Express Trusts - The Three Certainties - Intention and Subject Matter PDF

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LAWS11010 & LAWS20110 Property Law I 2019-2020 A. Express Trusts: The Three Certainties (Intention and Subject Matter)

1. Introduction to Express Trusts 1.1. The Parties to an Express Trust Settlor:

has absolute ownership of property until the trust is created

Trustee:

legal ownership of property once trust is created

Beneficiary:



subject to duties imposed by settlor and law



personally liable to beneficiary for breach

equitable (beneficial) ownership of property once the trust is created 

entitled to any benefits (income, profit)



personal rights against trustee



proprietary rights in the trust property



can authorise variations or override terms of trust, and when all of age and absolutely entitled, can bring the trust to an end (Saunders v Vautier (1841) 3 Beav 115)

1.2. The Elements of an Express Trust

1.2.1. Express trusts can be created during the settlor’s lifetime or by will. 

An inter vivos trust is created during the settlor’s lifetime.

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There are two ways to create an inter vivos express trust: A. Transfer to trustees

B. Declaration of self as trustee

Settlor transfers title -- Trustee | Beneficiary

Settlor declares self as trustee -- Settlor/Trustee | Beneficiary



A testamentary trust is created by will. The testator’s personal representatives either become trustees or transfer the property to the named trustees, as provided for by the will. Will

a validly executed document appointing executors to administer estate after death

Testator/testatrix (m/f)

person who has executed a will

Intestacy

arises when a person dies without making a will disposing of all of their property

Personal representatives

includes executors and administrators (appointed by the court where deceased died intestate)

1.2.2. An express trust can only be created where the three certainties are satisfied: 1. Certainty of intention to create a trust 2. Certainty of subject matter 3. Certainty of objects N.B. Take care not to confuse subject matter and objects here! 1.2.3. An express trust can be fixed or discretionary. In a fixed trust the beneficiaries are determined by the settlor. e.g. to T on trust for A, B and C in equal shares In a discretionary trust the settlor gives the trustee a discretion to decide how the property should be allocated to the beneficiaries. e.g. to T on trust for A, B and C in the proportions that T decides 1.2.4. An express trust will not be created until it is validly constituted and any necessary formalities have been complied with. [These issues will be covered in a later topic.]

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2. Distinguishing between Gifts, Trusts and Powers of Appointment Disposition: the distribution or transfer of property by some act of its owner There are several ways that an owner can choose to dispose of their property. For our purposes we need to consider the following: Gift:

property transferred to donee absolutely

Trust:

property transferred to trustee on trust for beneficiaries

Power of Appointment:

property transferred to trustee, donee of power of appointment given the power to select who should receive property

2.1. Gift e.g. to X 

Gratuitous and voluntary transfer from donor to donee.



May be inter vivos or testamentary (in which case the property is passed to the executors, who have a duty to transfer it to those entitled under the will.)

2.2. Trust How should the trustee distribute the property? Fixed trust: beneficial interests are certain   

to X, for benefit of Y to X, for benefit of Y and Z equally to X, to be divided between my grandchildren equally

Discretionary trust: beneficial class is certain but trustees have discretion as to individual beneficiaries and/or beneficial shares  

to X, to be divided between my children as he sees fit to X, to distribute £5,000 to any of my employees in need

2.3. Power of Appointment e.g. to X, with a power to distribute to Y (and in default of exercise to Z) A power of appointment is a power of disposition given to a person (the donee) over property owned by someone else (the donor) who directs the way in which that power should be exercised. The donee of a power of appointment can choose who should be given certain property and in what proportions.

Donor

Donee 3

2.3.1. Who can be a donee of a power? The trustee or a third party (for example, a family member) may be a donee.

2.3.2. Who are the objects of a power? General power:

can be exercised in favour of anyone (including donee)

Special power:

can be exercised in favour of any member(s) of a particular class

Intermediate or Hybrid power:

can be exercised in favour of anyone except members of a class

2.3.3. Does the donee of a power have any obligations? Unlike the role of a trustee, there is no obligation for the donee of a power to distribute the property. Powers may therefore be used to achieve greater flexibility in the disposition of property. If a power is not exercised, the property will go to those entitled in default. Bare/Mere power:

no obligation to exercise the power

Fiduciary power:

obligation to consider exercise of power from time to time Re Hay’s Settlement Trusts [1981] 3 All ER 786 Mettoy Pensions Trustees v Evans [1990] 1 WLR 1587

Fiduciary: a person, such as a trustee, who holds a position of trust or confidence with respect to someone else and who is therefore obliged to act solely for that person's benefit.

2.3.4.

Do the objects of a power have any rights?



