Creation of express trusts in English law
Encyclopedia
The creation of express trusts in English law must involve four elements for the trust to be valid: capacity, certainty, constitution and formality. Capacity refers to the settlor
's ability to create a trust in the first place; generally speaking, anyone capable of holding property can create a trust. There are exceptions for statutory bodies and corporations, and minors who usually cannot hold property can, in some circumstances, create trusts. Certainty refers to the three certainties
required for a trust to be valid. The trust instrument
must show certainty of intention to create a trust, certainty of what the subject matter of the trust is, and certainty of who the beneficiaries (or objects) are. Where there is uncertainty for whatever reason, the trust will fail, although the courts have developed ways around this. Constitution means that for the trust to be valid, the property must have been transferred from the settlor to the trustee
s.
If property has not been transferred, the potential trustees and beneficiaries are volunteers, and an equitable maxim is that "equity will not assist a volunteer"; the courts will not look at the case. To get around this, the courts have developed exceptions to this rule for situations when the settlor has done "all that he could do", the trustees or beneficiaries have acquired the property in a different way, or where the gift was made donatio mortis causa
. Formality refers to the specific language or forms used when transferring property. For chattels, no formal language or documentation is needed, unless it is made as a will. For land, the transfer must be drafted in line with the Law of Property Act 1925
and the Law of Property (Miscellaneous Provisions) Act 1989
. When disposing of an equitable interest
, the Law of Property Act 1925 must also be followed; much of the case law in this area has centred around the meaning of "dispose", with many cases involving people attempting to avoid tax.
if he had been too young to appreciate the nature of forming a trust. People who are considered mentally disordered (under the Mental Health Act 1983
) and have a receiver appointed cannot have trusts directly enforced against them, as they no longer have control over their property. Where there is no receiver, the mentally disordered person's trust will be held void, unless it was made during a lucid period when the person was capable of understanding their actions. Corporations and statutory bodies only have the powers granted to them by their memorandum of association
or authorising statute; if these do not authorise the creation of trusts, any such trust will be held to be ultra vires
.
must show certainty of intention, subject matter and object. Certainty of intention means that it must be clear that the settlor or testator
wishes to create a trust; this is not dependant on any particular language used, and a trust can be created without the word "trust" being used, or even the settlor knowing he is creating a trust. Since the 1950s, the courts have been more willing to conclude that there was intention to create a trust, rather than hold that the trust is void. Certainty of subject matter means that it must be clear what property is part of the trust. Historically the property must have been segregated from non-trust property; more recently, the courts have drawn a line between tangible and intangible assets, holding that with intangible assets there is not always a need for segregation. Certainty of objects means that it must be clear who the beneficiaries
, or objects, are. The test for determining this differs depending on the type of trust; it can be that all beneficiaries must be individually identified, or that the trustee
s must be able to say with certainty, if a claimant comes before them, whether he is or is not a beneficiary.
Uncertainty comes in four categories: conceptual uncertainty, evidential uncertainty, ascertainability and administrative unworkability. Conceptual uncertainty arises when the language is unclear, which leads to the trust being declared invalid. Evidential uncertainty is where a question of fact, such as whether a claimant is a beneficiary, cannot be answered; this does not always lead to invalidity. Ascertainability is where a beneficiary cannot be found, and administrative unworkability arises when the nature of the trust is such that it cannot realistically be carried out. Trustees and the courts have developed various ways of resolving uncertainties, including the appointment of experts to work out evidential uncertainty, and giving trustees the power to decide who is or is not a beneficiary.
s. For chattels, merely handing the property to the trustees is sufficient, assuming it comes with the relevant intention to create a trust. In some circumstances, providing the intention and telling the trustees where to find the property is sufficient, as in Thomas v Times Books. Where the property is land or an equitable interest
in land, it must be transferred by writing in accordance with Sections 52-3 of the Law of Property Act 1925
. When dealing with shares, the transfer is not complete until a transfer document has been completed and the company has entered the change of ownership in its books. One of the equitable maxims is that "equity will not assist a volunteer"; if someone does not have an interest in property, they cannot bring a court case. When trusts are not properly constituted, the trustees and beneficiaries have no equitable interest in the property, and so are volunteers. There are several exceptions to this maxim. The courts are willing to hear cases where the transfer was not completed, providing the intended beneficiaries or trustees have gained an interest through being made executor
of the settlor's estate (the rule in Strong v Bird
), or the gift was given donatio mortis causa
, or where the settlor did all he could do, as in Re Rose
, or where it would be "unconscionable" to hold the gift invalid, as in Pennington v Waine.
