Completely Constituted Trust and Incompletely Constituted Trust Summarised Version PDF

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COMPLETELY AND INCOMPLETELY CONSTITUTED TRUSTS AND EXECUTEDAND EXECUTORY TRUSTS1. (a) With the aid of decided cases, explain the differences between a completely and an incompletely constituted trust.Completely Constituted Trust- A completely constituted trust is one where there is an express declar...

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COMPLETELY AND INCOMPLETELY CONSTITUTED TRUSTS AND EXECUTED AND EXECUTORY TRUSTS 1. (a) With the aid of decided cases, explain the differences between a completely and an incompletely constituted trust. Completely Constituted Trust -

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A completely constituted trust is one where there is an express declaration of trust and vesting of trust property in the trustee at law and in the beneficiary at equity. Until that has been done, the trust is incompletely constituted. Settlor must have done everything within his power according to the proper requirements of that particular property to give the trustee a complete legal title Usually, transfer formalities play a vital role for the settlor to transfer the legal estate in the property to the trustees. However, it will still depend on the nature of the property involved. examples of completely constituted trusts are the testamentary trusts, i.e. trusts arising through settlements, wills and inter vivos trusts. In a testamentary trust the personal representative of not the trustee himself is under a duty to transfer the trust property to the nominated trustee. In an inter vivos trust the settlor can declare himself as trustee.

a) To transfer land, a settlor has to register it in the name of the trustee according to the rules of NLC. b) To pass personal chattels, there must be either delivery/ a deed of gift/ be registered in the name of the trustee

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In the case of Lee Eng v Teh Thiang Seong, the court explained that whether a trust is enforceable or not depends upon whether it is completely or an incompletely constituted trust. A trust is said to be completely constituted when the trust property has been bested in trustees for the benefit of beneficiaries. Until that has been done the trust is incompletely constituted. The distinction between completely and incompletely constituted trusts is of importance principally with regard to the question of consideration. In other words, the question to be considered is whether valuable consideration was given for the creation of the trust. If valuable consideration was given in exchange for the creation of the trust, it does not matter whether the trusts is completely constituted or not, for equity regards as done that which ought to be done and will perfect an imperfect voluntary trust. But there is no equity to perfect an imperfect voluntary trust.

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Where a settlor has declared a trust and the conveyance has been effected to the trustee according to the requirements of law, a trust is said to be completely constituted. - Paul v Paul / Re Bowden / Re Wallis WT

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Once the trust has been declared and the property has been vested in the trustee, the trust is completely constituted and the settlor cannot reclaim the property. The beneficiary under the trust will become the equitable and beneficial owner. In Paul v Paul (1882) 20 Ch D 742, CA, a marriage settlement was executed by parties who had since separated. Under the terms of the settlement, as husband and wife, they were entitled to enjoy the income derived from the trust property for life, with the remainder interest passing on their deaths to the children of the marriage. If there were no children and the wife predeceased her husband she enjoyed a general power to appoint over the trust property by will, subject to an express provision in default of appointment in favour of her next of kin. As there were no children, the husband and wife applied to have the capital of the trust paid over to themselves, arguing that the only other persons with any interest in it were the next of kin, who were volunteers. The Court of Appeal held that although the next of kin were volunteers, they enjoyed an immediate equitable interest in the capital because the trust was fully constituted and they were beneficiaries under it. The trust could not be brought to an end without their consent.

