Page 10 of 112
Introduction 10
Simple definition of trust 10
Definitions 10
Classifying the trusts – a chart 13
Common law vs. equity – are the two bodies of law still separate? 14
Canson Enterprises Ltd. v. Boughton (SCC) 14
Possible meanings of equity 15
Equity as Fairness 15
Equity as Net Worth 15
Equity as Corrective to Law 15
Mere Equities 16
What equity means for our purposes 16
Historical Development of Trusts in England 16
Express Trusts 16
Formation 17
Capacity 17
Who has capacity? 17
Corporations and capacity to create trusts: 17
Trustees, beneficiaries, and capacity 18
Non-legally recognized entities and capacity 18
The Three Certainties 18
Knight v. Knight (The three certainties, as described above, must be satisfied for the creation of a trust) 18
Certainty of Intention 18
Introduction 18
Precatory Words like “it is my desire that” or “it is my wish that” (“Precatory Trusts”) 19
Re Walker (precatory expressions leading to an absolute gift of property) 19
Re Shamas (the finding of a precatory trust) 20
Johnson v. Farney (precatory words and the finding of an absolute gift) 20
Certainty of Subject Matter 20
Element One: The property subject to the trust obligations must be described with sufficient precision that it can be identified 21
Re Beardmore (certainty of subject matter of trust must be established at the time the trust is established) 21
Palmer v. Simmonds (the expression “the bulk of my residuary estate” is too uncertain – also, what happens when a will fails to create a trust) 21
Re Golay’s Will Trust (the expression “a reasonable sum” could be valid – court identifying quantum of trust property) 22
Note on trusts set up initially with a nominal sum with further property to come 22
Re Romaniuk (uncertainty as to what the residual would be means subject matter is uncertain) 22
Element Two: The interests of the beneficiaries in the property must also be clearly defined. 23
Boyce v. Boyce (a trust requiring the beneficiary to choose the interest, the beneficiary dies before choosing = failed trust) 23
Sprange v. Barnard (property to someone’s sole use with a remainder to someone else = failed trust) 23
Certainty of Objects 23
Exception for Charitable Purpose Trusts 23
The test for certainty of beneficiaries depends on whether the trust is a fixed interest trust or a discretionary trust 24
The test for a fixed trust (Inland Revenue Commissioners v. Broadway Cottages Trust) 24
The test for a discretionary trust (Mcphail v. Doulton) 24
Mcphail v. Doulton (for discretionary trusts, the requirement of certainty of beneficiaries is met “if it can be said with certainty that any given individual is or is not a member of the class”) 24
Conceptual uncertainty versus evidential uncertainty (Re Baden’s Deed Trusts) 25
Effect of failing to satify one or more of the three certainties 25
Underlying concerns – why are the three certainties so important? What influences findings on the three certainties? 25
Maximizing property values 25
Evidence of the Owner’s intention 26
Deliberation by the Owner 26
Reasonable expectation or reliance 26
Unjust Enrichment 26
Enforceability and Administrative Costs 26
Distributional equity 26
Constitution of Express Trusts 27
Introduction and effect of constituting a trust 27
Ways of constituting a trust 27
Note on the transfer of legal title to property 27
Constitution of a trust with equitable interests as the subject matter 27
Milroy v. Lord (The settlor must do all that he can do to effect the transfer) 28
Re Rose (If the settlor does everything he can to effect the transfer but transfer doesn’t take place until later than intended, a trust will be found) 28
Note on the settlor declaring himself to be trustee (Re Mellen) 28
Paul v. Constance (Example of a court considering whether the settlor declared himself to be trustee) 29
Watt v. Watt Estate (Canadian example involving a written statement declaring joint ownership. The court finds a declaration of trust when there is evidence corroborating an alleged intention to make a gift) 29
Reasons for the requirement of constitution of the trust 29
Allow the trustee to carry out trust obligations 30
Equity will not perfect an imperfect gift 30
Underlying concerns – why equity will not perfect an imperfect gift, but also why courts may be inclined to enforce promises 31
Courts of equity won’t assist a volunteer even if deed or consideration, but what about courts of law? 31
Fletcher v. Fletcher -- Enforcing constitution by recharacterizing the subject matter of the trust 31
A possible exception to the “no specific performance” rule – trusts regarding real property 32
Formalities 32
The English Statute of Frauds (not applicable to BC or Manitoba) as it applies to equitable interests in trusts and trusts WRT land 32
