What happens if the trust is so incredibly wide that you can’t work it out?
Troublesome rider – that even if a description of the class of beneficiaries complied with the test he had laid down,
it might be
“so hopelessly wide as to not form anything like a class”, which would be administratively unworkable for the trustees (and eventually the court).
L Wilberforce gave as an example
– “all the residents of Greater London”.
Is that so very difficult to ascertain?
Ascertain how wide the field of beneficiaries are going to be.
How to deal with applying McPhail?
Re Hays Settlement Trusts [1981] Megarry V-C – a trustee should first appreciate the “width of the field” and the “size of the problem” before considering whether a grant was appropriate in individual cases
Administrative Unworkability
L Wilberforce’s obiter remark has been applied
R v District Auditor, ex parte West Yorkshire Metropolitan County Council [1986]
Lloyd LJ, said that a trust for “the inhabitants of the County of West Yorkshire” (approx 2.5 million), could be sufficiently certain, but was “quite simply unworkable”
Trust was for the inhabitants of the counties of west Yorkshire. Simply unworkable.
Council tried to settle 400,000 quid on trust.
This is a difficult case. Threatened with abolition by Mrs Thatcher’s government, W Yorks Metropolitan CC attempted to settle £400,000 on trust to spend the capital and income within 2 years
“for the purpose” of benefitting “any or all or some of the inhabitants” of W Yorks by inter alia
“1.Assisting economic development within the county
2. Providing assistance for youth, community and ethnic or other minority groups and
3. Informing interested persons or bodies of the consequences of the proposed abolition of Metropolitan CCs. “(!!!!!)
Nothing wrong with that. Court just picked on the fact that it was meant for all inhabitants of west Yorkshire. Claimed that it was unworkable.
If you put a purpose to a class of purpose or geographical location, then you’re going to be faced with difficulty.
Yet in Re Beatty [1990] Hoffman J upheld a clause requiring trustees to distribute the property “among such persons or persons . . . as they think fit”
To distribute property as you think fit makes it a discretionary trust. The class can be wider?
Capriciousness?
This will be considered in more detail later, but is interesting to note that a power cannot be declared invalid because it could be used in a capricious, i.e. non-sensible manner – Re Manisty’s Settlement [1974]
If you’ve got a power, you can either refuse to exercise it, or exercise it. There’s nothing that other appointees can do in this case.
Hazel doesn’t think that you should be allowed to exercise a power capriciously.
If you hold a power, you hold it on behalf of the beneficiaries.
Capriciousness can be used. You can make a silly decision when exercising the power.
Should the same apply to a discretionary trust?
Arguably not, because the test to decide on the validity of the trust is more stringent vis a vis the width of the class, whereas this restriction does not apply to a power.
Conditional Gifts
Arguably a method by which testamentary provisions can be saved from being invalid for lack of certainty by being construed not as a potentially invalid trust, but a series of conditional gifts
Wealthy woman wanted to give away a set of valuable paintings. Directed Executor to:
“allow any member of my family and any friends of mine who wish to do so” to purchase paintings belonging to her.
Did not have a declaration to distribute either as an exhaustive or non exhaustive trust.
Re Barlow’s Will Trusts [1979], testatrix directed her executor to
“allow any member of my family and any friends of mine who wish to do so” to purchase paintings belonging to her.
Court wanted to uphold decision of testatrix.
The court upheld the disposition because this was not a discretionary trust where trustees would have to survey the field, but merely a case of conditions attached to potential gifts.
This is not a discretionary trust as the executor does not have a duty to go looking for her family and friends.
So all that a person claiming from the executor had to show was that he/she was “family or friend”. It was not necessary that the executor should be able to rule anybody out.
Useful but problematic - the issue remains that “friends” is uncertain”.
It is not a gift to one person, but to a class.
Imagine the executors thought the testatrix had only five friends and invited them to pick the paintings.
And then five more alleged “friends” turned up, aggrieved that they had not had a choice?