Whether a trust is executed trust or executory trust Every trust is executory until it is fully performed. The test is whether the settlor has been his own conveyancer or whether he has left it to the court to make out from general expressions what his intention is. When further instrument is necessary to carry out into effect the general intention expressed in first instrument, the trust is said to be executory. A trust is said to be executed when no further instrument is necessary but the trust is finally declared and trust properties are vested in the trustee at law and in the beneficiary at equity. A CCT is enforceable and an ICT is unenforceable. In an executed trust, the testator has been his own conveyancer while in an executory trust, the testator has not been his own conveyancer. This mean the settlor or the testator has marked our in precise language the interests that are to be taken by all beneficiaries. An executory trust becomes an executed trust when the further instrument is duly executed. CCT is either executed or executory. ICT are not valid and regarded as void trusts. Executory Trusts and Gift Overs Executory gift over is found in the case of Comiskey v Bowring where the testator in a bequest made to his wife said: “The whole of real and personal estate… in full confidence that she will make such use of it as I should have made myself and that at her death she will devise it so such one or more of my nieces as she may think fit and it default of any disposition by her thereof by her will.. I hereby direct that all my estate and property acquired by her under my will shall at her death be equally divided among the surviving said nieces”. The HoLs held there was an intention on the part of the testator to make a gift to his wife. The testator directed the destination of the property after the death of his wife either according to the wife’s will or otherwise among his nieces equally. On the directions set, there was an executory gift over of such property.

Incompletely Constituted Trusts (ICTs) ICTs arise where the settlor fails,

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to declare himself trustee of the intended trust property;

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to vest the trust property in the intended trustee.

The settlor then fails to hold the property on trust for the intended beneficiary. The settlor remains the owner of the property. The beneficiaries have no PROPRIETARY entitlement to the intended trust property. The appropriate mode of vesting property in a trustee must be used Milroy v Lord Facts: The settlor executed a voluntary deed transferring shares to Lord (trustee) on trust for Milroy (beneficiary). To complete the transfer, registration in the company’s books was required. Lord, through a power of attorney could have completed this further stage but failed to do so. Held: 

The transfer was held ineffective and the trust was not properly constituted.

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To render a voluntary settlement effectual, the settlor must have done everything which, according to the nature of the property comprised in the settlement. It is necessary to transfer the property and render the settlement binding on him

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It was held that shares were transferred fully only when the shares was registered with the company. It cannot be done by voluntary deed

Re Goldcorp Exchange Facts: Goldcorp Exchange Ltd had a business of holding gold reserves in coins and ingots for customers. It sold some customers gold and customers paid in advance. At the same time it owed the bank money. The bank went into liquidation and neither had gold to give to the customers nor assets to the debts of the bank. Issues: Whether the gold buyers or the bank creditor gets to be paid first? Held:  The bank of NZ has first right. There is no separation, entitlement and identification.  Goods need to be specifically identified before legal title can pass: no property passes under a mere contract of sale by description for the supply of generic goods.  There was no completed constituted trust between customer and Goldcorp

Equity will not perfect an imperfect gift Jones v Lock

Facts: The father put a £900 cheque in the baby’s hand and said: “Look you here, I give this to baby; it is for himself and I am going to put it away for him, and will give him a great deal more along with it”. The wife said the baby might tear it and the father said it is his own he may do whatever he likes with it. He locked in the safe and died 6 days later. It was argued that although there was never an outright transfer, because he had not actually endorsed the cheque by signing it, there was a trust of the cheque for the baby.

Held: There has not been a transfer of the property as it has not been delivered. It could not be used as a declaration of trust. It was held that this was too insufficient to establish his intention to create a trust. It was a one-off declaration and was not enough to prove he intended on giving the baby the money for himself.

Chothiram International SA v Lalibai Thakurdas Pagarani (2001) (Pragmatic approach after Re Rose) Facts: Shortly before his death C created a charitable foundation with the expressed intention of giving his shares in and his credit balances with to his companies. C did not actually sign share transfers. However one of the trustees Mr Pagarani executed the trust deed and £1,000 was transferred to the foundation. After his death the companies transferred his shares and credit balances to the foundation. Held: 1. The PC held that an oral declaration by a donor that assets vested in him were now to be held as trustee of a charitable foundation was sufficient to create an immediate and unconditional gift. This was so, even though the assets have not been transferred to the other trustees 2. Fairness required by equity. The fact that the trust property was vested in one trustee (Mr Pagarani himself) at the time of the gift was sufficient to make the conveyance to the trust valid.

