PGDL Trusts full revision notes PDF

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Table of Contents Creation of express trust.......................................................................................................................................1 Requirements for creation of express trust.................................................................................................................................1

Creation of trusts arising by law............................................................................................................................3

Formalities...............................................................................................................................................5 Express trusts of land............................................................................................................................................5 Constitution:.........................................................................................................................................................6

Key concepts of trusts.............................................................................................................................11 The trust concept................................................................................................................................................12 There must be trust property (the subject matter):..................................................................................................................12

Trustee duties......................................................................................................................................................13 Objects.......................................................................................................................................................................................15

Comparison and distinctions with other legal concepts:......................................................................................16 Quistclose trusts..................................................................................................................................................18 Rules against perpetuity......................................................................................................................................20 Liability of strangers to a trust.............................................................................................................................21 Accessorial liability for dishonest assistance.............................................................................................................................21 Recipient liability.......................................................................................................................................................................24

Purpose trusts.....................................................................................................................................................27 Charitable purpose trusts..........................................................................................................................................................27 Non-charitable purpose trusts..................................................................................................................................................37

resulting trusts....................................................................................................................................................39 Resulting trusts..........................................................................................................................................................................39

The role of the trustee.........................................................................................................................................42 Appointment, removal and retirement of trustees...................................................................................................................42 Administrative powers of trustees............................................................................................................................................45 Trustee’s dispositive duties........................................................................................................................................................49 Trustee’s dispositive powers:.....................................................................................................................................................50 Trustees’ fiduciary duty.............................................................................................................................................................54 Breach of trust...........................................................................................................................................................................59

The Three certainties:..........................................................................................................................................63 Knight v Knight (1840) 3 Beav 148 1..........................................................................................................................................63 Certainty of intention:...............................................................................................................................................................63 Certainty of subject matter:......................................................................................................................................................66

Certainty of objects...................................................................................................................................................................69

The trust concept:...............................................................................................................................................74 There must be trust property (the subject matter):..................................................................................................................74 Trustee duties............................................................................................................................................................................75 Objects.......................................................................................................................................................................................77

Comparison and distinctions with other legal concepts:......................................................................................78 The Three Certainties..........................................................................................................................................80 Beneficial entitlement: fixed and discretionary trusts.........................................................................................86 Vested and contingent interests................................................................................................................................................88

Trusts of the family home....................................................................................................................................90 common intention  joint legal owners and inferred common intention...............................................................................92 common intention  sole legal owners and express common intention................................................................................95 Proprietary estoppel................................................................................................................................................................100

Creation of express trust Self-declaration of trust The settlor becomes trustee  settlor must manifest intention to hold assets on trust for beneficiary -

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They retain legal title but held in new capacity for the benefit of the beneficiary Creates a new equitable title Beneficial ownership is transferred to beneficiary

Transfer on trust Third party becomes the trustee  settlor must have intention that third part will hold property on trust for beneficiary and the property to actually be transferred to third party -

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Settlor transfers legal title to third party Settlor ceases to have any interest New equitable title created Beneficial ownership is transferred to beneficiary Can be a transfer on trust where settlor becomes the beneficiary and third party hold legal title for original owner  the original settlor now has the beneficial and equitable interest in the property

NB: Full legal owner = no equitable title as legal and beneficial title is in the same place

Requirements for creation of express trust Three certainties:

Certainty of intention -

Intending to make a trust not outright gift

Certainty of subject matter -

Ascertain trusts property and beneficial entitlement to to trust property

Certainty of objects -

Who is trust held for? Beneficiary principle

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Except: charitable purpose trusts and non-charitable purpose trusts Perpetuity rules:

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Rules against remoteness of vesting  vest within 125 years

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Rules against alienability  non-purpose charitable trusts, 21 years Formalities

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Declaration of the trust i.e., creation of the beneficiary’s interest  formalities?

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Constitution of the trust i.e., vesting of the trust property in the trustee  has property been validly transferred Registration

Online trust registration service (TRS)  trusts that have trust liabilities

Creation of trusts arising by law Resulting trusts

Automatic resulting trusts: -

Default trusts when transfer on trusts either wholly or partly  returns property to legal owner when it is unclear what should happen to it

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Equity will impose a resulting trust if the trust fails, property would be held on trust for settlor

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If trust fails at creation due to an issue with certainty, resulting trust hold property for settlor so they can try to correct issue

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If trust fails at a later date, i.e., purpose trust where purpose no longer can be fulfilled, resulting trusts hold surplus property to settlor Presumed resulting trusts:

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Arise in response to transfer of legal title but intention of settlor is relevant to determination of whether presumed resulting trust has arisen

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Equity will presume that a person intended that a person wanted third party to hold property gratuitously transferred to them was to be held on trust

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Where person has made a gratuitous transfer of property to a third party, equity will impose a presumed resulting trust for settlor due to maxim that equity is cynical and questions why person a person would transfer property

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This is a rebuttable presumption with evidence that transferor did not want property held on trust for them e.g., if it is clear that transferor intended a gift

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Resulting trust would not arise if there is evidence that of the intention that transferor did not want to have property held on trust

Constructive

Institutional constructive trusts:

trusts Correct situations of

Orthodox form  conscious of legal owner is affected in some way preventing them from denying beneficial interest of another person

unconscionability -

Imposed automatically in response of a trigger event e.g., fraud or to perfect an imperfect gift or trust

Constructive trusts as remedy -

Awarded by court following misapplication of property e.g., breach of trusts and traceable property

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Does not arise automatically, beneficiary needs to assert their rights to the misapplied property Common intention constructive trusts:

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Resolve disputes relating to trusts relating to land e.g., unmarried couples owning land