, which provides that: This means that there must be evidence of the trust's existence should someone choose to enforce it, and does not necessarily mean it need be in existence at the trust's creation. Contracts for disposing of land, including the transfer of land into trusts, must follow the Law of Property (Miscellaneous Provisions) Act 1989
, Section 2 of which provides that:
gave disposition its "natural meaning", saying that it meant "a transaction whereby a beneficiary who has a beneficial interest at the beginning of the transaction no longer has it at the end of the transaction". Under the rule established in Vandervell v IRC, if the owner of a sole beneficial interest instructs his trustees to transfer the property, and this is done to transfer the beneficial interest and not simply to change the trustees, this does not fall under Section 53(1)(c) and requires no specific formalities.
Simply disclaiming a beneficial interest does not fall within Section 53(1)(c), as in Re Paradise Motor Co. Nominating somebody to receive benefits of a pension fund should the pensioner die is also not a valid disposition, as in Re Danish Bacon Co Ltd Staff Pension Fund, and neither is nominating a beneficiary under a life insurance policy, as in Gold v Hill. Where a beneficiary declares he is holding the property on behalf of another, this would be the creation of a sub-trust and not subject to specific formalities. However, under Grainge v Wilberforce, such a sub-trust will only be held to be valid if there is some difference between the trust and sub-trust, and if the trustee-beneficiary has some duties to perform.
. This provides that no will is valid unless:
Settlor
In law a settlor is a person who settles property on trust law for the benefit of beneficiaries. In some legal systems, a settlor is also referred to as a trustor, or occasionally, a grantor or donor. Where the trust is a testamentary trust, the settlor is usually referred to as the testator...
's ability to create a trust in the first place; generally speaking, anyone capable of holding property can create a trust. There are exceptions for statutory bodies and corporations, and minors who usually cannot hold property can, in some circumstances, create trusts. Certainty refers to the three certainties
Three certainties
The three certainties refer to a rule within English trusts law on the creation of express trusts that, to be valid, the trust instrument must show certainty of intention, subject matter and object...
required for a trust to be valid. The trust instrument
Trust instrument
A trust instrument is an instrument in writing executed by a settlor used to constitute a trust...
must show certainty of intention to create a trust, certainty of what the subject matter of the trust is, and certainty of who the beneficiaries (or objects) are. Where there is uncertainty for whatever reason, the trust will fail, although the courts have developed ways around this. Constitution means that for the trust to be valid, the property must have been transferred from the settlor to the trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
s.
If property has not been transferred, the potential trustees and beneficiaries are volunteers, and an equitable maxim is that "equity will not assist a volunteer"; the courts will not look at the case. To get around this, the courts have developed exceptions to this rule for situations when the settlor has done "all that he could do", the trustees or beneficiaries have acquired the property in a different way, or where the gift was made donatio mortis causa
Donatio mortis causa
A donatio mortis causa is a gift made during the life of the donor which is conditional upon, and takes effect upon, death...
. Formality refers to the specific language or forms used when transferring property. For chattels, no formal language or documentation is needed, unless it is made as a will. For land, the transfer must be drafted in line with the Law of Property Act 1925
Law of Property Act 1925
The Law of Property Act 1925 is a statute of the United Kingdom Parliament. It forms part of an interrelated programme of legisation introduced by Lord Chancellor Lord Birkenhead between 1922 and 1925. The programme was intended to modernise the English law of real property...
and the Law of Property (Miscellaneous Provisions) Act 1989
Law of Property (Miscellaneous Provisions) Act 1989
The Law of Property Act 1989 is a United Kingdom Act of Parliament, which lays down a number of important provisions for English property law....
. When disposing of an equitable interest
Equitable interest
An equitable interest is an "interest held by virtue of an equitable title or claimed on equitable grounds, such as the interest held by a trust beneficiary." The equitable interest is a right in equity that, if violated , is subject to satisfaction...
, the Law of Property Act 1925 must also be followed; much of the case law in this area has centred around the meaning of "dispose", with many cases involving people attempting to avoid tax.