Compare with vesting rules in: Where the transferor has done all in his power to complete the transfer, the transfer will be given effect in equity [even though ICT still can be enforceable under equity] Re Rose (1952) Facts: 

The deceased executed transfer in proper form on dated March 1943

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One of the transfer was being in favour of his wife and the other to his wife and X as trustees.

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Although the share certificates were handed to the transferees but the transfers were only registered on 30 June 1943.

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The deceased died on 16 Feb 1947 and the question of whether the estate duty was payable on the shares transferred by the two transfers on 30 March 1943

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The court held that it depends on whether the transfers before ¼ were effective. Held:

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Although the legal title clearly did not vest in the respective transferees until June but the deceased had done all in his power to divest himself and to transfer the transferees the whole of the right title and interest.

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The gift of the beneficial interest in the shares had been made and COMPLETED on 30 March. Between 30 March – 30 June the deceased was a trustee of the bare legal title for the transferees

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This means that the court will assist a volunteer if the donor has done everything in their power to transfer the title. Chothiram International SA v Lalibai Thakurdas Pagarani Facts: Mr Pagarani intended to create a charitable trust and he was to be one of the seven trustees. He died before the formal deed of transfer could be materialised but in a party before his death was reported announcing “I now give all my wealth to the trust.” The children of Pagarani argued that there was no trust as it was not properly vested. Held: Lord Browne-Wilkinson of the Privy Council held that an oral declaration by a donor that was already to be the trustee was sufficient to hold that a trust was created. In any case, it would be unconscionable to allow a donor to go against his word especially since he was also a trustee. While equity will not perfect an imperfect gift, the court should not be so officiously defeat a gift. Pennington v Waine (2002) Facts  Mrs Ada filled up a share transfer form and gave it to Mr Pennington, company’s auditor, to transfer her 400 shares in a company to her nephew, Harold.  Mr Pennington put it on the auditors’ files but never gave it on to the company for the registration of shares in Harold’s name to be completed. Ada died.  The other people who stood to inherit, (including Philip Waine) argued that unlike Re Rose, Ada had not done all she could have, because she had not handed the completed transfer form to Harold or the company. Harold contended that the shares were held on trust for him, so that the transfer must be completed. Held    

In the case the donor had told the donee of the gift of the shares, she had signed the transfer form and given it to a partner in the firm. The partner had told the donee that he need take no further action. Moreover, the partner agreed to become director of the firm. Without a transfer of shares he could not have become a partner. It is unconscionable for Ada to change her mind.

Principle The key question to be asked is whether it would be unconscionable for the donor to change her mind. Where beneficiaries have provided consideration they may seek specific performance to complete the transfer of property.  If the owner of the property has the intention to make a gift but doesn’t hand over the property to the beneficiary, there is no legal principle that one can apply to compel the legal owner to make the gift.  However, if the beneficiary has given some consideration as understood by law (money/ money worth/ marriage) the imperfect gift will be converted into a valid contract. The beneficiary can apply to the court for a decree of specific performance to compel the owner to honour his part of the contract. Trust of a marriage settlement1 

Is a trust with consideration where spouses set up for their imminent marriage and for children of their marriage

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The spouse and children are part of the marriage settlement

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Children are deemed to be within a marriage consideration and treated as having given consideration. It may include stepchildren if they are treated as children of the family but does not include next of kin or any other relations.

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Next of kins are volunteers and cannot get equitable assistance.

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Maxim: Equity regards as done that which ought to be done."