If it’s an independent third party decision, it might save the trust. For example, a person can look at a person from a third party perspective and decide conclusively that a person is a Christian.
Third Party (TP) Power to Cure Uncertainty?
TPs are often given the power to decide whether or not a person falls within the class of beneficiary.
E.g. Re Tuck’s Settlement Trust [1978] – where any dispute as to whether a potential beneficiary was of the Jewish faith was to be determined by a Chief Rabbi. This validated the otherwise potentially uncertain trust.
Re Tepper’s Will Trust [1978] – the question was the validity of gifts to children “provided that they shall not marry outside the Jewish faith”. It was held that this evidential uncertainty could be cured by evidence of the faith practised by the potential beneficiaries.
But what if the settlor/testator’s intention is less clear as to the nature of the class?
Should the conceptual certainty be provided by the opinion of a TP or indeed the Trustee himself?
If there was evidence that they had gone to the synagogue, that they had practised their faith, then they can get the money.
Lot of people in this country who regard themselves as Jewish who have inherited it. Might not be practising the faith though.
Arguably if settlor/testator is happy to leave the matter in their hands, the court should uphold this intention
Gardner S. (2003) Introduction to the Law of Trusts 2nd ed Oxford: OUP
Fine if TP/Trustee is alive/agreeable? If not?
Policies behind requirement of formalities for trusts of LAND and for all disposition of subsisting equitable interests in land or other forms of wealth
•Prophylactic – a warning to the trustee or beneficiary to be careful about what they sign
Express Trust , if in land, had to be evidence in writing.
S 53 (1) (b)
Resulting or Constructive, absolutely no need to evidence this in writing.
S53 (2) LPA 1925
Why do we have this expectation to formality? Because it’s equity?
Policies behind requirement of formalities for trusts of LAND and for all disposition of subsisting equitable interests in land or other forms of wealth
If you have a beneficial interest under a trust and you want to dispose it to someone else, a disposition, it needs to be evidenced in writing?
•Prophylactic – a warning to the trustee or beneficiary to be careful about what they sign
A declaration of trust in an interest in land. Make people careful about what they sign. Prevent the chaos that happens when things go wrong.
•Encourages formal creation of rights in land and disposition of equitable interests under trusts – protects would-be buyers and sellers of legal estates against unforeseen equitable interests clogging up their title and their capacity to deal freely with it.
People who are either buying or selling land can rely on formal documents.
•Fraud avoidance –Rogue might try to get land on the cheap by fraudulently alleging a non-existent agreement to transfer him some. Avoid risk by requiring all agreements to be evidenced in writing and signed as it may be harder to forge documents than lie in court
•Easier trust administration – a clear paper record of transactions in the beneficial ownership helps trustees avoid inadvertent breaches of trust. It also assists the Inland Revenue to collect any tax payable on the transaction
•Avoidance of costly litigation about oral arrangements made years earlier about who owns the beneficial interest in land
Formalities for Inter Vivos Trusts
There is no formal requirement for a declaration of trust of personalty – i.e. wealth which is not land, such as money, shares, goods.
Formalities do not make up for the lack of certainties. Even writing it down as a trust does not make it a trust if it is does not comply with the 3 certainties. English law requires both. Certainties and formalities. Intentional to create a trust, subject matter, object. You can’t repair the damage of not having a certain class or subject matter.
Section 53(1)(b) LPA 1925
“A declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person …able to declare such trust or by his will”
any interest in land...
Very short leases, covenants etc.
Note that the declaration of trust does not have to be in writing, unlike the contract for the disposition of an interest in land, which must be – s.2 LP(MP)A 1989. So a trust which is declared but not evidenced in writing is not void, it is unenforceable.
The writing does not have to contain all the terms of the declaration of trust (again unlike s.2 LP(MP)A 1989), and it does not have to be in any particular form.
