terms state that the disposition is to be made to the “most deserving” among the first 300 people to have crossed the Victoria Bridge. The class of beneficiaries is imprecise and difficult to determine. Similarly, this disposition also poses difficulties in terms of evidential uncertainty. Where a disposition under a trust is concerned, evidential uncertainty arises when it is impossible to determine whether a person actually falls within a particular class description. The trust will suffer from uncertainty in this instance, not because of the meaning of the words that are used but because it becomes impossible to determine whether or not a stipulated beneficiary actually falls into a particular class or not(Dixon, 2001:71). For instance, Alice’s will stipulates that the beneficiaries should be among the first 300 to cross the Victoria Bridge. The question that must be posed in this context is: how can it be accurately determined whether a beneficiary who supposedly has been among the first 300 to cross the bridge also falls into the category of most deserving? The lack of clarity in determining which individuals might specifically fit into these categories make it difficult for the Courts to determine that a trust has come into existence. Hence, this disposition in the trust may fail, not only because of conceptual uncertainty but also because of evidential uncertainty. The basis of Stamp J’s decision in the case of Re Baden was the degree of certainty inherent in determining the class of beneficiaries to a trust, thereby requiring both conceptual and evidential certainty. However, as Dixon points out, this may be too rigid a standard to meet in practice, because a testator may have spelt out dispositions very carefully, but the lack of evidence may be a factor that lies outside his or her control. (Dixon, 2001: 71-72). But this literal approach was rejected by Sachs LJ, in the Baden case, because he was of the view that a trust could be held to be valid when conceptual certainty could be established. In the event that such conceptual certainty exists, then a trust cannot be defeated for evidential difficulties. This view provides a greater level of clarity, because it expels inherent doubts about the very existence of a trust, while also acknowledging any evidential difficulties that may be associated with the execution of the trust in practice. Megaw LJ offered a much more liberal interpretation of certainty of object in the Baden case. He was of the view that the existence of a trust could be established on the basis of certainty of object if it could be determined that a substantial number of persons fell within that category, even if it could not be conclusively determined. From the three different views of judges offered in the Baden case, it may thus be noted that the interpretation of certainty of subject matter could vary, depending upon the extent to which conceptual and evidential certainty are deemed to be applicable or not applicable. In conclusion therefore, it may be noted that applying the three different certainties that are required as per earlier case precedents, the dispositions that Alice has made in her will may not all succeed. In respect to the first provision of 10,000 pounds being handed over into Edward’s care, it is likely that this may be held to be a gift to Edward rather than an actual trust. It fails on all three certainties that could establish it as a trust. Firstly, the certainty of intent is not established because it is not clear whether Alice actually intends this 10,000 pounds to be a gift for Edward. While it may be argued that the subject matter of the trust is the 10,000 pounds, this amount is actually designated to Edward and it is not clearly specified how much of this is to be allocated towards buying momentos for the relatives and how much is to come to Edward. Moreover, the manner in which the words are phrased appear more in the nature of a wish that Edward will do the needful for whomsoever he determines needs it. Most importantly, the certainty of object does not exist, because the number of momentos, their nature and potential beneficiaries are not clearly identified. It is only stated very generally that the recipients are to be Alice’s relatives but how exactly these momentos are to be disbursed is not clear and the amount appears to be left more to Edward’s discretion. Where the beneficiaries are not clear, then it becomes difficult for the executors of a trust to clearly carry out their duties under the trust, hence it appears likely that Edward may be able to keep the amount of 10,000 pounds as a gift from Alice. Where the wine bottles are concerned, the certainty of subject matter is clear, because the words in the will clearly state that 50 bottles are the subject matter of the trust. But in this case also, the inherent problem lies with the other two certainties, which cannot be established. This disposition may fail as a trust because it does not clearly establish intent on the part of Alice. The words used are of a precatory nature; specifically the provisions of the will state that Alice gives the bottles of wine to Edward in the “fullest trust and confidence” that he will divide it equally among her old friends, with Edward having to make the determination about who would qualify as an old friend. Earlier, courts were prone to allow words such as in fullest confidence to constitute a trust, but this has changed in recent years. By the use of such words, it appears more likely that a testator is not clearly establishing an intent but is leaving it to the discretion of the testator as to whether or not to carry out the instructions specified under such a trust. Since Alice has also used such precatory words, it appears very likely that the courts may find that a trust has not been established in this case. Moreover, the object of the trust is not clear, because it allows for a wide class of beneficiaries who could call themselves Alice’s friends, not all of whom may be familiar or well known to Edward. The Courts may hold that evidential certainty is not established in this case because while it could be argued that while conceptual certainty exists because the object of the trust is old friends of Alice, where practical execution is concerned, it becomes more difficult. As a result, the trust may fail on the grounds of evidential certainty. The last disposition concerns the 20,000 pounds to be held on trust. This is likely to fail, both on certainty of object and certainty of intent. In order for an executor to accurately disburse the proceeds of a trust, the beneficiaries of the trust must be clear. This is the single largest problem with this disposition. The trust would fail on evidential certainty because it would be difficult in practice to determine who the first 300 persons are who cross the Victoria Bridge up to the date of Alice’s deceased husband’s death. Moreover, these applicants are required to be deserving, but no further criteria have been established on the basis of which the executors are supposed to determine whether or not these applicants are deserving. Hence the practical application of the trust become abstruse and difficult to execute. It may also fail on the basis of conceptual certainty of object, because it is difficult to accurately pinpoint a group of beneficiaries who are to benefit from this trust. On the basis of the above, it must therefore be concluded that the three dispositions discussed above are problematic in terms of their execution. It therefore appears likely that the initial sum of 10,000 pounds will be held to be a gift for Edward, while the sum of 20,000 pounds could also pass down to Edward, for disbursement as he sees fit, mostly because the beneficiaries in the stipulated trust are not clear. It is also not clear whether a trust was actually Alice’s intent. Where the bottles of wine are concerned however, the Court may hold that a discretionary trust has been established. Although the 50 bottles do not differ from the rest of the 80, they are separate enough to become the subject matter of a trust. The court may also hold that a discretionary trust has come into place because the class of beneficiaries identified are the old friends of Alice, although it will be left to Edward to determine who those friends. Of all the three dispositions therefore, there is the highest likelihood of the second disposition being held to constitute a discretionary trust. The other two do not allow room for a discretionary trust to be inferred, while in the case of the bottles of wine, it may be possible for the Courts to find that a discretionary trust does exist. Bibliography Dixon, Martin, 2001. “Equity and Trusts”, Routledge Cases cited: Boyce v Boyce (1849) 16 Sim 476 Hunter v Moss (1993) 1 WLR 934 CA Hart v Tribe (1854) 18 Beav 215 IRC v Broadway Cottages (1955) Ch 20 Knight v Knight (1840) 3 Beav 148 Lambe v Eames (1871) 6 Ch App 597 McClintok v Calderwood (2005) All ER (D) 356 (Apr) McPhail v Doulton (91971) AC 424 Palmer v Symonds (1854) 2 Drew 221 Petitt v Petitt (1970) AC 777 Re Adams v Kensington Vestry (1884) 27 Ch D 394 Re Baden’s Deed Trusts (No: 2) (1973) Ch 9 Re Challoner Club Ltd (in liquidation) (1997) Times, 4th November 567 Re Endacott [1960] Ch. 232. 21 Re Gulbankien’s Settlements (1970) AC 508 Re Golay’s Will trusts (1965) 1 WLR 969 Re Goldcorp [1995] 1 A.C. 74 Read More