Problem Question - Equity and Trusts PDF

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LAWS5103 Equity and Trusts Trusts Problem Question **Rule à To create a valid express trust, it requires: 1. Three certainties: intention, subject, and object **NB: Without all 3 trust will fail 2. Observe statutory formality requirements 3. Complete constitution Ask à Is there a valid trust? 1. Three certainties a. Intention b. Subject c. Object **Rule à If trust fails any one of the certainties, it is void 2. Formalities a. Inter vivos trust à Property Law Act 1969 (WA) s34(1) b. Testamentary trust à Wills Act 1970 (WA) 3. Complete Constitution **Rule à Only required for trust by transfer, not for trust by declaration. **Rule à If trust fails complete constitution, it is void (unless exception applies)

**NB: - Validly created trust will not fail for want of a trustee (Mallot v Wilson). - Once trust is created it cannot be revoked by the settlor unless an express power of revocation exists.

Nature of a trust Definition à When a holder of legal or equitable interest in property is bound by an obligation, recognised by and enforced in equity, to hold that interest for the benefit of others, or for some object or purpose permitted by law (Heydon and Leeming) **NB: Spirit of trust is in the split in title = ownership and benefit are separated Elements of a trust: A. Trustee(s) • May be individual/corporate body • Equitable obligation to hold and manage trust property for exclusive benefit of beneficiaries or purpose permitted by law • Legal and equitable interest in property B. Beneficiaries • Object of trust • May be person or purpose recognised by law C. Trust property • Subject of trust • Must be able to be identified with certainty • Real or personal • Tangible or intangible D. Settlor (**NB: Only for express trusts) • Settlor creates an express trust • Intention is vital to creation of trust • Creator of will = testator/testatrix • Ceases to have rights over trust once created E. Personal obligation annexed to property • Trustee has personal and equitable obligation to deal with trust property for exclusive benefit of beneficiaries • In holding property, they have obligations over and attaching to the property • Breach attracts proprietary consequences o Beneficiaries will have personal and proprietary remedies available Classification of trusts: Express trusts • **Rule à Arises pursuant to express/inferred intention of the settlor o Validity depends on 3 certainties and formal requirements (formalities and constitution) for creation of valid express trust •

Express trusts based on type of beneficiary o Express private trusts à intended to benefit one or more persons o Express public trusts à intended for a charitable purpose

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Trusts based on nature of beneficiary’s interest o Fixed trusts à fixed shares to fixed persons (clearly specifies beneficiary and their interests and entitlements) o Discretionary trusts à beneficiary’s interest in trust property lies at discretion of trustee. Trustee has absolute discretion while beneficiary has a mere expectancy.

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Trusts based on time of creation o Inter vivos trusts à created during settlor’s lifetime and comes into effect after date specified on trust instrument o Testamentary trusts à created by will and comes into effect after death of testator/testatrix

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Trusts related to trustee’s duties o Bare trust à trustee obliged to hold property for benefit of beneficiaries until they require it transferred to them o Special trust à trustee has positive active duties to perform e.g. running a business

Non-express trusts • Resulting trusts o Rule à Implied by law when one person (settlor) confers title to property to another person but still retains beneficial ownership. o Generally created on basis of the presumed intention arising from particular form of transaction o **Focus on form of transaction not parties’ intentions •

Constructive trusts o Rule à Imposed by the court on principles of equity that it would be fraud for the person to assert beneficial ownership. It is imposed irrespective of parties’ intentions.

Certainty of Intention **Rules: à Settlor must manifest an intention to create a trust à Intention is assessed objectively with reference to language or conduct à Burden of proof rests on person alleging trust was created (Herdegen v FCT) **NB: No need to establish certainty of intention for resulting/constructive trusts as they arise from operation of law from the nature of the transaction, not parties’ intentions.