Capacity
The first requirement of an express trust is capacity; the person creating the trust must be legally capable of doing so. Generally speaking, anyone capable of holding property can form a trust, although there are exceptions. A minor cannot hold land, and therefore cannot create a trust of land; in addition, unless they are soldiers or "mariners at sea", they cannot form a valid will. Where a minor tries to create a trust, it will be held voidable, and can be repudiated by him when he reaches majority, or soon after. Where the trust is clearly of detriment to the minor, the courts may decide to take it as void; the individual, when he reaches majority, could alternately plead non est factumNon est factum
Non est factum is a doctrine in contract law that allows a signing party to escape performance of the agreement. A claim of non est factum means that the signature on the contract was signed by mistake, without knowledge of its meaning, but was not done so negligently...
if he had been too young to appreciate the nature of forming a trust. People who are considered mentally disordered (under the Mental Health Act 1983
Mental Health Act 1983
The Mental Health Act 1983 is an Act of the Parliament of the United Kingdom which applies to people in England and Wales. It covers the reception, care and treatment of mentally disordered persons, the management of their property and other related matters...
) and have a receiver appointed cannot have trusts directly enforced against them, as they no longer have control over their property. Where there is no receiver, the mentally disordered person's trust will be held void, unless it was made during a lucid period when the person was capable of understanding their actions. Corporations and statutory bodies only have the powers granted to them by their memorandum of association
Memorandum of Association
The memorandum of association of a company, often simply called the memorandum , is the document that governs the relationship between the company and the outside...
or authorising statute; if these do not authorise the creation of trusts, any such trust will be held to be ultra vires
Ultra vires
Ultra vires is a Latin phrase meaning literally "beyond the powers", although its standard legal translation and substitute is "beyond power". If an act requires legal authority and it is done with such authority, it is...
.
Three certainties
For an express trust to be valid, the trust instrumentTrust instrument
A trust instrument is an instrument in writing executed by a settlor used to constitute a trust...
must show certainty of intention, subject matter and object. Certainty of intention means that it must be clear that the settlor or testator
Testator
A testator is a person who has written and executed a last will and testament that is in effect at the time of his/her death. It is any "person who makes a will."-Related terms:...
wishes to create a trust; this is not dependant on any particular language used, and a trust can be created without the word "trust" being used, or even the settlor knowing he is creating a trust. Since the 1950s, the courts have been more willing to conclude that there was intention to create a trust, rather than hold that the trust is void. Certainty of subject matter means that it must be clear what property is part of the trust. Historically the property must have been segregated from non-trust property; more recently, the courts have drawn a line between tangible and intangible assets, holding that with intangible assets there is not always a need for segregation. Certainty of objects means that it must be clear who the beneficiaries
Beneficiary
A beneficiary in the broadest sense is a natural person or other legal entity who receives money or other benefits from a benefactor. For example: The beneficiary of a life insurance policy, is the person who receives the payment of the amount of insurance after the death of the insured...
, or objects, are. The test for determining this differs depending on the type of trust; it can be that all beneficiaries must be individually identified, or that the trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
s must be able to say with certainty, if a claimant comes before them, whether he is or is not a beneficiary.
Uncertainty comes in four categories: conceptual uncertainty, evidential uncertainty, ascertainability and administrative unworkability. Conceptual uncertainty arises when the language is unclear, which leads to the trust being declared invalid. Evidential uncertainty is where a question of fact, such as whether a claimant is a beneficiary, cannot be answered; this does not always lead to invalidity. Ascertainability is where a beneficiary cannot be found, and administrative unworkability arises when the nature of the trust is such that it cannot realistically be carried out. Trustees and the courts have developed various ways of resolving uncertainties, including the appointment of experts to work out evidential uncertainty, and giving trustees the power to decide who is or is not a beneficiary.
Constitution
The trust must then be formally constituted, by the transfer of its property to the trusteeTrustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
s. For chattels, merely handing the property to the trustees is sufficient, assuming it comes with the relevant intention to create a trust. In some circumstances, providing the intention and telling the trustees where to find the property is sufficient, as in Thomas v Times Books. Where the property is land or an equitable interest
Equitable interest
An equitable interest is an "interest held by virtue of an equitable title or claimed on equitable grounds, such as the interest held by a trust beneficiary." The equitable interest is a right in equity that, if violated , is subject to satisfaction...
in land, it must be transferred by writing in accordance with Sections 52-3 of the Law of Property Act 1925
Law of Property Act 1925
The Law of Property Act 1925 is a statute of the United Kingdom Parliament. It forms part of an interrelated programme of legisation introduced by Lord Chancellor Lord Birkenhead between 1922 and 1925. The programme was intended to modernise the English law of real property...