S. 4 – A contract involving land or an interest in land is unenforceable unless the contract is signed by the person against whom the contract is being enforced, or there is a memo/note identifying the contract and it is signed by the person against whom the contract is being enforced 33
S. 7 – All trusts requiring transfer of land, and declarations of trust with respect to land, must be signed by the person enabled to create the trust, or must be found in his will, otherwise they are utterly void and of none effect. 33
“Unenforceable” versus “utterly void and of no effect” 33
S. 9 – All trusts regarding equitable interests must be in writing, signed by the party, or in the party’s will, otherwise they will be utterly void and of no effect 34
Problems (and solutions) with the Statute of Frauds – The Doctrine of Part Performance 34
Problems (and solutions) with the Statute of Frauds – The Doctrine of Fraud 34
Rochefoucauld v. Boustead (application of the Doctrine of Fraud) 34
S. 59(3) of the Law and Equity Act – British Columbia’s version of the Statute of Frauds – s. 7 of the Statute of Frauds no longer applies 35
Testamentary dispositions and trusts 35
Secret trusts 36
Case law examples of Secret Trusts 37
McCormick v. Grogan (the contents of the trust obligation were not disclosed by the testator before he died. Thus, the trust obligation wasn’t communicated to the purported trustee before he died. The court held that the purported trustee was not subject to a trust obligation and got an absolute gift) 37
Boyes v. Carritt (Communication of a trust was made after the death of the testator. In this case, there is no valid secret trust. However, the purported trustee did admit he held the property on trust. The court thus held that there was no absolute gift and that there was a resulting trust in favour of the estate – the property was to be distributed to the statutory next of kin) 37
Ottaway v. Norman (Property passes to woman on secret trust. Woman changes her own will to state that property should go to others. Court finds evidence that woman was aware of secret trust obligations – woman’s executor must hold the property as constructive trustee for original beneficiaries) 37
Semi-secret trusts 37
Case law examples for semi-secret trusts 38
Blackwell v. Blackwell (communication for a semi-secret trust must be made prior to or at the time the will is made) 38
Jankowski v. Pellek (when the residue of an estate is left to an executor, there is a presumption that it is held on trust unless the executor is specifically named [i.e., to John Smith] or the particular facts state otherwise. Also, an evidentiary issue) 38
Why the distinction in legal requirements for secret and semi-secret trusts? 38
Formalities Chart (how to determine if formalities were met) 39
Legality/Public Policy 41
Illegal Trusts 41
Symes v. Hughes (generally, a settlor can get trust property back if the illegal purpose of the trust has not been carried out) 41
Re Great Britain Steamboat Company (generally, if the illegal purpose has been carried out, or if the fraud has served its purpose, the settlor cannot get the trust property back – this approach may serve as a deterrent to engaging in fraudulent activities) 41
Trusts imposing conditions that are contrary to public policy 41
Generally speaking, if it is a condition subsequent contrary to public policy, then the condition is struck out and the gift (trust) is effective without the condition. 42
If it is a condition precedent contrary to public policy, then the result depends on whether the subject matter regards personal or real property. 42
Types of conditions held contrary to public policy 42
Restraint of Marriage (“Lifetime Celibacy”) 42
Re McBain (For example, a will providing a gift to two daughters but said that gift overs would take place if either of the daughters were to marry was found to be a void condition subsequent. The gift operated without the condition.) 42
Interference with Marital Relationships 42
Gifts that have conditions which encourage divorce/separation are against public policy. 42
Re Hurshman (A gift of personal property was made to someone on the condition that she not be married to a Jew. The daughter was already married to a Jew. The condition was held to be a condition precedent, contrary to public policy, malem in prohibitum so the gift took effect without being subject to the condition) 42
Re Nurse (A gift that provided it would end if the daughter would “support or aid her husband” was held to be a void condition subsequent and thus the gift took effect without the condition) 42
Eastern Trust Co. v. McTague (a gift to housekeeper “if she is still living away from Joseph McTague” was held to be a condition subsequent contrary to public policy. Gift took effect without the condition) 43
Interference with Discharge of Parental Duties 43