Pullan v Koe Facts:    

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In the marriage settlement, the husband and wife promised to settle any property acquired after marriage that exceeded the value of 100 pounds to the marriage trust. She then received a sum of money from her mother which was not added to the trust but simply put in her husband’s account His husband used it to buy securities but she has a right to withdraw On his death the question the trustees brought action against husband’s estate and claimed that the bond should be held for the benefits of the beneficiaries of the marriage settlement. Held: The trustees cannot take any legal action for damages of the promise because it has been time-barred. However since the husband had received the bonds with notice of the trusts of marriage settlement, the trustees were able to claim the bonds in equity on behalf the beneficiaries It is true that court will not assist a volunteer but the trustees/ claimant in this case were acting on behalf of person within the marriage consideration

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Principle: The court said the children were objects of marriage settlement and therefore they were not volunteers and could enforce an incompletely constituted trust A person can covenant for valuable consideration to settle property which is to come into existence in the future and when it comes into existence equity sees as done that which ought to be done and will not insist upon the specific performance of the covenant.

Next of kin are volunteers and cannot obtain equitable relief as equity will not assist a volunteer to enforce a trust. Re Plumptre's Marriage Settlement 1910 Facts: Briefly similar to Pullan's. In this case, the next of kin were trying to enforce the covenant/promise as the wife died childless. Held:  

The court held the next-of-kin were not objects of marriage settlement. The covenant was between the husband and the wife and the next-of-kin were not parties to it. The next-of-kins were volunteers being strangers to the marriage consideration and cannot enforce the covenant against the husband. Re Pryce Facts: Next of kin were trying to get property within a marriage settlement as there was a promise to settle after-acquired property. The trustees sough directions as to whether they should take proceedings to enforce a covenant to settle after-acquired property. Held: No because the next-of-kin were volunteers and were not parties to the covenant, they had no right to enforce it. To direct the trustee to act would be to allow the next-of-kin to obtain by indirect means a benefit which they could not obtain directly themselves. Trustees could not sue or be allowed to sue on behalf of volunteers or next-of-kin. [The court was saying that the trustee cannot act for the next of kin, not your business, your duty is for beneficiaries only] Right of Beneficiary to Enforce the Trust General Rule – Equity will not aid a volunteer Equity does not perfect an imperfect gift and ICTs are thus generally unenforceable by their intended beneficiaries (as seen in Milroy v Lord and Jones v Lock cases). However, there are exceptions whereby ICTs are still enforceable: Exception 1: Principles of Strong v Bird Strong v Bird Facts: Bird allowed his stepmother to stay in his house on rent. Bird borrowed money from his stepmother and the agreement was that the stepmother could pay reduced rent until it covered the loan amount. The stepmother paid the reduced rent in two times and then

continued paying regular rent. The stepmother then appointed Bird as the executor of her estate and died after that. Held: On her debt, the next of kin went after Bird to recover the debt. However, the Court held that the appointment of Bird as the executor by the mother evidenced her intention to give him the money as an inter vivos gift. This is because the executor is responsible for calling all the debts to the estate and so it would make little sense for the executor to sue himself for the debt. In this case, even though the donor’s title to the donee was not perfect, in this case, equity will perfect the gift. Facts: 

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Bird borrowed £1,100 from his stepmother. She was living with him and paying him for rent. It was agreed by both parties that the loan was to be repaid by a reduction in the rent, until the loan was settled. She paid the full rent until her death. On her death, she appointed Bird as her executor and the next of kin now attempted to recover the debt from Bird.

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the debt had gone as the appointment of Bird as executor released the debt at law for he could not sue himself  Further the stepmother showed a clear intention to forgive him the debt and this intention continued till her death Principle:  A debt is released at law if the debtor becomes the executor of the creditor’s estate.  Therefore, if a balance of a loan remains outstanding from debtor to creditor the appointment of the debtor as executor of the creditor’s estate releases the debt.  Though Bird was just a volunteer without consideration but the court held that the debt is released as law when the debtor is appointed by the creditor. This is because the appointment vest property in the debtor and this completes the gift. To invoke the rule in Strong v Bird, 

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There must be a present intention ...