CONSIDER:

Objective intention (Cf subjective) • • • •

Ask à Would a reasonable person in all the circumstances consider the settlor’s intention to create a trust? Mental reservations are irrelevant (Byrnes v Kendle) E.g. signing an acknowledgement of trust (Byrnes v Kendle) Old approach was to look at subjective intention of the settlor in Joliffe. Case has generally been considered good law but has been said it should be confined to trustee opening a bank account. o Joliffe à Joliffe opened account in name as trustee for wife to use, titled ‘Mrs Joliffe, Edwin as trustee.’ Joliffe later said there was no intention to create a trust of the money but to procure interest. § Court held use of word ‘trust/trustee’ doesn’t necessarily manifest intention to create trust. Joliffe’s subjective view was to organise in his affairs to generate income not to benefit his wife. § Dissenting judgment was concerned with dishonesty of transaction

Language • • •

**Note: precatory words

Intention is determined on construction of language used (fact dependent) Can be oral/written Formal or technical words are not required, or are they conclusive (Re Armstrong; Paul v Constance) o **NB: However consider WHO drafted the instrument? (See Inferences) o Re Armstrong à A opened two accounts and told bank manager he wanted to create fund to benefit two sons but didn't want to make it a gift. Wanted sons to get principal once investment matured but he wanted to receive some income while still alive. Receipt noted ‘George Armstrong re William Armstrong’ § Court held bank account was held on trust and did not form A’s estate. Court inferred intention from A’s discussion with bank manager and receipts. A intended for sons to benefit. o Paul v Constance à Mr C lived with de facto wife P but hadn’t divorced Mrs C. C deposited 950 pounds from work injury payment to bank. P had access to account and C told P “the money is as much yours as mine.” P and C used account to deposit bingo winnings and withdrew 150 pounds to spend on gifts for themselves. Mr C died and Mrs P claimed money was held on trust for her. Mrs C argued she was Mr C’s legal heir. § Court held there was intention to create trust in favour of himself and P. Mr C was ‘unsophisticated’ and did not know much about trusts so precise words did not need to be used. § Court looked to nature of C and P’s relationship, withdrawls, and statements made as well as conversation with bank manager about making sure P could access money.

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Words are given their ordinary and natural meaning (Paul v Constance) o Unless they have a special meaning o Construed in context of instrument as whole o Commercial necessity considered Word ‘trust’/’trustee’ need not be used, nor is it conclusive (Joliffe)

Precatory words • • • •

E.g. “I hope” “I desire” “I believe” Generally courts consider it a mere moral obligation rather than a legal obligation to use property for another’s benefit, unless circumstances as a whole suggest otherwise Language must be imperative (commanding) (Re Williams) Examples: o Re Williams à Testator requested wife “absolutely, in the fullest confidence that she will carry out my wishes.” Court held “absolutely” had no clear obligation and no intention. o Re Altson à Testatrix’s will stated it was her “express wishes” her property be leased to man for 2 pounds/week. Court held words created bare power with discretion for trustee to grant lease and could consider her wishes, but no mandatory obligation. § **NB: Case used professional language but for this clause which used non-legal terminology, thus inferred no intention to create trust o Mussoorie Bank à “Feeling confident she will act justly to our children in dividing the same when no longer required of her” – Court held it was discretionary. o Lambe v Eames à “To be at her disposal in any way she may think best for the benefit of herself and family”. Court held uncertainty of objects by words ‘family’ negated subject matter and widow took estate absolutely.

Inferences court will make •

Words are construed by reference to document as a whole (Re Alston) o Comparing words used in one clause to other clauses § E.g. Precatory language vs use of trust language o Who drafted the document § Solicitor/lawyer à will be scrutinised (as in Re Alston) § Layperson à will not be read pedantically

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Words are construed in the context of parties’ conduct/relationships (Paul v Constance) o Conduct § E.g. shared spending and withdrawals o Relationship § If settlor/trustee are close it is more likely a gift o Communication of intention to third parties § E.g. statements in Paul v Constance – ***...