Express trusts: trusts which arise where and because of the expressed choice of a settlor.
Method of Creating Express Trusts:
Self-Declaration:
A person may declare themselves trustee of a trust for another’s benefit.
Consequences of Uncertainty:
Owner remains absolutely entitled to the trust asset. It is as if the trust never occurred.
Transfer on Trust:
A person may instruct another party to act as a trustee of a trust.
Consequences of Uncertainty:
No certainty of intention: the transferee receives the property beneficially (it is presumed that it is a gift).
No certainty of subject matter or objects: the transferee holds the property on (resulting) trust for the transferor / settlor.
Elements of Creating a Valid Express Trusts:
All trusts require certain elements to be considered valid. [1]
Certainty:
There must be sufficient certainty about the form and content of the trust to give it effect.
Intention:
The creation of a trust must be what the property owner intended.
Often, there will be a strong presumption that the settlor intended a trust because they will consult legal advice and a trust deed will be drawn up to detail the duties and powers of the trustees and the way in which the beneficiaries will benefit.
Finding intention is a question of substance, not form or language.
In Paul v Constance, P&C are a couple. C has a bank account in their own name but both P&C use the money in the account jointly. C dies without a will and P seeks to claim right to the account as an equitable owner.
The CA held that it can be implied that C did intend to create a trust over the bank account to the benefit of P.
‘it is well settled that a that 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.’ [2]
The settlor must intend a trust rather than any other sort of beneficial disposition.
Imperfect Gifts:
Gifts are the most obvious and commonplace transfers of property. Finding intention is especially relevant in cases of imperfect gifts (gifts that are made, but the legal formalities required are not met). Parties will be seeking to say that the person making the gift was, in fact, actually seeking to establish a trust.
Since the settlor must specifically intend a trust, these arguments usually fail.
In Jones v Lock, a father made a failed attempt to make a gift of a cheque (made out to the father for £900) to his child, placing the cheque in the baby’s hand and describing it as ‘his own’. The father dies without endorsing the cheque, making it an imperfect gift.
The CA does not accept the argument that the father had declared a trust of the cheque for the benefit of his child. This is because the father intended to transfer legal title, not establish a trust.
Intention is viewed from an objective standard; not looking towards the settlor’s subjective intention, but the view of a reasonable person as to what the settlor intended. [3]
Subject Matter (Assets in the Trust):
Any asset which can be transferred outright can form the subject matter of a trust.
The property / assets contained in the trust must be known. The more certain the subject matter is, the more likely it is for a trust to be valid. This is not a binary question.
EG: there is different levels of certainty in these statements – ‘some of my law books’, ’25 of my law books’, ‘these 25 of my law books’…
The trust’s subject matter must be specifically identified.
‘to create a trust it must be possible to ascertain with certainty not only what the interest of the beneficiary is to be but to what property it is to attach. I cannot see how, for instance, a farmer who declares himself to be a trustee of two sheep (without identifying them) can be said to have created a perfect and complete trust ... And it would seem to me to be immaterial that at the time he has a flock of sheep out of which he could satisfy the interest.’ [4]
In Hunter v Moss, M declared a trust of 50 of his 950 shares in MEL. The CA held that the subject matter was sufficiently certain.
This case can perhaps be distinguished because the intangible property of a share is completely interchangeable with another share of the same company. The court’s reasoning, however, was not entirely clear and has been subject to criticism. Nevertheless, it has been reaffirmed in subsequent case law.
Objects (Beneficiaries):
The beneficiaries (the trusts’ objects) must be identified.
Fixed Trusts:
A trust is fixed where the trustee has no choice / discretion over the allocation of property under the trust.
Referentially Defined Entitlements:
Where the fixed trust divides property equally between a group of beneficiaries, there must be list certainty. This means that all of the objects must be identified before the trust asset can be distributed.
EG: ‘X declares a trust of Y [£1000, 50 Shares in Y Ltd…] to be divided equally between all of X’s friends’ – a complete list of all of X’s friends / employees [A, B, C etc.] must be identified (which would be impossible in the case of friends, but possible for employees).
There must be conceptual and evidential certainty in determining this list.
Conceptual certainty: clarity of the words used.
Evidential certainty: factual material to prove they qualify.
Independent and Distinct Entitlements:
Where the fixed trust does not divide the property equally but by a set amount to each beneficiary, it is sufficiently certain so long as one of the beneficiaries can be identified. This is because each claim is freestanding from the next.
EG: ‘X declares a trust of Y [£1000, 50 Shares in Y Ltd…] to each of X’s friends, where each receive Z [£50, 10 Shares in Y Ltd…]’.
Discretionary Trusts:
A trust is discretionary where the trustee has choice / discretion as to the allocation of the property under the trust.
‘is or is not’ / ‘any given postulant’ Test: [5]
Where the beneficiaries can be identified by the trustee in the binary (yes or no), the trust is certain. Where they cannot, the trust is not sufficiently certain.