No beneficial interest Gartside v IRC [1968] 1 All ER



Right to prevent excessive exercise

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2.4. A Scale of Equitable Obligations Absolute Discretion Gift Powers of Appointment Bare/Mere power General power Special power or Hybrid power Fiduciary Power Trusts Discretionary Trust Fixed Trust No discretion

3. The Three Certainties A valid trust can only be created where there is: 1. Certainty of intention to create a trust 2. Certainty of subject matter 3. Certainty of objects Knight v Knight (1840) 3 Beav 148, 173 (Lord Langdale) ‘A trust should be upheld if there is sufficient practical certainty in its definition for it to be carried out, if necessary with the administrative assistance of the court, according to the expressed intention of the settlor.’ McPhail v Doulton [1971] AC 424, 450 (Lord Wilberforce) 3.1. Certainty of Intention ‘if the words are so used, that upon the whole, they ought to be construed as imperative’ Knight v Knight (1840) ‘a trust can be created without using the words “trust” or “confidence” or the like: the question is whether in substance a sufficient intention to create a trust has been manifested.’ Re Kayford Ltd [1975] 1 WLR 279, 282 (Megarry J) 3.1.1. Gift, trust or power? Jones v Lock (1865) LR 1 Ch App 25 Re Snowden (Deceased) [1979] 2 All ER 172 cf. Gold v Hill [1999] 1 FLR 54 McPhail v Doulton [1971] AC 424 Staden v Jones [2008] 2 FLR 1931

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N.B. The presence of a gift-over is conclusive of a power: e.g. to X for distribute to Y and Z, and in default to A.

3.1.2. Precatory words? desire, wish, hope, request, have confidence? ‘to be at her disposal in any way she may think best’ Lambe v Eaves (1871) 6 Ch App 597, 599 ‘in full confidence that she would do what was right’ Re Adams and Kensington Vestry LR (1884) 27 Ch D 394, 410 (Cotton LJ) Comiskey v Bowring-Hanbury [1905] AC 84 Re Steele’s Will Trusts [1948] CH 603 3.1.3. No intention to create a trust? 

Failed gifts? Jones v Lock (1865) LR 1 CH App 25 (loose conversation) Richards v Delbridge (1874) LR 18 Eq 11 (Jessel MR) ‘It is true that he need not use the words, “I declare myself a trustee,” but he must do something which is equivalent to it, and use expressions which have that meaning’ Shah v Shah [2010] EWCA Civ 140 “One of the ways of making an immediate gift is for the donor to declare a trust.”



Sham intention? Midland Bank v Wyatt [1995] 1 FLR 697

3.1.4. Intention inferred from conduct? 

No requirement that the settlor actually knows he is creating a trust Paul v Constance [1977] 1 WLR 527 cf. North v Wilkinson, 2018 EWCA Civ 161



Intention inferred from segregation Re Kayford Ltd [1975] 1 WLR 279 Re Farepak Foods and Gifts Ltd [2006] EWHC 3272

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3.2. Certainty of Subject Matter 3.2.1. Certainty of trust property 

Must be defined with reasonable certainty Palmer v Simmonds (1854) 2 Drew 221 (‘bulk’) Sprange v Barnard (1789) 2 Bro. C.C. 585 (‘remaining part of what is left’) Re Golay’s Will Trusts [1965] 1 WLR 969 (‘a reasonable income’) N.B. A testamentary gift of residue will be certain. Re Last (1958) ‘A trust does not fail for want of certainty merely because its subject matter is at present uncertain, if the terms of the trust are sufficient to identify its subject matter in the future.’ Pearson v Lehman Brothers Finance [2010] EWHC 2914 (Ch), Briggs J



Must not be future property Re Ellenborough [1903] 1 Ch 697



Unascertained property? - tangible property Re London Wine Co (Shippers) Ltd [1986] P.C.C. 121 (wine in bottles) Re Goldcorp Exchange Ltd [1995] 1 AC 74 (gold bullion) Re Stapylton Fletcher Ltd [1995] 1 All ER 192 (wine in bottles) - intangible property Hunter v Moss [1994] 1 WLR 452 (50 shares of a single class in a company) Re Harvard Securities Ltd (in Liquidation) [1998] BCC 567 3.2.2. Certainty of beneficial share Fixed trust: e.g. £10,000 to X and Y equally Discretionary trust: e.g. £10,000 to be distributed between whichever of my children my trustees shall decide



£10,000 to be distributed between X and Y? Burrough v Philcox (1840) 5 My & CR 72

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my two houses to M and C, M to choose her house first? Boyce v Boyce (1849) 16 Sim 476 Re Knapton [1941] 2 All ER 573

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