Clark v. Darraugh (a gift made to an infant on condition that the gift would be lost if the child resides with his parents was a void condition subsequent – condition struck out and gift took effect without the condition) 43
Re Thorne (a gift followed with the words “this, however, is in case she does not go to live with her mother” was a void condition subsequent and the gift took effect without the condition) 43
Discriminatory Conditions 43
Leonard Foundation Case – Re Canada Trust Co. v. Ontario Human Rights Commission (example of a trust modified by cy pres power due to its discriminatory provisions) 43
The trust specified that it would pay out scholarships only to white protestants with a cap on female applicants. The court held that the trust was “in terms so at odds with today’s social values as to make its continued operation in the present form inimical to public interest.” It held the trust discriminated based on race, religion, and sex. 43
Rather than fail the trust (it was already 80 years old, having it revert back to estate would be bad) the court used its cy pres power to bring the trust into line with public policy. 44
Restraints on Alienation 44
Restraint on spendthrift trusts 44
Saunders v. Vautier rule – beneficiary with legal capacity and who is the sole beneficiary has the right to terminate the trust and call for the property. A condition prohibiting this is invalid 44
Re Baring’s Settlement Trust (The party alleging that the principal beneficiary’s interest has ended has the onus of proving that a terminating event has occurred) 44
Uncertain Conditions 44
Conditions impossible of performance 45
Flowchart Diagram – Public Policy and Interests subject to Conditions or Determinable Interests 46
Trusts That Defraud Creditors 47
Fraudulent Conveyances Act (or the equivalent in BC) 47
Fraudulent Preferences Legislation 47
The Bankruptcy and Insolvency Act 47
Rules Against Perpetuities 48
The rule against remoteness of vesting 48
Common law rule – possibility of vesting, even remote, outside perpetuity period = failed gift 49
Note on lives in being, connection to grant not required, just certainty 49
Legislative modifications to the Rule 49
Conflict of Laws issues 49
Non-charitable purpose trusts – the perpetuity rule is set at just 21 years. No lives in being allowed. Also known as the rule against perpetual duration. 50
Charitable purpose trusts – the rule against perpetual duration/rule against perpetuities does not apply. Court can use cy pres power to put funds to other uses if the original purpose does not make sense. 50
Accumulations 50
National Trust Co v. McIntyre (unaccounted for accumulated revenue doesn’t revert to residue of estate; it becomes intestate property and is disposed of according to statutes regarding intestate distributions) 51
Termination and Variation 51
Revocation 51
Early Revocation – The Rule in Saunders v. Vautier 52
Charities and the Rule 52
Three general circumstances in which the rule applies 52
Avoiding the Application of Saunders v. Vautier 53
Statutory Provisions – Manitoba and Alberta 53
Variation of Trusts 53
Judicial interpretation of the trust variation legislation 54
Finnell v. Schumacher Estate (ONCA decision. The benefit must be not just a group benefit but a benefit for every member of the class as an individual) 55
Re Kovish (BCSC decision. More lenient. One doesn’t have to show that each individual is _bound_ to be better off, just that it’s a reasonable bargain) 55
Purpose Trusts 56
Non-Charitable Purpose Trusts 56
The General Rule – void and creates a resulting trust – with a possible exception when there is a gift over 56
Reasons for non-validity 56
Re Astor’s Settlement Trusts (Beneficiary principle. Possible enforcement when there’s a gift over?) 56
Other reasons sometimes given for non-validity 56
The Exceptions to the General Rule 57
Possible enforcement – Identifiable Beneficiaries – a purpose trust that’s really one for persons 57
Re Denley’s Trusts (when the trust, though expressed as a purpose, is directly or indirectly for the benefit of an individual or individuals, the beneficiary principle doesn’t apply to void the trust) 58
Keewatin Tribal Council Inc. v. City of Thompson (possibility that a broader principle exists – if there’s someone to enforce the non-charitable purpose trust, then it is valid) 58
Statutory Reform – Recharacterizing non-charitable purpose trusts as powers 58
The Requirement of Certainty and Statutory Reform and Re Russell 59
Gifts to Unincorporated Associations 59
Methods a court may interpret a gift to an unincorporated association to save the gift 60
Re Lepinski’s Will Trusts (policy perspective: a court’s strong desire to enforce a gift to an unincorporated association when the testator’s intentions are clear and where the purposes were beneficial to the community) 60
Charitable Purpose Trusts 61
Charities and Charitable Purpose Trusts, Non-Profit and Charitable Organizations Distinguished 61