In McPhail v Doulton (Re Baden No 1), a trust was established by a company owner for the benefit of the (ex-)employees, their relatives and dependents.
The court applied the ‘is or is not’ / ‘any given postulant’ test. Trust held to be sufficiently certain. The court does not say whether this also applies to fixed trusts.
Test: ‘the trust is valid if it can be said with certainty that any given individual is or is not a member of the class.’
It seems to be that both conceptual and evidential certainty is required, though the courts seem to be more lenient with evidential uncertainty.
In Re Baden (No 2), the court reaffirm and apply the McPhail test but come to different conclusions on what certainty is required.
Sachs LJ: conceptual certainty is needed but evidential certainty is irrelevant.
Stamp LJ: both conceptual and evidential certainty are required.
Megaw LJ: ‘To my mind, the test is satisfied if, as regards at least a substantial number of objects, it can be said with certainty that they fall within the trust; even though, as regards a substantial number of other persons, if they ever for some fanciful reason fell to be considered, the answer would have to be, not “they are outside the trust”, but “it is not proven whether they are in or out”.’
Administrative Unworkability:
There may be situations that, despite being certain, the objects of the discretionary trust are administratively uncertain. If this is the case, the trust will fail, even if it passes the ‘is or is not’ test.
‘There may be a third case [besides cases of conceptual and evidential uncertainty] where the meaning of the words used is clear but the definition of beneficiaries is so hopelessly wide as not to form ‘anything like a class’ so that the trust is administratively unworkable or … one that cannot be executed … I hesitate to give examples for they may prejudice future cases, but perhaps ‘all the residents of Greater London’ will serve.’ [6]
In R v District Auditor, ex p West Yorkshire MCC, a trust was attempted to be declared for everyone in West Yorkshire (approx. 2.5m people).
Capriciousness:
A trust may fail if it is capricious. [7]
A trust is capricious where the terms ‘negative any sensible intention on the part of the settlor’ such that the objects constitute ‘an accidental conglomeration of persons who have no discernible link with the settlor or any institution’. [8]
Resolving Uncertainty:
The settlor may seek to establish an additional method to resolve uncertainty about the objects of the trust.
In Re Tuck, a baronet created a trust in favour of future baronets, provided that they be married to a wife who is ‘of Jewish blood’ and who ‘continues to worship according to the Jewish faith’.
The settlor further provided that, where this was in doubt, ‘the decision of the Chief Rabbi in London of either the Portuguese or Anglo German Community … shall be conclusive’.
Denning MR (in obiter) stated that the provision was effective to resolve any conceptual uncertainty regarding the references to Judaism.
Generally this will resolve evidential uncertainty, but probably not conceptual uncertainty. [9]
Constitution (where Necessary):
Where a transfer on trust is used to establish the trust, title to the property must be vested to the trustee. Therefore, a settlor cannot create a trust of future property.
This is not necessary for self-declaration as the trustee already holds the legal title.
Formality (where Necessary):
Trusts usually do not have any formality requirements.
Exceptions (where Formalities are Required):
Trusts of land (deed and registration requirements, as in land law).
Trusts taking effect on death (same requirements as a will).
Shares (requirements for the execution of share transfer form followed by transferee being entered onto company records as the new owner, may be electronically).
Debts / choses in action (requirements for transfer in writing and notice to debtor).
Copyrights (signed writing requirement).
Cheques (endorsement required).
Resources:
References:
[1] Knight v Knight (1840) 3 Beav 148 [2] Re Kayford Ltd [1975] 1 WLR 279 (Megarry J) [3] EG: Twinsectra Ltd v Yardley 131 [2002] UKHL 12, [2002] 2 AC 164, [71] (Millett LJ) [4] Re London Wine Shippers [1986] PCC 121 (Oliver LJ) [5] First remarked in Re Gulbenkian’s Settlements [1970] AC 508 [6] McPhail v Doulton [1970] UKHL 1, also known as Re Baden's Deed Trusts (No 1) (Wilberforce LJ) [7] Re Manisty's Settlement Trusts [1974] Ch 17 [8] Re Manisty's Settlement Trusts [1974] Ch 17 [9] Re Coxen [1948] Ch 747, though questioned in obiter in Re Tuck's Settlement Trusts [1977] EWCA Civ 11
Cases Mentioned:
Paul v Constance [1977] 1 WLR 527
Jones v Lock (1865) 1 Ch App 25
Hunter v Moss [1994] 1 WLR 452
McPhail v Doulton [1970] UKHL 1, also known as Re Baden's Deed Trusts (No 1)
Re Baden's Deed Trusts (No 2) [1972] EWCA Civ 10
R v District Auditor No 3 Audit District of West Yorkshire Metropolitan County Council, ex parte West Yorkshire Metropolitan County Council [1986] RVR 24
Re Tuck's Settlement Trusts [1977] EWCA Civ 11
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