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Either one party seeking to assert they have interest in the land when they are not the legal owner OR if they are joint legal owners but one party wishes to claim they have different interest in property

Statutory trusts -

Some circumstances where trusts arise from statutory provision e.g., land under TLTA when land is bought by two joint legal owners

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Implied trusts  not through settlors’ intention but imposed by courts, mindset of legal owner may be relevant but court will intervene to correct unfair situations

Formalities Express trusts of land: s.53(1)(b) LPA 1925  ‘a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will’. Manifested and proved…

Evidential requirement to creation of trusts of land:

…Some writing…

No prescribed form for the written evidence but there must be writing that provides evidence of:

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Order in which the declaration of trust / will need not be in any order But any trust of land will be unenforceable unless there is proof that s.53(1)(b) is satisfied

The settlor’s intention to create the trust The terms of the trust

…Signed by Although signature is needed of the settlor arguable that trustee as legal some owner can also provide written evidence person who - Unsettled issue so better to seek directions from. The court in situations can declare where trustees are considering doing so. such trust… …Or by his will

Expressly provides for the possibility that a trust of land is created by will. As long as that will is validly executed -

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Must comply with s.9 Wills Act 1837, this is sufficient to satisfy s.53(1(b)

Non-compliance with s.53(1)(b) = trust is unenforceable rather than void. This means: Unenforceable from the moment it is declared so although it exists a beneficiary cannot enforce their rights unless s.53(1)(b) is satisfied. A void trust doesn’t come into existence at all whereas non-compliance of s.53(1)(b) means trust exists but just cannot be enforced yet Once trust becomes enforceable = all beneficiaries can enforce their rights in respect of the period between declaration and satisfaction s.53(1)(b). Self-declaration

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Settlor can choose not to create the signed, written evidence of the declaration and if there are no facts which would make it unconscionable for settlor to deny the trust i.e., proprietary estoppel the beneficiary will not be able to assert any interest in the land

Transfer on trust -

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Trust will be unenforceable for noncompliance under s.53(1)(b) but also void for lack of constitution but may be unconscionable to deny existence of the trust. If settlor transfers legal title but doesn’t comply with s.53(1)(b) it would be prudent to ask court for directions as to their obligations

Constitution: Turner LJ in Milroy v Lord: ‘Settlor must have done everything which according to the nature comprised in the settlement, was necessary to be done to transfer the property and render the settlement binding upon them.’ -

Applies to gifts (legal title moves) Applies to transfer on trusts (legal title moves) Does not apply to self-declaration of trusts Inter vivos trust / gift

Testamentary -

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If a trust/gift is created in a will then constitution will take place via the will. After death of testator, personal representatives must obtain legal title to testators’ estate. They must ensure legal title is transferred to the recipients of any testamentary gifts / trustees of any testamentary trusts. (if they are appointed trustees they will already hold legal title and have capacity as trustees).

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Legal title must have been transferred using the correct method

Constitution of common property: Registered land

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By deed s.52(1) LPA  clear on face + signed by grantor + delivered LP(MP)A Registered under s.27 LRA 2001  legal title passes on registration of new owner at land registry

Shares -

Choses in action (debts / money in bank accounts Chattels

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Private company: signing a stock transfer form, sending it to company (common for company to require share certificate or an indemnity regarding transferor’s ownership as part of the process) Legal title passes when transferee is registered with company’s internal register of members Transferred by notice in writing to debtor or to bank (see s.136 LPA 1925) Legal title passes once notice has been received

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Includes physical cash and other personal items e.g., watches (1) by deed of gift (uncommonly used) (2) by delivery of the chattel with evidence of the transferor’s intention to transfer it (Re Cloe [1964])

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Cheques (and other bills of exchange) in favour of the transferor may be transferred to a third party (someone other than the named payee i.e., the transferor) by the transferor endorsing the cheque and signing

Cheques

their name on the back according to the Bills of Exchange Act 1882 (Jones v Lock) Effect of constitution = disposition is irrevocable. Transferor ceases to have beneficial or legal interest in the trust property providing all other requirements to create transferee’s interests have been satisfied. -

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Failed constitution = legal title has not passed. Equitable maxim ‘equity will not assist a volunteer’ means transferee cannot compel the settlor to transfer legal title to transferee. ‘Equity will not perfect an imperfect gift or treat a failed gift as a self-declaration of trust.’ Milroy v Lord

Turner LJ: transferor ‘must do everything necessary to’ effect the intended disposition by following the correct method for transferring legal title. Jones v Lock  Dad declared that he was ‘giving this to baby; it is for himself’ a £900 cheque but did not endorse by signing the back. When the dad died court rejected that dad intended to hold it on trust. He had had not intended to retain control of property and assume onerous obligations of a trustee. Cheque was not transferred to baby as gift was improperly constituted and was passed to estate under the will Richards v Delbridge  Grandfather failed to endorse a lease and assign it to grandson. Court held he intended to make an outright gift and as transfer had not be constituted it could not be treated as a self-declaration of trust so gift to grandson failed. Choithram v Pagarani  If settlor is one of trustees of a trust, constitution is automatic upon declaration of trust as they already have legal title to property. -

A established charitable trust and appointed self as one of many trustees by deed. A orally declared he held all of estate on trust for charity but did not properly transfer legal title of some shares to other trustees so remained sole legal owner of those shares on death. shares were held on trust and did not pass on estate. A was one of trustees so was unconscionable for him to deny the shares were subject to trust as he had legal title trust was automatically constituted upon declaration, putting him under a duty to best the shares in the co-trustees.

Applies to following scenarios: -

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Transfer on trust to independent trustees: If transferor transfers legal title to just o...