But it does have to be signed by the person declaring the trust. But, there are crucial exceptions to the requirements of formality
Express declarations of trust of anything which is not an interest in land
Under the doctrine of Rochefoucauld v Boustead even an oral declaration of a trust of land will be enforced against the trustee, to avoid the statute being used as an “instrument of fraud”. Under this doctrine there is no requirement of writing where A acquires a title in land on terms of his express oral undertaking that he will, from the moment of acquisition, hold on trust for B. From the date of the acquisition of the title A is bound to give effect to the trust, because if he were to use the absence of writing to disavow it, this would be using the statutory requirement to go back on the undertaking which enabled him to acquire the title. Maxim: Equity will not allow a statute to be used as an engine of fraud. Rowe v. Prance [1999] Wealthy business man D was having an affair with P. He bought an ocean going boat and had it registered in his own name. When the relationship ended, P claimed the beneficial interest in a share of the boat. The evidence was very limited, effectively just that D referred to “our boat”. Nevertheless, P succeeded in getting a half share Maxim: Equity is equality
Section 53(2) LPA
“This section [s.53] does not affect the creation or operation of resulting, implied or constructive trusts”
Bannister v Bannister [1948] 2 All ER 133
- an elderly woman conveyed two cottages to her brother-in-law at below market price on the oral understanding that she would live rent free in one of them.
Later, he tried to evict her. The CA held that he couldn’t, because he held the cottage on constructive trust for her, and no writing was needed to protect her interest
Hodgson v Marks [1971] Ch 892
H, another elderly woman, was persuaded by her lodger E to transfer to him her legal fee simple, on a merely oral understanding that she would remain beneficial owner.
They continued to live in the house together until E sold the house to M, a bona fide purchaser without notice, whereupon E absconded with the proceeds.
CA held that the oral agreement set up a resulting trust which bound M as an overriding interest in registered land as she was in actual occupation.
Resulting or constructive trusts of anything, including land
Nothing in writing required, just the certainties
UNFORTUNATELY
Section 53(1)(c) provides that
“A disposition of an equitable interest 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”.
So the formality requirements turn on
WHETHER the transaction you are examining is a declaration of trust, or if it is a disposition.
Disposition (of land or anything else) - the transaction has to be in writing itself, and signed, in order to be valid. A disposition not in writing is absolutely void. NB – the distinction between the creation and the disposition of an equitable interest has to be applied in the light of the fact that when property is owned legally and beneficially by A, A holds a legal interest which encompasses the equitable interest.
A does not hold separate legal and equitable titles.
So when A grants equitable title to the property to C, he is not disposing of a pre-existing subsisting equitable interest, but creating one, so the formalities which have to be complied with are in s.53(1)(a) and (b), not (c)
So, what is a DISPOSITION as opposed to declaration of trust/resulting implied or constructive trust? 1. Direct assignment or transfer by beneficial owner, A, of his interest under a trust to C –
If it is not compliant in sec 53 (1) (c), it is absolutely void.
Disposition
2. Direction by beneficial owner A to his trustee B to hold property (land or personalty) on trust for third party C
Grey v. IRC [1960]
The settlor made six settlements of nominal sums in favour of his grandchildren.
Later he transferred shares of substantial value to the trustees as his nominees (ie a bare trust) on trust for himself, with nominal stamp duty.
He then orally instructed the trustees to hold the shares on the trusts of the six settlements, telling them that he intended to divest himself of any interest in the shares.
Finally, the trustees executed a document confirming they held the shares on the trusts of the settlements and the settlor signed it.
Why this convoluted procedure?
To avoid the ad valorem stamp duty which was then payable on a transfer of shares into a settlement.
Stamp duty is only payable on documents, so if the oral directions to the trustees passed the settlor’s beneficial interest in the shares, no duty was due.
HL found that the oral directions were an attempt by the settlor to dispose of his subsisting equitable interest, and therefore had to comply with s.53(1)(c) Clearly an oral direction is not “in writing”, so the attempted transfer of the equitable interest in the shares was void under s.53(1)(c)
The equitable ownership was only transferred when the trustees made the written declaration of the trusts. So, there was a written document carrying stamp duty, and the scheme was scuppered