Trust Law Lecture 4 PDF

**[A & O]** Formalities for a valid trust - Testamentary trusts - Inter vivos trusts (Trust operate during lifetime of Settlor) - Trusts of land and interests therein Transfers of beneficial interests under existing trusts **[Requirements for a Valid Trust]** 1. The Three Certainties...

**[A & O]** Formalities for a valid trust - Testamentary trusts - Inter vivos trusts (Trust operate during lifetime of Settlor) - Trusts of land and interests therein Transfers of beneficial interests under existing trusts **[Requirements for a Valid Trust]** 1. The Three Certainties 2. **Statutory Formalities** 3. Constitution **Formalities: Testamentary Trust** a. **The testamentary trust (made by a will)** **Only come into force after death of settlor** - Section 9 of the Wills Act 1837 - a will must normally be:  - made in writing - signed by the testator - in the joint presence of two witnesses - who must then witness the testator's signature by signing the will in his presence - These formality requirements will satisfy any need for the evidence of transfer of equitable interests or the creation of trusts. Few exceptions: Can be created orally (very rare can be in case to close death e.g. soldiers) **[Formalities: Inter Vivos Trust]** **(b) The *inter vivos* trust (during the lifetime of settlor)** - No formalities are required if the subject matter of the trust is Personalty - The trust can be created in writing, but it is not essential and not a legal requirement - However, trusts of land must comply with s.53 LPA 1925 **[Formalities: Trusts of Land and Interests Therein]** **s. 53 LPA 1925** \(1) Subject to the provision hereinafter contained with respect to the creation of interests **in land** by Parol --- a.... b. 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]; c. a disposition of an equitable interest... \(2) This section does not affect the creation or operation of resulting, implied or constructive trusts. **The reason we treat land different to other types of property is its tangible and more over its more valuable, so it has to have better protection to avoid fraud.** **[Formalities: Trusts of Land and Interests Therein (cont'ed)]** **Pause and Think!** Trust is unenforceable **(NOT VOID)** if formality not followed If Trustee decide to do nothing and not use land to benefit other and perform trust, beneficiaries don't have action against them. However, if parties perform formality then it becomes enforceable. *Gardner v Rowe* (1828) - [\****Rochefoucauld v Boustead** \[1837\]*:] 'Equity will not allow a statute to be used as an instrument of fraud'. - Contest she was holding plantation in modern day Sri Lanka. She mortgaged the property and sold it. Under promise new owner will hold land for the contest and will continually live in property. - Trustee, then sold land in breach of what he originally agreed. - Was there a trust? It was Oral Agreement didn't comply withS53 1(b) therefore unenforceable - However, even though formality not met express trust still formed. Enforced against trustee - Court agreed because Trustee was fraudulent by trying to sell property - s.53 (2): formalities only apply to **[express]** private trusts **[Pause and think!]** Rationale and effectiveness of s.53(1)(b) LPA 1925 What happens if formalities are not met? - ***[Rochefoucauld v Boustead \[1837\]:]*** 'Equity will not allow a statute to be used as an instrument of fraud' (+) oral agreement is upheld to prevent fraud should not be allowed to be an instrument of fraud (-) effect given to trust which statute requires to be manifested in writing What happens if formalities are not met? See also: - ***Hodgson v Marks*** Mrs Hodgson transferred freehold estate to Mr Evans to hold it on trust for her. The agreement re the trust was oral. Evans sold the estate to Mr Marks. Marks need to hold property for Hodgson. Whether trust has arisen? Yes (not in same way as Bannister) Mr Marks bough property with equitable interest of Hodgson. Decision more complicated. She made contribution to purchase. No element of fraud on Marks Held: Resulting trust (implied trust) will automatically arise. Hold for Benefit previous owner 'I do not see why there was not a resulting trust of the beneficial interest to the plaintiff, which would not, of course, be affected by section 53(1).... If an attempted express trust fails, that seems to me just the occasion for implication of a resulting trust, whether the failure be due to uncertainty, or perpetuity, or lack of form... On the above footing it matters not whether Mr Marks was or was not debarred from relying upon section 53(1) by the principle that the section is not to be used as an instrument for fraud. Mr Marks was in fact ignorant of the plaintiff's interest and it is forcefully argued that there is nothing fraudulent in his taking advantage of the section.' - ***Bannister v Bannister*** Expressed private trust created Held: Constructive trust will arise to prevent fraud. **[Formalities: Trusts of Land and Interests Therein (cont'ed)]** **Transfer of legal title to trustees** - Section 52 (1) LPA 1925: All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed. - Section 1 Law of Property (Miscellaneous Provisions) Act 1989: Deed (document includes terms of purchase) must comply with requirements of section - Section 27 LRA 2002: If a disposition of a registered estate or registered charge is required to be completed by registration, it does not operate at law until the relevant registration requirements are met. **Rationale of these formalities? To create element of predictability & extra layer of protection and prevent fraud** 1. Confirm the existence of the trust 2. Transfer of the legal ownership from settlor to trustee affects tax payable - Was the property actually transferred? - When was the property transferred? 3. Prevent fraud/abuse NB -- complications by case law: exceptions based on fairness but lead to unpredictability **Formalities: Transfer of Beneficial Interests under an Existing Trust** **s. 53 LPA 1925 -** 1\) Subject to the provision hereinafter contained with respect to the creation of interests in land by parol--- a..... b. a declaration of trust respecting any land or any interest therein..... c. a disposition of an equitable interest (trust exist transfer beneficial interest to another) or trust subsisting at the time of the disposition, must be in [writing] [signed by the person disposing of the same], or by his agent thereunto lawfully authorised in writing or by will. Comes into play when there is an existing trust, and beneficiaries pass equitable interest to another. = Dispose / Transfer to another 2\) This section does not affect the creation or operation of resulting, implied or constructive trusts.  Effect of failure renders the transfer **[VOID]** **Formalities: Transfer of Beneficial Interests under an Existing Trust** Section 53 (1)(c) LPA 1925: Direction to trustees to hold property on trust for another ***\*Grey v IRC \[1960\] AC 1*** Initially someone holding large amount of share and 1^st^ Feb create trust, Trustee hold property for benefit of settlor (original owner) On 18^th^ Hunter give oral instruction trust must be held in benefit for grandchildren On 25^th^ March written document create trust for benefit of children Court Found Disposition was made on 25^th^ March. Textbook Case = for 53 1C A diagram of a diagram Description automatically generated **[Formalities]** **Transfer of beneficial interests under an existing trust** Section 53 (1)(c) LPA 1925: Direction to trustees to transfer legal title to new owner ***\*Vandervell v IRC \[1967\] AC 206*** Vandervell was a very wealthy individual wanted to create a gift. £150,000 His advisors said to give them some shares until they made 150k from it then give it back. (Pay less tax here) The Difference V directed Trustees to make gift to college who become owner of shares. Therefore, not disposition of equitable interest. Didn't need to be done in writing or signed. See situation where someone says who holds equitable interest, give property to x,y,z you pass absolute legal title to someone else. Trust don't exist anymore you passed legal ownership.  **[Difference between Grey and Vandervell]** A screenshot of a computer screen Description automatically generated **[When can a trust be terminated?]** **Saunders v Vautier** 1. Fixed trust: each beneficiary can instruct the trustee to give them their share provided 2 conditions are met 2. Discretionary trust: all beneficiaries must come into agreement (be of 'one mind') and instruct the trustee to terminate the trust provided 2 conditions are met 2 conditions: a. beneficiaries are of full age b. beneficiaries have of sound mind