. When dealing with shares, the transfer is not complete until a transfer document has been completed and the company has entered the change of ownership in its books. One of the equitable maxims is that "equity will not assist a volunteer"; if someone does not have an interest in property, they cannot bring a court case. When trusts are not properly constituted, the trustees and beneficiaries have no equitable interest in the property, and so are volunteers. There are several exceptions to this maxim. The courts are willing to hear cases where the transfer was not completed, providing the intended beneficiaries or trustees have gained an interest through being made executor
Executor
An executor, in the broadest sense, is one who carries something out .-Overview:...
of the settlor's estate (the rule in Strong v Bird
Strong v Bird
Strong v Bird [1874] LR 18 Eq 315 is an English property law case. It is an exception to the maxim: Equity will not assist a volunteer.-Facts:...
), or the gift was given donatio mortis causa
Donatio mortis causa
A donatio mortis causa is a gift made during the life of the donor which is conditional upon, and takes effect upon, death...
, or where the settlor did all he could do, as in Re Rose
Re Rose
Re Rose [1952] Ch 499 is a case in English trusts law and English property law. It established that if a donor has done everything that can be expected of him to transfer legal title , but the transfer is delayed by the routine operation of the law then the gift is still effective...
, or where it would be "unconscionable" to hold the gift invalid, as in Pennington v Waine.
Formality
As a general rule, there is no requirement for particular formalities in trust instruments, they can be oral or written. The only requirement is that they show an intention to create a trust. The exceptions are where it is a transfer of land, the transfer of existing equitable interests, or where the trust is made in a will.Land
Trusts over land must comply with Section 53(1)(b) of the Law of Property Act 1925Law of Property Act 1925
The Law of Property Act 1925 is a statute of the United Kingdom Parliament. It forms part of an interrelated programme of legisation introduced by Lord Chancellor Lord Birkenhead between 1922 and 1925. The programme was intended to modernise the English law of real property...
, which provides that: This means that there must be evidence of the trust's existence should someone choose to enforce it, and does not necessarily mean it need be in existence at the trust's creation. Contracts for disposing of land, including the transfer of land into trusts, must follow the Law of Property (Miscellaneous Provisions) Act 1989
Law of Property (Miscellaneous Provisions) Act 1989
The Law of Property Act 1989 is a United Kingdom Act of Parliament, which lays down a number of important provisions for English property law....
, Section 2 of which provides that:
Equitable interests
For disposing of existing equitable interests, the Law of Property Act 1925 provides in Section 53(1)(c) that: Much of the debate in this area is over the definition of "disposition", and unsurprisingly almost all of the cases involve people trying to avoid tax. In Grey v IRC, the House of LordsJudicial functions of the House of Lords
The House of Lords, in addition to having a legislative function, historically also had a judicial function. It functioned as a court of first instance for the trials of peers, for impeachment cases, and as a court of last resort within the United Kingdom. In the latter case the House's...
gave disposition its "natural meaning", saying that it meant "a transaction whereby a beneficiary who has a beneficial interest at the beginning of the transaction no longer has it at the end of the transaction". Under the rule established in Vandervell v IRC, if the owner of a sole beneficial interest instructs his trustees to transfer the property, and this is done to transfer the beneficial interest and not simply to change the trustees, this does not fall under Section 53(1)(c) and requires no specific formalities.
Simply disclaiming a beneficial interest does not fall within Section 53(1)(c), as in Re Paradise Motor Co. Nominating somebody to receive benefits of a pension fund should the pensioner die is also not a valid disposition, as in Re Danish Bacon Co Ltd Staff Pension Fund, and neither is nominating a beneficiary under a life insurance policy, as in Gold v Hill. Where a beneficiary declares he is holding the property on behalf of another, this would be the creation of a sub-trust and not subject to specific formalities. However, under Grainge v Wilberforce, such a sub-trust will only be held to be valid if there is some difference between the trust and sub-trust, and if the trustee-beneficiary has some duties to perform.
Wills
For a will to be valid (and therefore, for a trust made in a will to be valid) it must comply with Section 9 of the Wills Act 1837Wills Act 1837
The Wills Act 1837 is an Act of the Parliament of the United Kingdom that confirms the power of every adult to dispose of their real and personal property, whether they are the outright owner or a beneficiary under a trust, by will on their death...
. This provides that no will is valid unless: